EXECUTION COPY
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ACQUISITION AGREEMENT
Among
ORTHOFIX INTERNATIONAL N.V.,
TREVOR ACQUISITION, INC.,
BREG, INC.
and
XXXXXXX X. XXXXX, AS
SHAREHOLDERS' REPRESENTATIVE
Dated as of November 20, 2003
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TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS
SECTION 1.01. Certain Definitions..............................................2
SECTION 1.02. Definitions......................................................5
SECTION 1.03. Interpretation and Rules of Construction.........................8
ARTICLE II
THE MERGER
SECTION 2.01. The Merger.......................................................8
SECTION 2.02. Effective Time; Closing..........................................8
SECTION 2.03. Effect of the Merger.............................................9
SECTION 2.04. Articles of Incorporation; Bylaws................................9
SECTION 2.05. Directors and Officers...........................................9
ARTICLE III
CONVERSION OF SECURITIES
SECTION 3.01. Conversion of Securities.........................................9
SECTION 3.02. Exchange of Certificates........................................11
SECTION 3.03. Stock Transfer Books............................................13
SECTION 3.04. Company Stock Options...........................................13
SECTION 3.05. Dissenting Shares...............................................13
SECTION 3.06. Working Capital Adjustment......................................14
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 4.01. Organization and Qualification; Subsidiaries....................15
SECTION 4.02. Articles of Incorporation and Bylaws............................16
SECTION 4.03. Capitalization..................................................16
SECTION 4.04. Corporate Authority.............................................17
SECTION 4.05. No Conflict; Required Filings and Consents......................17
SECTION 4.06. Permits; Compliance.............................................18
SECTION 4.07. Financial Statements............................................19
SECTION 4.08. Absence of Certain Changes or Events............................21
SECTION 4.09. Absence of Litigation...........................................21
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SECTION 4.10. Employee Benefit Plans..........................................22
SECTION 4.11. Labor and Employment Matters....................................24
SECTION 4.12. Property and Leases.............................................25
SECTION 4.13. Intellectual Property...........................................26
SECTION 4.14. Taxes...........................................................27
SECTION 4.15. Environmental Matters...........................................28
SECTION 4.16. Material Contracts..............................................28
SECTION 4.17. Regulatory Matters..............................................30
SECTION 4.18. Customers and Suppliers.........................................32
SECTION 4.19. Product Liability; Product Warranties...........................33
SECTION 4.20. Certain Business Practices......................................33
SECTION 4.21. Interested Party Transactions...................................33
SECTION 4.22. Insurance.......................................................34
SECTION 4.23. Inventories.....................................................34
SECTION 4.24. Foreign Trade Matters...........................................34
SECTION 4.25. Board Approval; Vote Required...................................35
SECTION 4.26. Opinion of Financial Advisor....................................35
SECTION 4.27. Brokers.........................................................35
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
SECTION 5.01. Corporate Organization..........................................36
SECTION 5.02. Deed of Incorporation and Bylaws................................36
SECTION 5.03. Authority Relative to This Agreement............................36
SECTION 5.04. No Conflict; Required Filings and Consents......................36
SECTION 5.05. No Vote Required................................................37
SECTION 5.06. Operations of Merger Sub........................................37
SECTION 5.07. Financing Arrangements..........................................37
SECTION 5.08. PFIC............................................................38
SECTION 5.09. Brokers.........................................................38
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 6.01. Conduct of Business by the Company Pending the Merger...........38
SECTION 6.02. Inventory.......................................................40
ARTICLE VII
ADDITIONAL AGREEMENTS
SECTION 7.01. Shareholder Approval............................................40
SECTION 7.02. Access to Information; Confidentiality..........................41
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SECTION 7.03. No Solicitation of Transactions.................................41
SECTION 7.04. Employee Benefits Matters.......................................42
SECTION 7.05. Directors' and Officers' Insurance; Indemnification.............43
SECTION 7.06. Notification of Certain Matters.................................43
SECTION 7.07. Further Action; Reasonable Best Efforts.........................44
SECTION 7.08. Obligations of Merger Sub.......................................44
SECTION 7.09. Public Announcements............................................44
SECTION 7.10. Expenses........................................................44
SECTION 7.11. Financing.......................................................45
SECTION 7.12. Payment of Promissory Notes and Other Amounts Due...............45
SECTION 7.13. Environmental Insurance Policy..................................46
SECTION 7.14. No Implied Representation and Warranties........................46
SECTION 7.15. Restrictions on Actions on Date of Effective Time...............46
ARTICLE VIII
TAX MATTERS
SECTION 8.01. Indemnity.......................................................46
SECTION 8.02. Returns and Payments............................................47
SECTION 8.03. Refunds.........................................................48
SECTION 8.04. Contests........................................................49
SECTION 8.05. Time of Payment.................................................50
SECTION 8.06. Cooperation and Exchange of Information.........................50
SECTION 8.07. Characterization of Payments....................................51
ARTICLE IX
CONDITIONS TO THE MERGER
SECTION 9.01. Conditions to the Obligations of Each Party.....................51
SECTION 9.02. Conditions to the Obligations of Parent and Merger Sub..........52
SECTION 9.03. Conditions to the Obligations of the Company....................54
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
SECTION 10.01. Termination....................................................55
SECTION 10.02. Effect of Termination..........................................56
SECTION 10.03. Amendment......................................................56
SECTION 10.04. Waiver.........................................................56
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ARTICLE XI
INDEMNIFICATION
SECTION 11.01. Survival of Representations and Warranties.....................57
SECTION 11.02. Indemnification by the Shareholders............................57
SECTION 11.03. Indemnification by Parent......................................58
SECTION 11.04. Indemnification Procedures.....................................59
SECTION 11.05. Shareholders' Representative...................................60
SECTION 11.06. Exclusive Remedy...............................................61
ARTICLE XII
GENERAL PROVISIONS
SECTION 12.01. Notices........................................................61
SECTION 12.02. Severability...................................................63
SECTION 12.03. Entire Agreement...............................................63
SECTION 12.04. Assignment; Binding Effect.....................................63
SECTION 12.05. Parties in Interest............................................63
SECTION 12.06. Specific Performance...........................................64
SECTION 12.07. Governing Law..................................................64
SECTION 12.08. Waiver of Jury Trial...........................................64
SECTION 12.09. Headings.......................................................64
SECTION 12.10. Incorporation of Exhibits......................................64
SECTION 12.11. No Waiver......................................................64
SECTION 12.12. Counterparts...................................................65
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ACQUISITION AGREEMENT, dated as of November 20, 2003 (this
"Agreement"), among ORTHOFIX INTERNATIONAL N.V., a company organized under the
laws of the Netherlands Antilles ("Parent"), TREVOR ACQUISITION, INC., a
Delaware corporation and an indirect wholly owned subsidiary of Parent ("Merger
Sub"), BREG, INC., a California corporation (the "Company"), and XXXXXXX X.
XXXXX, as Shareholders' Representative (as defined in Section 11.05 hereof).
WHEREAS, upon the terms and subject to the conditions of this Agreement
and in accordance with the General Corporation Law of the State of California
(the "CGCL") and the General Corporation Law of the State of Delaware (the
"DGCL"), Parent and the Company will enter into a business combination
transaction pursuant to which Merger Sub will merge with and into the Company
(the "Merger");
WHEREAS, the Board of Directors of the Company (the "Company Board")
has (i) determined that the Merger is consistent with and in furtherance of the
long-term business strategy of the Company and fair to, and in the best
interests of, the Company and its shareholders and has approved and adopted this
Agreement and approved the Merger and the other transactions contemplated by
this Agreement and (ii) has recommended the approval and adoption of this
Agreement by the shareholders of the Company;
WHEREAS, the Board of Directors of Parent (the "Parent Board") has
determined that the Merger is consistent with and in furtherance of the
long-term business strategy of Parent and fair to, and in the best interests of,
Parent and its shareholders and has approved and adopted this Agreement, the
Merger and the other transactions contemplated by this Agreement;
WHEREAS, as a condition and inducement to Parent and Merger Sub
entering into this Agreement, concurrently with the execution and delivery of
this Agreement Parent is entering into employment agreements with each of
Xxxxxxx X. Xxxxx, Xxxxxxx X. Xxxxxx, Xxxx Xxxxxx, Xxxxxxx Xxxxxxxx, Xxxxxxx
Xxxxx, Xxxxxxx Xxxxxx, Xxxxxxxx Xxxxxx, Xxxxx Xxxxxx, Xxxx Xxxxxx, Xxx Xxxxx and
Xxxxxxx Xxxxx (the "Employment Agreements"); and
WHEREAS, as a condition and inducement to Parent and Merger Sub
entering into this Agreement, concurrently with the execution and delivery of
this Agreement Parent and the shareholders of the Company set forth on Exhibit A
hereto (the "Significant Shareholders") are entering into a Voting and
Subscription Agreement (the "Voting and Subscription Agreement") substantially
in the form of Exhibit B hereto providing that, among other things, (i) the
Significant Shareholders will vote their shares of common stock, no par value,
of the Company (the "Company Common Stock") in favor of this Agreement, the
Merger and the other transactions contemplated by this Agreement, and (ii) the
Significant Shareholders will purchase from Parent, and Parent will issue to the
Significant Shareholders, immediately following the Effective Time (as defined
herein), shares of common stock, par value $0.10 per share, of Parent ("Parent
Common Stock") as set forth therein.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, Parent, Merger Sub, the Company and the Shareholders' Representative
hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Certain Definitions. For purposes of this Agreement:
"affiliate" of a specified person means a person who, directly or
indirectly through one or more intermediaries, controls, is controlled by,
or is under common control with, such specified person.
"beneficial owner", with respect to any Shares, has the meaning
ascribed to such term under Rule 13d-3(a) of the Exchange Act.
"business day" means any day on which banks are not required or
authorized to close in the City of New York.
"Code" means the Internal Revenue Code of 1986, as amended through the
date hereof.
"Company Disclosure Schedule" means the Disclosure Schedule attached
hereto, dated as of the date hereof, delivered by the Company to Parent and
Merger Sub in connection with this Agreement.
"Company Material Adverse Effect" means any event, circumstance, change
or effect that is or is reasonably likely to be materially adverse to (a)
the business, financial condition, assets, liabilities or results of
operations of the Company and the Subsidiary taken as a whole or (b) the
ability of the Company to consummate the transactions contemplated by this
Agreement; provided, however, that the foregoing clause (a) shall not
include any event, circumstance, change or effect resulting from (v) any
action taken by or under the direction of Parent, Merger Sub or any
affiliate of Parent or Merger Sub; (w) any national or international
political or social conditions, including the engagement of the United
States in hostilities, whether or not pursuant to the declaration of a
national emergency or war, or the occurrence of any military or terrorist
attack upon the United States, or any of its territories, possessions, or
diplomatic or consular offices or upon any military installation, equipment
or personnel of the United States; (x) changes in general economic
conditions or Laws that do not have a disproportionate effect (relative to
other industry participants) on the Company and the Subsidiary taken as a
whole; (y) general changes in the industries in which the Company and the
Subsidiary operate that do not have a disproportionate effect (relative to
other industry participants) on the Company and the Subsidiary taken as a
whole; or (z) the public announcement of the transactions contemplated
hereby.
"Company's Accountants" means Deloitte & Touche LLP, the Company's
independent public accountants.
"Company IP Agreements" means all (a) licenses of Intellectual Property
by the Company or the Subsidiary to any third party, (b) licenses of
Intellectual Property by any third party to the Company or the Subsidiary
and (c) agreements between the Company
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or the Subsidiary and any third party relating to the development or use of
Intellectual Property; provided, however, that "Company IP Agreements"
shall not include licenses for the use of "off-the-shelf" software that is
commercially available for less than $10,000.
"Company Licensed Intellectual Property" means all Intellectual
Property owned by any third party and licensed to the Company or the
Subsidiary for use in connection with its business.
"Company Owned Intellectual Property" means all Intellectual Property
owned by the Company or the Subsidiary and used or held for use in
connection with its business.
"control" (including the terms "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 and policies of a person, whether through the ownership of
voting securities, as trustee or executor, by contract or credit
arrangement or otherwise.
"Encumbrance" means any security interest, pledge, hypothecation,
mortgage, lien (including environmental and tax liens), charge,
encumbrance, servient easement, adverse claim, preferential arrangement or
similar restriction.
"Environmental Laws" means any United States federal, state or local or
non-United States laws relating to (a) releases or threatened releases of
Hazardous Substances or materials containing Hazardous Substances, (b) the
manufacture, handling, transport, use, treatment, storage or disposal of
Hazardous Substances or materials containing Hazardous Substances or (c)
pollution or protection of the environment or natural resources.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fully Diluted Basis" means after taking into account all outstanding
shares of Company Common Stock and assuming the exercise, conversion or
exchange of all options, warrants, convertible or exchangeable securities
and similar rights and the issuance of all shares of Company Common Stock
that the Company is obligated to issue thereunder.
"Governmental Authority" means United States federal, state, county or
local or non-United States government, governmental, regulatory or
administrative authority, agency, body, instrumentality or commission or
any court, tribunal, or judicial or arbitral body.
"Hazardous Substances" means (a) those substances and wastes defined as
hazardous or toxic in, or regulated under, the following United States
federal statutes and their state counterparts, as each may be amended from
time to time, and all regulations thereunder: the Resource Conservation and
Recovery Act, the Comprehensive Environmental Response, Compensation and
Liability Act, the Clean Water Act, the Safe Drinking Water Act, the Atomic
Energy Act, the Federal Insecticide, Fungicide, and Rodenticide Act and the
Clean Air Act, (b) petroleum and petroleum products, including crude oil
and any fractions thereof, (c) natural gas, synthetic gas, and any mixtures
thereof and (d) polychlorinated biphenyls and asbestos.
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"Intellectual Property" means United States and non-United States (a)
patents, patent applications and statutory invention registrations, (b)
trademarks, service marks, trade dress, logos, trade names, domain names,
corporate names and other source identifiers, and registrations and
applications for registration thereof, (c) copyrights, and registrations
and applications for registration thereof and (d) trade secrets or other
confidential and proprietary information.
"knowledge of the Company" or "the Company's knowledge" means the
knowledge of Xxxxxxx X. Xxxxx, Xxxxxxx X. Xxxxxx, Xxxxxxxxx Xxxxxx, Xxxxx
Xxxxxx, Xxxxxx Xxxxx, Xxxxx Xxxxx, Xxxxxxx Xxxxx, Xxx Xxxxx, Xxxxxxx Xxxxx,
Xxxx Xxxxxx, Xxxx Xxxxxx, Xxxxxxx Xxxxxx, Xxxxxxxx Xxxxxx and Xxxxxxx
Xxxxxxxx.
"Law" means United States or non-United States supranational, national,
state, provincial, municipal or local statute, law, ordinance, regulation,
rule, code, executive order, injunction, judgment, decree or other order.
"Parent Disclosure Schedule" means the Disclosure Schedule attached
hereto, dated as of the date hereof, delivered by Parent and Merger Sub to
the Company in connection with this Agreement.
"Parent Material Adverse Effect" means any event, circumstance, change
or effect that is or is reasonably likely to be materially adverse to the
business, financial condition, assets, liabilities or results of operations
of Parent and its subsidiaries taken as a whole; provided, however, that
the foregoing shall not include any event, circumstance, change or effect
resulting from (v) any action taken by or under the direction of the
Company or any affiliate of the Company; (w) any national or international
political or social conditions, including the engagement of the United
States in hostilities, whether or not pursuant to the declaration of a
national emergency or war, or the occurrence of any military or terrorist
attack upon the United States, or any of its territories, possessions, or
diplomatic or consular offices or upon any military installation, equipment
or personnel of the United States; (x) changes in general economic
conditions or Laws or changes in the securities markets in general that do
not have a disproportionate effect (relative to other industry
participants) on Parent and its subsidiaries taken as a whole, (y) general
changes in the industries in which Parent and its subsidiaries operate that
do not have a disproportionate effect (relative to other industry
participants) on Parent and its subsidiaries taken as a whole; or (z) the
public announcement of the transactions contemplated hereby.
"Payment Programs" means Medicare, TRICARE, Medicaid, Worker's
Compensation, Blue Cross/Blue Shield programs, and all other health
maintenance organizations, preferred provider organizations, health benefit
plans, health insurance plans, and other third party reimbursement and
payment programs.
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"person" means an individual, corporation, partnership, limited
partnership, limited liability company, syndicate, person (including a
"person" as defined in Section 13(d)(3) of the Exchange Act), trust,
association or entity or government, political subdivision, agency or
instrumentality of a government.
"subsidiary" or "subsidiaries" of a person means an affiliate
controlled by such person, directly or indirectly, through one or more
intermediaries.
"Subscription Agreements" means the Subscription Agreements to be
entered into by Parent and certain shareholders of the Company after the
date hereof and substantially in the form of Exhibit C hereto.
"Taxes" means any and all taxes of any kind (together with any and all
interest, penalties, additions to tax and additional amounts or charges
imposed with respect thereto) imposed by any Governmental Authority or
taxing authority, including: taxes or other charges on or with respect to
income, franchise, windfall or other profits, gross receipts, property,
sales, use, capital stock, payroll, employment, social security, workers'
compensation, unemployment compensation or net worth; taxes or other
charges in the nature of excise, withholding, ad valorem, stamp, transfer,
value-added or gains taxes; license, registration and documentation fees;
and customers' duties, tariffs and similar charges.
"Total Current Assets" means the sum of the amounts of accounts
receivable, inventory, prepaid expenses, deposits - current and other
current assets as of the end of day for which the calculation is made.
"Total Current Liabilities" means the sum of the amounts of accounts
payable, salaries & wages payable, commissions payable and accrued expenses
as of the end of the day for which the calculation is made.
"Transactions" means the Merger and the other transactions contemplated
by this Agreement, the Voting and Subscription Agreement and the
Subscription Agreements.
"Working Capital" means, as of any date, the amount equal to the amount
of Total Current Assets as of the end of the day of such date less the
amount of Total Current Liabilities as of the end of the day of such date.
For the avoidance of doubt, Working Capital shall be calculated without
regard to Taxes payable.
SECTION 1.02. Definitions. The following terms have the meaning set
forth in the Sections set forth below:
Defined Term Location of Definition
------------ ----------------------
2002 Balance Sheet................................. ss. 4.07(b)
Acquisition Documents.............................. ss. 11.01
Action............................................. ss. 4.09
Agreement.......................................... Preamble
Agreement of Merger................................ ss. 2.02
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Defined Term Location of Definition
------------ ----------------------
Anti-Kickback Statute.............................. ss. 4.17(j)
Arranger........................................... ss. 5.07
Blue Sky Laws...................................... ss. 4.05(b)
Cash Escrow Fund................................... ss. 3.02(c)
Certificate of Merger.............................. ss. 2.02
Certificates....................................... ss. 3.02(b)
CGCL............................................... Recitals
Closing............................................ ss. 2.02
Closing Cash....................................... ss. 3.01(a)
Closing Working Capital Amount..................... ss. 3.06(c)
Company............................................ Preamble
Company Board...................................... Recitals
Company Common Stock............................... Recitals
Company Expense Amount............................. ss. 7.10
Company Permits.................................... ss. 4.06
Company Stock Option Plans......................... ss. 3.04
Company Stock Options.............................. ss. 3.04
Competing Transaction.............................. ss. 7.03(b)
Confidentiality Agreement.......................... ss. 7.02(b)
Credit Agreement................................... ss. 3.01(a)
DGCL............................................... Recitals
Dissenting Shares.................................. ss. 3.05(a)
DMERC.............................................. ss. 4.17(e)
EAR................................................ ss. 4.24(a)
Effective Time..................................... ss. 2.02
Employment Agreements.............................. Recitals
Environmental Insurance Policy..................... ss. 7.13
ERISA.............................................. ss. 4.10(a)
Escrow Account..................................... ss. 3.02(c)
Escrow Agent....................................... ss. 3.02(c)
Escrow Agreement................................... ss. 3.02(c)
Estimated Closing Working Capital.................. ss. 3.06(a)
Estimated Working Capital Adjustment............... ss. 3.06(a)
Estimated Working Capital Schedule................. ss. 3.06(a)
Exchange Agent..................................... ss. 3.02(a)
Exchange Fund...................................... ss. 3.02(a)
FDA................................................ ss. 4.17(b)
Final Closing Working Capital...................... ss. 3.06(b)
Final Working Capital Schedule..................... ss. 3.06(b)
Financial Statements............................... ss. 4.07(a)
Financing.......................................... ss. 5.07
Financing Letter................................... ss. 5.07
HSR Act............................................ ss. 4.05(b)
Indemnification Agreements......................... ss. 7.05(a)
Indemnified Party.................................. ss. 11.04(a)
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Defined Term Location of Definition
------------ ----------------------
Indemnified Person................................. ss. 7.05(a)
Indemnifying Party................................. ss. 11.04(a)
Independent Accounting Firm........................ ss. 3.06(c)
Information Statement.............................. ss. 7.01(b)
Interim Financial Statements....................... ss. 4.07(a)
IRS................................................ ss. 4.10(a)
Lease Documents.................................... ss. 4.12(b)
Loss............................................... ss. 11.02(a)
Material Contracts................................. ss. 4.16(a)
Merger............................................. Recitals
Merger Consideration............................... ss. 3.01(a)
Merger Sub......................................... Preamble
Multiemployer Plan................................. ss. 4.10(b)
Multiple Employer Plan............................. ss. 4.10(b)
Net Aggregate Value................................ ss. 3.01(a)
Non - U.S. Benefit Plan............................ ss. 4.10(h)
Order.............................................. ss. 9.01(b)
Parent............................................. Preamble
Parent Board....................................... Recitals
Parent Common Stock................................ Recitals
Parent Indemnified Parties......................... ss. 11.02(a)
Per Share Escrow Amount............................ ss. 3.02(b)
Plans.............................................. ss. 4.10(a)
Representatives.................................... ss. 7.02(a)
Returns............................................ ss. 8.01(a)
September 30 Statement of Working Capital.......... ss. 3.06(b)
Shareholder........................................ ss.11.02(a)
Shareholder Indemnified Parties.................... ss.11.03(a)
Shareholders' Representative....................... ss. 11.05
Shares............................................. ss. 3.01(a)
Significant Shareholders........................... Recitals
Xxxxx Law.......................................... ss. 4.17(h)
Subsidiary......................................... ss. 4.01(b)
Surviving Corporation.............................. ss. 2.01
Target Working Capital............................. ss. 3.06(a)
Terminating Company Breach......................... ss. 10.01(e)
Terminating Parent Breach.......................... ss. 10.01(f)
Third Party Claims ................................ ss. 11.04(b)
Vista Lease........................................ ss. 9.02(p)
Voting and Subscription Agreement.................. Recitals
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SECTION 1.03. Interpretation and Rules of Construction. In this
Agreement, except to the extent otherwise provided or that the context otherwise
requires:
(a) when a reference is made in this Agreement to an Article, Section,
Exhibit or Schedule, such reference is to an Article or Section of, or an
Exhibit or Schedule to, this Agreement unless otherwise indicated;
(b) the table of contents and headings for this Agreement are for
reference purposes only and do not affect in any way the meaning or
interpretation of this Agreement;
(c) whenever the words "include," "includes" or "including" are used
in this Agreement, they are deemed to be followed by the words "without
limitation";
(d) the words "hereof," "herein" and "hereunder" and words of similar
import, when used in this Agreement, refer to this Agreement as a whole and
not to any particular provision of this Agreement;
(e) all terms defined in this Agreement have the defined meanings when
used in any certificate or other document made or delivered pursuant
hereto, unless otherwise defined therein;
(f) the definitions contained in this Agreement are applicable to the
singular as well as the plural forms of such terms;
(g) references to a person are also to its successors and permitted
assigns; and
(h) the use of "or" is not intended to be exclusive unless expressly
indicated otherwise.
ARTICLE II
THE MERGER
SECTION 2.01. The Merger. Upon the terms and subject to the conditions
set forth in Article IX, and in accordance with the CGCL and the DGCL, at the
Effective Time (as defined in Section 2.02), Merger Sub shall be merged with and
into the Company. As a result of the Merger, the separate corporate existence of
Merger Sub shall cease and the Company shall continue as the surviving
corporation of the Merger (the "Surviving Corporation").
SECTION 2.02. Effective Time; Closing. As promptly as practicable after
the satisfaction or, if permissible, waiver of the conditions set forth in
Article IX, the parties hereto shall cause the Merger to be consummated by
filing an agreement of merger (the "Agreement of Merger") with the Secretary of
State of the State of California (substantially in the form attached hereto as
Exhibit F) and a certificate of merger (the "Certificate of Merger") with the
Secretary of State of the State of Delaware, in such form as is required by, and
executed in accordance with, the relevant provisions of the CGCL and the DGCL,
respectively (the date and time upon which both such filings shall have been
completed (or such later time as may be agreed by each
8
of the parties hereto and specified in the Agreement of Merger) being the
"Effective Time"). Immediately prior to such filing of the Agreement of Merger
and Certificate of Merger, a closing (the "Closing") shall be held at the
offices of Shearman & Sterling LLP, 000 Xxxxxxxxxx Xxxxxx, Xxxxx 0000, Xxx
Xxxxxxxxx, XX 00000, or such other place as the parties shall agree, for the
purpose of confirming the satisfaction or waiver, as the case may be, of the
conditions set forth in Article IX.
SECTION 2.03. Effect of the Merger. At the Effective Time, the effect
of the Merger shall be as provided in the applicable provisions of the CGCL and
the DGCL. Without limiting the generality of the foregoing, and subject thereto,
at the Effective Time, all the property, rights, privileges, powers and
franchises of the Company and Merger Sub shall vest in the Surviving
Corporation, and all debts, liabilities, obligations, restrictions, disabilities
and duties of each of the Company and Merger Sub shall become the debts,
liabilities, obligations, restrictions, disabilities and duties of the Surviving
Corporation.
SECTION 2.04. Articles of Incorporation; Bylaws. (a) At the Effective
Time, the Articles of Incorporation of the Company, as in effect immediately
prior to the Effective Time, shall be the Articles of Incorporation of the
Surviving Corporation until thereafter amended as provided by law and such
Articles of Incorporation.
(b) Unless otherwise determined by Parent prior to the Effective Time,
at the Effective Time, the Bylaws of the Company, as in effect immediately prior
to the Effective Time, shall be the Bylaws of the Surviving Corporation until
thereafter amended as provided by law, the Articles of Incorporation of the
Surviving Corporation and such Bylaws.
SECTION 2.05. Directors and Officers. The directors of Merger Sub
immediately prior to the Effective Time shall be the initial directors of the
Surviving Corporation, each to hold office in accordance with the Articles of
Incorporation and Bylaws of the Surviving Corporation, and the officers of the
Company immediately prior to the Effective Time shall be the initial officers of
the Surviving Corporation, in each case until their respective successors are
duly elected or appointed and qualified or until their earlier death,
resignation or removal.
ARTICLE III
CONVERSION OF SECURITIES
SECTION 3.01. Conversion of Securities. At the Effective Time, by
virtue of the Merger and without any action on the part of Parent, Merger Sub,
the Company or the holders of any of the following securities:
(a) each share of Company Common Stock (all issued and outstanding
shares of Company Common Stock being hereinafter collectively referred to
as the "Shares") issued and outstanding immediately prior to the Effective
Time (other than any Shares to be canceled pursuant to Section 3.01(b) and
any Dissenting Shares (as hereinafter defined)) shall be canceled and shall
be converted automatically, subject to Section 3.02 and Section 7.12(a),
into the right to receive an amount in cash equal to the Merger
9
Consideration (as defined below), payable upon surrender, in the manner
provided in Section 3.02, of the certificate that formerly evidenced such
Share. Each share of Company Common Stock issued with respect to options to
acquire Company Common Stock that have been exercised prior to the
Effective Time shall be treated for purposes of this Agreement as issued
and outstanding prior to the Effective Time.
For purposes of this Section 3.01(a):
"Merger Consideration" means the quotient determined by dividing
the Net Aggregate Value by the number of Shares outstanding
immediately prior to the Effective Time.
"Net Aggregate Value" means $150,000,000 less (i) the sum of (A)
the aggregate amount outstanding (including accrued interest) as of
the end of the day of the Effective Time under the Credit Agreement
plus (B) the aggregate amount outstanding (including accrued interest)
as of the end of the day of the Effective Time under all promissory
notes issued by the Company plus (C) the Company Expense Amount (as
defined in Section 7.10) plus (D) $75,000 (one-half of the agreed
credit balance accounts receivable amount) plus (E) $55,000 (one-half
of the expected premium cost of the Environmental Insurance Policy),
plus (ii) the sum of (A) the aggregate amount outstanding (including
accrued interest, except for the accrued interest on the six $450,000
notes receivable from certain Breg executives) as of the end of the
day of the Effective Time under all promissory notes held by the
Company (not including the portion of any promissory note provided to
the Company in connection with the exercise of Company Stock Options
for the payment of income and employment taxes of the exercising
option holder that the Company will pay to the applicable taxing
authorities after the date of the Effective Time) plus (B) the
aggregate cash amount paid to the Company after the date of this
Agreement and prior to the end of the day of the Effective Time (other
than by providing a promissory note to the Company for the exercise of
Company Stock Options, which instead will be taken into account under
(ii)(A) hereof) in connection with the exercise of Company Stock
Options pursuant to Section 3.04 plus (C) the amount of cash held by
the Company as of the end of the day of the Effective Time (the
"Closing Cash") (not later than two business days prior to the
Effective Time, the Company shall deliver to Parent a good faith
estimate of the Closing Cash along with such supporting information as
Parent may reasonably request), and plus or minus, as the case may be,
(iii) the amount of any Estimated Working Capital Adjustment
calculated pursuant to Section 3.06(a). Any cash payment made by an
exercising option holder to exercise Company Stock Options after the
date of this Agreement and prior to the Effective Time shall be taken
into account under (ii)(B) and not (ii)(C) hereof.
"Credit Agreement" means the Credit Agreement, dated May 29,
2003, by and between U.S. Bank, N.A. and the Company, as amended.
(b) each Share owned by Merger Sub, Parent or any direct or indirect
wholly owned subsidiary of Parent or of the Company immediately prior to the
Effective Time shall be
10
canceled without any conversion thereof and no payment or distribution shall be
made with respect thereto; and
(c) each share of common stock, par value $0.001 per share, of Merger
Sub issued and outstanding immediately prior to the Effective Time shall be
converted into and exchanged for one validly issued, fully paid and
nonassessable share of common stock, par value $0.001 per share, of the
Surviving Corporation.
SECTION 3.02. Exchange of Certificates. (a) Exchange Agent. Promptly
after the Effective Time, Parent shall deposit, or shall cause to be deposited,
with a bank or trust company designated by Parent and reasonably satisfactory to
the Company (the "Exchange Agent"), for the benefit of the holders of Shares,
for exchange in accordance with this Article III through the Exchange Agent,
cash in an amount sufficient to pay the aggregate cash consideration pursuant to
Section 3.01(a) (such cash being hereinafter referred to as the "Exchange
Fund"). The Exchange Agent shall, pursuant to irrevocable instructions, deliver
the cash out of the Exchange Fund. Except as contemplated by Section 3.02(e)
hereof, the Exchange Fund shall not be used for any other purpose.
(b) Exchange Procedures. As promptly as practicable after the Effective
Time, Parent shall cause the Exchange Agent to mail to each person who was, at
the Effective Time, a holder of record of Shares entitled to receive the Merger
Consideration pursuant to Section 3.01(a): (i) a letter of transmittal (which
shall be in customary form and shall specify that delivery shall be effected,
and risk of loss and title to the certificates evidencing such Shares (the
"Certificates") shall pass, only upon proper delivery of the Certificates to the
Exchange Agent) and (ii) instructions for use in effecting the surrender of the
Certificates pursuant to such letter of transmittal.
Upon surrender to the Exchange Agent of a Certificate for cancellation
together with such letter of transmittal, duly completed and validly executed in
accordance with the instructions thereto, and such other documents as may be
required pursuant to such instructions, the holder of such Certificate shall be
entitled to receive in exchange therefore that amount of cash (rounded down to
the nearest whole cent) which such holder has the right to receive pursuant to
Section 3.01(a) in respect of the Shares formerly represented by such
Certificate in accordance with Section 3.01(a) (after taking into account all
Shares then held by such holder) less (i) the Per Share Escrow Amount (as
defined below), which represents the amount of cash that is to be placed in
escrow with respect to such Certificate in accordance with Section 3.02(c) below
and (ii) any withholding in accordance with Section 7.12(a) with respect to such
holder.
"Per Share Escrow Amount" means $12,000,000 divided by the number of
Shares outstanding immediately prior to the Effective Time.
In the event of a transfer of ownership of Shares that is not
registered in the transfer records of the Company, the proper amount of cash to
which such holder is entitled pursuant to Section 3.01(a) may be issued to a
transferee if the Certificate representing such Shares 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 3.02, each Certificate
shall be deemed at all
11
times after the Effective Time to represent only the right to receive, upon such
surrender, the cash to which such holder is entitled pursuant to Section
3.01(a).
(c) Escrow Fund. Prior to the Effective Time, Parent, the Company and
the Shareholders' Representative shall enter into an escrow agreement (the
"Escrow Agreement") with an escrow agent selected by Parent and reasonably
acceptable to the Company (the "Escrow Agent") substantially in the form of
Exhibit D hereto. Pursuant to the terms of the Escrow Agreement, at the
Effective Time, Parent shall deposit into the escrow account (the "Escrow
Account") to be held by the Escrow Agent in accordance with the Escrow Agreement
the amount of cash equal to $12,000,000 (the cash so deposited being the "Escrow
Amount"). The Escrow Amount and all interest and other amounts earned thereon
(the "Cash Escrow Fund") shall be available to compensate Parent, the Surviving
Corporation and the other Parent Indemnified Parties (as defined in Section
11.02(a)) for Losses (as defined in Section 11.02(a)) in accordance with the
indemnification obligations of the Shareholders under Article VIII and Article
XI of this Agreement and the Escrow Agreement. The portion of the Cash Escrow
Fund contributed on behalf of each holder of Company Common Stock shall be in
proportion to the number of Shares held by each such holder immediately prior to
the Effective Time. Distributions from the Escrow Account shall be governed by
the terms and conditions of the Escrow Agreement.
(d) No Further Rights in Company Common Stock. The cash issued upon
conversion of the Shares in accordance with the terms hereof shall be deemed to
have been issued in full satisfaction of all rights pertaining to such Shares.
(e) Termination of Exchange Fund. Any portion of the Exchange Fund that
remains undistributed to the holders of the Company Common Stock for six months
after the Effective Time shall be delivered to Parent, upon demand, and any
holders of the Company Common Stock who have not theretofore complied with this
Article III shall thereafter look only to Parent for cash to which they are
entitled pursuant to Section 3.01(a). Any portion of the Exchange Fund remaining
unclaimed by holders of Shares as of a date which is immediately prior to such
time as such amounts would otherwise escheat to or become property of any
government entity shall, to the extent permitted by applicable Law, become the
property of Parent free and clear of any claims or interest of any person
previously entitled thereto.
(f) No Liability. None of the Exchange Agent, Parent or the Surviving
Corporation shall be liable to any holder of Shares for any such Shares (or
dividends or distributions with respect thereto), or cash delivered to a public
official pursuant to any abandoned property, escheat or similar Law.
(g) Withholding Rights. Parent shall be entitled to deduct and withhold
from the consideration otherwise payable pursuant to this Agreement to any
holder of Shares such amounts as it is required to deduct and withhold under the
Code or any provision of state, local or foreign tax law with respect to the
making of such payment or with respect to any exercise of Company Stock Options
prior to the Effective Time to the extent that such holder has not already
provided for the payment of withholding Taxes in connection with such exercise.
To the extent that amounts are so withheld by Parent, such withheld amounts
shall be treated for all purposes of this Agreement as having been paid to the
holder of the Shares in respect of which such deduction and withholding was made
by Parent.
12
(h) Lost Certificates. If any Certificate shall have been lost, stolen
or destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and, if required by
the Surviving Corporation, the posting by such person of a bond, in such
reasonable amount and with such customary provisions as the Surviving
Corporation may direct, as indemnity against any claim that may be made against
it with respect to such Certificate, the Exchange Agent will issue in exchange
for such lost, stolen or destroyed Certificate the cash to which the holders
thereof are entitled pursuant to Section 3.01(a).
SECTION 3.03. Stock Transfer Books. At the Effective Time, the stock
transfer books of the Company shall be closed and there shall be no further
registration of transfers of Shares thereafter on the records of the Company.
From and after the Effective Time, the holders of Certificates representing
Shares outstanding immediately prior to the Effective Time shall cease to have
any rights with respect to such Shares, except as otherwise provided in this
Agreement or by Law.
SECTION 3.04. Company Stock Options. In accordance with the provisions
of the 1996 and 2000 Executive Stock Option Plans and the 1996 Sales
Organizations' Stock Option Plan (collectively, the "Company Stock Option
Plans") and any underlying stock option agreement pursuant to the plans, all
options (the "Company Stock Options") outstanding at the Effective Time under
the Company Stock Option Plans shall terminate as of the Effective Time by
virtue of the Merger and without any further action on the part of the Company
or the holder thereof, and each holder of a terminated Company Stock Option
shall not be entitled to receive any consideration for such termination. In
accordance with the provisions of the Company Stock Option Plans and any
underlying stock option agreements pursuant to the plans, the Company shall
allow each holder of any Company Stock Option to exercise prior to the Effective
Time such Company Stock Option, whether or not otherwise exercisable and whether
or not otherwise vested. The exercise of Company Stock Options may be
effectuated by the exercising option holder providing a promissory note to the
Company, in form and substance reasonably satisfactory to Parent, for the
exercise price and such option holder's applicable income and employment taxes
resulting from such exercise.
SECTION 3.05. Dissenting Shares. (a) Notwithstanding any provision of
this Agreement to the contrary and to the extent available under the CGCL,
Shares that are outstanding immediately prior to the Effective Time and that are
held by Shareholders entitled to vote on the Merger who shall have neither voted
in favor of the Merger nor consented thereto in writing and who shall have
demanded properly in writing appraisal for such Shares in accordance with the
CGCL (collectively, the "Dissenting Shares"), if any, shall not be converted
into, or represent the right to receive, the Merger Consideration. Such
Shareholders shall be entitled to receive payment of the appraised value of such
Shares held by them in accordance with the provisions of the CGCL, except that
all Dissenting Shares held by Shareholders who shall have failed to perfect or
who effectively shall have withdrawn or lost their rights to appraisal of such
Shares under the CGCL shall thereupon be deemed to have been converted into, and
to have become exchangeable for, as of the Effective Time, the right to receive
the Merger Consideration, without any interest thereon, upon surrender, in the
manner provided in Section 3.02, of the certificate or certificates that
formerly evidenced such Shares.
13
(b) The Company shall give Parent (i) prompt notice of any demands for
appraisal received by the Company, withdrawals of such demands, and any other
instruments served pursuant to the CGCL and received by the Company and (ii) the
opportunity to direct all negotiations and proceedings with respect to demands
for appraisal under the CGCL. The Company shall not, except with the prior
written consent of Parent, make any payment with respect to any demands for
appraisal or offer to settle or settle any such demands.
SECTION 3.06. Working Capital Adjustment. (a) Not later than three
business days prior to the scheduled Effective Time, the Company shall deliver
to Parent a schedule (the "Estimated Working Capital Schedule") summarizing the
Company's good faith estimate of the Total Current Assets, the Total Current
Liabilities and the resulting Working Capital of the Company and the Subsidiary
as of the end of the day of the Effective Time (such estimated Working Capital
being the "Estimated Closing Working Capital"). The Company shall prepare the
Estimated Working Capital Schedule using the same accounting policies,
methodologies, practices and assumptions as used in the preparation of the
Statement of Working Capital as of September 30, 2003 attached hereto as Exhibit
E (the "September 30 Statement of Working Capital"). The Company shall provide
Parent with such information as Parent may reasonably request to verify the
Estimated Working Capital Schedule. The Net Aggregate Value shall be adjusted
pursuant to clause (iii) of the definition of Net Aggregate Value in Section
3.01(a) either (x) upward by the amount the Estimated Closing Working Capital is
greater than $7,610,000 (the "Target Working Capital"), or (y) downward by the
amount the Estimated Closing Working Capital is less than the Target Working
Capital (such adjustment being the "Estimated Working Capital Adjustment").
(b) As promptly as practicable, and in any event within 45 days,
following the Effective Time, Parent shall deliver to the Shareholders'
Representative a schedule (the "Final Working Capital Schedule") with reasonable
supporting detail summarizing Parent's calculation of the Total Current Assets,
the Total Current Liabilities and the resulting Working Capital of the Company
and the Subsidiary as of the end of the day of the Effective Time (such Working
Capital, subject to potential adjustments in accordance with Section 3.06(c),
being the "Final Closing Working Capital"). Parent shall prepare the Final
Working Capital Schedule using the same accounting policies, methodologies,
practices and assumptions as used in the preparation of the September 30
Statement of Working Capital. Parent shall provide the Shareholders'
Representative with such information as the Shareholders' Representative may
reasonably request to verify the Final Working Capital Schedule.
(c) The Shareholders' Representative may dispute any amounts reflected
on the Final Working Capital Schedule, but only on the basis that the Final
Working Capital Schedule has not been prepared using the same accounting
policies, methodologies, practices and assumptions as used in preparing the
September 30 Statement of Working Capital; provided, however, that the
Shareholders' Representative shall have notified Parent in writing of each
disputed item, specifying the amount thereof in dispute and setting forth, in
reasonable detail, the basis for such dispute, within 30 days of Parent's
delivery of the Final Working Capital Schedule to the Shareholders'
Representative. In the event of such a dispute, the Shareholders' Representative
and Parent shall attempt to reconcile their differences, and any resolution by
them as to any disputed amounts shall be final, binding and conclusive on the
Shareholders' Representative and Parent. If the Shareholders' Representative and
Parent are unable to reach a
14
resolution with such effect within 15 days after receipt by Parent of the
Shareholders' Representative's written notice of dispute, the Shareholders'
Representative and Parent shall submit the items remaining in dispute for
resolution to an independent accounting firm of international reputation
mutually acceptable to the Shareholders' Representative and Parent (the
"Independent Accounting Firm"), which shall, within 30 days after such
submission, deliver a report to Parent and the Shareholders' Representative
setting forth the resolution of such disputed items and the adjustment, if any,
to be made to the Final Closing Working Capital, and such report shall be final,
binding and conclusive on the Shareholders' Representative and Parent. The fees
and disbursements of the Independent Accounting Firm shall be allocated between
the Shareholders' Representative and Parent in the same proportion that the
aggregate amount of such disputed items submitted to the Independent Accounting
Firm that are unsuccessfully disputed by each such party (as finally determined
by the Independent Accounting Firm) bears to the total amount of such disputed
items so submitted. In acting under this Agreement, the Independent Accounting
Firm shall be entitled to the privileges and immunities of arbitrators.
(d) If the Final Closing Working Capital is less than the Estimated
Closing Working Capital, the amount of the difference between the Estimated
Closing Working Capital and the Final Closing Working Capital shall be subject
to indemnification by the Shareholders from the Cash Escrow Fund as provided in
Section 11.02(a)(v). If the Final Closing Working Capital is greater than the
Estimated Closing Working Capital, the amount of the difference between the
Final Closing Working Capital and the Estimated Closing Working Capital shall be
paid by Parent to the Shareholders' Representative on behalf of the Shareholders
to be distributed to the Shareholders by the Shareholders' Representative in
proportion to the number of shares of Company Common Stock held by each such
Shareholder immediately prior to the Effective Time.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
As an inducement to Parent and Merger Sub to enter into this Agreement,
the Company hereby represents and warrants to Parent and Merger Sub that:
SECTION 4.01. Organization and Qualification; Subsidiaries. (a) The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the State of California and has the requisite corporate power
and authority and all necessary governmental approvals to own, lease and operate
its properties and to carry on its business as it is now being conducted. Except
as provided in Section 4.01(a) of the Company Disclosure Schedule, the Company
is duly qualified or licensed as a foreign corporation to do business, and is in
good standing, in each jurisdiction where the character of the properties owned,
leased or operated by it or the nature of its business makes such qualification
or licensing necessary, except for such failures to be so qualified or licensed
and in good standing that would not, individually or in the aggregate, prevent
or materially delay consummation of the Merger or any of the other transactions
contemplated by this Agreement or otherwise prevent or materially delay the
Company from performing its obligations under this Agreement and would not,
individually or in the aggregate, have a Company Material Adverse Effect.
15
(b) Section 4.01(b) of the Company Disclosure Schedule lists the sole
subsidiary of the Company (the "Subsidiary"), together with the jurisdiction of
incorporation of the Subsidiary, the percentage of the outstanding capital stock
or other equity interest of the Subsidiary owned by the Company and the
directors and officers of the Subsidiary. Except as disclosed in Section 4.01(b)
of the Company Disclosure Schedule, the Company does not directly or indirectly
own any equity or similar interest in, or any interest convertible into or
exchangeable or exercisable for any equity or similar interest in, any
corporation, partnership, joint venture or other business association or entity.
The Subsidiary is duly organized, validly existing and in good standing under
the laws of the jurisdiction of its organization and has the requisite power and
authority and all necessary governmental licenses, authorizations, consents and
approvals to own, lease and operate its properties and to carry on its business
as it is now being conducted. The Subsidiary is duly qualified or licensed as a
foreign corporation to do business, and is in good standing, in each
jurisdiction where the character of the properties owned, leased or operated by
it or the nature of its business makes such qualification or licensing
necessary, except for such failures to be so qualified or licensed and in good
standing that would not, individually or in the aggregate, prevent or materially
delay consummation of the Merger or any of the other transactions contemplated
by this Agreement or otherwise prevent or materially delay the Company from
performing its obligations under this Agreement and would not, individually or
in the aggregate, have a Company Material Adverse Effect.
SECTION 4.02. Articles of Incorporation and Bylaws. The Company has
heretofore furnished to Parent a complete and correct copy of the Articles of
Incorporation and the Bylaws or equivalent organizational documents, each as
amended to date, of the Company and the Subsidiary. Such Articles of
Incorporation, Bylaws or equivalent organizational documents are in full force
and effect. Neither the Company nor the Subsidiary is in violation of any of the
provisions of its Articles of Incorporation, Bylaws or equivalent organizational
documents.
SECTION 4.03. Capitalization. (a) The authorized capital stock of the
Company consists of 4,000,000 shares of Company Common Stock. As of the date
hereof, (i) 2,458,648 shares of Company Common Stock are issued and outstanding,
all of which are validly issued, fully paid and nonassessable, (ii) no shares of
Company Common Stock are held by the Subsidiary, and (iii) 233,766 shares of
Company Common Stock are reserved for future issuance pursuant to outstanding
employee stock options or stock incentive rights granted pursuant to the Company
Stock Option Plans. According to the Company's records, as of the date hereof,
the Shares are owned as set forth in Section 4.03(a) of the Company Disclosure
Schedule. Except as set forth in Section 4.03(a) of the Company Disclosure
Schedule, there are no options, warrants or other rights, agreements,
arrangements or commitments of any character to which the Company or the
Subsidiary is a party relating to the issued or unissued capital stock of the
Company or the Subsidiary or obligating the Company or the Subsidiary to issue
or sell any shares of capital stock of, or other equity interests in, the
Company or the Subsidiary. Section 4.03(a) of the Company Disclosure Schedule
sets forth the following information with respect to each Company Stock Option
outstanding as of the date of this Agreement: (i) the name and address of the
optionee; (ii) the particular plan pursuant to which such Company Stock Option
was granted; (iii) the number of shares of Company Common Stock subject to such
Company Stock Option; (iv) the exercise price of such Company Stock Option; (v)
the date on which such Company Stock Option was granted; (vi) the applicable
vesting schedule; (vii) the
16
date on which such Company Stock Option expires; and (viii) whether the
exercisability of such option will be accelerated in any way by the transactions
contemplated by this Agreement, and indicates the extent of acceleration. The
Company has made available to Parent complete and correct copies of all stock
option plans pursuant to which Company has granted such Company Stock Options
that are currently outstanding and the form of all stock option agreements
evidencing such Company Stock Options. All shares of Company Common Stock
subject to issuance as previously stated in this Section 4.03(a), upon issuance
on the terms and conditions specified in the instruments pursuant to which they
are issuable, will be duly authorized, validly issued, fully paid and
nonassessable. There are no outstanding contractual obligations of the Company
or the Subsidiary to repurchase, redeem or otherwise acquire any shares of
Company Common Stock or any capital stock or other equity interest of the
Subsidiary or to provide funds to, or make any investment (in the form of a
loan, capital contribution or otherwise) in, the Subsidiary or any other person.
Except as set forth in Section 4.03(a) of the Company Disclosure Schedule, all
outstanding shares of Company Common Stock, all outstanding Company Stock
Options, and all outstanding shares of capital stock or other equity interest of
the Subsidiary have been issued and granted in compliance with (i) all
applicable securities Laws and other applicable Laws and (ii) all requirements
set forth in applicable contracts.
(b) Except as set forth on Section 4.03(b) of the Company Disclosure
Schedule, each outstanding share of capital stock or other equity interest of
the Subsidiary is duly authorized, validly issued, fully paid and nonassessable,
and each such share or other equity interest is owned by the Company free and
clear of all security interests, liens, claims, pledges, options, rights of
first refusal, agreements, limitations on the Company's voting rights, charges
and other encumbrances of any nature whatsoever.
SECTION 4.04. Corporate Authority. The Company has all necessary
corporate power and authority to execute and deliver this Agreement, to perform
its obligations hereunder and to consummate the Merger or any of the other
transactions contemplated by this Agreement. The execution and delivery of this
Agreement by the Company and the consummation by the Company of the Merger and
the other transactions contemplated by this Agreement have been duly and validly
authorized by all necessary corporate action, and no other corporate proceedings
on the part of the Company are necessary to authorize this Agreement or to
consummate the Merger and the other transactions contemplated by this Agreement
(other than, with respect to the Merger, the approval and adoption of this
Agreement by the holders of a majority of the outstanding shares of Company
Common Stock, if and to the extent required by applicable Law, and the filing
and recordation of appropriate merger documents as required by the CGCL and the
DGCL). This Agreement has been duly and validly executed and delivered by the
Company and, assuming the due authorization, execution and delivery of this
Agreement by Parent and Merger Sub, constitutes a legal, valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms.
SECTION 4.05. No Conflict; Required Filings and Consents. (a) The
execution and delivery of this Agreement by the Company do not, and the
performance of this Agreement by the Company will not, (i) conflict with or
violate the Articles of Incorporation or Bylaws or any equivalent organizational
documents of the Company or the Subsidiary, (ii) conflict with or violate any
Law applicable to the Company or the Subsidiary or by which any property or
asset of the Company or the Subsidiary is bound or affected, or (iii) except as
set forth on Section
17
4.05(a) of the Company Disclosure Schedule, result in any breach of or
constitute a default (or an event which, with notice or lapse of time or both,
would become a default) under, or give to others any right of termination,
amendment, acceleration or cancellation of, or result in the creation of a lien
or other encumbrance on any property or asset of the Company or the Subsidiary
pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation, except, with
respect to clauses (ii) and (iii), for any such conflicts, violations, breaches,
defaults or other occurrences which would not, individually or in the aggregate,
prevent or materially delay consummation of the Merger or any of the other
transactions contemplated by this Agreement or otherwise prevent or materially
delay the Company from performing its obligations under this Agreement and would
not, individually or in the aggregate, have a Company Material Adverse Effect.
(b) Except as set forth in Section 4.05(b) of the Company Disclosure
Schedule, the execution and delivery of this Agreement by the Company do not,
and the performance of this Agreement by the Company will not, require any
consent, approval, authorization or permit of, or filing with or notification
to, any Governmental Authority, except (i) for applicable requirements, if any,
of the Exchange Act, state securities or "blue sky" laws ("Blue Sky Laws") and
state takeover laws, the pre-merger notification requirements of the
Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976, as amended (the "HSR Act")
and filing and recordation of appropriate merger documents as required by the
CGCL and the DGCL, (ii) for applicable requirements, if any, to update or give
notice of any necessary change to the foreign investment registration of the
Subsidiary and (iii) where the failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications, would not,
individually or in the aggregate, prevent or materially delay consummation of
any of the Merger or any of the other transactions contemplated by this
Agreement or otherwise prevent or materially delay the Company from performing
its obligations under this Agreement and would not, individually or in the
aggregate, have a Company Material Adverse Effect.
SECTION 4.06. Permits; Compliance. Except as set forth in Section 4.06
of the Company Disclosure Schedule, each of the Company and the Subsidiary is in
possession of all franchises, grants, authorizations, licenses, permits,
easements, variances, exceptions, consents, certificates, approvals and orders
of any Governmental Authority necessary for each of the Company or the
Subsidiary to own, lease and operate its properties or to carry on its business
as it is now being conducted (the "Company Permits"), except where the failure
to have, or the suspension or cancellation of, any of the Company Permits would
not, individually or in the aggregate, prevent or materially delay consummation
of the Merger or any of the other transactions contemplated by this Agreement or
otherwise prevent or materially delay the Company from performing its
obligations under this Agreement and would not, individually or in the
aggregate, have a Company Material Adverse Effect. The Company has not received
notice that any suspension or cancellation of any of the Company Permits is
pending and, to the knowledge of the Company, no such suspension or cancellation
is threatened, except for such suspension or cancellation of Company Permits
that would not, individually or in the aggregate, prevent or materially delay
consummation of the Merger or any of the other transactions contemplated by this
Agreement or otherwise prevent or materially delay the Company from performing
its obligations under this Agreement and would not, individually or in the
aggregate, have a Company Material Adverse Effect. Except as set forth in
Section 4.06 of the Company Disclosure Schedule, neither the Company nor the
Subsidiary is in conflict with, or in default,
18
breach or violation of, (a) any Law applicable to the Company or the Subsidiary
or by which any property or asset of the Company or the Subsidiary is bound or
affected, or (b) any note, bond, mortgage, indenture, contract, agreement,
lease, license, Company Permit, franchise or other instrument or obligation to
which the Company or the Subsidiary is a party or by which the Company or the
Subsidiary or any property or asset of the Company or the Subsidiary is bound,
except for any such conflicts, defaults, breaches or violations that would not,
individually or in the aggregate, prevent or materially delay consummation of
the Merger or any of the other transactions contemplated by this Agreement or
otherwise prevent or materially delay the Company from performing its
obligations under this Agreement and would not, individually or in the
aggregate, have a Company Material Adverse Effect. None of the Company, the
Subsidiary or their respective directors, officers, employees, independent
contractors or agents have engaged in any activities that would lead to any
material penalties of any kind against Company or the Subsidiary under Sections
1128A, 1128B or 1877 of the Social Security Act (42 U.S.C. xx.xx. 1320a-7a,
1320a-7b and 1395nn), the False Claims Act (31 U.S.C. ss. 3729 et seq.), the
False Statements Act (18 U.S.C. ss. 1001), the Program Fraud Civil Penalties Act
(31 U.S.C. ss. 3801 et seq.), the Food, Drug and Cosmetic Act (21 U.S.C. ss. 301
et. seq.) (all as amended or superseded), or the anti-fraud and abuse provisions
of the Health Insurance Portability and Accountability Act of 1996 (18 U.S.C.
ss. 1347, 18 U.S.C. ss. 669, 18 U.S.C. ss. 1035, 18 U.S.C. ss. 1518) and the
corresponding fraud and abuse, false claims and anti-self referral,
manufacturing and marketing statutes and regulations in each state or other
jurisdictions where the Company or the Subsidiary has engaged in business
operations.
SECTION 4.07. Financial Statements. (a) Section 4.07(a) of the Company
Disclosure Schedule contains true and complete copies of (i) the audited
consolidated balance sheet of the Company as of December 31, 2001 and 2002, the
related audited consolidated statements of income, shareholders' equity and cash
flows of the Company for the fiscal years then ended, together with all related
notes and schedules thereto, accompanied by the reports thereon of the Company's
Accountants (collectively referred to herein as the "Financial Statements"), the
unaudited consolidated balance sheet of the Company as of September 30, 2003 and
the related consolidated statements of income, shareholders' equity and cash
flows for the nine months then ended (collectively referred to herein as the
"Interim Financial Statements"). Except as set forth in Section 4.07(a) of the
Company Disclosure Schedule, the Financial Statements and the Interim Financial
Statements (i) were prepared in accordance with the books of account and other
financial records of the Company and the Subsidiary, (ii) present fairly in all
material respects the consolidated financial condition and results of operations
of the Company and the Subsidiary as of the dates thereof or for the periods
covered thereby, subject (in the case of the Interim Financial Statements) to
normal and recurring year-end audit adjustments that will not be material in
amount, (iii) have been prepared in accordance with U.S. GAAP applied on a basis
consistent with the past practices of the Company and the Subsidiary and (iv)
include all adjustments (consisting only of normal recurring accruals) that are
necessary to present fairly in all material respects the consolidated financial
condition of the Company and the Subsidiary and the results of the operations of
the Company and the Subsidiary as of the dates thereof or for the periods
covered thereby.
(b) Except as set forth in Section 4.07(b) of the Company Disclosure
Schedule and except as and to the extent set forth on the consolidated balance
sheet of the Company as of December 31, 2002, including the notes thereto (the
"2002 Balance Sheet"), neither the
19
Company nor the Subsidiary has any liability or obligation of any nature
(whether accrued, absolute, contingent or otherwise), except for liabilities and
obligations, incurred in the ordinary course of business consistent with past
practice since December 31, 2002, which would not, individually or in the
aggregate, prevent or materially delay consummation of the Merger or any of the
other transactions contemplated by this Agreement or otherwise prevent or
materially delay the Company from performing its obligations under this
Agreement and would not, individually or in the aggregate, have a Company
Material Adverse Effect. Section 4.07(b) of the Company Disclosure Schedule (i)
sets forth the aggregate amount outstanding under the Credit Agreement as of
September 30, 2003 or the most recent practicable date, (ii) lists all
promissory notes owed by the Company and the amount outstanding under each such
note as of as of September 30, 2003 or the most recent practicable date and
(iii) lists all promissory notes owed to the Company and the amount outstanding
under each such note as of September 30, 2003 or the most recent practicable
date.
(c) Except as set forth on Section 4.07(c) of the Company Disclosure
Schedule, the Company maintains and will continue to maintain a standard system
of accounting established and administered in accordance with U.S. GAAP. Except
as set forth on Section 4.07(c) of the Company Disclosure Schedule, the Company
and the Subsidiary maintain a system of internal accounting controls sufficient
to provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with U.S. GAAP and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization, and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences. Section 4.07(c) of the Company Disclosure Schedule
lists, and the Company has made available to Parent complete and correct copies
of, all written descriptions of, and all policies, manuals and other documents
promulgating such internal accounting controls.
(d) Since December 31, 2002, neither the Company nor the Subsidiary
nor, to the knowledge of the Company, any director, officer, employee, auditor,
accountant or representative of the Company or the Subsidiary, has received or
otherwise had or obtained knowledge of any complaint, allegation, assertion or
claim, whether written or oral, regarding the accounting or auditing practices,
procedures, methodologies or methods of the Company or the Subsidiary or their
respective internal accounting controls, including any complaint, allegation,
assertion or claim that the Company or the Subsidiary has engaged in
questionable accounting or auditing practices. No attorney representing the
Company or the Subsidiary, whether or not employed by the Company or the
Subsidiary, has reported evidence of a material violation of securities laws,
breach of fiduciary duty or similar violation by the Company or any of its
officers, directors, employees or agents to the Company Board or any committee
thereof or to any director or officer of the Company. Since December 31, 2002,
there have been no internal investigations regarding accounting or revenue
recognition discussed with, reviewed by or initiated at the direction of the
chief executive officer, chief financial officer, general counsel, the Company
Board or any committee thereof.
(e) To the knowledge of the Company, no employee of the Company or the
Subsidiary has provided or is providing information to any law enforcement
agency regarding
20
the commission or possible commission of any crime or the violation or possible
violation of any applicable Law. Neither the Company nor the Subsidiary, nor any
officer or employee or, to the knowledge of the Company, any contractor,
subcontractor or agent of the Company or the Subsidiary, has discharged,
demoted, suspended, threatened, harassed or in any other manner discriminated
against an employee of the Company or the Subsidiary in the terms and conditions
of employment because of any act of such employee described in 18 U.S.C. ss.
1514A(a).
(f) Except as set forth in Section 4.07(f) of the Company Disclosure
Schedule, all accounts receivable of the Company and the Subsidiary reflected on
the 2002 Balance Sheet or arising thereafter have arisen from bona fide
transactions in the ordinary course of business consistent with past practices
and in accordance with U.S. GAAP applied on a consistent basis and are not
subject to valid defenses, setoffs or counterclaims. Except as set forth in
Section 4.07(f) of the Company Disclosure Schedule, the Company's reserve for
contractual allowances and doubtful accounts has been calculated in a manner
consistent with past practices. Except as set forth on Section 4.07(f) of the
Company Disclosure Schedule, since the date of the 2002 Balance Sheet, neither
the Company nor the Subsidiary has modified or changed in any material respect
its sales practices or methods including, without limitation, such practices or
methods in accordance with which the Company or the Subsidiary sells goods,
fills orders or records sales.
(g) Except as set forth in Section 4.07(g) of the Company Disclosure
Schedule, all accounts payable of the Company and the Subsidiary reflected on
the 2002 Balance Sheet or arising thereafter are the result of bona fide
transactions in the ordinary course of business and have been paid or are not
yet due or payable. Since the date of the 2002 Balance Sheet, the Company and
the Subsidiary have not altered in any material respects their practices for the
payment of such accounts payable, including the timing of such payment.
SECTION 4.08. Absence of Certain Changes or Events. Since December 31,
2002, except as set forth in Section 4.08 of the Company Disclosure Schedule, or
as expressly contemplated by this Agreement, (a) the Company and the Subsidiary
have conducted their businesses only in the ordinary course and in a manner
consistent with past practice, (b) there has not been any Company Material
Adverse Effect, and (c) neither the Company nor any Subsidiary has taken any
action that, if taken after the date of this Agreement, would constitute a
breach of any of the covenants set forth in Section 6.01; provided, however,
that for purposes of this Section 4.08(c), (i) Section 6.01(b)(ii)(B) shall read
as follows: "except in the ordinary course of business and in a manner
consistent with past practice and except for the sale, pledge, disposal, grant
or encumbrance of any asset with a fair market value of less than $10,000, any
assets of the Company or the Subsidiary"; (ii) Section 6.01(b)(v)(C) shall read
as follows: "enter into any contract or agreement other than in the ordinary
course of business and consistent with past practice and except for any contract
or agreement that involved consideration of less than $10,000"; and (iii)
Section 6.01(b)(v)(D) shall read as follows: "authorize, or make any commitment
with respect to, any single capital expenditure which is in excess of $100,000
or capital expenditures which are, in the aggregate, in excess of $1,000,000 for
the Company and the Subsidiary taken as a whole."
SECTION 4.09. Absence of Litigation. Except as set forth in Section
4.09 of the Company Disclosure Schedule, there is no litigation, suit, claim,
action, arbitration, proceeding
21
or, to the knowledge of the Company, investigation (any of such matters, an
"Action") pending or, to the knowledge of the Company, threatened against the
Company or the Subsidiary, or any property or asset of the Company or the
Subsidiary, by or before any Governmental Authority. Except as set forth in
Section 4.09 of the Company Disclosure Schedule, neither the Company nor the
Subsidiary nor any material property or asset of the Company or the Subsidiary
is subject to any continuing order of, consent decree, settlement agreement or
other similar written agreement with, or, to the knowledge of the Company,
continuing investigation by, any Governmental Authority, or any order, writ,
judgment, injunction, decree, or determination of any Governmental Authority
that restricts, impedes, limits or adversely affects the business or operations
of the Company and the Subsidiary.
SECTION 4.10. Employee Benefit Plans. (a) Section 4.10(a) of the
Company Disclosure Schedule lists (i) all employee benefit plans (as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) and all bonus, stock option, stock purchase, restricted stock,
incentive, deferred compensation, retiree medical or life insurance,
supplemental retirement, severance or other benefit plans, programs or
arrangements, and all employment, termination, severance or other contracts or
agreements, including each stock option agreement pursuant to the Company Stock
Option Plans, whether legally enforceable or not, to which the Company or the
Subsidiary is a party, with respect to which the Company or the Subsidiary has
any obligation or which are maintained, contributed to or sponsored by the
Company or the Subsidiary for the benefit of any current or former employee,
officer or director of the Company or the Subsidiary, (ii) each employee benefit
plan for which the Company or the Subsidiary could incur liability under Section
4069 of ERISA in the event such plan has been or were to be terminated, (iii)
any plan in respect of which the Company or the Subsidiary could incur liability
under Section 4212(c) of ERISA, and (iv) any contracts, arrangements or
understandings between the Company or the Subsidiary and any employee of the
Company or the Subsidiary including any, without limitation, contracts,
arrangements or understandings relating in any way to a sale of the Company or
the Subsidiary (collectively, the "Plans"). Except as set forth on Section
4.10(a) of the Company Disclosure Schedule, each Plan is in writing and the
Company has furnished to Parent a true and complete copy of each Plan and has
delivered to Parent a true and complete copy of each material document, if any,
prepared in connection with each such Plan, including (i) a copy of each trust
or other funding arrangement, (ii) each summary plan description and summary of
material modifications, (iii) the most recently filed Internal Revenue Service
("IRS") Form 5500, (iv) the most recently received IRS determination letter for
each such Plan, and (v) the most recently prepared actuarial report and
financial statement in connection with each such Plan. Except as set forth in
Section 4.10(a) of the Company Disclosure Schedule, neither the Company nor the
Subsidiary has any express or implied commitment, whether legally enforceable or
not, (i) to create or incur liability with respect to or cause to exist any
other employee benefit plan, program or arrangement, (ii) to enter into any
contract or agreement to provide compensation or benefits to any individual, or
(iii) to modify, change or terminate any Plan, other than with respect to a
modification, change or termination required by ERISA or the Code.
(b) None of the Plans is a defined benefit plan subject to Title IV of
ERISA. None of the Plans is a multiemployer plan (within the meaning of Section
3(37) or 4001(a)(3) of ERISA) (a "Multiemployer Plan") or a single employer
pension plan (within the meaning of Section 4001(a)(15) of ERISA) for which the
Company or the Subsidiary could incur liability
22
under Section 4063 or 4064 of ERISA (a "Multiple Employer Plan"). Except as set
forth in Section 4.10(b) of the Company Disclosure Schedule none of the Plans
(i) provides for the payment of separation, severance, termination or
similar-type benefits to any person, (ii) obligates the Company or the
Subsidiary to pay separation, severance, termination or similar-type benefits
solely or partially as a result of any transaction contemplated by this
Agreement, or (iii) obligates the Company or the Subsidiary to make any payment
or provide any benefit as a result of a "change in control," within the meaning
of such term under Section 280G of the Code. None of the Plans provides for or
promises retiree medical, disability or life insurance benefits to any current
or former employee, officer or director of the Company or the Subsidiary except
to the extent required by applicable Law. Each of the Plans is subject only to
the Laws of the United States or a political subdivision thereof.
(c) Each Plan is now and always has been operated in all material
respects in accordance with its terms and the requirements of all applicable
Laws including ERISA and the Code. The Company and the Subsidiary have performed
all material obligations required to be performed by them under, are not in any
respect in default under or in violation of, and have no knowledge of any
default or violation by any party to, any Plan. No Action is pending or, to the
knowledge of the Company, threatened with respect to any Plan (other than claims
for benefits in the ordinary course) and no fact or event exists that could
reasonably be expected to give rise to any such Action.
(d) Except as set forth on Section 4.10(d) of the Company Disclosure
Schedule, each Plan that is intended to be qualified under Section 401(a) of the
Code or Section 401(k) of the Code (i) has timely received a favorable
determination letter from the IRS covering all of the provisions applicable to
the Plan for which determination letters are currently available that the Plan
is so qualified, (ii) may rely on an opinion letter issued to a volume submitter
plan sponsor with respect to a standardized plan adopted by the Company in
accordance with the requirements for such reliance, or (iii) is the subject of
an application for such a determination letter (or has remaining time to apply
for such a determination letter prior to the expiration of the requisite period
under applicable Treasury regulations or IRS pronouncements), and each trust
established in connection with any Plan which is intended to be exempt from
federal income taxation under Section 501(a) of the Code has received a
determination letter from the IRS that it is so exempt, and no fact or event has
occurred since the date of such letter or letters from the IRS that could
reasonably be expected to adversely affect the qualified status of any such Plan
or the exempt status of any such trust. Any trust established in connection with
any Plan which is intended to be qualified under Section 4.01(a) of the Code is
intended to be tax-exempt under Section 5.01(a) of the Code and such trust has
been operated in a manner that would not reasonably be expected to jeopardize
its tax-exempt status.
(e) There has not been any prohibited transaction (within the meaning
of Section 406 of ERISA or Section 4975 of the Code) with respect to any Plan.
Neither the Company nor the Subsidiary has incurred any liability under, arising
out of or by operation of Title IV of ERISA (other than liability for premiums
to the Pension Benefit Guaranty Corporation arising in the ordinary course),
including, without limitation, any liability in connection with (i) the
termination or reorganization of any employee benefit plan subject to Title IV
of ERISA, or (ii) the withdrawal from any Multiemployer Plan or Multiple
Employer
23
Plan, and no fact or event exists which could reasonably be expected to give
rise to any such liability.
(f) All contributions, premiums or payments required to be made with
respect to any Plan have been made on or before their due dates, except to the
extent any failure to be so paid would not be material. All such contributions
have been fully deducted for income tax purposes and no such deduction has been
challenged or disallowed by any Governmental Authority and, to the knowledge of
the Company, no fact or event exists which could reasonably be expected to give
rise to any such challenge or disallowance.
(g) All directors, officers, management employees, and technical and
professional employees of the Company and the Subsidiary are under written
obligation to the Company and the Subsidiary to maintain in confidence all
confidential or proprietary information acquired by them in the course of their
employment and to assign to the Company and the Subsidiary all inventions made
by them within the scope of their employment during such employment and for a
reasonable period thereafter.
(h) In addition to the foregoing, with respect to each Plan that is not
subject to United States law (a "Non-U.S. Benefit Plan"):
(i) all employer and employee contributions to each Non-U.S.
Benefit Plan required by Law or by the terms of such Non-U.S. Benefit Plan
have been made, or, if applicable, accrued in accordance with normal
accounting practices;
(ii) the fair market value of the assets of each funded Non-U.S.
Benefit Plan, the liability of each insurer for any Non-U.S. Benefit Plan
funded through insurance or the book reserve established for any Non-U.S.
Benefit Plan, together with any accrued contributions, is sufficient to
procure or provide for the benefits determined on any ongoing basis (actual
or contingent) accrued as of the date of this Agreement with respect to all
current and former participants under such Non-U.S. Benefit Plan according
to the actuarial assumptions and valuations most recently used to determine
employer contributions to such Non-U.S. Benefit Plan, and neither the
Merger nor any transaction contemplated by this Agreement shall cause such
assets or insurance obligations to be less than such benefit obligations;
and
(iii) each Non-U.S. Benefit Plan required to be registered has
been registered and has been maintained in good standing with applicable
regulatory authorities. Each Non-U.S. Benefit Plan is now and always has
been operated and administered in all material respects in compliance with
all applicable non-United States Laws and in accordance with the terms of
such Non-U.S. Benefit Plan.
SECTION 4.11. Labor and Employment Matters. (a) Except as set forth in
Section 4.11(a) of the Company Disclosure Schedule, (i) there are no material
disputes pending or, to the knowledge of the Company, threatened between the
Company or the Subsidiary and any of their respective employees; (ii) neither
the Company nor the Subsidiary is a party to any collective bargaining agreement
or other labor union contract applicable to persons employed by the Company or
the Subsidiary, nor, to the knowledge of the Company, are there any activities
or
24
proceedings of any labor union to organize any such employees; (iii) neither the
Company nor the Subsidiary has breached or otherwise failed to comply with any
provision of any such agreement or contract, and there are no grievances
outstanding against the Company or the Subsidiary under any such agreement or
contract; (iv) to the knowledge of the Company, there are no unfair labor
practice complaints pending against the Company or the Subsidiary before the
National Labor Relations Board or other Governmental Authority or any current
union representation questions involving employees of the Company or the
Subsidiary; and (v) there is no strike, work stoppage or lockout, or, to the
knowledge of the Company, threat thereof, by or with respect to any employees of
the Company or the Subsidiary.
(b) Except as set forth in Section 4.11(b) of the Company Disclosure
Schedule, the Company and the Subsidiary are in material compliance with all
applicable laws relating to the employment of labor, including those related to
wages, hours, collective bargaining and the payment and withholding of taxes and
other sums as required by the appropriate Governmental Authority and have
withheld and paid to the appropriate Governmental Authority or are holding for
payment not yet due to such Governmental Authority all amounts required to be
withheld from employees of the Company or the Subsidiary and are not liable for
any arrears of wages, taxes, penalties or other sums for failure to comply with
any of the foregoing. Except as set forth in Section 4.11(b) of the Company
Disclosure Schedule, the Company and the Subsidiary have paid in full to all
employees or adequately accrued in accordance with GAAP consistently applied all
wages, salaries, commissions, bonuses, benefits and other compensation due to or
on behalf of such employees and there is no claim with respect to payment of
wages, salary or overtime pay that is now pending or, to the knowledge of the
Company, has been asserted or is threatened before any Governmental Authority
with respect to any persons currently or formerly employed by the Company or any
Subsidiary. Neither the Company nor the Subsidiary is a party to, or otherwise
bound by, any consent decree with, or citation by, any Governmental Authority
relating to employees or employment practices. There is no charge or proceeding
with respect to a violation of any occupational safety or health standards that
is now pending or, to the knowledge of the Company, has been asserted or is
threatened with respect to the Company or the Subsidiary. There is no charge of
discrimination in employment or employment practices, for any reason, including
age, gender, race, religion or other legally protected category, which is now
pending or, to the knowledge of the Company, has been asserted or is threatened
before the United States Equal Employment Opportunity Commission or any other
Governmental Authority in any jurisdiction in which the Company or the
Subsidiary has employed or employ any person.
SECTION 4.12. Property and Leases. (a) Section 4.12(a) of the Company
Disclosure Schedule lists each parcel of real property formerly owned by the
Company or any Subsidiary. Neither the Company nor the Subsidiary currently owns
any real property.
(b) Section 4.12(b) of the Company Disclosure Schedule lists each
parcel of real property currently leased or subleased by the Company and the
Subsidiary, with the name of the lessor and the date of the lease, sublease,
assignment of the lease, any guaranty given or leasing commissions payable by
the Company or the Subsidiary in connection therewith and each amendment to any
of the foregoing (collectively, the "Lease Documents"). True, correct and
complete copies of all Lease Documents have been delivered to Parent. All such
current leases and subleases are in full force and effect, are valid and
effective, and there is not, under
25
any of such leases, any existing material default or event of default (or event
which, with notice or lapse of time, or both, would constitute an event of
default) by the Company or the Subsidiary or, to the knowledge of the Company,
by the other party to such lease or sublease, or person in the chain of title to
such leased premises.
(c) To the knowledge of the Company, there are no contractual or legal
restrictions that preclude or restrict the ability to use any real property
leased by the Company or the Subsidiary for the purposes for which it is
currently being used. To the knowledge of the Company, there are no material
latent defects or material adverse physical conditions affecting the real
property, and improvements thereon, leased by the Company or the Subsidiary
other than those that would not, individually or in the aggregate, prevent or
materially delay consummation of the Merger or any of the other transactions
contemplated by this Agreement or otherwise prevent or materially delay the
Company from performing its obligations under this Agreement and would not,
individually or in the aggregate, have a Company Material Adverse Effect.
(d) Each of the Company and the Subsidiary has good and valid title to,
or, in the case of leased properties and assets, valid leasehold or subleasehold
interests in, all of its properties and assets, tangible and intangible, real,
personal and mixed, used or held for use in its business, free and clear of any
Encumbrances, except as set forth on Section 4.12(d) of the Company Disclosure
Schedule and such imperfections of title, if any, that do not materially
interfere with the present value of the subject property.
SECTION 4.13. Intellectual Property. (a) Section 4.13(a) of the Company
Disclosure Schedule sets forth a true and complete list of all Company Owned
Intellectual Property (other than trade secrets and unregistered copyrights) and
Company IP Agreements.
(b) Except as set forth in Section 4.13(b) of the Company Disclosure
Schedule, (i) to the knowledge of the Company, the conduct of the business of
the Company and the Subsidiary does not infringe, misappropriate or otherwise
violate the Intellectual Property rights of any third party; (ii) no claim is
pending, has been asserted in writing to the Company or any Subsidiary or, to
the knowledge of the Company, has been threatened that alleges that the conduct
of the business of the Company or the Subsidiary infringes, misappropriates or
otherwise violates or conflicts with the Intellectual Property rights of any
third party; (iii) subject to any licenses granted by the Company or the
Subsidiary in the ordinary course of business, the Company or a Subsidiary is
the exclusive owner of the entire and unencumbered right, title and interest in
and to each item of the Company Owned Intellectual Property and is entitled to
use such material Company Owned Intellectual Property, and each item of Company
Licensed Intellectual Property in the continued operation of its business; (iv)
the Company Owned Intellectual Property and the Company Licensed Intellectual
Property include all Intellectual Property used in the ordinary conduct of the
business as currently conducted by the Company and the Subsidiary, and there are
no other items of Intellectual Property that are material to such ordinary
conduct of such business; (v) to the knowledge of the Company, the Company Owned
Intellectual Property and the Company Licensed Intellectual Property is
subsisting valid and enforceable; (vi) the Company Owned Intellectual Property
and, to the knowledge of the Company, the Company Licensed Intellectual Property
has not been adjudged invalid or unenforceable in whole or in part; (vii) to the
knowledge of the Company, no person is engaging in any activity that infringes,
misappropriates or otherwise violates the Company Owned
26
Intellectual Property or the Company Licensed Intellectual Property; (viii) no
legal or administrative proceedings are pending or, to the knowledge of the
Company, have been asserted or are threatened, against the Company or the
Subsidiary that seek to deny or restrict the use of the Company Owned
Intellectual Property or the Company Licensed Intellectual Property by the
Company or the Subsidiary; (ix) no Company Owned Intellectual Property, and to
the knowledge of the Company, no Company Licensed Intellectual Property, is
subject to any outstanding consent, settlement, decree, order, injunction,
judgment or ruling restricting the use of such Intellectual Property; (x) to the
knowledge of the Company, each Company IP Agreement is valid and enforceable, is
binding on all parties to such Company IP Agreement, and is in full force and
effect; (xi) to the knowledge of the Company, no party to any Company IP
Agreement is in material breach thereof or default thereunder; and (xii) neither
the execution of this Agreement nor the consummation of the Merger or any of the
other transactions contemplated by this Agreement shall constitute a default
under, give rise to cancellation rights under, or otherwise adversely affect any
of the material rights of the Company under any Company IP Agreement.
SECTION 4.14. Taxes. Except as set forth in Section 4.14 of the Company
Disclosure Schedule, (i) the Company and the Subsidiary have filed all United
States federal, state, local and non-United States Tax returns and reports
required to be filed by them and have paid and discharged all Taxes required to
be paid or discharged, other than such payments as are being contested in good
faith by appropriate proceedings, (ii) all such Tax returns are true, accurate
and complete in all material respects, (iii) neither the IRS nor any other
United States or non-United States taxing authority or agency is now asserting
in writing to the Company or to the Subsidiary or, to the knowledge of the
Company, threatening to assert against the Company or the Subsidiary any
deficiency or claim for any unpaid Taxes or interest thereon or penalties in
connection therewith, (iv) neither the Company nor the Subsidiary has granted
any waiver of any statute of limitations with respect to, or any extension of a
period for the assessment of, any Tax for any currently open year, (v) the
accruals and reserves for Taxes reflected in the balance sheet contained in the
Interim Financial Statements are adequate to cover all Taxes accruable through
such date (including interest and penalties, if any, thereon) in accordance with
GAAP, (vi) there are no Tax liens upon any property or assets of the Company or
the Subsidiary except liens for current Taxes not yet due, (vii) neither the
Company nor the Subsidiary has been required to include in income any adjustment
pursuant to Section 481 of the Code by reason of a voluntary change in
accounting method initiated by the Company or the Subsidiary, and the IRS has
not, in writing to the Company or to the Subsidiary, initiated or proposed any
such adjustment or change in accounting method, in either case which adjustment
or change would, individually or in the aggregate, have a Company Material
Adverse Effect, (viii) the Company and the Subsidiary are in compliance with any
applicable transfer pricing requirements with respect to any transactions with
their affiliates, (ix) neither the Company nor the Subsidiary has been a
"distributing corporation" or a "controlled corporation" in a distribution
intended to qualify under Section 355(e) of the Code within the past five years,
(x) neither the Company nor the Subsidiary is a member of any affiliated group
(within the meaning of Section 1504(a)(1) of the Code) nor has the Company or
the Subsidiary been includible in any consolidated return for any taxable period
for which the statute of limitations has not expired, (xi) neither the Company
nor the Subsidiary has been a United States real property holding corporation
within the meaning of Section 897(c)(2) of the Code during the applicable period
specified in Section 897(c)(1)(A)(ii) of the Code, (xii) neither the Company nor
the Subsidiary has any income reportable for a period
27
ending after the date of the Closing but attributable to a transaction (e.g., an
installment sale) occurring in or a change in accounting method made for a
period ending on or prior to the date of the Closing that resulted in a deferred
reporting of income from such transaction or from such change in accounting
method, and (xiii) neither the Company nor the Subsidiary is a party to any
agreement or arrangement that would result, separately or in the aggregate, in
the actual or deemed payment by the Company or the Subsidiary of any "excess
parachute payments" within the meaning of Section 280G of the Code, without
regard to Section 280G(b)(4) of the Code.
SECTION 4.15. Environmental Matters. Except as described in Section
4.15 of the Company Disclosure Schedule, (a) neither the Company nor the
Subsidiary is in violation of, or has any liability under, any Environmental Law
in any material respect; (b) none of the properties currently or formerly owned,
leased or operated by the Company or the Subsidiary (including soils and surface
and ground waters) is contaminated with any Hazardous Substance in a manner that
is in violation of Environmental Laws or could reasonably be expected to result
in material liability for the Company or the Subsidiary; (c) neither the Company
nor the Subsidiary has received a notice, demand or claim that the Company or
the Subsidiary is, and to the knowledge of the Company, neither the Company nor
the Subsidiary is, actually, potentially or allegedly liable for any site
contamination, including any off-site contamination, by Hazardous Substances in
a manner that is in violation of Environmental Laws or could reasonably be
expected to result in material liability for the Company or the Subsidiary; (d)
neither the Company nor the Subsidiary has received a notice, demand or claim
that the Company or the Subsidiary is, and to the knowledge of the Company,
neither the Company nor the Subsidiary is, actually, potentially or allegedly
liable under any Environmental Law (including pending or threatened liens), and
neither the Company nor the Subsidiary is currently liable to any identified
person for costs recoverable under any Environmental Law; (e) there is no
underground storage tank currently or formerly used by the Company or the
Subsidiary at any property leased by the Company or the Subsidiary, and there is
no underground storage tank at the Vista, California property leased by the
Company or the Subsidiary; (f) each of the Company and the Subsidiary has all
material permits, licenses and other authorizations required under any
Environmental Law; and (g) to the knowledge of the Company, all information
provided by the Company to Parent in connection with Parent's application for
the Environmental Insurance Policy is true and correct in all material respects.
SECTION 4.16. Material Contracts. (a) Subsections (i) through (x) of
Section 4.16(a) of the Company Disclosure Schedule contain a list of the
following types of contracts and agreements (whether written or oral) to which
the Company or the Subsidiary is a party (such contracts, agreements and
arrangements as are required to be set forth in Section 4.16(a) of the Company
Disclosure Schedule being the "Material Contracts"):
(i) each contract and agreement which is likely to involve
consideration of more than $100,000, in the aggregate, over the remaining
term of such contract or agreement;
(ii) all broker, distributor, dealer, manufacturer's
representative, franchise, agency, sales promotion, market research,
marketing consulting and advertising contracts and agreements to which the
Company or the Subsidiary is a party;
28
(iii) all contracts with consultants and all contracts involving
the payment of royalties or other amounts calculated based upon the
revenues or income of the Company or the Subsidiary or income or revenues
related to any product of the Company or the Subsidiary to which the
Company or the Subsidiary is a party;
(iv) all contracts and agreements evidencing indebtedness of the
Company or the Subsidiary for borrowed money of more than $20,000
(excluding credit card agreements entered into in the ordinary course of
business);
(v) all contracts and agreements between the Company and any
employee, officer or director evidencing indebtedness for borrowed money;
(vi) all contracts and agreements with any Governmental Authority
to which the Company or the Subsidiary is a party;
(vii) all contracts and agreements that limit, or purport to
limit, the ability of the Company or the Subsidiary to compete in any line
of business or with any person or entity or in any geographic area or
during any period of time;
(viii) all material contracts or arrangements that result in any
person or entity holding a power of attorney from the Company or the
Subsidiary that relates to the Company, the Subsidiary or their respective
businesses;
(ix) all contracts for employment required to be listed in
Section 4.10 of the Company Disclosure Schedule; and
(x) all other contracts and agreements, whether or not made in
the ordinary course of business, which are material to the Company or the
Subsidiary or the conduct of their respective businesses, or the absence of
which would, individually or in the aggregate, prevent or materially delay
consummation of the Merger or any of the other transactions contemplated by
this Agreement or otherwise prevent or materially delay the Company from
performing its obligations under this Agreement or would, individually or
in the aggregate, have a Company Material Adverse Effect;
provided however, that purchase orders and purchase contracts or agreements that
either (A) have an outstanding balance owed by the Company, or involve
consideration over the remaining term of the agreement, of less than $100,000,
or (B) were entered into or made in the ordinary course of business that are
terminable at will by the Company or the Subsidiary without penalty or other
obligation or liability are specifically excluded from each (i) through (x)
above.
(b) Except as would not, individually or in the aggregate, prevent or
materially delay consummation of the Merger or any of the other transactions
contemplated by this Agreement or otherwise prevent or materially delay the
Company from performing its obligations under this Agreement and would not,
individually or in the aggregate, have a Company Material Adverse Effect, (i)
each Material Contract is a legal, valid and binding obligation of the Company
or the Subsidiary, and to the knowledge of the Company, on the counterparties
thereto, and, to the knowledge of the Company, none of the Material Contracts is
in default by its terms or has been canceled by the other party, (ii) neither
the Company nor
29
the Subsidiary, nor, to the knowledge of the Company, any other party is in
breach or violation of, or default under, any Material Contract, (iii) neither
the Company nor the Subsidiary has received any claim of default under any
Material Contract, and (iv) except as set forth on Section 4.16(b) of the
Company Disclosure Schedule, neither the execution of this Agreement nor the
consummation of the Merger or any of the other transactions contemplated by this
Agreement shall constitute a default under, give rise to cancellation rights
under, or otherwise adversely affect any of the material rights of the Company
or the Subsidiary under any Material Contract. The Company has furnished or made
available to Parent true and complete copies of all Material Contracts,
including any amendments thereto.
SECTION 4.17. Regulatory Matters. (a) Except as set forth in Section
4.17(a) of the Company Disclosure Schedule, the Company and the Subsidiary have
obtained, in all countries where the Company or the Subsidiary is marketing or
has marketed its products, all material licenses, registrations, approvals,
clearances and authorizations required by Governmental Authorities in such
countries regulating the safety, effectiveness and market clearance of the
devices marketed by the Company and the Subsidiary. Except as set forth in
Section 4.17(a) of the Company Disclosure Schedule, both the Company and the
Subsidiary are in compliance in all material respects with all terms and
conditions of each license in each country in which their products are marketed,
and with all requirements pertaining to the manufacturing (including current
good manufacturing practices under the Code of Federal Regulations, Title 21,
Part 820), marketing, export, import or human research (including good
laboratory practices and clinical and non-clinical trials) of any product which
is not required to be the subject of a license. Section 4.17(a) of the Company
Disclosure Schedule lists information relating to regulation of the Company's
products in the United States, including licenses, registrations, device
listings, inspections, the Company's recalls and product actions, and the
Company's ongoing clinical studies.
(b) The Company and the Subsidiary have all such licenses,
certificates, authorizations and permits required by the United States Food and
Drug Administration (the "FDA") or any other Governmental Authority engaged in
the regulation of medical devices and orthopedic products. The Company has not
received notification of any proceeding relating to revocation or modification
of any such license, certificate, authorization or permit and is not aware of
any reason why any such license, certificate, authorization or permit would not
be renewed. All statements made by the Company in said filings and declarations
are true and accurate. Except as set forth in Section 4.17(b) of the Company
Disclosure Schedule, to the knowledge of the Company, the Company is not
currently subject to any outstanding audit, investigation, inquiry or corrective
action by the FDA.
(c) Except as set forth in Section 4.17(c) of the Company Disclosure
Schedule, since January 1, 2000 through the date of this Agreement, neither the
Company nor the Subsidiary has received or has knowledge of any written notices,
citations or decisions by any Governmental Authority that any product produced,
manufactured, marketed or distributed at any time by the Company is defective or
fails to meet any applicable standards promulgated by any such Governmental
Authority to which the Company is subject. There have been no recalls, field
notifications or seizures ordered or, to the knowledge of the Company,
threatened by the FDA or any other comparable Governmental Authority with
respect to the Company's products or any products distributed by the Company.
Further, the Company has not received any
30
warning letter, Section 305 notices from the FDA or Section 483 notices of
adverse observations (or comparable notices from such other Governmental
Authority), except as set forth in Section 4.17(c) of the Company Disclosure
Schedule. The Company has timely complied fully with its commitment to address
and correct all observations on Form 483 following the July 25, 2003-August 6,
2003 FDA inspection. The Company is not aware of any reason why the deficiencies
would not have been addressed to the FDA's satisfaction.
(d) Section 4.17(d) of the Company Disclosure Schedule lists all claims
and statements (including, but not limited to, all correspondence or
communications with Governmental Authorities, any Durable Medical Regional
Carrier ("DMERC") or other carriers) received by the Company or the Subsidiary
concerning or relating to (i) any legal proceedings before any Governmental
Authority and/or their contractors; and (ii) any pending or threatened or
concluded investigation, or civil, administrative or criminal proceeding
relating to the Company's or the Subsidiary's policies, procedures, or practices
(including, but not limited to, the marketing, distribution, and sale of the
Company's products). Except as set forth in Section 4.17(d) of the Company
Disclosure Schedule, there is no pending or concluded, or, to the knowledge of
the Company, threatened investigation, or civil, administrative or criminal
proceeding relating to the Company's, the Subsidiary's, or, to the knowledge of
the Company, any Shareholder's, participation in any Payment Program. Except as
set forth in Section 4.17(d) of the Company Disclosure Schedule, neither the
Company nor the Subsidiary is subject to, nor has been subjected to, any payment
suspension, payment off-set, pre-payment review or other utilization review by
any Payment Program. Except as set forth in Section 4.17(d) of the Company
Disclosure Schedule, no Payment Program has requested, or, to the knowledge of
the Company, threatened any recoupment, refund, or off-set from the Company or
the Subsidiary. No Payment Program has imposed a fine, penalty or other sanction
on the Company, the Subsidiary, or, to the knowledge of the Company, any
Shareholder. Neither the Company, the Subsidiary, nor, to the knowledge of the
Company, any Shareholder has been excluded from participation in any Payment
Program. The Company and the Subsidiary have properly and legally billed all
individuals, and Payment Programs as appropriate pursuant to applicable rules,
regulations and conditions of participation, for services rendered and products
provided, and have maintained all necessary documentation to support and reflect
such billing practices. No funds are now being withheld from the Company or the
Subsidiary by any Payment Program, and neither the Company nor the Subsidiary
has any reimbursement dispute with any Payment Program.
(e) Section 4.17(e) of the Company Disclosure Schedule lists all
contracts between the Company and manufacturers, wholesalers, distributors and
sales representatives related to the purchase, sale and/or distribution of
products and supplies, including, but not limited to, any agreements with health
providers or suppliers, health plans, insurers, group purchasing organizations,
hospitals, clinics, and/or managed care organizations. None of the Company nor
the Subsidiary nor any of their respective directors, officers, employees or
agents nor, to the knowledge of the Company, any Shareholder, has, directly or
indirectly: (i) made or agreed to make any contribution, payment or gift of
funds or property to, or for the private use of, any governmental official,
employee or agent where either the contribution, payment or gift or the purpose
of such contribution, payment or gift is or was illegal under the Laws of the
United States or under the Laws of any state thereof or any other jurisdiction
in which such payment, contribution or gift was made; (ii) established or
maintained any unrecorded fund or
31
asset for any purpose or made any false or artificial entries on any of its
books or records for any reason; or (iii) made or received or agreed to make or
receive any payment to any person with the intention or understanding that any
part of such payment would be used for any purpose other than that described in
the documents supporting such payment.
(f) Section 4.17(f) of the Company Disclosure Schedule lists all claims
and statements (including, but not limited to, all correspondence or
communications with governmental agencies, any DMERC, Statistical Analysis
Durable Medical Regional Carrier, or other carriers) received by the Company or
the Subsidiary or, to the knowledge of the Company, existing, concerning or
relating to any federal or state government funded health care program that
involves, relates to or alleges: (i) coverage, benefit category, medical policy,
coding, and reimbursement relating to devices manufactured by the Company; (ii)
any violation of any applicable rule, regulation, policy or requirement of any
such program or any irregularity with respect to any activity, practice or
policy of the Company or any Subsidiary; or (iii) any violation of any
applicable rule, regulation, policy or requirement of any such program or any
irregularity with respect to any claim for payment or reimbursement made by the
Company or the Subsidiary, or any payment or reimbursement paid to the Company
or the Subsidiary. Except as set forth in Section 4.17(f) of the Company
Disclosure Schedule, neither the Company nor the Subsidiary has received notice
of any violation from, or has knowledge of any claims or demands by, any
Governmental Authority, DMERC or carrier with respect to any of the activities,
practices, policies or claims of the Company or the Subsidiary or with respect
to any payments or reimbursements claimed by the Company or the Subsidiary.
Neither the Company nor the Subsidiary is currently subject to any outstanding
audit by any Governmental Authority engaged in the regulation of medical devices
or orthopedic products, DMERC or carrier.
(g) Except as set forth in Section 4.17(g) of the Company Disclosure
Schedule, the Company has not entered into any joint ventures or other
contractual relationships with physicians, hospitals, surgical centers, or
nursing facilities relating to the sale or promotion of the Company's products.
(h) There are no marketing materials, brochures and promotional
literature (including coupons) furnished by manufacturers, wholesalers and
distributors and used by the Company in connection with the sale of products and
supplies manufactured and/or distributed by the Company. The Company has not
promoted or advertised its products for a use other than the use for which the
FDA approved the product for sale and distribution. To the knowledge of the
Company, no sales representative, agent or independent contractor of the Company
has promoted any product manufactured by or distributed by the Company for a use
other than that use for which the FDA approved the product for sale and
distribution. The Company's marketing materials, brochures and promotional
literature do not unlawfully promote a product for a use other than the use for
which the FDA approved the product for sale and distribution.
SECTION 4.18. Customers and Suppliers. Section 4.18 of the Company
Disclosure Schedule sets forth a true and complete list of the top 20 customers
of the Company and the Subsidiary (based on the revenue from such customers
during the nine-month period ended September 30, 2003). None of the customers
listed in Section 4.18 of the Company Disclosure Schedule and no other customer
that accounted for more than two percent of the Company's consolidated revenues
during the nine-month period ended September 30, 2003 and
32
no material supplier of the Company and the Subsidiary has, during the
nine-month period ended September 30, 2003, (i) cancelled or otherwise
terminated any contract with the Company or any Subsidiary prior to the
expiration of the contract term, (ii) returned, or communicated to the Company a
threat to return, a substantial amount of any of the products, equipment, goods
and services purchased from the Company or the Subsidiary, or (iii) to the
knowledge of the Company, threatened, or indicated its intention, to cancel or
otherwise terminate its relationship with the Company or the Subsidiary or to
reduce substantially (other than as a result of ordinary course fluctuations in
demand) its purchase from or sale to the Company or the Subsidiary of any
products, equipment, goods or services. Neither the Company nor the Subsidiary
has (i) breached, in any material respect, any agreement with or (ii) engaged in
any fraudulent conduct with respect to any such customer or supplier of the
Company or the Subsidiary.
SECTION 4.19. Product Liability; Product Warranties. Except as set
forth on Section 4.19 of the Company Disclosure Schedule, all products and
services sold, rented, leased, provided or delivered by the Company or the
Subsidiary to customers on or prior to the Closing conform or will conform in
all material respects to applicable contractual commitments, express and implied
warranties, product and service specifications and quality standards, and, to
the knowledge of the Company, the Company has no liability for replacement or
repair thereof or other damages in connection therewith. Except as set forth on
Section 4.19 of the Company Disclosure Schedule, no product or service sold,
leased, rented, provided or delivered by the Company or the Subsidiary to
customers on or prior to the Closing is subject to any guaranty, warranty (other
than warranties imposed by law) or other indemnity beyond the applicable
standard terms and conditions of sale, rent or lease (which standard terms and
conditions have been disclosed to Parent in Section 4.19 of the Company
Disclosure Schedule). Except as set forth on Section 4.19 of the Company
Disclosure Schedule, the Company has no material liability arising out of any
injury to a person or property as a result of the ownership, possession,
provision or use of any equipment, product or service sold, rented, leased,
provided or delivered by the Company or the Subsidiary on or prior to the
Closing. All product liability claims that have been asserted against the
Company or the Subsidiary since January, 2001, and that individually seek
damages in excess of $50,000, whether covered by insurance or not and whether
litigation has resulted or not, are listed and summarized on Section 4.19 of the
Company Disclosure Schedule.
SECTION 4.20. Certain Business Practices. None of the Company, the
Subsidiary or, to the knowledge of the Company, any directors or officers,
agents or employees of the Company or the Subsidiary, has (i) used any funds for
unlawful contributions, gifts, entertainment or other unlawful expenses related
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 payment in the nature of criminal bribery.
SECTION 4.21. Interested Party Transactions. Except as set forth on
Section 4.21 of the Company Disclosure Schedule, no director, officer or other
affiliate of the Company or the Subsidiary has or has had, directly or
indirectly, (i) to the knowledge of the Company, an economic interest in any
person that has furnished or sold, or furnishes or sells, services or products
that the Company or the Subsidiary furnishes or sells, or intends to furnish or
sell; (ii) to the knowledge of the Company, an economic interest in any person
that purchases from or sells
33
or furnishes to, the Company or the Subsidiary, any goods or services; (iii) to
the knowledge of the Company, a beneficial interest in any contract or agreement
disclosed in Section 4.13 or 4.16 of the Company Disclosure Schedule; or (iv)
any contractual or other arrangement with the Company or the Subsidiary;
provided, however, that ownership of no more than one percent (1%) of the
outstanding voting stock of a publicly traded corporation shall not be deemed an
"economic interest in any person" for purposes of this Section 4.21. Except as
set forth in Section 4.21 of the Company Disclosure Schedule, the Company and
the Subsidiary have not extended or maintained credit, arranged for the
extension of credit or renewed an extension of credit in the form of a personal
loan to or for any director or executive officer (or equivalent thereof) of the
Company or the Subsidiary.
SECTION 4.22. Insurance. Section 4.22 of the Company Disclosure
Schedule lists each insurance policy maintained by either the Company or the
Subsidiary and sets forth a brief description of each such policy. With respect
to each such insurance policy: (a) to the knowledge of the Company, the policy
is legal, valid, binding and enforceable in accordance with its terms and,
except for any policy that has expired under its terms in the ordinary course,
is in full force and effect; (b) neither the Company nor the Subsidiary is in
material breach or default (including any such breach or default with respect to
the payment of premiums or the giving of notice), and no event has occurred
which, with notice or the lapse of time, would constitute such a breach or
default, or permit termination or modification, under the policy; and (c) to the
knowledge of the Company, no insurer on the policy has been declared insolvent
or placed in receivership, conservatorship or liquidation. At no time subsequent
to December 31, 2002 has the Company or the Subsidiary been denied any insurance
or indemnity bond coverage which it has requested.
SECTION 4.23. Inventories. Subject to amounts reserved therefore on the
Interim Financial Statements, the values at which inventories of the Company and
the Subsidiary are carried on the Interim Financial Statements reflect the
historical inventory valuation policy of the Company and the Subsidiary of
stating such inventories at the lower of cost (determined on the first-in,
first-out method) or market value. Except as set forth on Section 4.23 of the
Company Disclosure Schedule, the inventories of the Company and the Subsidiary
are in good and merchantable condition in all material respects, are suitable
and usable for the purposes for which they are intended and are in a condition
such that they can be sold or used in the ordinary course of the business of the
Company and the Subsidiary consistent with past practice. Except as set forth in
Section 4.23 of the Company Disclosure Schedule, the Company or the Subsidiary,
as the case may be, has good and marketable title to its inventories free and
clear of all Encumbrances. Except as reserved against by the Company (which
reserve is set forth in Section 4.23 of the Company Disclosure Schedule), the
inventories of the Company and the Subsidiary do not consist, in any material
amount, of items that are obsolete, damaged or slow-moving.
SECTION 4.24. Foreign Trade Matters. (a) The Company and the Subsidiary
are in material compliance with the U.S. Export Administration Regulations
("EAR") (Title 15 of the U.S. Code of Federal Regulations Part 730 et seq.) and
the U.S. trade embargo regulations (Title 31 of the U.S. Code of Federal
Regulations Part 500 et seq.). Neither the Company nor the Subsidiary has
exported, re-exported, sold or otherwise transferred any goods or technology
subject to the EAR in violation with the EAR or any U.S. trade embargo. There is
no charge, proceeding or, to the knowledge of the Company, governmental
investigation with respect to a
34
violation of the EAR or the U.S. trade embargo regulations that is now pending
or, to the knowledge of the Company, has been asserted or threatened with
respect to the Company or the Subsidiary. Neither the Company nor the Subsidiary
has been a party to or a beneficiary under any contract under which goods have
been sold or services provided to customers in Bahrain, Iraq, Kuwait, Jordan,
Lebanon, Libya, Oman, Qatar, Saudi Arabia, Sudan, Syria, United Arab Emirates,
or the Republic of Yemen.
(b) Except as set forth in Section 4.24(b) of the Company Disclosure
Schedule, the Company and the Subsidiary are in material compliance with all
applicable U.S. and non-U.S. customs laws and regulations, including any export
or import declaration filing, payment of customs duties, compliance with import
quotas, import registration or any other similar requirements related to the
exportation or importation of goods or services by the Company or the
Subsidiary. Section 4.24 of the Company Disclosure Schedule lists each special
import or export program in which the Company or the Subsidiary participates,
including any temporary importation, bonded warehouse, expedited customs
clearance or processing, drawback or similar program entitling the Company or
the Subsidiary to customs or tax benefits related to the importation or
exportation of its goods or services. The Company and the Subsidiary are in
material compliance with all requirements imposed under any such programs.
Except as set forth on Section 4.24(b) of the Company Disclosure Schedule, there
is no charge, proceeding or, to the knowledge of the Company, governmental
investigation with respect to a violation of any applicable U.S. or non-U.S.
customs laws and regulations that is now pending or, to the knowledge of the
Company, threatened with respect to the Company or the Subsidiary.
SECTION 4.25. Board Approval; Vote Required. (a) The Company Board, by
resolutions duly adopted by unanimous vote of those voting at a meeting duly
called and held and not subsequently rescinded or modified in any way, has duly
(i) determined that this Agreement and the Merger are fair to and in the best
interests of the Company and its shareholders, (ii) approved this Agreement and
the Merger and (iii) recommended that the shareholders of the Company approve
and adopt this Agreement and approve the Merger and directed that this Agreement
and the transactions contemplated hereby be submitted for consideration by the
Company's shareholders at a shareholders' meeting or pursuant to action to be
taken by written consent.
(b) The only vote of the holders of any class or series of capital
stock of the Company necessary to approve this Agreement, the Merger and the
other transactions contemplated by this Agreement is the affirmative vote of the
holders of a majority of the outstanding shares of Company Common Stock entitled
to vote in favor of the approval and adoption of this Agreement.
SECTION 4.26. Opinion of Financial Advisor. The Company has received
the written opinion of Antares International Partners, Inc., dated the date of
this Agreement, to the effect that, as of the date of this Agreement, the Merger
Consideration is fair, from a financial point of view, to the Company's
shareholders, a copy of which opinion will be delivered to Parent promptly after
the date of this Agreement.
SECTION 4.27. Brokers. No broker, finder or investment banker (other
than Antares International Partners, Inc.) is entitled to any brokerage,
finder's or other fee or
35
commission in connection with the Merger and other transactions contemplated by
this Agreement based upon arrangements made by or on behalf of the Company.
Prior to Closing, the Company will furnish to Parent a complete and correct copy
of all agreements between the Company and Antares International Partners, Inc.
pursuant to which such firm would be entitled to any payment relating to the
Merger and other transactions contemplated by this Agreement.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
As an inducement to the Company to enter into this Agreement, Parent
and Merger Sub hereby, jointly and severally, represent and warrant to the
Company that:
SECTION 5.01. Corporate Organization. Each of Parent and Merger Sub is
a corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation and has the requisite corporate
power and authority and all necessary governmental approvals to own, lease and
operate its properties and to carry on its business as it is now being
conducted.
SECTION 5.02. Deed of Incorporation and Bylaws. Parent has heretofore
furnished to the Company a complete and correct copy of the Deed of
Incorporation and Bylaws of Parent and the Certificate of Incorporation and
Bylaws of Merger Sub, each as amended to date. Neither Parent nor Merger Sub is
in violation of any provision of its Deed of Incorporation or Certificate of
Incorporation, as the case may be, or Bylaws and all such documents are in full
force and effect.
SECTION 5.03. Authority Relative to This Agreement. Each of Parent and
Merger Sub has all necessary corporate power and authority to execute and
deliver this Agreement, to perform its obligations hereunder and to consummate
the Merger and other transactions contemplated by this Agreement. The execution
and delivery of this Agreement by Parent and Merger Sub and the consummation by
Parent and Merger Sub of the Merger and other transactions contemplated by this
Agreement have been duly and validly authorized by all necessary corporate
action, and no other corporate proceedings on the part of Parent or Merger Sub
are necessary to authorize this Agreement or to consummate the Merger and other
transactions contemplated by this Agreement (other than, with respect to the
Merger, the filing and recordation of appropriate merger documents as required
by the CGCL and the DGCL). This Agreement has been duly and validly executed and
delivered by Parent and Merger Sub and, assuming due authorization, execution
and delivery by the Company, constitutes a legal, valid and binding obligation
of each of Parent and Merger Sub, enforceable against each of Parent and Merger
Sub in accordance with its terms.
SECTION 5.04. No Conflict; Required Filings and Consents. (a) The
execution and delivery of this Agreement by Parent and Merger Sub do not, and
the performance of this Agreement by Parent and Merger Sub will not, (i)
conflict with or violate the Deed of Incorporation, Certificate of
Incorporation, Bylaws or other organizational documents of either Parent or
Merger Sub, (ii) assuming that all consents, approvals, authorizations and other
actions described in Section 5.04(b) have been obtained and all filings and
obligations described in
36
Section 5.04(b) have been made, conflict with or violate any law, rule,
regulation, order, judgment or decree applicable to Parent or Merger Sub or by
which any property or asset of either of them is bound or affected, or (iii)
result in any breach of, or constitute a default (or an event which, 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 result in
the creation of a lien or other encumbrance on any property or asset of Parent
or Merger Sub pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which Parent or Merger Sub is a party or by which Parent or Merger Sub or any
property or asset of either of them is bound or affected, except, with respect
to clauses (ii) and (iii), for any such conflicts, violations, breaches,
defaults or other occurrences which would not, individually or in the aggregate,
prevent or materially delay consummation of the Merger or other transactions
contemplated by this Agreement or otherwise prevent or materially delay Parent
and Merger Sub from performing their obligations under this Agreement and would
not, individually or in the aggregate, have a Parent Material Adverse Effect.
(b) The execution and delivery of this Agreement by Parent and Merger
Sub do not, and the performance of this Agreement by Parent and Merger Sub will
not, require any consent, approval, authorization or permit of, or filing with
or notification to, any Governmental Authority, except (i) for applicable
requirements, if any, of the Exchange Act, Blue Sky Laws and state takeover
laws, the HSR Act, and filing and recordation of appropriate merger documents as
required by the CGCL and the DGCL, and (ii) where the failure to obtain such
consents, approvals, authorizations or permits, or to make such filings or
notifications, would not, individually or in the aggregate, prevent or
materially delay consummation of the Merger or other transactions contemplated
by this Agreement or otherwise prevent Parent or Merger Sub from performing
their material obligations under this Agreement.
SECTION 5.05. No Vote Required. No vote of the shareholders of Parent
is required by Law, Parent's Deed of Incorporation or Bylaws or otherwise in
order for Parent and Merger Sub to consummate the Merger or other transactions
contemplated by this Agreement.
SECTION 5.06. Operations of Merger Sub. Merger Sub is an indirect,
wholly owned subsidiary of Parent, was formed solely for the purpose of engaging
in the transactions contemplated by this Agreement, has engaged in no other
business activities and has conducted its operations only as contemplated by
this Agreement.
SECTION 5.07. Financing Arrangements. Parent or a subsidiary of Parent
has received and executed a commitment letter (the "Financing Letter") dated as
of November 10, 2003 from Wachovia Capital Markets, LLC (together with its
affiliates, the "Arranger"), pursuant to which the Arranger, among other things,
commits to provide up to $125,000,000 to Parent or a subsidiary of Parent for
use in financing, in part, the cash consideration necessary to consummate the
Merger, to pay related fees and expenses, and for general corporate purposes of
Parent and its subsidiaries, in each case, subject to the terms and conditions
specified therein. A true, complete and fully executed copy of the Financing
Letter has been furnished to the Company Board. The Financing Letter is in full
force and effect and has not been amended or modified in any respect and all
commitment fees required to be paid thereunder have been paid in full or will be
duly paid in full when due. Assuming the accuracy of the representations and
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warranties of the Company contained in Article IV of this Agreement and
compliance by the Company with the covenants set forth in Section 6.01 and
compliance by the Significant Shareholders with the Voting and Subscription
Agreement, the aggregate proceeds of the financings contemplated by the
Financing Letter, when taken together with the available cash of Parent and the
Company and the Subsidiary, are sufficient to pay the aggregate cash
consideration for the Shares pursuant to Article III, to retire any indebtedness
of the Company and the Subsidiary that may become due as a result of the
transactions contemplated by this Agreement, to pay all related fees and
expenses and to provide additional financing for future working capital and
general corporate needs of Parent, the Surviving Corporation and their
respective subsidiaries (such financing, the "Financing").
SECTION 5.08. PFIC. Parent is not a "passive foreign investment
company" within the meaning of Section 1297(a) of the Code.
SECTION 5.09. Brokers. No broker, finder or investment banker (other
than Wachovia Securities) is entitled to any brokerage, finder's or other fee or
commission in connection with the Merger and other transactions contemplated by
this Agreement based upon arrangements made by or on behalf of Parent or Merger
Sub.
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 6.01. Conduct of Business by the Company Pending the Merger.
(a) The Company agrees that, between the date of this Agreement and the
Effective Time, except as set forth in Section 6.01 of the Company Disclosure
Schedule, unless Parent shall otherwise consent in writing:
(i) the businesses of the Company and the Subsidiary shall be
conducted only in, and the Company and the Subsidiary shall not take any
action except in, the ordinary course of business and in a manner
consistent with past practice; and
(ii) the Company shall use its reasonable best efforts to
preserve substantially intact the business organization of the Company and
the Subsidiary, to keep available the services of the current officers,
employees and consultants of the Company and the Subsidiary and to preserve
the current relationships of the Company and the Subsidiary with customers,
suppliers and other persons with which the Company or the Subsidiary has
significant business relations.
(b) By way of amplification and not limitation, except as expressly
contemplated by any other provision of this Agreement or as set forth in Section
6.01 of the Company Disclosure Schedule, neither the Company nor the Subsidiary
shall, between the date of this Agreement and the Effective Time, directly or
indirectly, do, or propose to do, any of the following without the prior written
consent of Parent:
(i) amend or otherwise change its Articles of Incorporation or
Bylaws or equivalent organizational documents;
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(ii) issue, sell, pledge, dispose of, grant or encumber, or
authorize the issuance, sale, pledge, disposition, grant or encumbrance of,
(A) any shares of any class of capital stock of the Company or the
Subsidiary, or any options, warrants, convertible securities or other
rights of any kind to acquire any shares of such capital stock, or any
other ownership interest (including any phantom interest), of the Company
or the Subsidiary (except for the issuance of up to a maximum of 233,766
Shares issuable pursuant to employee stock options outstanding on the date
hereof) or (B) except in the ordinary course of business and in a manner
consistent with past practice, any assets of the Company or the Subsidiary;
(iii) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with respect
to any of its capital stock;
(iv) reclassify, combine, split, subdivide or redeem, or purchase
or otherwise acquire, directly or indirectly, any of its capital stock;
(v) (A) acquire (including by merger, consolidation, or
acquisition of stock or assets or any other business combination) any
corporation, partnership, other business organization or any division
thereof or any significant amount of assets; (B) except for borrowings and
repayments under the Credit Agreement, incur or repay any indebtedness for
borrowed money or issue any debt securities or assume, guarantee or
endorse, or otherwise become responsible for, the obligations of any
person, or make any loans or advances, or grant any security interest in
any of its assets; (C) enter into any contract or agreement other than in
the ordinary course of business and consistent with past practice; (D)
authorize, or make any commitment with respect to, any single capital
expenditure which is in excess of $50,000 or capital expenditures which
are, in the aggregate, in excess of $500,000 for the Company and the
Subsidiary taken as a whole; or (E) enter into or amend any contract,
agreement, commitment or arrangement with respect to any matter set forth
in this Section 6.01(b)(v);
(vi) (A) hire any additional executive level employees or
increase the compensation payable or to become payable or the benefits
provided to its directors, officers or employees, except for increases in
the ordinary course of business and consistent with past practice in
salaries or wages of employees of the Company or the Subsidiary who are not
directors or officers of the Company, (B) grant any rights to severance or
termination pay to, or enter into any employment or severance agreement
with, any director, officer or other employee of the Company or of the
Subsidiary, or (C) establish, adopt, enter into or amend any collective
bargaining, bonus, profit-sharing, thrift, compensation, stock option,
restricted stock, pension, retirement, deferred compensation, employment,
termination, severance or other plan, agreement, trust, fund, policy or
arrangement for the benefit of any director, officer or employee;
(vii) take any action, other than reasonable and usual actions in
the ordinary course of business and consistent with past practice, with
respect to accounting policies or procedures;
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(viii) make any tax election or settle or compromise any United
States federal, state, local or non-United States income tax liability;
(ix) (A) alter its collection or payment practices or (B) pay,
discharge or satisfy any claim, liability or obligation (absolute, accrued,
asserted or unasserted, contingent or otherwise), other than the payment,
discharge or satisfaction, in the ordinary course of business and
consistent with past practice, of liabilities reflected or reserved against
in the 2002 Balance Sheet or subsequently incurred in the ordinary course
of business and consistent with past practice;
(x) amend, modify or consent to the termination of any Material
Contract, or amend, waive, modify or consent to the termination of the
Company's or the Subsidiary's rights thereunder;
(xi) commence or settle any Action; or
(xii) announce an intention, enter into any formal or informal
agreement or otherwise make a commitment to do any of the foregoing.
SECTION 6.02. Inventory. The Company agrees that, between the date of
this Agreement and the Effective Time, the Company will conduct, to the level
and of the items agreed upon between Parent and the Company prior to the date of
this Agreement, a physical count of inventory as of the close of business of a
date not later than the third business day prior to the Effective Time.
ARTICLE VII
ADDITIONAL AGREEMENTS
SECTION 7.01. Shareholder Approval. (a) If not completed prior to the
execution of this Agreement, as promptly as practicable after, and in any event
within five business days after, the date of this Agreement, the Company shall
submit this Agreement and the transactions contemplated hereby for approval and
adoption by written consent of the holders of a majority of the outstanding
shares of Company Common Stock, in accordance with the CGCL and the Company's
Articles of Incorporation and Bylaws.
(b) Within five business days after the date of such approval and
adoption by written consent of holders of a majority of the outstanding shares
of Company Common Stock, pursuant to Section 7.01(a), the Company shall
distribute to its shareholders, after prior approval by Parent, an information
statement (together with any amendments thereof or supplements thereto, the
"Information Statement") to provide notice to such shareholders of the action
taken by written consent in lieu of a meeting to adopt this Agreement and
approve the Merger, as required by Section 603(b) of the CGCL. The Company
represents and warrants to Parent that the Information Statement will not, at
the time it is first mailed to the Company's shareholders or at the Effective
Time, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading; provided, however, that the Company makes no representation or
warranty with respect to any information contained in
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the Information Statement furnished to the Company by Parent or any of its
affiliates. No amendment or supplement to the Information Statement will be made
by the Company without the approval of Parent, which shall not be unreasonably
withheld. The Company covenants that none of the Company Board or any committee
thereof shall withdraw or modify, or propose to withdraw or modify, in a manner
adverse to Parent or Merger Sub, the approval or recommendation by the Company
Board or any committee thereof of this Agreement, the Merger or any other
transaction contemplated by this Agreement and the Information Statement shall
include the recommendation of the Company Board to the stockholders of the
Company in favor of approval and adoption of this Agreement and approval of the
Merger.
SECTION 7.02. Access to Information; Confidentiality. (a) Except as
required pursuant to any confidentiality agreement or similar agreement or
arrangement to which the Company is a party or pursuant to applicable Law, from
the date of this Agreement to the Effective Time, the Company shall: (i) provide
to Parent (and its officers, directors, employees, accountants, consultants,
legal counsel, agents and other representatives, collectively,
"Representatives") access at reasonable times upon prior notice to the officers,
employees, agents, properties, offices and other facilities of the Company and
to the books and records thereof (including personnel records relating to
employees); and (ii) furnish promptly such information concerning the business,
properties, contracts, assets, liabilities, personnel and other aspects of the
Company as Parent or its Representatives may reasonably request.
(b) The parties shall comply with, and shall cause their respective
Representatives to comply with, all of their respective obligations under the
Nondisclosure Agreement dated March 18, 2003 (the "Confidentiality Agreement")
between the Company and Parent.
(c) No investigation pursuant to this Section 7.02 shall affect any
representation or warranty in this Agreement of any party hereto or any
condition to the obligations of the parties hereto.
(d) Notwithstanding anything in this agreement to the contrary, each
party (and its representatives, agents and employees) may consult any tax
advisor regarding the tax treatment and tax structure of the transactions
contemplated hereby and may disclose to any person, without limitation of any
kind, the tax treatment and tax structure of the transactions contemplated
hereby and all materials (including opinions or other tax analyses) that are
provided relating to such treatment or structure.
SECTION 7.03. No Solicitation of Transactions. (a) The Company agrees
that neither it nor the Subsidiary nor any of the directors, officers or
employees of it or the Subsidiary will, and that it will cause its and the
Subsidiary's agents, advisors and other representatives (including, without
limitation, any investment banker, attorney or accountant retained by it or the
Subsidiary) not to, directly or indirectly, (i) solicit, initiate or knowingly
encourage (including by way of furnishing nonpublic information), or take any
other action knowingly to facilitate, any inquiries or the making of any
proposal or offer (including, without limitation, any proposal or offer to its
stockholders) that constitutes, or may reasonably be expected to lead to, any
Competing Transaction (as defined below), or (ii) enter into or maintain or
continue discussions or negotiations with any person or entity in furtherance of
such inquiries or to obtain a proposal
41
or offer for a Competing Transaction, or (iii) agree to, approve, endorse or
recommend any Competing Transaction or enter into any letter of intent or other
contract, agreement or commitment contemplating or otherwise relating to any
Competing Transaction, or (iv) authorize or permit any of the officers,
directors or employees of the Company or the Subsidiary, or any investment
banker, financial advisor, attorney, accountant or other representative retained
by the Company or the Subsidiary, to take any such action. The Company shall
notify Parent as promptly as practicable (and in any event within one (1) day
after the Company attains knowledge thereof), orally and in writing, if any
proposal or offer, or any inquiry or contact with any person with respect
thereto, regarding a Competing Transaction is made, specifying the material
terms and conditions thereof and the identity of the party making such proposal
or offer or inquiry or contact (including material amendments or proposed
material amendments). The Company shall provide Parent with 24 hours prior
notice (or such lesser prior notice as is provided to the members of the Company
Board) of any meeting of the Company Board at which the Company Board is
reasonably expected to consider any Competing Transaction. The Company
immediately shall cease and cause to be terminated all existing discussions or
negotiations with any parties conducted heretofore with respect to a Competing
Transaction. The Company shall not release any third party from, or waive any
provision of, any confidentiality or standstill agreement to which it is a party
and the Company also agrees to promptly request each person that has heretofore
executed a confidentiality agreement in connection with its consideration of
acquiring (whether by merger, acquisition of stock or assets or otherwise) the
Company or any Subsidiary, if any, to return (or if permitted by the applicable
confidentiality agreement, destroy) all confidential information heretofore
furnished to such person by or on behalf of the Company or the Subsidiary and,
if requested by Parent, to enforce such person's obligation to do so.
(b) A "Competing Transaction" means any of the following (other than
the Transactions): (i) any merger, consolidation, share exchange, business
combination, recapitalization, liquidation, dissolution or other similar
transaction involving the Company or the Subsidiary; (ii) any sale, lease,
exchange, transfer or other disposition of all or a substantial part of the
assets of the Company or of the Subsidiary; (iii) any sale, exchange, transfer
or other disposition of 15% or more of any class of equity securities of the
Company or of the Subsidiary; (iv) any tender offer or exchange offer that, if
consummated, would result in any person beneficially owning 15% or more of any
class of equity securities of the Company or of the Subsidiary; (v) any
solicitation in opposition to approval and adoption of this Agreement by the
Company's stockholders; or (vi) any other transaction the consummation of which
would reasonably be expected to impede, interfere with, prevent or materially
delay any of the Transactions.
SECTION 7.04. Employee Benefits Matters. From and after the Effective
Time, Parent shall cause the Surviving Corporation and its subsidiaries to honor
in accordance with their terms, all contracts, agreements, arrangements,
policies, plans and commitments of the Company and the Subsidiary as in effect
immediately prior to the Effective Time that are applicable to any current or
former employees or directors of the Company or the Subsidiary. Employees of the
Company or the Subsidiary shall receive credit for purposes of eligibility to
participate and vesting (but not for benefit accruals) under any employee
benefit plan, program or arrangement established or maintained by the Surviving
Corporation or any of its subsidiaries for service accrued or deemed accrued
prior to the Effective Time with the Company or the
42
Subsidiary; provided, however, that such crediting of service shall not operate
to duplicate any benefit or the funding of any such benefit. In addition, Parent
shall waive, or cause to be waived, any limitations on benefits relating to any
pre-existing conditions to the same extent such limitations are waived under any
comparable plan of Parent or its subsidiaries and recognize, for purposes of
annual deductible and out-of-pocket limits under its medical and dental plans,
deductible and out-of-pocket expenses paid by employees of the Company and the
Subsidiary in the calendar year in which the Effective Time occurs.
SECTION 7.05. Directors' and Officers' Insurance; Indemnification. (a)
Parent agrees to cause the Surviving Corporation (i) not to change, unless
required to do so by Law, for six years after the Effective Time, the provisions
of its Articles of Incorporation and Bylaws or the indemnification agreements
listed on Section 7.05(a) of the Company Disclosure Schedule in effect on the
date of the Closing (the "Indemnification Agreements") in each case relating to
indemnification of such present or former director or officer of the Company and
the Subsidiary (together with any successor by operation of law, individually,
an "Indemnified Person" and, collectively, the "Indemnified Persons") in a
manner that adversely affects the rights of such Indemnified Person to
indemnification thereunder, and (ii) to perform its obligations under the
Indemnification Agreements, or exercise any discretionary authority thereunder,
to the fullest extent permissible by Law to provide such Indemnified Person with
all rights to indemnification available thereunder. Notwithstanding the
foregoing, nothing in this Agreement shall constitute a waiver of, or otherwise
operate to adversely affect, the existing rights of the Indemnified Persons
under the Articles of Incorporation and Bylaws of the Company in effect on the
date of the Closing and the Indemnification Agreements relating to the
indemnification of any Indemnified Person.
(b) Parent agrees that, for six years after the Closing, the Surviving
Corporation shall maintain officers' and directors' liability insurance policies
indemnifying and holding harmless the Indemnified Persons that were covered by
such insurance prior to Closing with respect to any actions or omissions
occurring prior to the Closing, providing at least $5,000,000 insurance coverage
on terms no less advantageous to such persons than the Company's existing policy
covering such persons; provided that in the event any claim is asserted or made
within such six-year period, coverage under such insurance shall be continued in
respect thereof until final disposition of such claim.
(c) This Section 7.05 shall survive the Closing, is intended to benefit
the Company and the Indemnified Persons (each of whom shall be entitled to
enforce this Section 7.05 against Parent, Merger Sub or the Surviving
Corporation, as the case may be), and shall be binding on all successors and
assigns of Parent and the Surviving Corporation.
SECTION 7.06. Notification of Certain Matters. The Company shall give
prompt notice to Parent, and Parent shall give prompt notice to the Company, of
(a) the occurrence, or non-occurrence, of any event the occurrence, or
non-occurrence, of which could reasonably be expected to cause any
representation or warranty contained in this Agreement to be untrue or
inaccurate in any material respect and (b) any failure of the Company, Parent or
Merger Sub, as the case may be, to comply with or satisfy any covenant or
agreement to be complied with or satisfied by it hereunder; provided, however,
that the delivery of any notice
43
pursuant to this Section 7.06 shall not limit or otherwise affect the remedies
available hereunder to the party receiving such notice.
SECTION 7.07. Further Action; Reasonable Best Efforts. Upon the terms
and subject to the conditions of this Agreement, each of the parties hereto
shall (i) make promptly its respective filings, and thereafter make any other
required submissions, under the HSR Act with respect to the Merger and other
transactions contemplated by this Agreement and (ii) use its reasonable best
efforts to take, or cause to be taken, all appropriate action, and to do, or
cause to be done, all things necessary, proper or advisable under applicable
Laws or otherwise to consummate and make effective the Merger and other
transactions contemplated by this Agreement, including using its reasonable best
efforts to obtain all Permits, consents, approvals, authorizations,
qualifications and orders of Governmental Authorities and parties to contracts
with the Company and the Subsidiary as are necessary for the consummation of the
Merger and other transactions contemplated by this Agreement and to fulfill the
conditions to the Merger; provided that neither Merger Sub nor Parent will be
required by this Section 7.07 to take any action, including entering into any
consent decree, hold separate orders or other arrangements, that (A) requires
the divestiture of any assets of any of Merger Sub, Parent, the Company or any
of their respective subsidiaries, or (B) limits Parent's freedom of action with
respect to, or its ability to retain, the Company and the Subsidiary or any
portion thereof or any of Parent's or its affiliates' other assets or
businesses. If, at any time after the Effective Time, any further action is
necessary or desirable to carry out the purposes of this Agreement, the proper
officers and directors of each party to this Agreement shall use their
reasonable best efforts to take all such action.
SECTION 7.08. Obligations of Merger Sub. Parent shall take all action
necessary to cause Merger Sub to perform its obligations under this Agreement.
SECTION 7.09. Public Announcements. The initial press release relating
to this Agreement shall be a joint press release the text of which has been
agreed to by each of Parent and the Company. Thereafter, unless otherwise
required by applicable Law or the requirements of the Nasdaq National Market,
each of Parent and the Company shall use its reasonable best efforts to consult
with each other before issuing any press release or otherwise making any public
statements with respect to this Agreement, the Merger or any of the other
transactions contemplated by this Agreement.
SECTION 7.10. Expenses. All costs and expenses incurred in connection
with this Agreement, the Merger and other transactions contemplated by this
Agreement (including the fees and expenses of financial advisors, accountants
and legal counsel) (a) if incurred by Parent or Merger Sub, shall be borne by
Parent and (b) if incurred by the Company or the Subsidiary shall, to the extent
not paid prior to the Effective Time (the "Company Expense Amount"), be deducted
from the aggregate merger consideration in accordance with Section 3.01(a).
Parent shall be solely responsible for the filing fees associated with the
pre-merger notification requirements of the HSR Act and one-half of the premium
cost of the Environmental Insurance Policy. No later than two business days
prior to the Effective Time, the Company shall deliver to Parent a good faith
estimate of the Company Expense Amount along with such supporting documentation
as Parent may reasonably request.
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SECTION 7.11. Financing. (a) In the event that at any time funds are
not or have not been made available pursuant to the Financing Letter so as to
enable Parent to proceed with the Effective Time in a timely manner, each of
Parent and Merger Sub shall use its reasonable best efforts to obtain
alternative funding in an amount at least equal to the amount necessary to
consummate the Merger on terms and conditions substantially comparable to those
provided in the Financing Letter, or otherwise on terms reasonably acceptable to
Parent and Merger Sub.
(b) The Company agrees to provide, and will cause the Subsidiary and
each of their respective officers, employees and advisors to provide, reasonable
cooperation as requested by Parent in connection with the Financing provided for
in the Financing Letter, and any other financing in respect of the transactions
contemplated by this Agreement, including, without limitation, participation in
meetings, due diligence sessions and road shows, the preparation of offering
memoranda, private placement memoranda, prospectuses and similar documents,
assistance in syndication efforts (including, without limitation, (i) using
commercially reasonable best efforts to ensure that the syndication efforts
benefit materially from the Company's existing lending relationships and (ii)
arranging for reasonable direct contact between senior management,
representatives and advisors of the Company with prospective lenders), the
execution and delivery of any commitment letters, underwriting or placement
agreements, pledge and security documents, other definitive financing documents
as are specified in the Financing Letter (including, without limitation, (i)
audited consolidated balance sheets and related statements of income,
stockholders equity and cash flows of the Company for the 2000, 2001 and 2002
fiscal years and (ii) unaudited consolidated balance sheets and related
statements of income, stockholders equity and cash flows of the Company for (A)
each subsequent fiscal quarter ended 20 days prior to the Effective Time and (B)
each fiscal month after the most recent 2003 fiscal quarter for which financial
statements were delivered pursuant to clause (A) above and ended 20 days prior
to the Effective Time) and other requested certificates or documents, including
comfort letters of accountants, legal opinions and real estate title
documentation as may reasonably be requested by Parent or Merger Sub.
SECTION 7.12. Payment of Promissory Notes and Other Amounts Due. (a)
Parent shall be entitled to deduct and withhold from the consideration otherwise
payable pursuant to this Agreement to any holder of Shares (i) such amounts as
may be outstanding (including accrued interest) under the promissory notes
listed on Section 4.07(b) of the Company Disclosure Schedule that are owed by
such holder to the Company, which notes shall be deemed repaid to the extent of
such withholding , (ii) such amounts as may be outstanding (including accrued
interest) under the promissory notes provided to the Company in connection with
the exercise of Company Stock Options after the date of this Agreement and prior
to the Effective Time that are owed by such holder to the Company, which notes
shall be deemed repaid to the extent of such withholding, and (iii) such amounts
as may be owed by such holder to Parent pursuant to Section 2.01 of the Voting
and Subscription Agreement. For the avoidance of doubt, the payment of any
promissory note pursuant to this Section 7.12(a) shall not be taken into account
and reduce the Net Aggregate Value.
(b) At the Effective Time, Parent or the Surviving Corporation shall
pay all amounts owed by the Company to a holder of Shares pursuant to the
promissory notes listed on Section 4.07(b), which notes shall be deemed repaid
to the extent of such payment.
45
(c) At or promptly following the Effective Time, Parent or the
Surviving Corporation shall repay all amounts outstanding under the Credit
Agreement and each shall use its reasonable best efforts to cause such agreement
to be terminated and to cause all guaranties granted thereunder by any
Shareholders to be released.
SECTION 7.13. Environmental Insurance Policy. The parties shall
cooperate to procure, on or prior to the Effective Time, an environmental
liability insurance policy (the "Environmental Insurance Policy"), from an
underwriter or underwriters reasonably acceptable to Parent, for the benefit of
Parent and the Surviving Corporation providing, with respect to the Company's
facility at 0000 Xxxxxxxx Xxx, Xxxxx, XX 00000, (i) an aggregate coverage limit
of at least $10 million and a per incident coverage limit of at least $9
million; (ii) a minimum coverage period of at least 7 years; (iii) a maximum
deductible of not more than $100,000; (iv) a premium cost less than $175,000;
and (v) such other terms and conditions as are reasonably acceptable to Parent.
SECTION 7.14. No Implied Representation and Warranties. Parent and
Merger Sub hereby acknowledge and agree that none of the Company or the
Subsidiary or any of their respective officers, directors, partners, employees,
Affiliates or representatives is making any representation or warranty
whatsoever, express or implied (including any warranty of merchantability,
suitability or fitness for a particular purpose or quality, with respect to any
tangible assets or as to the condition or workmanship thereof or as to the
absence of any defects therein, whether latent or patent), except those
representations and warranties contained in this Agreement (as qualified by the
Company Disclosure Schedule) or in any certificate contemplated hereby and
delivered by the Company or the Subsidiary in connection with the Merger or
other transactions contemplated by this Agreement. In particular, Parent and
Merger Sub hereby acknowledge and agree that none of the Company, the Subsidiary
or any Shareholder has made or is making any representation or warranty to
Parent or Merger Sub with respect to any financial projection or forecast
provided to any person in connection with the Transactions. With respect to any
such financial projection or forecast delivered by or on behalf of the Company
or the Subsidiary to Parent, Parent acknowledges that there are uncertainties
inherent in attempting to make such financial projections and forecasts and that
it is making its own evaluation of such projections and forecasts.
SECTION 7.15. Restrictions on Actions on Date of Effective Time.
Neither the Company nor the Subsidiary will take, and the Parent will not permit
either the Company or the Subsidiary to take, any action after the Effective
Time on the date of the Effective Time that is not in the ordinary course of
business consistent with past practices of the Company or the Subsidiary, as the
case may be, that would have an adverse financial effect on amounts to be
received by Shareholders pursuant to this Agreement.
ARTICLE VIII
TAX MATTERS
SECTION 8.01. Indemnity. (a) The Shareholders agree to indemnify and
hold harmless Parent, the Company and the Subsidiary on a dollar for dollar
basis from the Cash Escrow Fund against the following Taxes and, except as
otherwise provided in Section 8.04
46
hereof, against any loss, damage liability or expense, including reasonable fees
for attorneys and other outside consultants, incurred in contesting or otherwise
in connection with any such Taxes: (i) Taxes imposed on the Company or the
Subsidiary with respect to Tax periods ending on or before the date of the
Effective Time; (ii) with respect to Tax periods beginning before the date of
the Effective Time and ending after the date of the Effective Time, Taxes
imposed on the Company or the Subsidiary which are allocable, pursuant to
Section 8.01(b), to the portion of such period ending on the date of the
Effective Time; (iii) Taxes imposed on any member of any affiliated group with
which either of the Company and the Subsidiary files or has filed a Tax return
on a consolidated or combined basis for a Tax period ending on or before the
date of the Effective Time; and (iv) Taxes imposed on Parent or the Company or
the Subsidiary as a result of any breach of warranty or misrepresentation under
Section 4.14.
(b) In the case of Taxes that are payable with respect to a taxable
period that begins before the date of the Effective Time and ends after the date
of the Effective Time, the portion of any such Tax that is allocable to the
portion of the period ending on the date of the Effective Time shall be:
(i) in the case of Taxes that are either (x) based upon or
related to income or receipts, or (y) imposed in connection with any sale
or other transfer or assignment of property (real or personal, tangible or
intangible) (other than conveyances pursuant to this Agreement), deemed
equal to the amount which would be payable if the taxable year ended with
the date of the Effective Time (except that, solely for purposes of
determining the marginal tax rate applicable to income or receipts during
such period in a jurisdiction in which such tax rate depends upon the level
of income or receipts, annualized income or receipts may be taken into
account if appropriate for an equitable sharing of such Taxes); and
(ii) in the case of Taxes not described in subparagraph (i) that
are imposed on a periodic basis and measured by the level of any item,
deemed to be the amount of such Taxes for the entire period (or, in the
case of such Taxes determined on an arrears basis, the amount of such Taxes
for the immediately preceding period) multiplied by a fraction the
numerator of which is the number of calendar days in the period ending on
the date of the Effective Time and the denominator of which is the number
of calendar days in the entire period (not taking into account any
adjustment in the amount of Tax as a result of the Merger).
SECTION 8.02. Returns and Payments. The Company shall prepare and file
in a timely manner all Tax returns, reports and forms ("Returns") relating to
the Company and the Subsidiary that are due on or before or relate to any Tax
period ending on or before the date of the Effective Time and any other Returns
of the Company and the Subsidiary, including any Returns for any Tax periods
beginning before but ending after the date of the Effective Time. Returns of the
Company and the Subsidiary not yet filed for any Tax period that begins on or
before the date of the Effective Time ("Pre-Effective Time Return") shall be
prepared, and each item thereon treated, in a manner consistent with past
practices employed with respect to the Company and the Subsidiary (except to the
extent counsel for the Company determines there is no reasonable basis in law
therefore or determines that a Return cannot be so prepared and filed or an item
so reported without being subject to penalties). With respect to any
Pre-Effective
47
Time Return, the Shareholders' Representative (as hereinafter defined) shall
have the right to review such Return and statement prior to the filing of such
Return and the Company agrees to discuss in good faith the items reflected on
such Return and any adjustments reasonably requested by the Shareholders'
Representative. In the event there is a dispute regarding any adjustment
requested by the Shareholders' Representative that cannot be resolved by the
parties within 30 days after receipt by the Company of such requested
adjustments, the Shareholders' Representative and the Company shall submit the
items remaining in dispute for resolution to an Independent Accounting Firm,
which shall, within 30 days after such submission, deliver a report to the
Company and the Shareholders' Representative setting forth the resolution of
such disputed items and the adjustment, if any, to be made to the Return, and
such report shall be final, binding and conclusive on the Shareholders'
Representative and the Company. The fees and disbursements of the Independent
Accounting Firm shall be allocated between the Shareholders' Representative and
the Company in the same proportion that the aggregate amount of such disputed
items submitted to the Independent Accounting Firm that are unsuccessfully
disputed by each such party (as finally determined by the Independent Accounting
Firm) bears to the total amount of such disputed items so submitted. The
Shareholders and Parent agree that any Tax deduction arising from the exercise
of Company Stock Options on or before the Effective Time shall be allocable to
the appropriate Tax period (or portion thereof) ending on or before the date of
the Effective Time. For the avoidance of doubt, the Shareholders and Parent
agree that the federal income tax period of the Company shall end as of the end
of the day of the date of the Effective Time. The Shareholders and the Parent
agree that the Company shall claim the deductions arising from the exercise of
the Company Stock Options in the taxable year that includes the Effective Time
and any unused deductions or loss that are not used in the taxable year that
includes the Effective Time shall be carried back to prior taxable years, to the
extent permissible under law. The Shareholders shall be entitled to any Tax
refunds in accordance with Section 8.03. If for any state or local income or
franchise tax purposes the taxable year that includes the Effective Time does
not end as of the end of the day of the Effective Time, then in addition to the
Tax refund in accordance with Section 8.03, Parent shall pay to the Shareholders
the amount of any actual state or local tax savings realized by the Company or
members of its consolidated or combined group for such taxable year that
includes the Effective Time to the extent such deductions offset income
allocable to the portion of such taxable year after the Effective Time pursuant
to Section 8.01(b) and such deductions could have otherwise been claimed as a
refund if the taxable year had ended on the day of the Effective Time. If (i)
the Effective Time is on or after January 1, 2004 and (ii) the Company is not
entitled under such state or local income or franchise tax law to carry back the
deductions or losses to prior taxable years, then Parent shall pay to the
Shareholders the amount of any actual tax savings realized by the Company or
members of its consolidated or combined group for taxable years beginning after
the Effective Time to the extent the Company would have been entitled to a
refund of such state or local taxes had the exercise of Company Stock Options
and the date of the Effective Time both occurred on December 31, 2003.
SECTION 8.03. Refunds. Any Tax refund (including any interest with
respect thereto) relating to the Company or the Subsidiary for any taxable
period ending on or before the date of the Effective Time or otherwise allocable
to a portion of the taxable period ending on the date of the Effective Time
using the appropriate allocation method set forth in Section 8.01(b) shall be
the property of the Shareholders, and if received by Parent or the Company or
the Subsidiary shall be payable promptly to the Shareholders' Representative on
behalf of the
48
Shareholders to be distributed to the Shareholders by the Shareholders'
Representative in proportion to the number of shares of Company Common Stock
held by each such Shareholder immediately prior to the Effective Time.
Notwithstanding the foregoing sentence: (i) any Tax refund (or equivalent
benefit to the Shareholders through a reduction in Tax liability) for a period
before the date of the Effective Time arising out of the carryback of a loss or
credit incurred by the Company or the Subsidiary in a taxable year ending after
the date of the Effective Time that is attributable to a period after the
Effective Date using the appropriate allocation method set forth in Section
8.01(b), as applicable, shall be the property of Parent and, if received by the
Shareholders, shall be payable promptly to Parent; and (ii) if, as of such time,
if any, as Parent shall receive a refund that would be the property of the
Shareholders and payable to the Shareholders under the foregoing sentence, Taxes
have been asserted in writing that would be required to be indemnified by the
Shareholders hereunder, all or part of such refund up to an amount equal to 120%
of such asserted Taxes shall, at the option of Parent, be deposited in escrow
for satisfaction of any amounts indemnifiable under this Article VIII that have
been asserted or subsequently are asserted, until the time set forth in Section
8.05 hereof or until the matter has been resolved, whichever is earlier.
SECTION 8.04. Contests. (a) After the date of the Effective Time,
Parent shall promptly notify the Shareholders' Representative in writing of any
written notice of a proposed adjustment or claim in an audit or administrative
or judicial proceeding involving Parent or the Company or the Subsidiary which,
if determined adversely to the taxpayer, would be grounds for indemnification
under this Article VIII; provided, however, that a failure to give such notice
will not affect Parent's right to indemnification hereunder except to the
extent, if any, that, but for such failure, the Shareholders could have avoided
the Tax liability in question.
(b) In the case of an audit or administrative or judicial proceeding
that relates to taxable periods ending on or before the date of the Effective
Time, provided that the Shareholders' Representative on behalf of all
Shareholders acknowledges in writing the Shareholders' liability under this
Agreement to hold Parent and the Company and the Subsidiary harmless against the
full amount of any adjustment that may be made as a result of such audit or
proceeding that relates to taxable periods ending on or before the date of the
Effective Time, the Shareholders' Representative shall have the right at the
Shareholders' expense to participate in and control the conduct of such audit or
proceeding but only to the extent that such audit or proceeding relates solely
to a potential adjustment for which the Shareholders' Representative has
acknowledged the Shareholders' liability and the issue underlying the proposed
adjustment if resolved would not materially prejudice the Company or the
Subsidiary from taking a contrary position for any period ending after the date
of the Effective Time with respect to such recurring issue. The Shareholders'
Representative shall keep Parent informed of the progress of any such audit or
proceeding and if it appears in the reasonable discretion of Parent that such
audit or proceeding may adversely affect Parent, Parent also may participate in
any such audit or proceeding at its expense. If the Shareholders' Representative
does not assume the defense of any such audit or proceeding, Parent may defend
the same in such manner as it may deem appropriate at its expense, including,
but not limited to, settling such audit or proceeding after giving five days
prior written notice to the Shareholders' Representative setting forth the terms
and conditions of settlement. In the event that a potential adjustment as to
which the Shareholders' Representative has acknowledged the Shareholders'
liability is present in the same
49
proceeding as a potential adjustment for which Parent would be liable, Parent
shall have the right at its expense, to control the audit or proceeding with
respect to the latter potential adjustment.
(c) With respect to an audit or proceeding that relates to a potential
adjustment for which both the Shareholders (as evidenced by their
acknowledgement under this Section 8.04) and Parent or the Company or the
Subsidiary could be liable, or which involves a taxable period ending after the
Effective Time but includes the Effective Time (and the Shareholders'
Representative has acknowledged in writing the Shareholders' portion of the tax
liability under Section 8.01(b)) or an issue that recurs for any period ending
after the date of the Effective Time (whether or not the subject of audit at
such time) that the Shareholders' Representative does not control pursuant to
Section 8.04(b) above, (i) each of the Shareholders' Representative and Parent
may participate in the audit or proceeding at their respective expense, and (ii)
the audit or proceeding shall be controlled by that party which would bear the
burden of the greater portion of the sum of the adjustment and any corresponding
adjustments that may reasonably be anticipated for future Tax periods. The
principle set forth in the preceding sentence shall govern also for purposes of
deciding any issue that must be decided jointly (in particular, choice of
judicial forum) in situation in which separate issues are otherwise controlled
hereunder by Parent and the Shareholders' Representative.
(d) Except as otherwise provided in Section 8.04(b) above, neither
Parent nor the Shareholders' Representative shall enter into any compromise or
agree to settle any claim pursuant to any Tax audit or proceeding which would
adversely affect the other party for such year or a subsequent year without the
written consent of the other party, which consent may not be unreasonably
withheld. Parent and the Shareholders agree to cooperate, and Parent agrees to
cause the Company and the Subsidiary to cooperate, in the defense against or
compromise of any claim in any audit or proceeding.
SECTION 8.05. Time of Payment. Payment by the Shareholders of any
amounts due under this Article VIII in respect of Taxes shall be made (i) at
least three business days before the due date of the applicable estimated or
final tax return required to be filed by Parent on which is required to be
reported income for a period ending after the date of the Effective Time for
which the Shareholders are responsible under Sections 8.01(a) and 8.01(b)
without regard to whether the return shows overall net income or loss for such
period, and (ii) within three business days following an agreement between the
Shareholders and Parent that an indemnity amount is payable, an assessment of a
Tax by a taxing authority, or a "determination" as defined in Section 1313(a) of
the Code. If liability under this Article VIII is in respect of costs or
expenses other than Taxes, payment by the Shareholders of any amounts due under
this Article VIII shall be made within five business days after the date when
the Shareholders have been notified by Parent that the Shareholders have a
liability for a determinable amount under this Article VIII and is provided with
calculations or other materials supporting such liability.
SECTION 8.06. Cooperation and Exchange of Information. The Shareholders
and Parent will (and Parent after the Effective Time will cause the Company and
the Subsidiary to) provide the others with such cooperation and information as
any of them reasonably may request of the others in filing any Return, amended
Return or claim for refund, determining a liability for Taxes or a right to a
refund of Taxes, participating in or conducting any audit or other proceeding in
respect of Taxes or making representations to or furnishing information to
50
parties subsequently desiring to purchase either of the Company or the
Subsidiary or a part of the business from Parent. Such cooperation and
information shall include providing copies of relevant Returns or portions
thereof, together with accompanying schedules, related work papers and documents
relating to rulings or other determinations by Tax authorities. The Shareholders
and Parent shall (and Parent after the Effective Time will cause the Company and
the Subsidiary to) retain all Returns, schedules and work papers, records and
other documents in their possession relating to Tax matters of the Company and
the Subsidiary for each taxable period first ending after the date of the
Effective Time and for all prior taxable periods until the later of (i) the
expiration of the statute of limitations of the taxable periods to which such
Returns and other documents relate, without regard to extensions except to the
extent notified by the other party in writing of such extensions for the
respective Tax periods, or (ii) six years following the due date (without
extension) for such Returns. Any information obtained under this Section 8.06
shall be kept confidential except as may be otherwise necessary in connection
with the filing of Returns or claims for refund or in conducting an audit or
other proceeding.
SECTION 8.07. Characterization of Payments. Parent and the Shareholders
agree to treat all payments made by any of them to or for the benefit of the
others (including any payments to the Company or any Subsidiary) under this
Article VIII or under Article XI or other indemnity provisions of this agreement
and for any misrepresentations or breach of warranties or covenants as
adjustments to the purchase price or as capital contributions for Tax purposes
and that such treatment shall govern for purposes hereof except to the extent
that the laws of a particular jurisdiction provide otherwise, in which case such
payments shall be made in an amount sufficient to indemnify the relevant party
on an after-Tax basis (it being understood that in the unlikely event that a
payment is made on an after-tax basis, any additional payment due pursuant to
this Section 8.07 shall be reduced by any tax benefits allowable to the Company,
any Subsidiary or Parent because of the adjustment giving rise to the
indemnification).
ARTICLE IX
CONDITIONS TO THE MERGER
SECTION 9.01. Conditions to the Obligations of Each Party. The
obligations of the Company, Parent and Merger Sub to consummate the Merger are
subject to the satisfaction or waiver (where permissible) of the following
conditions.
(a) Company Shareholder Approval. This Agreement shall have been
approved and adopted by the requisite affirmative vote of the Company's
shareholders in accordance with the CGCL and the Company's Articles of
Incorporation.
(b) No Order. No Governmental Entity shall have enacted, issued,
promulgated, enforced or entered any law, rule, regulation, judgment,
decree, executive order or award (an "Order") which is then in effect and
has the effect of making the Merger illegal or otherwise prohibiting
consummation of the Merger.
(c) U.S. Antitrust Approvals and Waiting Periods. Any waiting period
(and any extension thereof) applicable to the consummation of the Merger
under the HSR Act shall have expired or been terminated.
51
SECTION 9.02. Conditions to the Obligations of Parent and Merger Sub.
The obligations of Parent and Merger Sub to consummate the Merger are subject to
the satisfaction or waiver (where permissible) of the following additional
conditions:
(a) Representations and Warranties. (i) The representations and
warranties of the Company contained in this Agreement shall be true and
correct in all material respects as of the Effective Time, as though made
on and as of the Effective Time, except to the extent expressly made as of
an earlier date, in which case as of such earlier date and (ii) the
representation and warranties of the Significant Shareholders contained in
the Voting and Subscription Agreement shall be true and correct in all
material respects as of the Effective Time, as though made on and as of the
Effective Time, except to the extent expressly made as of an earlier date,
in which case as of such earlier date; provided that in any case any
representation or warranty that is qualified by materiality or Company
Material Adverse Effect shall be true and correct in all respects as of the
Effective Time, or as of such particular earlier date, as the case may be.
(b) Agreements and Covenants. (i) 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, and (ii) the Significant Shareholders shall
have performed or complied in all material respects with all agreements and
covenants required by the Voting and Subscription Agreement to be performed
or complied with on or prior to the Effective Time.
(c) Officer Certificate. The Company shall have delivered to Parent a
certificate, dated the date of the Closing, signed by the Chief Executive
Officer of the Company, certifying as to the satisfaction of the conditions
specified in Section 9.02(a)(i) and Section 9.02(b)(i).
(d) Financing. The Financing shall have been obtained pursuant to and
substantially in accordance with the terms and conditions specified in the
Financing Letter, or alternative financing as provided in Section 7.11(a)
of this Agreement shall have been obtained by Parent or Merger Sub.
(e) Consents. All material consents, approvals and authorizations
legally required to be obtained to consummate the Merger shall have been
obtained from and made with all Governmental Entities, and all material
consents from third parties set forth in Sections 4.05 and all of the
consents set forth in 9.02(e) of the Company Disclosure Schedule shall have
been obtained.
(f) Credit Agreement. U.S. Bank, N.A. shall have provided a "pay-off"
letter to the Company in form and substance reasonably satisfactory to
Parent agreeing, among other things, to release all security interests in
assets of the Company and the Subsidiary and all shareholder guarantees
upon repayment of all amounts outstanding under the Credit Agreement.
52
(g) Material Adverse Effect. No Company Material Adverse Effect, nor
any events, circumstances, changes or effects that in the aggregate would
constitute a Company Material Adverse Effect, shall have occurred since the
date of this Agreement.
(h) Shareholder Approval. Holders of at least 93% of all shares of
Company Common Stock entitled to vote on the Merger shall have approved
this Agreement and the transactions contemplated hereby.
(i) Employees. Each of the Employment Agreements shall be in full
force and effect and none of the employees thereto have terminated their
employment thereunder or given notice of their intention to terminate such
employment, and all of the individuals set forth in Section 9.02(i)(i) of
the Company Disclosure Schedule and 90% of the individuals set forth in
Section 9.02(i)(ii) of the Company Disclosure Schedule shall be employed by
the Company and the Subsidiary as of the Closing and shall not have given
notice of their intention to terminate such employment.
(j) Resignation. All members of the Board of Directors of the Company
and the Subsidiary shall have executed written resignations effective as of
the Effective Time.
(k) Indemnity Escrow Agreement. The Company shall have entered into
the Escrow Agreement, and the Escrow Agreement shall be in full force and
effect at the Effective Time.
(l) Share Escrow Agreements. Each of Xxxxxxx X. Xxxxx and Xxxxxxx X.
Xxxxxx shall have entered into the share escrow agreements with Parent, in
the agreed forms, with respect to the shares of Parent Common Stock to be
purchased by them pursuant to the Voting and Subscription Agreement, and
such share escrow agreements shall be in full force and effect at the
Effective Time.
(m) Intellectual Property Lien. The Company shall have delivered to
Parent evidence satisfactory to Parent of the release of the security
interest in the Company Intellectual Property recorded on May 5, 2000 with
the United States Patent and Trademark Office in favor of Sanwa Bank of
California.
(n) Environmental Insurance Policy. Parent shall have procured the
Environmental Insurance Policy and such policy shall be in full force and
effect.
(o) Voting and Subscription Agreement. The Voting and Subscription
Agreement shall be in full force and effect, no Significant Shareholder
shall be in default thereunder and all conditions to the issuance of shares
of Parent Common Stock thereunder shall have been satisfied.
(p) Taxes. The Company shall have filed amended or original Tax
returns and paid all Taxes required to be filed and paid by the Company
prior to the date hereof with respect to exercises of options to acquire
Shares made prior to the date hereof, or, with respect to the withholding
of Taxes for 2002, Parent shall have received appropriate certifications
from the individuals that exercised options in 2002 that such individuals
have paid all Taxes imposed on such individual with respect to such
exercises.
53
(q) Vista Lease. North County Industrial Park, L.P., as landlord under
the Standard Industrial/Commercial Multi-Tenant Lease between the Company
and North County Industrial Park, L.P., dated May 15, 1995 (the "Vista
Lease"), shall have consented to the deemed assignment of the Vista Lease
resulting from the Merger and shall have agreed to release the related
personal guarantees of Xxxxxxx X. Xxxxx, Xxxxxxx Xxxxxx, Xxxxxxx X. Xxxxxx,
Xxxxxxx Xxxxx and Xxxxxxx Xxx at the Effective Time.
(r) Promissory Notes. Parent shall be reasonably satisfied that all
promissory notes held by the Company as of the Effective Time can be repaid
to the Company as contemplated pursuant to Section 7.12 out of the cash
consideration to be paid to the note holders as a result of the Merger (net
of any cash to be reinvested in Parent Common Stock in accordance with the
Voting and Subscription Agreement).
(s) Capstone. The Company shall have paid all amounts owed to Capstone
Turbine Corporation and shall have no further liability to such entity.
SECTION 9.03. Conditions to the Obligations of the Company. The
obligations of the Company to consummate the Merger are subject to the
satisfaction or waiver (where permissible) of the following additional
conditions:
(a) Representations and Warranties. The representations and warranties
of Parent and Merger Sub contained in this Agreement and the Voting and
Subscription Agreement shall be true and correct in all material respects
as of the Effective Time, as though made on and as of the Effective Time,
except to the extent expressly made as of an earlier date, in which case as
of such earlier date; provided that any representation or warranty that is
qualified by materiality or Parent Material Adverse Effect shall be true
and correct in all respects as of the Effective Time, or as of such
particular earlier date, as the case may be.
(b) Agreements and Covenants. Parent and Merger Sub shall have
performed or complied in all material respects with all agreements and
covenants required by this Agreement or the Voting and Subscription
Agreement to be performed or complied with by it on or prior to the
Effective Time.
(c) Officer Certificate. Parent shall have delivered to the Company a
certificate, dated the date of the Closing, signed by the Chief Executive
Officer of Parent, certifying as to the satisfaction of the conditions
specified in Section 9.03(a) and Section 9.03(b).
(d) Credit Agreement. U.S. Bank, N.A. shall have provided a "pay-off"
letter to the Company in form and substance reasonably satisfactory to the
Company agreeing, among other things, to release all security interests in
assets of the Company and the Subsidiary and all shareholder guarantees
upon repayment of all amounts outstanding under the Credit Agreement.
54
(e) Material Adverse Effect. No Parent Material Adverse Effect, nor
any events, circumstances, changes or effects that in the aggregate would
constitute a Parent Material Adverse Effect, shall have occurred since the
date of this Agreement.
(f) Promissory Notes. Parent shall have provided evidence reasonably
satisfactory to the Shareholders' Representative that the payment of the
promissory notes owed to the holders of Shares listed on Section 4.07(b) of
the Company Disclosure Schedule shall be made by Parent or the Surviving
Corporation at the Effective Time, subject to setoff of any amounts owed by
such holders to Parent under the Voting and Subscription Agreement.
(g) Vista Lease. North County Industrial Park, L.P., as landlord under
the Vista Lease, shall have consented to the deemed assignment of the Vista
Lease resulting from the Merger and shall have agreed to release the
related personal guarantees of Xxxxxxx X. Xxxxx, Xxxxxxx Xxxxxx, Xxxxxxx X.
Xxxxxx, Xxxxxxx Xxxxx and Xxxxxxx Xxx at the Effective Time.
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
SECTION 10.01. Termination. This Agreement may be terminated and the
Merger and the other transactions contemplated by this Agreement may be
abandoned at any time prior to the Effective Time, notwithstanding any requisite
approval and adoption of this Agreement and the Merger and the other
transactions contemplated by this Agreement by the Shareholders, as follows:
(a) by mutual written consent of Parent and the Company duly
authorized by the Parent Board and the Company Board; or
(b) by either Parent or the Company if the Effective Time shall not
have occurred on or before January 31, 2004; provided, however, that the
right to terminate this Agreement under this Section 10.01(b) shall not be
available to any party whose failure to fulfill any obligation under this
Agreement has been the cause of, or resulted in, the failure of the
Effective Time to occur on or before such date; or
(c) by either Parent or the Company if any Order which is final and
nonappealable has the effect of making consummation of the Merger illegal
or otherwise preventing or prohibiting consummation of the Merger; or
(d) by either Parent or the Company if this Agreement shall fail to
receive the approval of holders of a majority of the issued and outstanding
shares of the Company's Common Stock on or prior to five business days
after the date of this Agreement; or
(e) by Parent (i) upon a breach of any representation, warranty,
covenant or agreement on the part of the Company set forth in this
Agreement or on the part of any Significant Shareholder set forth in the
Voting and Subscription Agreement, or (ii) if any representation or
warranty of the Company or any Significant Shareholder shall have
55
become untrue, if, in the case of either (i) or (ii) above, the conditions
set forth in Section 9.02(a) and Section 9.02(b) would not be satisfied
("Terminating Company Breach"); provided, however, that, if such
Terminating Company Breach is curable by the Company or the Significant
Shareholders, Parent may not terminate this Agreement under this Section
10.01(e) for so long as the Company continues to exercise its best efforts
to cure such breach, unless such breach is not cured within 20 days after
notice of such breach is provided by Parent to the Company; or
(f) by the Company (i) upon a breach of any representation, warranty,
covenant or agreement on the part of Parent and Merger Sub set forth in
this Agreement or the Voting and Subscription Agreement, or (ii) if any
representation or warranty of Parent and Merger Sub shall have become
untrue, if, in the case of either (i) or (ii) above, the conditions set
forth in Section 9.03(a) and Section 9.03(b) would not be satisfied
("Terminating Parent Breach"); provided, however, that, if such Terminating
Parent Breach is curable by Parent and Merger Sub, the Company may not
terminate this Agreement under this Section 10.01(f) for so long as Parent
and Merger Sub continue to exercise their best efforts to cure such breach,
unless such breach is not cured within 20 days after notice of such breach
is provided by the Company to Parent.
SECTION 10.02. Effect of Termination. In the event of the termination
of this Agreement pursuant to Section 10.01, this Agreement shall forthwith
become void, and there shall be no liability under this Agreement on the part of
any party hereto, except nothing herein shall relieve any party from liability
for any willful breach of any of its representations, warranties, covenants or
agreements set forth in this Agreement; provided, however, that the
Confidentiality Agreement shall survive any termination of this Agreement.
SECTION 10.03. Amendment. This Agreement may be amended by the parties
hereto by action taken by or on behalf of their respective Boards of Directors
at any time prior to the Effective Time; provided, however, that, after the
approval and adoption of this Agreement and the Merger and the other
transactions contemplated by this Agreement by the Shareholders, no amendment
may be made that would reduce the amount or change the type of consideration
into which each Share shall be converted upon consummation of the Merger. This
Agreement may not be amended except by an instrument in writing signed by each
of the parties hereto.
SECTION 10.04. Waiver. At any time prior to the Effective Time, any
party hereto may (a) extend the time for the performance of any obligation or
other act of any other party hereto, (b) waive any inaccuracy in the
representations and warranties of any other party contained herein or in any
document delivered pursuant hereto and (c) waive compliance with any agreement
of any other party or any condition to its own obligations contained herein. Any
such extension or waiver shall be valid if set forth in an instrument in writing
signed by the party or parties to be bound thereby.
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ARTICLE XI
INDEMNIFICATION
SECTION 11.01. Survival of Representations and Warranties. The
representations and warranties contained in this Agreement, the Voting and
Subscription Agreement and the Subscription Agreements (collectively, the
"Acquisition Documents") shall survive the Effective Time for a period of two
years. Neither the period of survival nor the liability of a party hereto with
respect to such party's representations and warranties shall be reduced by any
investigation made at any time by or on behalf of another party hereto. If
written notice of a claim has been given prior to the expiration of the
applicable representations and warranties by a party hereto to another party
hereto, then the relevant representations and warranties shall survive as to
such claim until such claim has been finally resolved.
SECTION 11.02. Indemnification by the Shareholders. (a) After the
Effective Time, Parent and its affiliates (including, after the Effective Time,
the Surviving Corporation), officers, directors, employees, agents, successors
and assigns (collectively, the "Parent Indemnified Parties") shall be
indemnified and held harmless by each holder of shares of Company Common Stock
as of immediately prior to the Effective Time (each, a "Shareholder") for any
and all liabilities, losses, damages, claims, costs and expenses, interest,
awards, judgments and penalties (including reasonable attorneys' and
consultants' fees and expenses and other costs of defending, investigating or
settling claims) actually suffered or incurred by them (including in connection
with any action brought or otherwise initiated by any of them) (hereinafter, a
"Loss"), arising out of or resulting from:
(i) the breach of any representation or warranty (without giving
effect to any qualification as to materiality or Company Material Adverse
Effect (or similar qualifications) contained therein in determining the
amount of any Loss) made by the Company or such Shareholder in the
Acquisition Documents as of the date of this Agreement or as if such
representation and warranty was made on and as of the date of the Effective
Time; provided, however, that no Shareholder shall be liable for any breach
of any representation or warranty made by any other Shareholder in the
Voting and Subscription Agreement or the Subscription Agreements;
(ii) the breach of any covenant or agreement made by the Company
or such Shareholder in the Acquisition Documents; provided, however, that
no Shareholder shall be liable for any breach of any covenant or agreement
made by any other Shareholder in the Voting and Subscription Agreement or
the Subscription Agreements;
(iii) Losses from breach of contract or other claims made by any
party alleging to have had a contractual or other right to acquire the
Company's capital stock or assets or the right to approve this Agreement;
(iv) the matters listed in Sections 4.09, 4.13(b) and 4.17(d) of
the Company Disclosure Schedule;
57
(v) the amount, if any, by which the Final Closing Working
Capital is less than the Estimated Closing Working Capital;
(vi) the amount of any costs or expenses incurred by the Company
or the Subsidiary in connection with this Agreement, the Merger and the
other transactions contemplated by this Agreement that were not paid prior
to the Effective Time and not reflected on the estimate of such unpaid
costs and expenses provided to Parent prior to the Effective Time in
accordance with Section 7.10; and
(vii) the amount, if any, by which the Closing Cash, as
determined by Parent after the Effective Time, is less than the good faith
estimate of the Closing Cash provided to Parent by the Company immediately
prior to the Effective Time in accordance with Section 3.01(a).
To the extent that any of the undertakings of the Shareholders set
forth in this Section 11.02(a) may be unenforceable, the Shareholders shall
contribute from the Cash Escrow Fund the maximum amount that they are permitted
to contribute under applicable Law to the payment and satisfaction of all Losses
incurred by the Parent Indemnified Parties, subject to the limitations imposed
by this Agreement.
(b) Notwithstanding anything to the contrary contained in this
Agreement, except with respect to claims based on fraud:
(i) no indemnification payment by the Shareholders with respect
to any indemnifiable Loss otherwise payable under Section 11.02(a) and
arising out of or resulting from the causes enumerated in Section 11.02(a)
(other than Section 11.02(a)(v)-(vii) shall be payable until such time as
all such indemnifiable Losses shall aggregate to more than $1,500,000,
after which time the Shareholders shall only be liable for such
indemnifiable Losses in excess of the first $1,500,000;
(ii) the maximum aggregate amount of indemnifiable Losses arising
out of or resulting from the causes enumerated in Section 11.02(a) (other
than, with respect to the Voting and Subscription Agreement and the
Subscription Agreements, breaches of covenants therein and other
obligations to be performed thereunder at or after the Effective Time) that
may be recovered by the Parent Indemnified Parties shall be limited to the
amount of the Cash Escrow Fund; and
(iii) no Loss shall be deemed to have been sustained by any
Parent Indemnified Party to the extent of any proceeds received by such
party from any insurance policies with respect thereto or any monies
received by such Parent Indemnified Party pursuant to indemnification
obligations of third parties.
SECTION 11.03. Indemnification by Parent. (a) After the Effective Time,
the Shareholders and their respective affiliates, officers, directors,
employees, agents, successors and assigns (collectively, the "Shareholder
Indemnified Parties") shall be indemnified and held harmless by Parent for any
and all Losses, arising out of or resulting from:
58
(i) the breach of any representation or warranty (without giving
effect to any qualification as to materiality contained therein in
determining the amount of any Loss) made by Parent in the Acquisition
Documents as of the date of this Agreement or as if such representation and
warranty was made on and as of the date of the Effective Time;
(ii) the breach of any covenant or agreement made by Parent in the
Acquisition Documents; or
(iii) the amount, if any, by which the Closing Cash, as determined by
Parent after the Effective Time, is greater than the good faith estimate of
the Closing Cash provided to Parent by the Company immediately prior to the
Effective Time in accordance with Section 3.01(a).
To the extent that any of Parent's undertakings set forth in this
Section 11.03(a) may be unenforceable, Parent shall contribute the maximum
amount that it is permitted to contribute under applicable Law to the payment
and satisfaction of all Losses incurred by the Shareholder Indemnified Parties,
subject to the limitations imposed by this Agreement.
(b) Notwithstanding anything to the contrary contained in this
Agreement, except with respect to claims based on fraud:
(i) no indemnification payment by Parent with respect to any
indemnifiable Loss otherwise payable under Section 11.03(a)(i) and (ii) and
arising out of or resulting from the causes enumerated in Section 11.03(a)
(except for Parent's obligation under Section 3.02(a) to deposit cash
sufficient to pay the aggregate cash consideration pursuant to Section
3.02) shall be payable until such time as all such indemnifiable Losses
shall aggregate to more than $1,500,000, after which time Parent shall only
be liable for such indemnifiable Losses in excess of the first $1,500,000;
(ii) the maximum aggregate amount of indemnifiable Losses arising out
of or resulting from the causes enumerated in Section 11.03(a)(i) or (ii)
(except for Parent's obligation under Section 3.02(a) to deposit cash
sufficient to pay the aggregate cash consideration pursuant to Section
3.02) that may be recovered from Parent shall be limited to $12,000,000;
and
(iii) no Loss shall be deemed to have been sustained by any
Shareholder Indemnified Party to the extent of any proceeds received by
such party from any insurance policies with respect thereto.
SECTION 11.04. Indemnification Procedures. (a) For purposes of this
Section 11.04, a party against which indemnification may be sought is referred
to as the "Indemnifying Party" and the party which may be entitled to
indemnification is referred to as the "Indemnified Party".
(b) The obligations and liabilities of Indemnifying Parties under this
Article XI with respect to Losses arising from claims of any third party which
are subject to the indemnification provided for in this Article XI ("Third Party
Claims") shall be governed by and
59
contingent upon the following additional terms and conditions: if an Indemnified
Party shall receive notice of any Third Party Claim, the Indemnified Party shall
give all Indemnifying Parties notice of such Third Party Claim as promptly as
practicable after the receipt by the Indemnified Party of such notice; provided,
however, that the failure to provide such notice shall not release an
Indemnifying Party from any of its obligations under this Article XI except to
the extent that such Indemnifying Party is materially prejudiced by such
failure. The notice of claim shall describe in reasonable detail the facts known
to the Indemnified Party giving rise to such indemnification claim, and the
amount or good faith estimate of the amount arising therefrom.
(c) The Indemnifying Party shall be entitled to assume and control the
defense of such Third Party Claim at its expense and through counsel of its
choice if it gives notice of its intention to do so to the Indemnified Party
within 10 days of the receipt of such notice from the Indemnified Party;
provided, however, that, if there exists or is reasonably likely to exist a
conflict of interest that would make it inappropriate in the judgment of the
Indemnified Party, in its reasonable discretion, for the same counsel to
represent both the Indemnified Party and the Indemnifying Party, then the
Indemnified Party shall be entitled to retain its own counsel, in each
jurisdiction for which the Indemnified Party determines counsel is required, at
the expense of the Indemnifying Party. In the event that the Indemnifying Party
exercises the right to undertake any such defense against any such Third Party
Claim as provided above, the Indemnified Party shall cooperate with the
Indemnifying Party in such defense and make available to the Indemnifying Party,
at the Indemnifying Party's expense, all witnesses, pertinent records, materials
and information in the Indemnified Party's possession or under the Indemnified
Party's control relating thereto as is reasonably required by the Indemnifying
Party. Similarly, in the event the Indemnified Party is, directly or indirectly,
conducting the defense against any such Third Party Claim, the Indemnifying
Party shall cooperate with the Indemnified Party in such defense and make
available to the Indemnified Party, at the Indemnifying Party's expense, all
such witnesses, records, materials and information in the Indemnifying Party's
possession or under the Indemnifying Party's control relating thereto as is
reasonably required by the Indemnified Party. No such Third Party Claim may be
settled by any party conducting the defense against such claim without the prior
written consent of the other party unless the other party and its affiliates is
released in full in connection with such settlement.
SECTION 11.05. Shareholders' Representative. Xxxxxxx X. Xxxxx (such
person and any successor or successors being the "Shareholders' Representative")
shall act as the representative of the Shareholders, and shall be authorized to
act on behalf of the Shareholders and to take any and all actions required or
permitted to be taken by the Shareholders' Representative under this Agreement
or the Escrow Agreement, with respect to any claims (including the settlement
thereof) made by Parent or the Shareholders for indemnification pursuant to
Article VIII or this Article XI of this Agreement and with respect to any
actions to be taken by the Shareholders' Representative pursuant to the terms of
the Escrow Agreement. The Shareholders shall be bound by all actions taken by
the Shareholders' Representative in its capacity thereof that are within the
authority granted herein. The Shareholders' Representative shall at all times
act in his or her capacity as Shareholders' Representative in a manner that the
Shareholders' Representative believes in good faith to be in the best interest
of the Shareholders. Neither the Shareholders' Representative nor any of its
directors, officers, agents or employees shall be liable to any person for any
error of judgment, or any action taken, suffered or omitted to be taken, under
this Agreement or the Escrow Agreement, except in the case of its gross
60
negligence, bad faith or willful misconduct. The Shareholders' Representative
may consult with legal counsel, independent public accountants and other experts
selected by it and shall not be liable for any action taken or omitted to be
taken in good faith by it in accordance with the advice of such counsel,
accountants or experts. The Shareholders' Representative shall not have any duty
to ascertain or to inquire as to the performance or observance of any of the
terms, covenants or conditions of this Agreement or the Escrow Agreement. As to
any matters not expressly provided for in this Agreement or the Escrow
Agreement, the Shareholders' Representative shall not be required to exercise
any discretion or take any action. Each Shareholder severally shall indemnify
and hold harmless and reimburse the Shareholders' Representative from and
against such Shareholder's ratable share of any and all liabilities, losses,
damages, claims, costs or expenses suffered or incurred by the Shareholders'
Representative arising out of or resulting from any action taken or omitted to
be taken by the Shareholders' Representative under this Agreement or the Escrow
Agreement, other than such liabilities, losses, damages, claims, costs or
expenses arising out of or resulting from the Shareholders' Representative's
gross negligence, bad faith or willful misconduct. Notwithstanding anything to
the contrary herein or in the Escrow Agreement, (a) the Shareholders'
Representative is not authorized to, and shall not, accept on behalf of any
Shareholder any Merger Consideration to which such Shareholder is entitled under
this Agreement and (b) the Shareholders' Representative shall not in any manner
exercise, or seek to exercise, any voting power whatsoever with respect to
shares of capital stock of the Company or Parent now or hereafter owned of
record or beneficially by any Shareholder unless the Shareholders'
Representative is expressly authorized to do so in a writing signed by such
Shareholder. In all matters relating to this Article XI, the Shareholders'
Representative shall be the only party entitled to assert the rights of the
Shareholders, and the Shareholders' Representative shall perform all of the
obligations of the Shareholders hereunder. Parent shall be entitled to rely on
all statements, representations and decisions of the Shareholders'
Representative.
SECTION 11.06. Exclusive Remedy. Except with respect to claims based on
fraud or for non-cash equitable remedies, from and after the Effective Time the
sole and exclusive remedy for any breach of any representation or warranty
contained in the Acquisition Documents and for any other claim arising out of
the Transactions contemplated thereunder shall be pursuant to the
indemnification provisions of Article VIII and this Article XI and
indemnification claims pursuant to Article VIII and Section 11.02(a) (other
than, with respect to the Voting and Subscription Agreement and the Subscription
Agreements, breaches of covenants therein and other obligations to be performed
thereunder at or after the Effective Time) may be satisfied only in accordance
with the Escrow Agreement only out of cash held in the Cash Escrow Fund.
ARTICLE XII
GENERAL PROVISIONS
SECTION 12.01. Notices. All notices, requests, claims, demands and
other communications hereunder shall be in writing and shall be given (and shall
be deemed to have been duly given upon receipt) by delivery in person, by
telecopy or by registered or certified mail (postage prepaid, return receipt
requested) to the respective parties at the following
61
addresses (or at such other address for a party as shall be specified in a
notice given in accordance with this Section 12.01):
if to Parent or Merger Sub:
Orthofix International N.V.
00000 Xxxxxx Xxxxxx, Xxxxx 000
Xxxxxxxxxxxx, XX 00000
Facsimile No.: (000) 000-0000
Attention: Xxxxxx Xxxx
Email: Xxxxxxx@xxxxxxxx.xxx
with a copy to:
Shearman & Sterling LLP
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Facsimile No.: (000) 000-0000
Attention: Xxxx Xxxxxxxx
Email: xxxxxxxxx@xxxxxxxx.xxx
if to the Company:
Breg, Inc.
0000 Xxxxxxxx Xxx
Xxxxx, XX 00000
Attention: Xxxxxxx X. Xxxxx
with a copy to:
Xxxx X. Xxxx, A Professional Law Corporation
0000 Xxxxx Xxxxxx, Xxxxx 000
Xxxxxxxx, XX 00000
Attention: Xxxx X. Xxxx
with an additional copy to:
Xxxxxx, Xxxxxxxxxx & Xxxxxxxxx LLP
000 Xxxxxxx Xxxxxx
Xxx Xxxxxxxxx, XX 00000
Facsimile No.: (000) 000-0000
Attention: Xxxx X. Xxxxxx
Email: xxxxxxx@xxxxxx.xxx
if to the Shareholders' Representative:
Xxxxxxx X. Xxxxx
0000 Xxxxxx Xxxxxxxx
00
Xxxxxx Xxxxx Xx, XX 00000
with a copy to:
Xxxx X. Xxxx, A Professional Law Corporation
0000 Xxxxx Xxxxxx, Xxxxx 000
Xxxxxxxx, XX 00000
Attention: Xxxx Xxxx
with an additional copy to:
Xxxxxx, Xxxxxxxxxx & Xxxxxxxxx LLP
000 Xxxxxxx Xxxxxx
Xxx Xxxxxxxxx, XX 00000
Facsimile No.: (000) 000-0000
Attention: Xxxx X. Xxxxxx
Email: xxxxxxx@xxxxxx.xxx
SECTION 12.02. Severability. If any term or other provision of this
Agreement is 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 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 as closely as possible in a mutually acceptable manner in
order that the Transactions be consummated as originally contemplated to the
fullest extent possible.
SECTION 12.03. Entire Agreement. This Agreement (including the
Exhibits, the Company Disclosure Schedule and the Parent Disclosure Schedule),
the Escrow Agreement, the Voting and Subscription Agreement, the Subscription
Agreements and the Confidentiality Agreement constitute the entire agreement
among the parties with respect to the subject matter hereof and supersede,
except as set forth in Section 7.02(b), all prior agreements and undertakings,
both written and oral, among the parties, or any of them, with respect to the
subject matter hereof.
SECTION 12.04. Assignment; Binding Effect. Neither this Agreement nor
any of the rights, interests or obligations hereunder shall be assigned by any
of the parties hereto (whether pursuant to a merger, by operation of law or
otherwise), except that Parent and Merger Sub may assign all or any of their
rights and obligations hereunder to any affiliate of Parent, provided that no
such assignment shall relieve Parent or Merger Sub of its respective obligations
hereunder. This Agreement shall be binding upon and shall inure to the benefit
of the parties hereto and their respective successors and permitted assigns.
SECTION 12.05. 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.
63
SECTION 12.06. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement were
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or equity.
SECTION 12.07. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California applicable to
contracts executed in and to be performed in that State (other than those
provisions set forth herein that are required to be governed by the CGCL or the
DGCL). All actions and proceedings arising out of or relating to this Agreement
shall be heard and determined exclusively in any state or federal court sitting
in the State of California. The parties hereto hereby (a) submit to the
exclusive jurisdiction of any state or federal court sitting in the State of
California for the purpose of any Action arising out of or relating to this
Agreement brought by any party hereto, and (b) irrevocably waive, and agree not
to assert by way of motion, defense, or otherwise, in any such Action, any claim
that it is not subject personally to the jurisdiction of the above-named courts,
that its property is exempt or immune from attachment or execution, that the
Action is brought in an inconvenient forum, that the venue of the Action is
improper, or that this Agreement or the Transactions may not be enforced in or
by any of the above-named courts.
SECTION 12.08. Waiver of Jury Trial. EACH OF THE PARTIES HERETO HEREBY
WAIVES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW ANY RIGHT IT MAY HAVE
TO A TRIAL BY JURY WITH RESPECT TO ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING
OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS. EACH OF
THE PARTIES HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF
ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY
WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THAT FOREGOING WAIVER AND
(B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER
INTO THIS AGREEMENT AND THE TRANSACTIONS, AS APPLICABLE, BY, AMONG OTHER THINGS,
THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 12.08.
SECTION 12.09. Headings. The descriptive headings contained in this
Agreement are included for convenience of reference only and shall not affect in
any way the meaning or interpretation of this Agreement.
SECTION 12.10. Incorporation of Exhibits. The Company Disclosure
Schedule, the Parent Disclosure Schedule, the Schedules and all Exhibits
attached hereto and referred to herein are hereby incorporated herein and made a
part hereof for all purposes as if fully set forth herein.
SECTION 12.11. No Waiver. No failure or delay by any party in
exercising any right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
The rights and remedies herein provided shall be cumulative and not exclusive of
any rights or remedies provided by law.
64
SECTION 12.12. Counterparts. This Agreement may be executed and
delivered (including by facsimile transmission) 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, Parent, Merger Sub, the Company and the
Shareholders' Representative have caused this Agreement to be executed as of the
date first written above.
ORTHOFIX INTERNATIONAL N.V.
By /s/ XXXXXXX XXXXXXXX
------------------------------------
Name: Xxxxxxx Xxxxxxxx
Title: Chief Executive Officer
TREVOR ACQUISITION, INC.
By /s/ XXXXXXX XXXXXXXX
------------------------------------
Name: Xxxxxxx Xxxxxxxx
Title: Chief Executive Officer
BREG, INC.
By /s/ XXXXXXX X. XXXXX
------------------------------------
Name: Xxxxxxx X. Xxxxx
Title: Chief Executive Officer
XXXXXXX X. XXXXX, as SHAREHOLDERS'
REPRESENTATIVE
/s/ XXXXXXX X. XXXXX
---------------------------------------
