MERGER AGREEMENT
This
Merger Agreement (this "Agreement"), dated as of September 13, 2010, is by and
among (i) RADNET MANAGED IMAGING SERVICES, INC., a California corporation
("RMIS" or "Buyer"), (ii) INC Merger Sub, Inc. ("Merger Sub") and (iii) IMAGE
MEDICAL CORPORATION, a Delaware corporation (the "Acquired
Entity").
BACKGROUND
A. RMIS
desires to acquire all of the Acquired Entity's outstanding Common
Stock,
B. This
Agreement contemplates that RMIS will acquire the Common Stock through a merger
of Merger Sub with and into the Acquired Entity,
AGREEMENT
NOW,
THEREFORE, in consideration of the premises and the mutual promises herein made,
and in consideration of the representations, warranties, and covenants contained
herein, Buyer, Merger Sub and Acquired Entity agree as follows:
ARTICLE
1.
DEFINITIONS
"Action" means any
action, appeal, petition, plea, charge, complaint, claim, suit, demand,
litigation, arbitration, mediation, hearing, inquiry, investigation or similar
event, occurrence, or proceeding not related to Taxes.
"Acquired
Entity Share" means each share of Common Stock of Acquired
Entity.
"Affiliate" or "Affiliated" with
respect to any specified person, means a Person that, directly or indirectly,
through one or more intermediaries, controls or is controlled by, or is under
common control with, such specified Person, For this definition, "control" (and
its derivatives) 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 ownership of voting Equity Interests, as
trustee or executor, by Contract or credit arrangements or
otherwise.
"Average
Working Capital" means the average Working Capital of Acquired Entity for
a consecutive ten (10) business day period ending at 5;00 p.m. on the day prior
to the Closing Date.
"Base
Merger Consideration" has the meaning set forth in Section
22(a).
"Best
Efforts." means the
efforts, time and costs that a prudent Person desirous of achieving a result
would use, expend, or incur in similar circumstances to ensure that such result
is achieved as expeditiously as possible.
"Breach"
means (a) any breach, inaccuracy, failure to perform, failure to comply,
conflict with, failure to notify, default, or violation or (b) any other act,
omission, event, occurrence or condition the existence of which would (i) permit
any Person to accelerate any obligation or terminate, cancel, or modify any
right or obligation or (ii) require the payment of money or other
consideration.
"Business
Day" means a day on which banks are ordinarily open for transaction of
normal banking business in California.
"Buyer
Indemnified Parties" means Acquired Entity, and its officers, directors,
managers, employees, agents, representatives, attorneys, and their Affiliates
and the Stockholders and their Representatives and Affiliates.
"Closing
Consideration" has the
meaning set forth in Section 2.2(a),
"Code" means the
Internal Revenue Code of 1986.
"Common
Stock"
means the common stock, S0.001 par value, of Acquired
Entity.
"Confidential
Information" Means any information concerning the business and affairs of
Buyer or Acquired Entity.
"Commitment"
means (a) options, warrants, convertible securities, exchangeable
securities, subscription rights, conversion rights, exchange rights, or other
Contracts that could require a Person to issue any of its Equity Interests or
sell any Equity Interests it owns in another Person; (b) any other securities
convertible into, exchangeable or exercisable for, or representing the right to
subscribe for any Equity Interest of a Person or owned by a Person; (c)
statutory preemptive rights or pre-emptive right granted under a Person's
Organizational Documents; and (d) stock appreciation rights, phantom stock,
profit participation, or other similar rights with respect to a
Person.
"Consent" means
any consent, approval, notification, waiver, or other similar action that is
necessary or convenient.
"Contract" means any
Enforceable contract, agreement, arrangement, commitment, letter of intent,
memorandum of understanding, promise, obligation, right, instrument, document,
or other similar understanding, whether written or oral.
"Damages" means all
damages, losses, Liabilities, or expense (including reasonable fees and expenses
of outside attorneys),
"Deferred
Compensation" means the deferred compensation or retention bonus payable
to certain employees of the Acquired Entity as described on Exhibit 2. In full
satisfaction of the Acquired Entity's Deferred Compensation obligation, a
portion of the Deferred Compensation will be paid at Closing and treated as an
Employee Payment, and a portion will be deferred (the "Deferred Amount"). The
Deferred Amount will be paid in 48 equal monthly installments, together with
interest at a rate of 4% per year. The Deferred Compensation payments (whether
Deferred Amounts or Employee Payments) will be subject to applicable
withholding. Each Employee's Deferred Compensation will be evidenced by an
agreement between the Acquired Entity and the Employee.
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"DGCL" means the
Delaware General Corporation Law.
"Earnout
Payment" means
thirty-five percent (35%) of the amount by which the Revenues collected by the
Surviving Corporation during a 12 month measuring period exceeds Five Million
Dollars ($5,000,000).
"Effective
Time"
has the meaning set forth in Section 2.5(a).
"Employee Payments" means
the amounts owed to certain employees of the Acquired Company upon the
consummation of the Merger in the amounts set forth in Exhibit 2, to be paid
from the Closing Consideration.
"Encumbrance" means any
chose, encumbrance, security interest, lien, option, equity, adverse claim or
restriction, except for any restrictions on transfer generally arising under any
applicable Law.
"Enforceable" — a
Contract is "Enforceable" if it is the legal, valid, and binding obligation of
the applicable Person enforceable against such Person in accordance with its
terms, except as such enforceability may be subject to the effects of
bankruptcy, insolvency, reorganization, moratorium, or other Laws relating to or
affecting the rights of creditors, and general principles of
equity,
"Environmental,
Health, and Safety Requirements" means
all Laws concerning or relating to public health and safety, worker/occupational
health and safety, and pollution or protection of the environment, including
those relating to the presence, use, manufacturing, refining, production,
generation, handling, transportation, treatment, recycling, transfer, storage,
disposal, distribution, importing, labeling, testing, processing, discharge,
release, threatened release, control, or other action or failure to act
involving cleanup of any hazardous materials, substances or wastes, chemical
substances or mixtures, pesticides, pollutant, contaminants, toxic chemicals,
petroleum products or byproducts, asbestos, polychlorinated biphenyls, noise, or
radiation, each as amended and as now in effect,
"Equity
Interest" means (a)
with respect to a corporation, any and all shares of capital stock, (b) with
respect to a partnership, limited liability company, trust or similar Person,
any and all units, interests (equitable or otherwise) or other
partnership/limited liability company interests, and (c) any other direct equity
ownership or participation in a Person.
"ERISA" means the
Employee Retirement Income Security Act of 1974,
"Expiration
Date"
means the thirty-first day after the execution of this
Agreement,
"GAAP" means
United States generally accepted accounting principles as in effect as of the
date hereof.
"Governmental
Body"
means any legislature, agency, bureau, department, commission, court,
political subdivision, tribunal or other instrumentality of government whether
local or foreign.
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"Holdback" means the $100,000 holdback
from the Closing Consideration to be paid to the Stockholder Representative, to
be used by the Stockholder Representative on behalf of the Stockholders as
described in Section 6.5,
"Indemnified
Parties" means, individually and as a group, the Buyer Indemnified
Parties and the Seller Indemnified Parties.
"Indemnitor" means any Party having any
Liability to any Indemnified Party under this Agreement.
"Intellectual
Property" shall mean, to the extent it pertains to or is or has been used
in the business of the Acquired Entity or its Subsidiaries, as the case may be,
any and all of the Acquired Entity or its Subsidiaries, as the case may be,
right, title and interest in and to United States and foreign patents,
copyrights, mask works, trade and service names and marks, whether or not
registered, pending, issued or applied for; technical knowledge; works,
processes and designs; hardware; software (in source code and object code form,
including all related annotations and listings); inventions; trade secrets and
other intellectual property rights; all things authored, discovered, developed,
designed or acquired by the Acquired Entity or its Subsidiaries, as the case may
be, or, to the extent that the Acquired Entity or its Subsidiaries, as the case
may be, have any right, title, or interest thereto, any of their agents,
contractors and employees in any stage of development, regardless of whether any
or all of the foregoing constitutes copyrightable or patentable subject matter
or is in tangible or intangible form; and all embodiments, expressions,
representations, fruits and products of any of the foregoing.
"Knowledge" means with respect to (a)
the Acquired Entity, the actual knowledge of the following individuals with no
investigation other than owning and operating the Acquired Entity in the
historical course of their business: all executive officers, and directors of
Acquired Entity and (b) any Person other than the Acquired Entity, the actual
knowledge of such Person and its Representatives.
"Law" means any applicable
statute, rule, regulation, administrative requirement, code or ordinance of any
Governmental Body, each as amended and now in effect.
"Liability"
or "liable" means
any liability or obligation, whether known or unknown, asserted or unasserted,
absolute or contingent, matured or unmatured or conditional or
unconditional.
"Material
Adverse Change (or Effect)" means any material adverse
effect on (i) the business, financial condition or operations of the Acquired
Entity or (ii) the ability of the Acquired Entity to consummate the Merger and
the other transactions contemplated by this Agreement without material delay;
provided, however, that for purposes of this Agreement, (A) conditions, events
or circumstances generally adversely affecting the United States economy, the
United States securities markets or the software industry in general or the
imaging software industry, specifically, so long as such conditions, events or
circumstances do not materially disproportionately affect the Acquired Entity;
or (B) conditions, events or circumstances arising out of or attributable to
changes in laws, regulations or interpretations thereof by any Governmental Body
affecting the software industry specifically, (C) the negotiation, execution or
the announcement of this Agreement, the undertakings and performance or
observance of the obligations contemplated by this Agreement or necessary to
consummate the transactions contemplated by the Agreement, including the impact
thereof on relationships, contractual or otherwise, with customers, suppliers,
distributors, partners or employees, (D) acts of war, insurrection, sabotage or
terrorism, (E) the failure, in and of itself, by Acquired Entity to meet any
internal or published projections, forecasts or revenue or earnings predictions
for any period ending on or after the date of this Agreement, shall, in each
case, not be taken into account in determining whether there has been or would
be a Material Adverse Change (or Effect).
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"Merger" means the
merger of Merger Sub with and into the Acquired Entity as contemplated by this
Agreement.
"Merger
Consideration" means the Base Merger Consideration plus the Earn Out
Payments.
"Merger
Note"
means the promissory notes issued by Buyer to the Stockholders in the
form attached as Exhibit 1 to this Agreement, Each Promissory Note will have a
term of four (4) years, will bear interest at the rate of four percent (4%) per
year, and will be fully amortizing, payable monthly.
"Negotiated
Debt" means the
long term debt of the Acquired Entity which will be repaid by the Surviving
Corporation at the Closing, in the amounts set forth on Exhibit 3, and deducted
from the Closing Consideration.
"Notes" means the
Merger Notes, the Tier 1 Notes and the Tier 2 Notes.
"Ordinary
Course of Business" means
the ordinary course of business consistent with past custom and practice
(including with respect to quantity, quality and frequency) of the relevant
Person.
"Organizational
Documents" means
the articles of organization, charter, articles of formation, regulations,
bylaws, operating agreement, and all other similar documents, instruments or
certificates executed, adopted or filed in connection with the creation,
formation, or organization of a Person, including any amendments
thereto.
"Permit" means any
permit, license, certificate, approval, consent, notice, waiver, franchise,
registration, filing, accreditation, or other similar authorization required by
any Law or Governmental Body.
"Permitted
Encumbrances" means (i) Encumbrances disclosed on the Acquired Entity
Disclosure Schedule, (ii) liens for Taxes, assessments, governmental charges or
levies or mechanics' and other statutory liens which are not material in amount
relative to the property affected, or which are not yet delinquent or can be
paid without penalty or are being contested in good faith and by appropriate
proceedings in respect thereof or for which an appropriate reserve has been
established, and (iii) imperfections of title which are not substantial in
amount relative to the property affected and which do not materially interfere
with the present use of the property subject thereto or affected
thereby.
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"Per
Share Closing Consideration" means an
amount determined by dividing the total Closing Consideration by the total
Number of Acquired Entity Shares as of the Closing Date.
"Per
Share Merger Note" means an
amount determined by dividing the aggregate principal amount of the Merger Notes
by the total number of Acquired Entity Shares outstanding as of the Closing
Date.
"Person" means any
individual, partnership, limited liability company, corporation, association,
joint stock company, trust, entity, joint venture, labor organization,
unincorporated organization, or Governmental Body.
"Post-Closing
Period" means any
period ending after the Closing Date.
"Pre-Closing
Period" means any
period ending prior to Closing Date.
"Pro-Rata" means: (i)
with respect to each of the Stockholders the percentage that the number of
Acquired Entity Shares owned by such Stockholder bears to the total number of
Acquired Entity Shares, (ii) with respect to any Notes, the percentage that the
principal amount of the applicable Notes bears to the principal amounts of all
applicable Notes, (iii) with respect to any Deferred Compensation, the
percentage the amount of such Deferred Compensation bears to all Deferred
Compensation, and (iv) with respect to any combination of Notes or Deferred
Compensation, the amount that the principal of the applicable Note or the amount
of Deferred Compensation owed to any employee bears to the total principal
balance of all Notes and the total Deferred Compensation owed to all
employees.
"Radnet
Repayment" means an
amount equal to S87,500 to be repaid to Buyer pursuant to the terms of a
promissory note executed by the Acquired Entity on September ,
2010.
"Receivables" means all
receivables of the Acquired Entity, including all Contracts in transit,
manufacturers warranty receivables, notes receivable, accounts receivable. trade
account receivables, and insurance proceeds receivable.
"Representatives" means
authorized Persons acting on behalf of another Person, including such Person's
officers, directors, members, employees, representatives, agents, independent
accountants, investment bankers and counsel.
"Retained
Litigation Matters" means
those litigation matters for which the Stockholders will be responsible pursuant
to Section 6.4 of this Agreement.
"Revenues" means
revenue earned by the Surviving Corporation after the Closing Date as the result
of the sale, rental, maintenance and support of software, handling and staging
of hardware (but excluding sale of computers, servers and related equipment) and
professional services that the Surviving Corporation delivered to its customers
and clients (net of refunds and returns). Revenues shall not include that
portion of revenue attributable to software, hardware or professional services
delivered to Buyer or any radiology groups providing professional services
primarily to Buyer. If a radiology group which was a customer of the Acquired
Entity or its Subsidiaries prior to the Closing Date is acquired by Buyer after
the Closing Date, Revenues will include revenue attributable to such group. if a
radiology group which provides services to the Buyer enters into a commercial
venture with facilities not owned by the Buyer and employs the software of the
Acquired Entity, then Revenues will include those revenues attributable to that
group which result from the commercial venture.
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"Schedules" means the
scheduled disclosures included in each of the Buyer Disclosure Schedule and the
Acquired Entity Disclosure Schedule, as the case may be.
"Securities
Act"
means the Securities Act of 1933.
"Seller
Indemnified Parties" means (a) Buyer and its officers, directors,
managers, employees, agents, representatives, and (b) the Surviving Corporation
(as defined in Section
2.1.).
"Stockholder"
means each holder of
Common Stock as of the Closing.
"Stockholder
Representative" has the
meaning set forth in Section 6.5.
"Straddle
Tax Return" rneans a Tax Return which includes a period before and after
the Closing.
"Subsidiary" means,
with respect to any Person: (a) any corporation of which 50% or more of the
total voting power of all classes of the Equity Interests entitled (without
regard to the occurrence of any contingency) to vote in the election by members
is owned by such Person directly or through one or more other Subsidiaries of
such Person and (b) any Person other than a corporation of which at least a
majority of the Equity Interests (however designated) entitled (without regard
to the occurrence of any contingency) to vote in the election of the governing
body, partners, managers or others that Nvill control the management of such
entity is owned by such Person directly or through one or more other
Subsidiaries of such Person.
"Tax" means any
federal, state, local, or foreign income, gross receipts, license, payroll,
employment, excise, severance, stamp, occupation, premium, windfall profits,
environmental, customs, ad valorem, duties, capital stock, franchise, profits,
withholding, social security, unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or add-on
minimum, estimated, or other tax of any kind whatsoever, including any interest,
penalty, or addition thereto, whether disputed or not.
"Tax
Return" means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes required to be filed with any
Governmental Body, including any schedule or attachment thereto, and including
any amendment thereof.
"Termination
Date" means the date on which this Agreement is terminated pursuant to
Section 8.1.
"Threatened"
means a demand or statement has been made in writing or a written notice
has been given.
"Tier
1 Notes" means the
promissory notes issued to certain creditors of the Acquired Entity in full
satisfaction of the Acquired Entity's obligation to them as described on Exhibit
3.
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"Tier
2 Notes" means the
promissory notes issued to certain creditors of the Acquired Entity in full
satisfaction of the Acquired Entity's obligation to them as described on Exhibit
3.
"Transaction" means all
of the transactions contemplated by this Agreement, including: (a) the Merger
and Buyer's delivery of the Merger Consideration; (b) the execution, delivery,
and performance of all of the documents, instruments and agreements to be
executed, delivered, and performed in connection herewith; and (e) the
performance by Buyer, Merger Sub and Acquired Entity of their respective
covenants and obligations (pre- and post-Closing) under this
Agreement.
"Transaction
Documents" means this
Agreement, its exhibits, schedules and related materials.
"Transaction
Expenses" has the
meaning set forth in Section 10.12, to be deducted from the Closing
Consideration.
"Working
Capital" means the
cash and accounts receivable less accounts payable (including credit card debt)
of Acquired Entity and its Subsidiaries.
ARTICLE
2.
THE
MERGER TRANSACTION
2.1 Merger.
On and
subject to the terms and conditions of this Agreement, Merger Sub will merge
with and into Acquired Entity (the "Merger") at the Effective Time.
Acquired Entity shall be the corporation surviving the Merger (the "Surviving Corporation"). The
Buyer and the Acquired Entity will each take all action necessary in accordance
with applicable law and their respective Articles and Certificates of
Incorporation and Bylaws to consummate the Merger in accordance with the
provisions hereof and the Agreement of Merger, and in the case of the Acquired
Entity to obtain as promptly as practicable the requisite Stockholder approval
of the Merger, and in the case of Buyer to obtain the approval of its Board of
Directors to issue the Merger Consideration and to obtain the approval of the
Board of Directors and stockholders of Merger Sub to the Merger,
2.2 Merger
Consideration,
(a) Merger
Consideration. The Base Merger Consideration is equal to Ten Million
Seven Hundred Fifty Thousand Dollars ($10,750,000) adjusted as follows: (u)
increased by the amount of Average Working Capital of Acquired Entity and its
Subsidiaries at Closing which exceeds Five Hundred Forty Thousand Dollars
($540,000) ("Working Capital
Adjustment") (v) decreased by the amount of Negotiated Debt paid at
Closing ("Debt Adjustment"),
(w) decreased by the amount of Employee Payments paid at Closing, (x)
decreased by the Transaction Expenses, (y) decreased by the
amount of Average Working Capital of Acquired Entity and its Subsidiaries at
Closing which is less than Three Hundred Forty Thousand Dollars (S340,000), and
(z) decreased by the Radnet Repayment. The Base Merger Consideration is to be paid as follows: (i) Eight
Million Four Hundred Thousand Dollars ($8,400,000), plus the Working Capital
Adjustment and less the adjustments pursuant to subparagraphs (v), (w), (x), (y)
and (z) of this subparagraph 2,2(a), in cash at the Closing ("Closing Consideration");
(ii) Promissory Notes in the aggregate amount equal to the difference
between (A) Two Million Two Hundred Fifty Thousand Dollars ($2,250,000), and (B)
the sum of; (1) the total principal amounts of the Tier 1 Notes, (2) the total
principal amounts of the Tier 2 Notes, and (3) the total Deferred Amounts, and
(iii) the Holdbaek which will be paid to the Stockholder
Representative.
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(b) Earnout
Payments. For each of the two (2) twelve (12) month periods beginning on
the first calendar day of the month following the Closing Date the Stockholders
of Acquired Entity may be entitled to additional Merger Consideration if the
Earnout Payment has been earned. If the Earnout Payment has been earned, the
Earnout Payment shall be made within ninety (90) days of the end of each twelve
(12) month period. Pursuant to an agreement between the Acquired Entity and
Xxxxxxx Partners, an amount equal to 6% of each Earnout Payment shall be paid to
Xxxxxxx Partners, and the balance shall be paid to the Stockholders. The Earnout
Payments will be calculated by Buyer's accountants subject to review by
Stockholder Representative as provided in this section. Buyer will provide
Stockholder Representative with the final financial statements used to calculate
revenues and make available for inspection the related work papers of Buyer's
accountants. Stockholder Representative will have forty-five (45) days after
receipt of such statement to object to the calculation of revenues and the
earnout payment. Buyer and Stockholder Representative will seek in good faith to
resolve any disagreement by negotiation. If they are unable to do so, either
party may submit any dispute regarding the calculation of revenues to
arbitration. A dispute as to the calculation of the revenues will not be grounds
for withholding or delaying payment of any portion of the earnout payment
acknowledged by Buyer to be payable, and acceptance of payment !Or the
undisputed amount of the eamout payment will not prejudice Stockholder's claim
for additional sums.
2.3 The
Closing.
The
closing (the "Closing")
will take place at the offices of Buyer, 0000 Xxxxxx Xxx, Xxx Xxxxxxx, XX
00000, commencing at 9:00 a.m., local time, on the Business Day following the
satisfaction or waiver of all conditions to the obligations of the Parties to
consummate the Merger (other than conditions with respect to actions the
respective Parties will take at the Closing itself) or such other date as Buyer
and Acquired Entity may mutually determine (the "Closing Date").
2.4 Deliveries
at the Closing.
At the
Closing:
(a) Acquired
Entity will deliver to Buyer:
(i) a
certificate, substantially in the form of Exhibit A., duly executed on the
Acquired Entity's behalf, as to whether each condition specified in Section 7.2(a) through
7.2(c) has been satisfied in all respects.
(ii) a
statement prepared in good faith by the Acquired Entity in reasonable detail
showing the Average Working Capital for the measuring period ending as of the
day prior to the Closing Date, which statement will be used to calculate any
adjustment to the Merger Consideration.
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(b) Buyer
will deliver:
(i) to
each Stockholder who has executed a Transmittal Form and delivered certificates
representing the Acquired Entity Shares or a Lost Certificate Affidavit, their
Pro Rata share of the Closing Consideration by wire transfer or cashier's check
(except as to dissenting shares which shall be retained by Buyer);
(ii) to
the Stockholder Representative An Officers' certificate, substantially in the
form of Exhibit B, duly executed on Buyer's behalf, as to whether each condition
specified in Section
7.3(a) and 7.3(b) has been satisfied in all respects.
(iii) To
each Stockholder a Merger Note made payable to such Stockholder in each
Stockholder's Pro Rata share of the aggregate amount of the Promissory
Notes.
(iv)
To each holder of Negotiated Debt, payment of the amount of such debt to
be paid at Closing as set forth in Exhibit 3.
(v) To
each employee entitled to Employee Payments, the amount to which such employee
is entitled to be paid at Closing as set forth in Exhibit 2, which amount \yin be
subject to applicable withholding.
(vi) To
each person entitled to a Tier 1 Note, or Tier 2 Note, a Note made payable to
such person in the amount reflected on Exhibit 3.
(vii) To
each party entitled to Transaction Expenses, the amount to which they are
entitled.
(viii) The
sum of S 100,000 by wire transfer to the Stockholder
Representative.
2.5
Effect of Merger.
(a) General.
The Merger shall become effective at the time (the "Effective Time") Acquired
Entity and Merger Sub file the Certificate of Merger with the Secretary of State
of the State of Delaware. The Merger shall have the effect set forth in the
DGCL. Surviving Corporation may, at any time after the Effective Time, take any
action (including executing and delivering any document) in the name and on
behalf of either Acquired Entity or Merger Sub in order to carry out and
effectuate the transactions contemplated by this Agreement.
(b) Charter.
The Charter of Surviving Corporation shall be amended and restated at and as of
the Effective Time to read as did the certificate of incorporation of Merger Sub
immediately prior to the Effective Time (except that the name of Surviving
Corporation will remain unchanged).
(c) Bylaws.
The bylaws of Surviving Corporation shall be amended and restated at and as of
the Effective Time to read as did the bylaws of Merger Sub immediately prior to
the Effective Time (except that the name of Surviving Corporation will remain
unchanged).
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(d) Directors and Officers. The
directors and officers of Merger Sub shall become the directors and officers of
Surviving Corporation at and as of the Effective Time (retaining their
respective positions and terms of office).
(e) Conversion of Acquired Entity Shares.
At and as of the Effective Time, (A) each Acquired Entity Share (other
than any Dissenting Share) shall be converted into the right to receive an
amount equal to the Per Share Closing Consideration, in cash (without interest)
plus (i) the right to receive its Pro Rata share of the Earnout Payment if and
when paid and (ii) a Merger Note in an amount equal to the Per Share Merger
Note; and (B) each Dissenting Share shall be converted into the right to receive
payment from Surviving Corporation with respect thereto in accordance with the
provisions of the DGCL; provided, however, that the
Merger Consideration shall be subject to equitable adjustment in the event of
any stock split, stock dividend, reverse stock split, or other change in the
number of Acquired Entity Shares outstanding. No Acquired Entity Share shall be
deemed to be outstanding or to have any rights other than those set forth above
in this Section 2.5(e) and in Section 2.5(0 with respect to appraisal rights
after the Effective Time.
(f) Appraisal Rights.
Notwithstanding anything to the contrary herein, Dissenting Shares held
by a Stockholder shall not be converted as of the Effective Time into the right
to receive the Per Share Merger Consideration, but instead shall have such
rights as may be available under the DGCL. At the Effective Time, all Dissenting
Shares shall no longer be outstanding and shall be cancelled and each holder of
Dissenting Shares shall cease to have any rights with respect thereto, except
the right to receive the fair value of such Dissenting Shares in accordance with
Section 262 of the DOCL; provided, however, that if
any such Stockholder shall have failed to perfect or shall effectively withdraw
or lose its right to appraisal and payment under the DCCL, or a court of
competent jurisdiction shall determine that such holder is not entitled to the
relief provided by Section 262, such Stockholder's Acquired Entity Shares shall
thereupon be deemed to have been converted as of the Effective Time into the
right to receive the Per Share Merger Consideration and such Acquired Entity
Shares and shall no longer be Dissenting Shares. Acquired Entity shall give
Buyer prompt notice of all written demands received by Acquired Entity for
appraisal rights. Acquired Entity shall not, except with the prior written
consent of Buyer, make any payment with respect to, or settle or offer to
settle, any such demands. Acquired Entity shall hold the Merger Consideration
that would have been paid in respect to Dissenting Shares as a result of the
Merger had they not been Dissenting Shares.
(g) Conversion of Merger Sub's Capital
Stock. At and as of the Effective Time, each share of Merger Sub's common
stock shall be converted into one share of Surviving Corporation's Common
Stock.
(h) Stock Options. Acquired Entity
shall have no outstanding option, warrant or other right to purchase Acquired
Entity Shares as of the Closing Date.
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(i) Procedure for Payment, Each
Stockholder will be provided with a Transmittal Letter, with instructions for
its use, for the Stockholder to use in surrendering the certificates that
represent such Stockholder's Acquired Entity Shares against payment of the
Merger Consideration. To the extent a Stockholder has submitted the
documentation specified in the Transmittal Letter together with the Acquired
Entity Shares on or prior to the Closing, the Buyer will pay such Stockholder's
Closing Consideration at the Closing. If at the Closing not all Stockholders
have submitted the required documentation, Buyer shall transfer any remaining
Closing Consideration into a separate account, to be used solely for paying the
Closing Consideration ("Payment
Account"). If at the end of 180 days after the Effective
Time funds remain in the Payment Account, Buyer may pay over to the Surviving
Corporation such remaining funds, and thereafter all former Stockholders shall
be entitled to look to Surviving Corporation (subject to any abandoned property,
escheat and other similar laws) as general creditors thereof with respect to
Closing Consideration payable upon surrender of their certificates.
(j) Closing of Transfer Records.
After the close of business on the Closing Date, transfers of Acquired
Entity Shares outstanding prior to the Effective Time shall not be made on the
stock transfer books of Surviving Corporation.
ARTICLE
3.
REPRESENTATIONS
AND WARRANTIES OF BUYER AND MERGER SUB
Except as
set forth in the disclosure letter delivered at or prior to the execution of
this Agreement (the "Buyer
Disclosure Schedule"), Buyer represents and warrants to the Stockholders
as follows:
3.1 Entity
Status. Buyer is an
entity duly created, formed or organized, validly existing and in good standing
under the Laws of the State of California. Merger Sub is a corporation duly
organized and validly existing under the laws of the State of
Delaware.
3.2 Power and
Authority. Enforceability.
Each of Buyer and Merger Sub has the relevant entity power and authority
to execute and deliver each Transaction Document to which it is a party, and to
perform and consummate the Transaction. Each of Buyer and Merger Sub has taken
all action necessary to authorize the execution and delivery of each Transaction
Document to which it is a party, the performance of their obligations
thereunder, and the consummation of the Transaction. The Transaction Document
has been duly authorized, executed and delivered by and is enforceable against,
Buyer and Merger Sub, to the extent Buyer or Merger Sub is a party
thereto.
3.3 No Violation. Except as set forth on
Schedule 3.3 of the Buyer Disclosure Schedule, the execution and delivery of the
Transaction Document to which Buyer or Merger Sub is a party by Buyer or Merger
Sub and the performance and consummation of the Transaction will not (i) Breach
any Law to which Buyer or Merger Sub is subject or any provision of their
respective Organizational Documents; (ii) Breach any Contract or Permit to which
Buyer or Merger Sub is a party or by which either is bound or to which any of
their assets is subject; (iii) require any Consent.
3.4 Regulatory
Approvals. Neither
Merger Sub nor Buyer has taken any action and do not have any Knowledge of any
fact or circumstance that is reasonably likely to materially impede or delay
receipt of any consents of a Governmental Body or result in the imposition of a
condition or restriction with respect to any such consents.
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3.5 Fraudulent Transfer Law.
Assuming the Acquired Entity is not insolvent immediately prior to the
Closing Date, the Acquired Entity will not be insolvent immediately after the
Closing Date, taking into account changes in assets and Liabilities of the
Acquired Entity as a result of the Merger and the other transactions
contemplated hereby.
3.6 Acquired Entity Review. Buyer and Merger Sub
represent and warrant that they:
(i) have
such Knowledge and experience in financial and business matters that they are
capable of evaluating the merits and risks of its investment in the Common Stock
contemplated hereby, and that Buyer is able to bear the economic risk of such
investment indefinitely.
(ii) have
or by the Closing Date will have (A) had the opportunity to meet with
representative officers and other representatives of Acquired Entity to discuss
Acquired Entity's business, assets, liabilities, financial condition, cash flow,
and operations, and (B) received all materials, documents and other information
that it deems necessary or advisable to evaluate the Acquired Entity and the
Transaction.
(iii) assisted
by their Representatives, have conducted their own independent investigation,
review and analysis of the Acquired Entity, including, without limitation, its
Representatives have been provided reasonable access to the properties,
premises, records and key employees of Acquired Entity for the purpose of such
investigation, review and analysis. In entering into this Agreement, Buyer and
Merger Sub have solely relied upon their own investigation, review and analysis
and the representations and warranties contained in this Agreement, and agree,
to the fullest extent permitted by law, that neither Acquired Entity nor any of
their respective directors, officers, Stockholders, Affiliates or
Representatives shall have any liability or responsibility of any kind
whatsoever to Buyer and Merger Sub on any basis (including, without limitation,
in statements made, to Buyer and Merger Sub prior to the execution of this
Agreement), except to the extent Acquired Entity makes specific representations
and warranties in this Agreement with respect thereto but always subject to the
limitations and restrictions contained in this Agreement.
(iv) are
not aware, based on the independent investigation, review and analysis of the
Acquired Entity, including, without limitation, its assets, condition,
operations and prospects conducted by Buyer and Merger Sub and their
Representatives involved in the due diligence on their behalf, of any Breach
under the representations and warranties set forth in Article 4 of this
Agreement. Buyer and Merger Sub agree that if Buyer and Merger Sub, or any of
their Representatives involved in the due diligence on behalf, has any such
awareness, Buyer and Merger Sub shall xxxx no claim(s) and Acquired Entity shall
not be liable for any Damages in respect of a Breach under the representations
and warranties to which such awareness relates,
If, prior
to Closing, Buyer and Merger Sub becomes aware of a Breach under the
representations and warranties set forth in Article 4 of this Agreement, it
shall give Acquired Entity notice thereof (stating the nature of the fact,
circumstance or event concerned, as well as the amount of the Damages expected)
as soon as reasonably possible after Buyer or Merge Sub has become aware of such
Breach.
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3.7 Brokers' Fees. Neither Buyer
nor Merger Sub has any Liability to pay any compensation to any broker, finder,
or agent with respect to the Transaction.
ARTICLE
4.
REPRESENTATIONS
AND WARRANTIES CONCERNING THE
ACQUIRED
ENTITY
Except as
set forth in the Acquired Entity disclosure letter delivered at or prior to the
execution of this Agreement by the Seller (the "Acquired Entity Disclosure
Schedule"), Acquired Entity, represents and warrants to Buyer as
follows:
4.1 Corporate
Status.
Acquired
Entity is an entity duly created, formed or organized, validly existing, and in
good standing under the Laws of the State of Delaware. Acquired Entity and each
of its Subsidiaries is duly authorized to conduct its business and is in good
standing under the laws of each jurisdiction where such qualification is
required except where the failure to be so qualified would not, individually or
in the aggregate, have a Material Adverse Effect. Acquired Entity and each of
its Subsidiaries has the requisite power and authority necessary to own or lease
its properties and to carry on
its business as currently conducted. Acquired Entity has delivered to
Buyer correct and complete copies of Acquired Entity's Organizational Documents,
as amended to date. Acquired Entity is not in Breach of any provision of its
Organizational Documents.
4.2 Power
and Authority; Enforceability.
Acquired
Entity has the relevant entity power and authority necessary to execute and
deliver each Transaction Document to which it is a party and to perform and
consummate the Transaction. Acquired Entity has taken all action necessary to
authorize the execution and delivery of each Transaction Document to which it is
a party, the performance of Acquired Entity's obligations thereunder, and the
consummation of the Transaction. Each Transaction Document to which Acquired
Entity is a party has been duly authorized, executed, and delivered by, and is
Enforceable against, Acquired Entity,
4.3 No
Violation.
Except as
set forth on Section
4.3 of the Acquired Entity Disclosure Schedule, the execution and the
delivery of the applicable Transaction Document by the Acquired Entity and the
performance of its obligations hereunder and thereunder, and consummation of the
Transaction by Acquired Entity will not (a) to Acquired Entity's Knowledge,
Breach any Law to which Acquired Entity is subject or any provision of the
Organizational Documents of Acquired Entity, except where such Breach could not
reasonably be expected to have a Material Adverse Effect; (b) Breach any
Contract or Permit to which Acquired Entity is a party or by which it is bound
or will not create any Encumbrance on any of its assets (other than Permitted
Encumbrances) except where such Breach or Encumbrance could not reasonably be
expected to have a Material Adverse Effect; or (e) require any Consent, except
where failure to obtain such Consent would not have a Material Adverse Effect,
except any notifications or filings to relevant state or federal regulatory
agencies. The copy of the Acquired Entity's Organizational Documents that were
provided to Buyer are accurate and complete and reflect all amendments made
through the date hereof. The Acquired Entity's minute book and other records
made available to Buyer for review reflect all material actions taken and
authorizations made at meetings of Acquired Entity's boards of directors or any
committees thereof and at any Equity Interest owner meetings
thereof.
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4.4 Brokers'
Fees.
Acquired
Entity has no Liability to pay any compensation to any broker, finder, or agent
with respect to the Transaction for which Buyer or any Acquired Entity could
become directly or indirectly Liable, except the obligation of Acquired Entity
to Xxxxxxx Partners and Xxxxxx Xxxxx.
4.5 Capitalization.
Acquired
Entity has: (i) authorized 50,000,000 shares of Common Stock, par value $0.001
per share, of which 25,340,127 are issued and outstanding, and (ii) authorized
10,000,000 shares of preferred stock, par value of $0.001 per share, of which
none is issued and outstanding. All of the issued and outstanding Common Stock:
(a) has been duly authorized and are validly issued, fully paid, and
nonassessable, and (b) was issued in material compliance with all applicable
state and federal securities Laws. No Commitments will exist with respect to the
Common Stock of the Acquired Entity as of the Closing Date and no Commitments
will arise in connection with the Transaction. There are no Contracts with
respect to the voting or transfer of the Common Stock. The Acquired Entity is
not obligated to redeem or otherwise acquire any of its outstanding Common
Stock. The Acquired Entity has no outstanding equity other than the Common
Stock.
4.6 Records
and Subsidiary.
(a) Section 4.6(a) of the
Acquired Entity Disclosure Schedule accurately sets forth the names and titles
of Acquired Entity's officers. Acquired Entity has delivered to Buyer accurate
and complete copies of:
The Stock
Records of Acquired Entity; and
ii. The
Minutes and other Records of the meetings and other proceedings (including any
actions taken by written consent or otherwise without a meeting) of the
Stockholders of Acquired Entity and all Committees of the Acquired
Entity.
(b) Acquired
Entity does not own, directly or indirectly, any interest or investment (whether
equity or debt) in any corporation, partnership, business, trust, or other
entity, except eRAD, Inc., a Pennsylvania corporation, and Kepdoktor Kft, a
Hungarian company operating under a Deed of Foundation. eRAD, Inc. is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Pennsylvania. Kepdoktor Kft is an entity duly organized, validly
existing, and in good standing under the laws of Hungary. All the issued and
outstanding shares of Kepdoktor Kft and eRAD, Inc. are validly issued, fully
paid, and nonassessable, and are owned by Acquired Entity, free and clear of all
liens, encumbrances, security agreements, equities, options, claims, charges and
restrictions and each is in good standing in each jurisdiction where the nature
of its respective businesses or properties require such qualification, except
where the failure to qualify would not have a Material Adverse Effect. There are
no outstanding subscriptions, options, rights, warrants, convertible securities,
or other agreements or commitments obligating Kepdoktor Kft or eRAD, Inc. to
issue or to transfer from treasury any additional shares of its capital stock of
any class. The reference to Acquired Entity herein includes reference to its
Subsidiaries, unless the context clearly would be otherwise,
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4.7 Financial
Statements.
Set forth
on Section 4.7
of the Acquired Entity Disclosure Schedule are the following financial
statements (collectively the "Financial
Statements").
(a) Unaudited
consolidated balance sheets and statements of income, as and for the three (3)
fiscal years ended December 31, 2009, December 31, 2008 and December 31, 2007
for the Acquired Entity, and
(b) Unaudited
consolidated balance sheets and statements of income, (the "Interim Financial Statements")
as and for the six (6) months ended June 30, 2010 (the "Balance Sheet Date") for the
Acquired Entity.
Except as
set forth in Section
4.7 of the Acquired Entity Disclosure Schedule, the Financial Statements
have been prepared generally in accordance with GAAP applied on a consistent
basis throughout the periods covered thereby, present fairly the financial
condition of the Acquired Entity as of such dates and the results of operations
of the Acquired Entity for such periods, are con-eet and complete in all
material reports, and are consistent with the hooks and records of the Acquired
Entity; provided, however, that the Financial Statements lack footnotes and
other presentation items. Since the Balance Sheet Date Acquired Entity has not
effected any change in any method of accounting or accounting practice, except
for any such change required because of a concurrent change in
GAAP.
4.8 Subsequent
Events.
Except as
set forth in Section
4.8 of the Acquired Entity Disclosure Schedule, since the Balance Sheet
Date the Acquired Entity has operated in the Ordinary Course of Business and
there has not been any:
(a) event,
situation or occurrence that individually or in the aggregate has had a Material
Adverse Effect;
(b) any
increase in the
compensation or fringe benefits payable or to become payable to any executive
officer of the Acquired Entity, other than routine increases made in the
Ordinary Course of Business or as required by law or under any existing
agreements;
(c) any
amendments, alterations or modification in the terms of any currently
outstanding Common Stock of the Acquired Entity or any securities convertible
into or exchangeable for such Common Stock, including without limitation any
reduction in the exercise or conversion price of any such rights or securities,
any change to the vesting or acceleration terms of any such rights or
securities, or any change to terms relating to the grant of any such rights or
securities and the Acquired Entity has not sold or otherwise issued any Common
Stock;
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(d) any
material closure, shut down or other elimination of the Acquired Entity's
offices, franchises or any other change in the character of its business,
properties or assets, except for closures, shut downs, or other eliminations
that have not had a Material Adverse Effect;
(e) loan
or advance to or other such agreement with any of its Equity Interest holders,
officers, employees, agents, consultants or other Representatives, except in the
Ordinary Course of Business;
(1) damage,
destruction or loss with respect to any of the properties or assets of the
Acquired Entity that would reasonably be expected to have a Material Adverse
Effect;
(g) sale,
lease, transfer, or assignment of any assets not in the Ordinary Course of
Business;
(h) cancellation,
compromise, waiver, or release of any Action (or series of related Actions)
outside the Ordinary Course of Business;
(i) Material
Contracts entered into or any material rights granted with respect to any
Intellectual Property;
0) amendment,
modification or change (or authorization thereof) to the Organizational
Documents of Acquired Entity;
(k)
event, incident, action, failure to act, or transaction with respect to the
Acquired Entity outside the Ordinary Course of Business; and Acquired Entity has
not committed to any of the foregoing; or
(l)
agreement to do, cause or suffer any of the foregoing.
4.9 Liabilities.
To the
Acquired Entity's Knowledge, Acquired Entity has no Liability, except for (a)
Liabilities quantified on the face of the Financial Statements or disclosed in
any notes thereto and not heretofore paid or discharged, (b) Liabilities that
have arisen after the Balance Sheet Date in the Ordinary Course of Business
which, individually or in the aggregate are not material and are of the same
character and nature as Liabilities quantified on the face of the Interim
Financial Statements or disclosed in any notes thereto, and (e) Liabilities
disclosed in writing to Buyer and included in the hereto attached Schedule 4.9. On the
Closing all of the Acquired Entity's assets shall be free and clear of all liens
and encumbrances, except for those set forth in Schedule 4.9 attached
hereto.
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4.10 Legal
Compliance.
To
Acquired Entity's Knowledge, Acquired Entity has complied with all applicable
Laws, and no Action is pending or Threatened against it alleging any failure to
so comply. To the Acquired Entity's Knowledge, no material expenditures are, or
based on applicable Law, will be required of Acquired Entity for it and its
business and operations to remain in compliance with applicable Law. The
Acquired Entity has all Permits that are required for the conduct of its
business as presently conducted except where the failure to have a Permit could
not reasonably be expected to have a Material Adverse Effect, all such Permits
are in full force and effect and to Acquired Entity's Knowledge, no suspension
or cancellation is Threatened. The Acquired Entity has not received, and to the
Knowledge of Acquired Entity, no employee of the Acquired Entity has ever
received, any notice or other communication (in writing) from any governmental
body or any other Person regarding (i) any actual, alleged, possible or
potential violation of or failure to comply with any term or requirement of any
permit on the part of the Acquired Entity or relating to its business or assets,
or (ii) any actual, proposed, possible or potential revocation, withdrawal,
suspension, cancellation, termination or modification of any governmental
authorization on the part of the Acquired Entity or relating to its business or
assets.
4.11 Tax
Matters.
(a) Except
as provided in Section
4.11 of the Acquired Entity Disclosure Schedule, all Tax Returns that are
required to be filed by or with respect to the Acquired Entity and its
Subsidiaries have been duly filed or if required to be filed prior to the
Closing Date will be filed when due and all such returns are true, complete and
correct in all material respects.
(b) All
Taxes shown to be due on such Tax Returns or if any Taxes are shown to be due on
any Returns filed prior to the Closing Date have been paid or will be paid in
full or reserved on the Balance Sheet.
(c) All
deficiencies asserted or assessments made as a result of any examinations have
been paid in full other than those being contested in good faith by appropriate
proceedings and for which adequate reserves have been established on the Balance
Sheet.
(d) There
are no Liens for Taxes upon the properties or assets of the Acquired Entity
other than Liens for current Taxes not yet due and payable. The Acquired Entity
has made available to Buyer true and correct copies of the United States federal
income Tax Returns (and any foreign tax returns) filed by or with respect to the
Acquired Entity for each of the three most recent fiscal years ended on or
before December 31, 2009, and has provided the Tax Return for December 31,
2009.
(e) The
Acquired Entity has not entered into or become bound by any agreement or consent
pursuant to section 341(f) of the Code. The Acquired Entity will not be required
to include any adjustment in taxable income for any tax period (or portion
thereof) pursuant to section 481 or 263A of the Code or any comparable provision
under state or foreign Tax Laws as a result of transactions or events occurring
or accounting methods employed, prior to the Closing. There is no agreement,
plan, arrangement or other Contract covering any employee or independent
contractor or former employee or independent contractor of the Acquired Entity
that, individually or collectively, could give rise directly or indirectly to
the payment of any amount that would not be deductible pursuant to section 280G
or section 162 of the Code. The Acquired Entity is not a party to or bound by
any tax indemnity agreement, tax sharing agreement, tax allocation agreement or
similar Contract.
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4.12 Real
Property and Leaseholds.
(a) The
Acquired Entity does not own any real property or interest therein.
(b) The
Acquired Entity holds valid and subsisting leasehold interests in all parcels of
real property leased or subleased to the Acquired Entity, free and clear of all
encumbrances.
4.13 Intellectual
Property.
(a) Trade Names, Trademarks and
Copyrights. Neither Acquired Entity nor its Subsidiaries uses any
trademark, service xxxx, trade name, or copyright in their respective business,
and neither owns any trademarks, trademark registrations or applications, trade
names, service marks, copyrights, or copyright registrations or applications,
except as set forth in Schedule 4.13(a) to
the Acquired Entity Disclosure Schedule. To Acquired Entity's Knowledge, no
person owns any trademark, trademark registration or application, service xxxx,
trade name, copyright, or copyright registration or application the use of which
is necessary or contemplated in connection with the operation of Acquired
Entity's or its Subsidiaries' businesses or in connection with the performance
of any contract to which Acquired Entity or any of its Subsidiaries is a
party.
(b) Patents and Patent Rights.
Schedule 4.13(b)(i) to the Acquired Entity Disclosure Schedule is a
complete schedule of all patents, inventions, industrial models, processes,
designs, and applications for patents owned by Acquired Entity or its
Subsidiaries or in which they have any rights, licenses, or immunities. To
Acquired Entity's Knowledge, the patents and applications for patents listed in
Schedule 4.13(b)(i)
to the Acquired Entity Disclosure Schedule are valid and in full force
and effect and except as set forth in Schedule 4.13(b)(i) of the Acquired Entity
Disclosure Schedule are not subject to any taxes, maintenance fees, or actions
falling due within ninety (90) days after the Closing Date. Except as set forth
in Schedule 4.13(b)(i) to
Acquired Entity Disclosure Schedule there have not been any interference actions
or other judicial, arbitration, or other adversary proceedings concerning the
patents or applications for patents listed in Schedule 4.13(b)(i)
to the Acquired Entity Disclosure Schedule. Each patent application is
awaiting action by its respective patent office except as otherwise indicated in
Schedule 4.13(b)(i)
to the Acquired Entity Disclosure Schedule. To the Knowledge of the
Acquired Entity, no Claim has been asserted alleging that Acquired Entity or its
Subsidiaries has infringed or is now infringing on any patent or other right
belonging to any person, firm or corporation. Except as set forth in Schedule 4.13(b)(ii)
to the Acquired Entity Disclosure Schedule, neither Acquired Entity nor
its Subsidiaries is a party to any license, agreement, or arrangement, whether
as licensee, licensor, or otherwise, involving the licensing of any patent or
application for patent. To the Knowledge of Acquired Entity, Acquired Entity and
its Subsidiaries have the right and authority to use such inventions, trade
secrets, processes, models, designs and formulas as are necessary to enable them
to conduct and to continue to conduct all phases of the businesses they
currently conduct in the manner presently conducted by them and that use does
not and will not, conflict with infringe on, or violate any patent or other
rights of others.
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(c) Trade Secrets. To the
Knowledge of Acquired Entity Schedule 4.13(c) to
the Acquired Entity Disclosure Schedule is a list, without extensive or
revealing descriptions, of those items believed by Acquired Entity to be trade
secrets of Acquired Entity and its Subsidiaries, including customer lists,
processes, know-how and other technical data. The location of each such trade
secret's documentation, including as applicable its description, specifications,
charts, procedures, and other material relating to it, is also set forth with it
in that Schedule. To the Knowledge of Acquired Entity, each trade secret's
documentation is current, accurate, and sufficient in detail and content to
identify and explain it, and to allow use by Buyer without reliance on the
special knowledge or memory of others as it is currently used in connection with
the business being conducted by the Acquired Entity and in the manner presently
conducted by Acquired Entity.
To
Acquired Entity is
Knowledge, Acquired Entity and its Subsidiaries are the sole owners of each of
these trade secrets set forth on Schedule 4.13(c) to
the Acquired Entity Disclosure Schedule, free and clear of any liens,
encumbrances, restrictions or legal or equitable claims of others, except as
specifically stated in Schedule 4.13(c) to
the Acquired Entity Disclosure Schedule and Acquired Entity and its Subsidiaries
have taken reasonable security measures to protect the secrecy, confidentiality,
and value of these trade secrets listed on Schedule 4.13(c) to
the Acquired Entity Disclosure Schedule.
(d) Other Intangible Property.
To the Knowledge of the Acquired Entity, Schedule 4.13(d) to the
Acquired Entity Disclosure Schedule is a list of Acquired Entity's intangible
assets, other than those specifically referred to elsewhere in this
Agreement.
4.14 Contracts.
Section 4.14(a) of
the Acquired Entity's Disclosure Schedule lists all Contracts of the Acquired
Entity that provide for an aggregate payment from the Acquired Entity in any
contract year in excess of Twenty-Five Thousand Dollars (S25,000) other than (i)
contracts or commitments that can or in reasonable probability will be completed
within 90 days of the Closing Date or can be terminated within such 90 day
period without payment of a penalty, (ii) contracts or commitments for goods and
services purchased in the Ordinary Course of the Business of the Acquired Entity
in amounts consistent with past practice.
The
Acquired Entity is not in Breach or violation of any Contract set forth on the
Acquired Entity Disclosure Schedule, or in default with respect thereto, except
for Breaches or defaults that would not, individually or in the aggregate, have
a Material Adverse Effect, Except as provided in the Acquired Entity Disclosure
Schedule, none of the Contracts of the Acquired Entity contains any provisions
that upon a change in control of the Acquired Entity would have a Material
Adverse Effect.
Section 4.14(b) to
the Acquired Entity Disclosure Schedule is a correct and current list of the top
25 customers (by sales volume) of Acquired Entity and its Subsidiaries (combined
but separately identified as to the appropriate entity) together with summaries
of the sales made to each customer during the most recent fiscal year. Except as
indicated in Section
4.14(b) to the Acquired Entity Disclosure Schedule, to the Knowledge of
Acquired Entity, none of these customers have provided notice that they intend
to cease doing business with Acquired Entity or any of its Subsidiaries, or
materially alter the amount of business that they are presently doing with
Acquired Entity or any of its Subsidiaries.
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4.15 Receivables.
All of
the Receivables as reflected in the Financial Statements and any additional
Receivables recorded in the books and records of the Acquired Entity thereafter
are and as of the Closing Date will be, Receivables that arose in the Ordinary
Course of Business and are not subject to any material valid counterclaims or
setoffs (except as reserved against in the Financial Statements, or in a
subsequent balance sheet to the extent they are recorded after the Balance Sheet
Date),
4.16 Litigation.
Except as
set forth on Section
4.16 to the Acquired Entity Disclosure Schedule, Acquired Entity is not
(a) subject to any outstanding order or (b) is a party to, the subject of, or to
the Knowledge of Acquired Entity is threatened to be made a party to or the
subject of any Action, except orders or Actions that would not individually, or
in the aggregate reasonably be expected to have a Material Adverse
Effect.
4.17 Labor;
Employees.
(a) Acquired
Entity is not a party to or bound by any collective bargaining Contract, nor has
it experienced any strikes, grievances, claims of unfair labor practices, or
other collective bargaining disputes. To the Acquired Entity's Knowledge,
Acquired Entity has not committed any unfair labor practice. Acquired Entity has
no Knowledge of organizational effort currently being made or threatened by or
on behalf of any labor union with respect to Acquired Entity's
employees.
(b) Section 4.17(b) of
the Acquired Entity Disclosure Schedule contains an accurate list of all written
employment Contracts between the Acquired Entity and its employees. Except in
accordance with the contracts, agreements, plans or programs identified in Section 4.17(b) of
the Acquired Entity Disclosure Schedule, and except for the Employee Payments
and the Deferred Compensation, no individual will accrue or receive material
additional benefits, service or accelerated rights to payment of benefits as a
result of the transactions contemplated by this Agreement.
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4.18 Employee
Benefits.
(a) Section 4.18 of the
Acquired Entity Disclosure Schedule is a list of all plans and other
arrangements which provide compensation or benefits to officers, directors or
consultants or employee benefits to employees of the Acquired Entity, including,
without limitation, all "employee benefit plans" as defined in Section 3(3) or
ERISA, and all bonus, stock option, stock purchase, incentive, deferred
compensation, supplemental retirement, severance and other similar fringe or
employee benefit plans, and all employment or executive compensation agreements
(collectively, the "Acquired Entity Plans"), All Acquired Entity Plans comply
with and are and have been operated in material compliance with each applicable
provision of ER ISA, the Code, other federal statutes, state law (including,
without limitation, state insurance law) and the regulations and rules
promulgated pursuant thereto or in connection therewith to the extent applicable
to such Acquired Entity Plans. Neither the Acquired Entity nor any member of the
same controlled group of businesses as the Acquired Entity within the meaning of
Section 4001(a)(14) of ERISA (an "ERISA Affiliate") is or ever was a sponsor or
obligated to contribute to any plan covered by Title IV or ERISA or Section 412
of the Code, or any "multiemployer plan," within the meaning of Section 3(37) of
ERISA. Each Acquired Entity Plan which is required to comply with the provisions
of Sections 4980B and 4980C of the Code, or with the requirements referred to in
Section 4980D(a) of the Code, has complied in all material respects, and, except
as required by suc• sections
of the Code, no Acquired Entity Plan which is a "welfare benefit plan," as
defined in Section 3(1) of ERISA, provides for post-employment benefits.
Notwithstanding any statement or indication in this Agreement to the contrary,
to the Knowledge of Acquired Entity, there are no Acquired Entity Plans which
the Acquired Entity or Buyer will not be able to terminate (or in which the
Acquired Entity or Buyer will not be able to terminate the participation of
their employees) immediately after the Closing in accordance with their terms
and ERISA, and without incurring any expenses (including, but not limited to,
loads or termination charges imposed with respect to insurance policies or
mutual funds used to fund such Acquired Entity Plans), other than administrative
expenses in connection with such termination. Neither the Acquired Entity nor
any ERISA Affiliate has failed to make any material contributions or to pay any
material amounts due and owing as required by the terms of any Acquired Entity
Plan. Each Acquired Entity Plan which is intended to be a qualified plan under
Section 401(a) of the Code has been provided a copy of an opinion letter from
the Internal Revenue Service (the "Opinion Letter") to Alliance
Benefit Group Carolinas LLC, the sponsor of the prototype plan, and has been
operated substantially in accordance with its terms and with the provisions of
the Code. No amounts payable under the Acquired Entity Plans will fail to be
deductible for federal income tax purposes by virtue of Sections 162(m) or 280G
of the Code. Other than routine claims for benefits under the Acquired Entity
Plans, there are no pending, or to the best Knowledge of the Acquired Entity,
threatened investigations, proceedings, claims, lawsuits, disputes, actions,
audits or controversies involving the Acquired Entity Plans or the Fiduciaries,
administrators, or trustees of any of the Acquired Entity Plans or the Acquired
Entity or any ERISA Affiliate of either as the employer or sponsor under any
Acquired Entity Plan, with any of the Internal Revenue Service, the Department
of Labor, the Pension Benefit Guaranty Corporation, any participant in or
beneficiary of any Acquired Entity Plan or any other Person whomsoever. The
Seller has no Knowledge of any reasonable basis for any such claim, lawsuit,
dispute, action or controversy. The Acquired Entity has delivered to Buyer true
and complete copies of: (i) each Acquired Entity Plan and any related funding
agreements thereto (including insurance contracts) including all amendments, all
of which are legally valid and binding and in full force and effect and there
are no defaults thereunder, (ii) the currently effective Summary Plan
Description pertaining to each of Acquired Entity Plan, (iii) the three most
recent annual reports for the Acquired Entity Plans (including all relevant
schedules), (iv) the Opinion Letter, and (v) financial statements for each
funded Acquired Entity Plan. The Acquired Entity is not party nor subject to any
agreement, contract or other obligation which would require the making of any
payment, other than payments as contemplated by this Agreement, to any employee
of the Acquired Entity or to any other Person as a result of the consummation of
the transactions contemplated herein.
(b) To
the Knowledge of Acquired Entity, no material inaccurate misrepresentation,
statement or other communication has been made or directed (in writing or
otherwise) to any current or former employee (who was employed during the three
years prior to the Closing) of the Acquired Entity (i) with respect to such
employee's participation, eligibility for benefits, vesting, benefit accrual or
coverage under any Acquired Entity Plan or with respect to any other matter
relating to any Acquired Entity Plan, or (ii) with respect to any proposal or
promise on the part of the Acquired Entity to establish or sponsor any employee
Benefit Plan or to provide or make available any fringe benefit or other benefit
of any nature. Except as set forth in Section 4.18 to the
Acquired Entity Disclosure Schedule, the Acquired Entity has not promised its
employees (in writing or otherwise) that it intends or expects to establish or
sponsor any employee Benefit Plan or to provide or make available any fringe
benefit or other benefit of any nature in the future.
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(c)
Immediately prior to the Closing Date, Acquired Entity will terminate its 401(k)
plan (the "Plan") by
adopting a resolution of its Board of Directors authorizing such termination.
The Acquired Entity will not submit the Plan to the IRS for a
favorable determination letter on its termination, and Buyer consents to and
agrees that no filing is required. At Closing, the Trustee of the Plan will
resign and Buyer will appoint a new Trustee. Buyer and the new Trustee will be
responsible for the winding up of the Plan and the distribution of Plan assets
in accordance with applicable laws, rules and regulations. Buyer shall indemnify
the Stockholders from and against any liability in connection with the wind up
of the Plan and distribution of Plan assets.
4.19 Environmental,
Health, and Safety Matters.
Except as
set forth on Section 4.19 of the Acquired Entity Disclosure Schedule, (a) the
Acquired Entity is in material compliance with all Environmental, Health and
Safety Requirements in connection with the ownership, use, maintenance or
operation of its business or assets except where the failure could not
reasonably be expected to have a Material Adverse Effect; (b) the location at
which the Acquired Entity operates, or has operated, its business is in material
compliance with all Environmental, Health and Safety Requirements except where
the failure could not reasonably be expected to have a Material Adverse Effect;
and (0) there are no pending, or to Acquired Entity's Knowledge, any Threatened
allegations by any Person that the Acquired Entity's properties or assets are
not, or that its business has not been conducted, in compliance with all
Environmental, Health and Safety Requirements,
4.20 Insurance.
(a) Section 4.20 of the
Acquired Entity Disclosure Schedule accurately sets forth, with respect to each
insurance policy maintained by or at the expense of, or for the direct or
indirect benefit of the Acquired Entity:
(i) the
name of the insurance carrier that issued such policy and the policy number of
such policy;
(ii) whether
such policy is a "claims made" or an-"occurrences"
policy;
(iii) a
description of the coverage provided by such policy and the material terms and
provisions of such policy (including all applicable coverage limits, deductible
amounts and co-insurance arrangements and any non-customary exclusions from
coverage);
(iv) the
annual premium payable with respect to such policy, and the cash value (if any)
of such policy; and
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(v) a
description of any claims pending, and any claims that have been asserted in the
past, with respect to such policy.
Section 4.20 also
identifies (i) each pending application for insurance that has been submitted by
or on behalf of the Acquired Entity, and (ii) each self-insurance or
risk-sharing arrangement affecting the Acquired Entity or any of its assets. The
Acquired Entity has delivered to the Buyer accurate and complete copies of all
of the insurance policies identified in Section 4.20 of the
Acquired Entity Disclosure Schedule (including all renewals thereof and
endorsements thereto) and all of the pending applications identified in Section 4.20 of the
Acquired Entity Disclosure Schedule.
(b) Each
of the policies identified in Section 4.20 of the
Acquired Entity Disclosure Schedule is valid, enforceable and in full force and
effect, All of the information contained in the applications submitted in
connection with said policies was (at the times said applications were
submitted) accurate and complete in all material respects, and all premiums and
other amounts owing with respect to said policies have been paid in full on a
timely basis. To the Knowledge of Acquired Entity, the nature, scope and dollar
amounts of the insurance coverage provided by said policies are sufficient to
adequately insure the Acquired Entity's business, assets, operations, key
employees, services and potential liabilities.
(c) Except
as set forth in Section 4.20 of the
Acquired Entity Disclosure Schedule, there is no pending claim under or based
upon any of the policies identified in Section 4.20 of the
Acquired Entity Disclosure Schedule; and no event has occurred, and no condition
or circumstance exists, that might (with or without notice or lapse of time)
directly or indirectly give rise to or serve as a basis for any such
claim.
(d) The
Acquired Entity has not received:
(i) any
notice or other communication (in writing or otherwise) regarding the actual or
possible cancellation or invalidation of any of the policies identified in Section 4.20 of the
Acquired Entity Disclosure Schedule or regarding any actual or possible
adjustment in the amount of the premiums payable with respect to any of said
policies;
(ii) any
notice or other communication (in writing or otherwise) regarding any actual or
possible refusal of coverage under, or any actual or possible rejection of any
claim under, any of the policies identified in Section 4.20 of the
Acquired Entity Disclosure Schedule; or
(iii) any
written notice that the issuer of any of the policies identified in Section 4.20 of the
Acquired Entity Disclosure Schedule may be unwilling or unable to perform any of
its obligations thereunder.
4.21 Related
Party Transactions.
Except as
set forth in Section
4.21 of the Acquired Entity Disclosure Schedule:
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(a) no
Affiliate or Affiliated party has, and no Affiliate or Affiliated party has at
any time during the last three years, had any direct or indirect interest of any
nature in any asset used in or otherwise relating to its business;
(b) no
Affiliate or Affiliated party is, or has at any time during the last three years
been, indebted to the Acquired Entity;
(c) During
the last three years, no Affiliate or Affiliated party has entered into, or has
had any direct or indirect financial interest in, any Contract, transaction or
business dealing of any nature involving the Acquired Entity, except for any
such interest involving less than Fifty Thousand Dollars ($50,000).
4.22 Certain
Payments, Etc.
Neither
the Acquired Entity nor to the best Knowledge of the Acquired Entity any
officer, employee, agent or other Person acting for or on behalf of the Acquired
Entity has at any time, directly or indirectly:
(a) used
any corporate funds (i) to make any unlawful political contribution or gift or
for any other unlawful purpose relating to any political activity, (ii) to make
any unlawful payment to any governmental official or employee, or (iii) to
establish or maintain any unlawfill or unrecorded fund or account of any
nature;
(b) made
any false or fictitious entry, or failed to make any entry that should have been
made, in any of the books of account or other records of the Acquired Entity,
or
(c) made
any payoff, influence payment, bribe, rebate, kickback or unlawful payment to
any Person.
ARTICLE
5.
PRE-CLOSING
COVENANTS
The
Parties agree as follows with respect to the period between the execution of
this Agreement and the earlier of the Closing and the Termination
Date:
5.1 General
Each
Party will use its Best Efforts to take all actions and to do all things
necessary, proper or advisable to consummate, make effective, and comply with
all of the terms of this Agreement and the Transactions applicable to it
(including satisfaction, but not waiver, of the Closing conditions for which
it is responsible or
otherwise in control, as set forth in ARTICLE
7.
5.2 Notices
and Consents.
(a)
Acquired Entity will give any notices to third parties, and will use its Best
Efforts to obtain any third party Consents listed on Section 4.3 of the
Acquired Entity Disclosure Schedule as soon as possible after the date of this
Agreement and shall remain in force through the Closing Date. Acquired Entity
will give any notices to, make any filings with, and use its Best Efforts to
obtain any Consents of Governmental Authorities, if any, required pursuant to
any applicable Law in connection with the Transaction including in connection
with the matters referred to in Sections 4.3 as soon
as possible after the date of this Agreement and shall remain in three through
the Closing Date.
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(b) Buyer
will give any notices to third parties, and will use its Best Efforts to obtain
any third party consents listed on Section 3.3 of the
Buyer Disclosure Schedule. Buyer will give any notices to, make any filings
with, and use its Best Efforts to obtain any Consents of Governmental Bodies, if
any, required pursuant to any applicable Law in connection with the Transaction
including in connection with the matters referred to in Section 3.3 as soon
as possible after the date of this Agreement and shall remain in force through
the Closing Date. Buyer shall have the right to extend the Closing Date in the
event, in Buyer's determination, the failure to obtain the Consent shall
negatively impact its ability to conduct its business following the Closing
Date.
(c) Each
Party will cooperate and use its Best Efforts to agree jointly on a method to
overcome any objections by any Governmental Body to the
Transactions.
(d) Nothing
in this Section 5.2 will require that (i) Buyer or its Affiliates divest, sell,
or hold separately any of its assets or properties, (ii) Buyer, its Affiliates,
or the Acquired Entity (the determination with respect to which Buyer will make)
take any actions that could affect the normal and regular operations of Buyer,
its Affiliates, or the Acquired Entity after the Closing or (iii) the Acquired
Entity take any action that could affect its normal and regular operations prior
to Closing. Subject to compliance with applicable Law, from the date hereof
until the earlier to occur of the Closing or the Termination Date, the Acquired
Entity will confer on a regular basis with one or more representatives of Buyer
who are in a need to know position with Buyer to report on operational matters
and the general status of the Acquired Entity's ongoing business, operations and
finances, provided each such representative acknowledges to Acquired Entity's
satisfaction their confidentiality obligation to the Acquired
Entity.
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5.3
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Operation
of Business.
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Without
the prior written consent of Buyer not to be unreasonably withheld, Acquired
Entity will not engage in any practice, take any action, or enter into any
transaction outside the Ordinary Course of Business or engage in any practice,
take any action, or enter into any transaction of the sort described in Section 4.8.,
provided, however, the Acquired Entity may enter into and consummate a
settlement agreement with respect to the Retained Litigation without Buyer's
consent.
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5.4
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Preservation
of Business.
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The
Acquired Entity will use commercially reasonable efforts to keep its business
and properties substantially intact, including its present operations, physical
facilities, and working conditions, and relationships with lessors, licensors,
suppliers, customers, insurers and employees.
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5.5
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[Intentionally
Left Blank]
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5.6
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Access.
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Acquired
Entity will permit representatives of Buyer to have reasonable access at all
reasonable times, and in a manner so as not to unreasonably interfere with the
normal business operations of the Acquired Entity, to all premises, properties,
personnel, books, records, Contracts, and documents pertaining to the Acquired
Entity and will furnish copies of all such books, records, Contracts and
documents pertaining to the Acquired Entity and will furnish copies of all such
books, records, Contracts and documents and all financial, operating and other
data, and other information as Buyer may reasonably request.
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5.7
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Confidentiality,
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Except as
may be required by Law or as otherwise expressly contemplated herein, no Party
or their respective Affiliates, employees, agents and representatives will
disclose to any third party any Confidential Information concerning the business
or affairs of any other Party that it may have acquired from such Party in the
course of pursuing the Transaction without the prior written consent of
Stockholder Representative or Buyer, as the case may be; provided, however, any
Party may disclose any such Confidential Information as follows: (a) to such
Party's Affiliates and its or its Affiliates' employees, lenders, counsel, or
accountants, provided such Party informs the recipients of their confidentiality
obligations, the actions for which the applicable Party will be responsible; (b)
to comply with any applicable Law or order, provided that prior to making any
such disclosure the Party making the disclosure notifies the other Party of any
Action of which it is aware which may result in disclosure and uses its Best
Efforts — short of litigation — to limit or prevent such disclosure; (0) to the
extent that the Confidential Information is or becomes generally available to
the public through no fault of the Party or its Affiliates making such
disclosure; (d) to the extent that the same information is in the possession (on
a non-confidential basis) of the Party making such disclosure prior to receipt
of such Confidential Information; (e) to the extent that the Party that received
the Confidential Information independently develops the same information without
in any way relying on any Confidential Information; or (0 to the extent that the
same information becomes available to the Party making such disclosure on a
non-confidential basis from a source other than a Party or its Affiliates, which
source, to the disclosing Party's Knowledge, is not prohibited from disclosing
such information by a legal, contractual, or fiduciary obligation to the other
Party. If the Transactions are not consummated, each Party will return or
destroy as much of the Confidential Information concerning the other Party as
the Parties that have provided such information may reasonably request.
Notwithstanding the foregoing, the Parties contemplate the issuance of a joint
public announcement in connection with the execution of this Agreement and the
consummation of the Transaction. Before making any such public announcement, the
parties hereto shall use good faith efforts to agree upon the text of a joint
announcement to be made by the Parties hereto or use good faith efforts to
obtain the other Party's approval of the text of any public announcement to be
made solely on behalf of such Party. If the Parties hereto are unable to agree
on or approve such a public statement or announcement and a Party is of the good
faith opinion that such statement or announcement is required by Law, or the
rules of any stock exchange on which Buyer's parent's securities are traded,
then such Party may make or issue the legally required statement or
announcement.
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5.8
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Affiliated
Transactions.
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Upon
Buyer's request, Acquired Entity will cause all Contracts and transactions by
and between any Affiliate of Acquired Entity, on the one hand, and the Acquired
Entity, on the other hand, to be terminated effective as of the Closing, without
any cost or continuing obligation to the Acquired Entity or Buyer, and will
deliver to Buyer evidence of such termination that is reasonably acceptable to
Buyer.
ARTICLE
6.
POST-CLOSING
COVENANTS
The
Parties agree as follows with respect to the period following the
Closing:
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6.1
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General.
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In case
at any time after the Closing any further action is necessary to carry out the
purposes of this Agreement, each Party will take such further action (including
executing and delivering such further instruments and documents) as any other
Party reasonably may request, all at the requesting Party's sole cost and
expense (unless the requesting Party is entitled to indemnification therefore
under ARTICLE
9). After the Closing, Buyer will be entitled to possession of all
documents, books, records, agreements, and financial data of any sort relating
to the Acquired Entity.
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6.2
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Litigation
Support.
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So long
as any Party actively is contesting or defending against any Action in
connection with (a) the Transaction or (b) any fact, situation, circumstance,
status, condition, activity, practice, plan, occurrence, event, incident,
action, failure to act, or transaction on or prior to the Closing Date, each
other Party will cooperate with such Party and such Party's counsel in the
contest or defense, making available their personnel, and provide such testimony
and access to their books and records as will be necessary in connection with
the contest or defense, at the sole cost and expense of the contesting or
defending Party (unless the contesting or defending Party or one of its
Affiliates is entitled to indemnification therefore under ARTICLE
9),
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6.3
|
Cooperation
with Respect to Tax Matters,
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(a) The
Buyer shall prepare and file, or cause to be prepared and filed all Tax Returns
required to be filed by the Acquired Entity with respect to periods due after
the Closing Date, including any Straddle Tax Returns. With respect to Straddle
Tax Returns, Buyer shall provide the Stockholder Representative with an
opportunity to review and comment on such Tax Returns no less than 15 days prior
to the due date thereof.
(b) After
the Closing Date, each of the Buyer and the Surviving Corporation, on the one
hand, and the Acquired Entity, on the other, shall (i) provide, or cause to be
provided, to each other's respective subsidiaries, officers, employees,
representatives and affiliates, such assistance as may reasonably be requested,
including making available employees and the books and records of the Acquired
Entity and the Surviving Corporation by any of them in connection with the
preparation of any Tax Return or any audit of the Acquired Entity in respect of
which the Buyer or the Acquired Entity, as the case may be, is responsible
pursuant to this Agreement and (ii) retain, or cause to be retained, for so long
as any such taxable years or audits shall remain open for adjustments, any
records or information which may be relevant to any such Tax Returns or
audits.
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(c) Buyer
shall promptly notify the Stockholder Representative in writing upon receipt by
Buyer of written notice of any inquiries, claims, assessments, audits or similar
events with respect to Taxes relating to a Pre-Closing Period (any such inquiry,
claim, assessment, audit or similar event, a "Tax Matter"). At the option
of the Stockholder Representative, the Stockholder Representative, at its sole
expense, shall control the defense, compromise or other resolution of any such
Tax Matter, including responding to inquiries and contesting, defending against
and resolving any assessment for additional Taxes or notice of Tax deficiency or
other adjustment of Taxes of, or relating to, such Tax Matter; provided,
however, that the Stockholder Representative may not enter into any settlement
of or otherwise compromise any Tax Matter that affects or may affect the Tax
liability of Buyer, the Surviving Corporation for any period ending after the
Closing Date, without the consent of the Buyer which consent will not be
unreasonably withheld. The Stockholder Representative shall keep Buyer fully and
timely informed with respect to the commencement, status and nature of any Tax
Matter, and Buyer shall have the right to participate in the defense of such Tax
Matter and in connection therewith employ counsel, at its own expense, separate
from counsel employed by the Stockholder Representative.
(d) Buyer
shall represent the interests of the Acquired Entity before the relevant Taxing
authority with respect to any inquiry, claim, assessment, audit, or similar
event relating to a Straddle Period (a "Straddle Period Tax Matter")
and shall control the defense, compromise or other resolution of any such
Straddle Period Tax Matter, including responding to inquiries, filing Tax
Returns and contesting, defending against and resolving any assessment for
additional Taxes or notice of Tax deficiency or other adjustment of Taxes of or
relating to, such Straddle Period Tax Matter. If the Stockholders would be
required to indemnify Buyer pursuant to the terms of this Agreement with respect
to such Straddle Period Tax Matter then: (A) the Stockholder Representative may
participate in the defense of such Straddle Period Tax Matter and employ
counsel, at its own expense, separate from counsel employed by Buyer and (B)
neither Buyer nor the Surviving Corporation shall enter into any settlement of
or otherwise compromise any such Straddle Period Tax Matter to the extent that
it adversely affects the Tax liability of the Stockholders without the prior
written consent of the Stockholder Representative, which consent shall not be
unreasonably withheld or delayed. Buyer shall keep the Stockholder
Representative fully and timely informed with respect to the commencement,
status and nature of any Straddle Period Tax Matter.
(e) Amendments to Tax Returns,
The Surviving Corporation shall not amend any Tax Return filed by, or
with respect to, the Acquired Entity or its Subsidiaries for any taxable period,
or portion thereof, beginning before the Closing Date, without the prior written
consent of the Stockholder Representative, which consent shall not be
unreasonably withheld,
(f) Inconsistent
Position. Until such time as the statute of limitations has expired with respect
to all Pre-Closing Periods, the Surviving Corporation will not take any position
on any Tax Return for a Straddle Period or Post-Closing Period which is
inconsistent with any position taken on a Tax Return for a Pre-Closing Period,
without the prior written consent of the Stockholder Representative, which
consent shall not be unreasonably withheld.
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(g) The
Buyer and the Surviving Corporation shall be liable for, shall pay to the
appropriate Tax authorities, and shall hold the Stockholder harmless against all
Taxes of the Acquired Entity or Surviving Corporation that relate to (i) the
taxable periods that begin after the Closing Date and (ii) the Post-Closing
Period. The Buyer and the Surviving Corporation shall be entitled to any Tax
refund (including interest) attributable to the taxable periods in respect of
which the Buyer is so obligated to indemnify the Stockholders. The Stockholders
shall be responsible for, shall pay to the appropriate Tax authorities, and
shall hold the Buyer and the Surviving Corporation harmless against, all Taxes
of the Acquired Entity that relate to (i) the taxable periods ending before or
on the Closing Date, (ii) the Pre-Closing Period, and (iii) any liability
incurred by the Surviving Corporation for the penalty which may be imposed as
described in Section
4.11 of the Acquired Entity Disclosure Schedule.
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6.4
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Retained
Litigation.
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Acquired
Entity will assign to the Stockholders all of its rights in the dispute with
Misys presently in an arbitration proceeding. The Stockholders will assume all
obligations with respect to the Retained Litigation, and will be entitled to all
benefits and recoveries therefrom. The Surviving Corporation will cooperate with
the Stockholder Representative with respect to the Retained Litigation,
including making documents, correspondence and other relevant materials
available.
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6.5
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Stockholder
Representative.
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Effective
upon the execution, and without any further act of any Stockholder, Xxxxxx X.
Xxxxxxxx, or any successors appointed pursuant to this section (the "Stockholder Representative") shall be and
hereby is irrevocably appointed as agent and true and lawful attorney-in-fact
for each Stockholder with full power of substitution or resubstitution, solely
for the purposes set forth herein, such appointment being coupled with an
interest and irrevocable. The Stockholder Representative shall act as the
representative of the Stockholders, and shall be authorized to act on behalf of
the Stockholders under this Agreement with respect to any matters relating to
either, including (i) any additional amounts to be paid to or by the
Stockholders after the Closing pursuant to this Agreement, (ii) any litigation
or dispute related to this Agreement, (iii) execution and delivery of any and
all documents, amendments or agreements that the Stockholder Representative
deems necessary or appropriate in connection with the transactions contemplated
hereby, and (iv) receipt of any notice or service of process in connection with
any claims under this Agreement (all of which shall be deemed delivered or
served upon all Stockholders upon delivery to the Stockholder Representative).
The Stockholders shall be bound by all actions taken by the Stockholder
Representative in its capacity thereof. The Stockholder Representative shall, in
a reasonably prompt manner, provide written notice to the Stockholders of any
action taken by the Stockholder Representative pursuant to the authority
delegated the Stockholder Representative under this Section 6.5. Neither the
Stockholder Representative nor any of his agents or employees shall be liable to
any Stockholder for any error of judgment, or any action taken, suffered or
omitted to be taken, under this Agreement, except in the case of its bad faith
or willful misconduct. The Stockholder 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
the Stockholder Representative in accordance with the advice of such counsel,
accountants or experts. As to any matters not expressly provided for in this
Agreement, the Stockholder Representative shall not be required to exercise any
discretion or take any action. Any account established by the Stockholder
Representative in connection with receipt of the Holdback or proceeds from the
settlement of any Retained Litigation should be in the name of the Stockholder
Representative and any interest earned on such accounts shall be paid to the
Stockholder Representative to be used to offset costs incurred by the
Stockholder Representative in the performance of its duties hereunder and to pay
taxes on such interest income. Each Stockholder severally shall indemnify and
hold harmless and reimburse the Stockholder Representative from and against such
Stockholder's Pro Rata share of any and all Damages suffered or incurred by the
Stockholder Representative arising out of or resulting from any action taken or
omitted to be taken by the Stockholder Representative under this Agreement and
the Indemnification Agreement, other than such Damages arising out of or
resulting from the Stockholder Representative's bad faith or willful misconduct.
In all matters relating to this Section 6.5, the Stockholder Representative
shall be the only party entitled to assert the rights of the Stockholders.
Notwithstanding the following sentence, Buyer and Surviving Corporation shall be
entitled to rely on all statements, actions, representations and decisions of
the Stockholder Representative as being the binding acts of the Stockholders or
any of them, notwithstanding any communication from any Stockholder to the
contrary (other than communication regarding termination or replacement of the
Stockholder Representative pursuant to this Section 6.5). By approving or
adopting the Merger, each Stockholder confirms and ratifies all that the
Stockholder Representative shall do or cause to be done in good faith as
Stockholder Representative.
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The
Stockholder Representative may resign upon written notice to the Stockholders
and the Surviving Corporation. The Stockholder Representative may be changed or
replaced by vote of a majority of the Stockholders upon written notice to the
Stockholder Representative and the Surviving Corporation. No bond shall be
required of the Stockholder Representative. Notices or communications to or from
the Stockholder Representative shall constitute notice to or from each of the
Stockholders.
Upon the
earlier of (i) the expiration of four (4) years from the Closing Date, or (ii)
such time as the Stockholder Representative reasonably determines that the
Holdback is no longer required, any amount of Holdback remaining shall be paid
by the Stockholder Representative to the Stockholders, Pro Rata.
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6.6
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Further
Assurances.
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From time
to time from and after the Closing, the parties will take any and all such
action and execute and deliver to one another any and all further agreements,
instruments, certificates and other documents, as may reasonably be requested by
any other party in order more fully to consummate the transactions contemplated
hereby, and to effect an orderly transition of the ownership and operations of
the Acquired Entity,
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ARTICLE 7.
CLOSING
CONDITIONS
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7.1
|
General
Conditions.
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The
obligations of the Parties to effect the Closing shall be subject to the
following conditions unless waived in writing by Acquired Entity and
Buyer:
(a)
No Law or Orders. No
Law or order shall have been enacted, entered, issued or promulgated by any
Governmental Body (and be in effect) which prohibits the consummation of the
sale of the Transaction.
(b)
Legal Proceedings. No
Governmental Body shall have initiated proceedings to restrain or prohibit the
Merger, unless such Governmental Body shall have withdrawn and abandoned any
such proceedings prior to the time which otherwise require the divestiture by
the Acquired Entity of a material portion of its business, assets or properties,
or impose any material limitation on the ability of the Acquired Entity to
conduct its business and own its assets and properties, following the Closing.
There shall not be any action, claim, arbitration, litigation, order of any
court or governmental investigation or inquiry pending or, to the Knowledge of
any party, threatened, challenging or seeking to make illegal or to restrain or
prohibit any of the transactions contemplated by this Agreement.
(c)
Regulatory Approval.
All regulatory approvals or waivers required to consummate the
Transaction shall have been obtained and shall remain in full force and effect
and all statutory waiting periods in respect thereof shall have expired, other
than those the failure of which to be obtained or maintained would not have a
Material Adverse Effect, and no such approvals or waivers shall contain any
conditions, restrictions or requirements which would (i) following the Closing
Date, have Material Adverse Effect or (ii) reduce the benefits of the
Transaction to such a degree that Buyer would not have entered into this
Agreement had such conditions, restrictions or requirements been known on the
date hereof.
(d)
Governmental Approvals.
The Acquired Entity shall have made or obtained all Permits and approvals
which are legally required to be obtained by the Acquired Entity from any
Governmental Body prior to the consummation of the Transaction, which if not
obtained, individually or in the aggregate, would have a Material Adverse
Effect.
(e)
Court Action. The
Court handling the estates of Karoly and Xxxxxxxx shall have approved the
Transaction.
(f)
Employment Contracts.
The Employment Contracts with the employees listed in Schedule 7 shall have
been executed by the parties .
(g) Stockholder Approval.
Acquired Entity shall have received the required approval of its
Stockholders in accordance with the DGCL.
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7.2
|
Conditions
Precedent to Obligation of Buyer.
|
Buyer's
obligation to consummate the Transaction contemplated to occur in connection
with the Closing and thereafter is subject to the satisfaction on or prior to
the Closing Date of each condition precedent listed below, any of which may be
waived in writing by Buyer.
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(a) Accuracy of Representations
and Warranties. All representations and warranties of the Acquired Entity
set forth in Section
3.1 and ARTICLE
4 must have been accurate and complete in all material respects on the
date when made and on the Closing Date (unless the representations and
warranties address matters as of a particular date, in which case they shall
remain true and correct in all respects as of such date) with the same effect as
if made on and as of the Closing Date.
(b) Compliance with
Obligations. Acquired Entity
must have performed and complied with all of its covenants to be performed or
complied with at or prior to Closing, unless the failure to comply does not or
would not reasonably be expected to have a Material Adverse Effect.
(c) Authorization of
Agreement. All action necessary to authorize the execution, delivery and
performance of this Agreement and the Agreement of Merger by the Acquired Entity
and the consummation by the Acquired Entity of the transactions contemplated
hereby and thereby shall have been duly and validly taken by it, and the
Acquired Entity shall have the full power and right to consummate the
transactions contemplated hereby and thereby.
(d) Incumbency
Certificate. Buyer shall
have received a certificate of the Secretary or Assistant Secretary of the
Acquired Entity, dated as of the Closing Date, as to the incumbency and
signature of each officer of the Acquired Entity authorized to sign this
Agreement, the Agreement of Merger and the other documents to be delivered
hereunder.
(e) No Material Adverse
Change. Since the date hereof, there must have been no event, series of
events or the lack of occurrence thereof which, singularly or in the aggregate,
has had or could reasonably be expected to have a Material Adverse
Effect.
(f) Resignation of the
Officers. Each officer of the Acquired Entity, shall have executed and
delivered to Buyer a letter of resignation, effective as of the Closing
Date.
(g) Confidentiality and
Non-Solicitation Agreements. The individuals listed in Schedule 7 have
executed Confidentiality and Non-Solicitation Agreements in the form attached as
Exhibit 7.
(h) Negotiated Debt.
Releases from the creditors listed on Exhibit 3 are received which will become
effective upon payment of the amounts set forth in Exhibit 3 and the issuance of
Tier 1 or Tier 2 Notes, as applicable.
(i) Employee Obligations.
Deferred Compensation due to the individuals listed on Exhibit 2 shall be
discharged, and releases received, which will be effective upon payment of the
Employee Payments and Deferred Amounts.
(j) Certification. Buyer
shall have received a certificate, dated the Closing Date, signed by the
Stockholder Representative, certifying, in such detail as the Buyer and its
counsel may reasonably request, that the conditions specified in Sections
7.2(a), (b) and (c) above have been fulfilled.
(k) Good Standing
Certificate. Buyer shall have received good standing certificates issued
by the Secretary of State with respect to the Acquired Entity and the
Subsidiaries, dated as of a date reasonably prior to the
Closing.
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(1) Litigation. The
litigation with Acacia and Hospital Systems Corporation, case captioned Hospital Systems Corporation
v. Diamedex, Inc. d/b/a Xxxxx, ERAD, Inc., et al. pending in the US
District Court for the Eastern District of Texas and bearing Civil Action No.
2:10-CV-66 shall be resolved as to Acquired Entity with no material loss or
limit on Acquired Entity's rights.
(m) Third Party Consents.
The Acquired Entity shall have received all requisite consents from third
parties (other than Governmental Bodies) required by any Contract between the
Acquired Entity to be obtained prior to the consummation of the Transaction,
which if not obtained, individually or in the aggregate, would have a Material
Adverse Effect.
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7.3
|
Conditions
Precedent to Obligation of Acquired
Entity.
|
Acquired
Entity's obligation to consummate the Transaction contemplated to occur in
connection with the Closing and thereafter is subject to the satisfaction on or
prior to the Closing Date of each condition precedent listed below, any of which
may be waived in writing by Acquired Entity.
(a) Accuracy of Representation
and Warranties. All representations and warranties of Buyer set forth in
Section 3.2
must have been accurate and complete in all material respects on the date
when made and on the Closing Date (unless the representations and warranties
address matters as of a particular date, in which case they shall remain true
and correct in all respects as of such date) with the same effect as if made on
and as of the Closing Date, without giving effect to any supplements to the
Buyer Disclosure Schedule.
(b) Compliance with Obligations.
Buyer must have performed and complied with all its covenants and
obligations required by this Agreement to be performed or complied with at or
prior to Closing (singularly and in the aggregate).
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7.4
|
Negative
Covenants.
|
From the
date of this Agreement until the Closing and except as otherwise expressly
provided in this Agreement or agreed to by Buyer in writing, Acquired Entity
shall not:
(a) amend
or terminate any Contract, or enter into any Contract involving more than Twenty
Thousand Dollars ($20,000) in any individual case or Fifty Thousand Dollars
(S50,000) in the aggregate except for Contracts in the Ordinary Course of
Business;
(b) sell,
assign, transfer, distribute or otherwise transfer or dispose of any of the
material assets of the Acquired Entity except for dispositions in the ordinary
course of business of obsolete or other assets no longer used or useful in the
business of the Acquired Entity;
(c) cancel,
forgive, release, discharge or waive any right with respect to the material
assets of the Acquired Entity or agree to do any of the foregoing, except for
compromises of accounts
receivable in the ordinary course of business consistent with past
practice;
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(d) take
any action relating to any liquidation or dissolution of the Acquired Entity;
or
(e)
itself or permit its affiliates and Subsidiaries or any of their respective
directors, officers, stockholders, agents or representatives, to discuss with
any other party or provide any information to any other party in connection with
the pursuit of a possible Snie,
recapitalization or other disposition of the Acquired
Entity.
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7.5
|
Release
and Encumbrances.
|
Acquired
Entity shall cause all liens, security interests, pledges and other encumbrances
relative to the Acquired Entity, its Subsidiaries and their assets, to be
released and discharged at or prior to the Closing.
ARTICLE
8.
TERMINATION
|
8.1
|
Termination
of Agreement.
|
The
Parties may terminate this Agreement as provided below:
(a) Buyer
and Acquired Entity may terminate this Agreement by mutual written consent at
any time prior to the Closing; or
(b)
Buyer may terminate this Agreement if any of the conditions provided for in
Section 7,1 or 7.2 of this Agreement shall have become incapable of fulfillment
(other than as a result of a Breach of this Agreement by Buyer); or
(c) Acquired
Entity may terminate this Agreement if any of the conditions provided for in
Section 7.1 or 7.3 hereof shall have become incapable of fulfillment (other than
as a result of a Breach of this Agreement by the Acquired Entity);
or
(d) Acquired
Entity or Buyer may terminate this Agreement if the Transaction is not
consummated on or before the Expiration Date, but only if the failure to
consummate the Transaction on or before such date did not result from the Breach
of any representation, warranty or agreement herein of the Party seeking such
termination; or
(e) Acquired
Entity or Buyer may terminate this Agreement if the other Party shall be in
material Breach of any of its covenants contained in this Agreement and such
Breach is either incapable of cure or is not cured within twenty (20) Business
Days after notice from the Party wishing to terminate; provided that the Party
seeking such termination shall not also then be in material Breach of this
Agreement; or
(f) Acquired Entity or Buyer may terminate
this Agreement if the other Party shall be in Breach of any of its
representations or warranties contained in this Agreement , such Breach would have a Material Adverse
Effect and such Breach either is incapable of cure or is not cured within twenty (20) Business
Days after notice from the Party wishing to terminate; provided, that the
Party seeking such termination shall not also then be in material Breach of the
Agreement; or
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(g) Acquired
Entity or Buyer may terminate this Agreement if a Governmental Body shall have
issued a non-appealable final order, decree or ruling or taken any other action
having the effect of permanently retraining, enjoining or otherwise prohibiting
the Transaction (provided that if the Party seeking to terminate this Agreement
pursuant to this Section is subject to such order, decree or ruling, it shall
have used all reasonable efforts to have such order, decree or ruling
removed).
(h) Buyer
may terminate this Agreement if the number of dissenting shares exceeds ten
percent (10%) of the total outstanding Common Stock of Acquired
Entity.
(i) Notwithstanding
anything herein to the contrary, this Agreement shall automatically terminate
without further action of the Parties if the condition set forth in Section
7.1(g) is not satisfied within twenty-four (24) hours of the execution of this
Agreement. The failure to satisfy this condition will not be deemed a Breach of
this Agreement.
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8.2
|
Effect of
Termination.
|
If either
Buyer or Acquired Entity terminates this Agreement pursuant to Section 8.1, (a)
each of Buyer and Acquired Entity will redeliver to the party furnishing the
same or destroy all documents, work papers and other material of any other party
relating to the transactions contemplated hereby, whether so obtained before or
after the execution hereof; (b) neither Buyer or Acquired Entity shall make or
issue, or cause to be made or issued, any announcement or statement concerning
termination of this Agreement or the transactions contemplated hereby for
dissemination to the general public without the prior written consent of the
other parties except as required by law or legal process; and (c) this Agreement
shall become wholly void and of no force or effect, without any liability or
further obligation on the part of Buyer or Acquired Entity or any director,
officer, or principal thereof, except for liabilities of one party hereto to
another arising from a Breach of this Agreement prior to termination, and the
non-breaching party's rights to pursue all legal remedies will survive such
termination unimpaired Notwithstanding the foregoing, the obligations under
Section 5.7,
this ARTICLE 8
and ARTICLE 10,
if this Agreement is terminated under Section 8.1, shall
survive such termination.
ARTICLE
9.
INDEMNIFICATION
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9.1
|
Survival
of Representations and Warranties.
|
(a) Each representation and
warranty of the Acquired Entity contained in ARTICLE 4 and any
certificate related to such representations and warranties will survive the
Closing and continue in full force and effect for twelve (12) months thereafter,
except the representations and warranties set forth in Sections 4.1, 4.2, and 4.11,
which will survive the Closing and continue in full force and effect
until the applicable statute of limitations expires (or for three years if there
is no applicable statute of limitations).
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(b) Each
representation and warranty of Buyer contained in Article 3 and any certificate
related to such representations and warranties will survive the Closing and
continue in full force and effect for twenty-four (24) months thereafter, except
the representations and warranties set forth in Sections 3.1 and 3.2 which will
survive the Closing and continue in full force and effect until the applicable
statute of limitation expires.
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9.2
|
Indemnification
Provisions for Benefit of Buyer.
|
Solely
from the Notes and the Deferred Compensation (except as to fraud or tax
liability) as provided herein, the Stockholders will indemnify and hold the
Seller Indemnified Parties harmless from and pay any and all Damages, directly
or indirectly, resulting from, relating to, arising out of, or attributable to
any one of the following:
(a) Any
Breach of any representation or warranty Acquired Entity has made in this
Agreement as if such representation or warranty were made on and as of the
Closing Date as having caused a condition specified in Section 7.1 or Section 7.2 not to be
satisfied.
(b) Any
Breach by Acquired Entity of any covenant or obligation of Acquired Entity in
this Agreement.
(c) The
Stockholder's obligations pursuant to Section 6.3 (the "Tax
Obligations").
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9.3
|
Indemnification
Provisions for Benefit of
Stockholders.
|
Buyer
will indemnify and hold the Buyer indemnified Parties harmless from and pay any
and all Damages, directly or indirectly, resulting from, relating to, arising
out of, or attributable to any of the following:
(a) Any
Breach of any representation or warranty Buyer has made in this Agreement as if
such representation or warranty were made on and as of the Closing Date, without
giving effect to any supplement to the Buyer Disclosure Schedule, as having
caused a condition specified in Section 7.1 or Section 7.3
not to be satisfied.
(b) Any
Breach by Buyer of any covenant or obligation of Buyer in this
Agreement.
(c) The
operation and ownership of, or conditions occurring with respect to, any
Acquired Entity subsequent to the Closing.
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9.4
|
Indemnification
Claim Procedures.
|
(a) If
any third party notifies any Indemnified Party with respect to the commencement
of any Action that may give rise to a claim for indemnification against any
Indemnitor under this ARTICLE 9 (an
"Indemnification Claim"), then the Indemnified Party will promptly give notice
to the Indemnitor. Failure to notify the Indemnitor will not relieve the
lndemnitor of any Liability that it may have to the Indemnified Party, except to
the extent the defense of such Action is materially prejudiced by the
Indemnified Party's failure to give such notice.
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(b) An
Indemnitor will have the right to defend against an Indemnification Claim, with
counsel of its choice reasonably satisfactory to the Indemnified Party if (i)
within fifteen (15) days following the receipt of notice of the Indemnification
Claim the Indeirmitor notifies the Indemnified Party in writing that the
Indemnitor will indemnify the Indemnified Party from and against the entirety of
any Damages the Indemnified Party may suffer resulting from, relating to,
arising out of, or attributable to the Indemnification Claim, (ii) the
Indemnitor provides the Indemnified Party with evidence reasonably acceptable to
the Indemnified Party that the Indemnitor will have the financial resources to
defend against the Indemnification Claim and pay, in cash, all Damages the
Indemnified Party may suffer resulting from, relating to, arising out of, or
attributable to the Indemnification Claim, (iii) the Indemnification Claim
involves only money Damages and does not seek an injunction or other equitable
relief, (iv) settlement of, or an adverse judgment with respect to, the
Indemnification Claim is not in the good faith judgment of the Indemnified Party
likely to establish a precedential custom or practice materially adverse to the
continuing business interest of the Indemnified Party, and (v) the Indemnitor
continuously conducts the defense of the Indemnification Claim actively and
diligently.
(c) So
long as the Indemnitor is conducting the defense of the Indemnification Claim in
accordance with Section 9.4(b), (i)
the Indemnified Party may retain separate co-counsel at its sole cost and
expense and participate in the defense of the Indemnification Claim, (ii) the
Indemnified Party will not consent to the entry of any order with respect to the
Indemnification Claim without the prior written Consent of the Indemnitor (not
to be withheld unreasonably), and (iii) the Indemnitor will not Consent to the
entry of any order with respect to the Indemnification Claim without the prior
written Consent of the Indemnified Party (not to be withheld unreasonably,
provided that it will not be deemed to be unreasonable for an Indemnified Party
to withhold its Consent (A) with respect to any finding of or admission (1) of
any Breach of any Law, order or Permit, (2) of any violation of the rights of
any Person, or (3) which the indemnified Party believes could have a Material
Adverse Effect on any other Actions to which the Indemnified Party or its
Affiliates are a party or to which the Indemnified Party has a good faith belief
it may become a Party, or (B) if any portion of such order would not remain
sealed).
(d) If
Indemnitor does not assume control of the defense of any such third-party
Indemnification Claim or litigation resulting therefrom, the Indemnified Party
may defend against such Indemnification Claim or litigation in such manner as it
may reasonably deem appropriate, and Indemnitor shall indemnify the indemnified
Party from any Liability indemnifiable under this Article 9 incurred in
connection therewith. Indemnitor shall not be obligated to the Indemnified Party
for any settlement or consent to a stay of judgment made by any Indemnified
Party if such settlement or consent is entered into without the prior written
consent of Indemnitor which consent shall not be unreasonably withheld or
delayed.
(e) If
a Seller Indemnified Party should have an Indemnification Claim against the
Stockholders that does not involve a third party claim, the Seller Indemnified
Party shall deliver a notice of such claim to the Stockholder Representative. If
the Stockholder Representative notifies the Seller Indemnified Party that it
does not dispute the claim described in such notice or fails to notify the
Seller Indemnified Party within 30 days after delivery of such notice by the
Seller Indemnified Party whether the Stockholder Representative disputes the
claim described in such notice, the Liability in the amount specified in the
Seller Indemnified Party notice will be conclusively deemed a Liability of the
Stockholders and Buyer shall have the right to set-off against the Notes (as
provided in Section 9.7) the amount of such Liability. If the Stockholder
Representative has timely disputed its Liability with respect to such claim, a
senior executive of the Seller Indemnified Party with full negotiating authority
and the Stockholder Representative will proceed in good faith to negotiate a
resolution of such dispute, and if not resolved through such negotiations within
60 days after the delivery of the Seller Indemnified Party's notice of such
Indemnification Claim, such dispute shall be resolved fully and finally by a
court of competent jurisdiction or by arbitration, if either party chooses
arbitration.
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(f)
Except for matters submitted to arbitration pursuant to Section 10.13, each
Party hereby consents to the non-exclusive jurisdiction of any Governmental
Body, arbitrator, or mediator in which an Action is brought against any
Indemnified Party for purposes of any Indemnification Claim that an Indemnified
Party may have under this Agreement with respect to such Action or the matters
alleged therein.
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9.5
|
Limitations
on Indemnification Liability.
|
(a) Buyer
agrees that it will not, and it will cause its Affiliates to not implead, or
cause to be impleaded, Stockholder or any of their Affiliates in any Action
arising from owning or operating the Acquired Entity, provided Stockholders
honor their Indemnification Claim Obligations.
(b) Buyer
agrees that the Stockholders Indemnification hereunder shall, except in the case
of fraud or intentional misrepresentation or tax liabilities, be limited to the
aggregate balances of the Notes and Deferred Compensation outstanding at the
time of the Indemnification Claim. Buyer agrees that, except as otherwise
specifically provided herein, all of its Indemnification Claims shall be
satisfied solely by the set-off against the Notes and Deferred Compensation as
provided in Section 9.7 and that, except as otherwise specifically provided
herein, and except with respect to the Tax Obligations, no Stockholder shall
have any obligation to satisfy an Indemnification Claim personally except for
the set-off against such Stockholder's Merger Note. With respect to
indemnification arising from the Tax Obligations, Buyer will first exercise the
set-off rights, and shall have the right to seek recovery from the Stockholders
if the principal amount of the Merger Notes are insufficient to satisfy the
indemnification obligation. Notwithstanding the foregoing, the Stockholder's
indemnification obligation under this Section 9.5(b) with respect to Claims
pursuant to Sections 9.2(a) and 9.2(b) will be provided by the Stockholders only
if and then only to the extent that the aggregate amount of all such Damages
exceeds One Hundred Thousand Dollars ($100,000).
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(c) The
amount of Damages recoverable by an Indemnified Party hereunder with respect to
an indemnity claim shall be reduced by the amount of any payment actually
received by or paid on behalf of such Indemnified Party with respect to the same
Damages to which such indemnity claim relates, from an insurance carrier. The
Indemnified Party waives all rights to recover against the Indemnifying Party
for Damages to the extent covered by insurance maintained by the Indemnified
Party. The parties shall use their commercially reasonable efforts to cause
their respective insurers to issue appropriate waivers of subrogation rights
endorsements to all insurance policies maintained by each such party. In
furtherance and not in limitation of the foregoing, in the event any Damages are
recoverable under insurance policies, Buyer shall use its commercially
reasonable efforts to pursue recovery of such Damages under such insurance
policies. If an Indemnified Party (or an Affiliate thereof) receives any
insurance payment in connection with any claim for Damages for which it has
already received an indemnification payment from the Indemnifying Party, it
shall pay to the Indemnifying Party, within 30 days of receiving such insurance
payment, an amount equal to the excess of (A) the amount previously received by
the Indemnified Party hereunder with respect to such Damages, plus the amount of
the insurance payments received with respect to such Damages, over (B) the
amount of such Damages, but in no event greater than the amount of the indemnity
payment actually received by the Indemnified Party.
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9.6
|
Indemnification
As Exclusive Remedy.
|
In the
event that the Closing occurs, the indemnification provisions in this ARTICLE 9 will be the
Parties' exclusive remedy with respect to a Breach of this
Agreement.
|
9.7
|
Set-Off
Procedure.
|
If it is
finally determined that Buyer is entitled to identification pursuant to this
Article 9,
(except for Claims for fraud or tax liabilities) Buyer's sole remedy
shall be to set-off against the Notes and Deferred Compensation the amount that
Buyer is entitled to be indemnified for pursuant to Article 9. Buyer
agrees that the set-off shall be made against the Notes and Deferred
Compensation as follows: (i) first, Pro-Rata among the Merger Notes, the Tier I
Notes and the Deferred Amounts until there is no remaining principal balance
under such Notes and no remaining Deferred Amounts; and (ii) thereafter Pro Rata
against the Tier 2 Notes. Unless the Stockholder Representative assumes control
of an Indemnification Claim, Buyer shall notify the Stockholder Representative
and the holders of Tier I Notes and Tier 2 Notes and the employees receiving
Deferred Amounts who are subject to the set-off of its intent to set-off at
least five (5) business days prior to the set-off, which notice shall provide
the amount of the set-off and reasonable details of the basis for the set-off.
The Stockholder Representative, employee or holder of a Note may object to the
set-off by notifying Buyer of its objection within such five (5) day period,
which notice shall provide reasonable detail of points of disagreement. If the
parties are unable to resolve such dispute, the matter shall be submitted to
arbitration pursuant to Section 10,13.
ARTICLE
10.
MISCELLANEOUS
10.1
Entire Agreement.
This
Agreement, together with the Exhibits and Schedules hereto and the certificates,
documents, instruments and writings that are delivered pursuant hereto,
constitutes the entire agreement and understanding of the Parties in respect of
its subject matter and supersedes all prior understandings, agreements, or
representations by or among the Parties, written or oral, to the extent they
relate in any way to the subject matters hereof or the Transaction. Except as
expressly contemplated by ARTICLE 9, there are no third party beneficiaries
having rights under or with respect to this Agreement.
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10.2
|
Successors.
|
All of
the tarns, agreements, covenants, representations, warranties, and conditions of
this Agreement are binding upon, and inure to the benefit of and are enforceable
by, the Parties and their respective successors. If the assets of Seller are
assigned, conveyed, allocated or otherwise transferred, including, by sale,
merger, consolidation, amalgamation, conversion or similar transactions, such
receiving Person or Persons will automatically become bound by and subject to
the provisions of this Agreement, and Seller will cause the receiving Person or
Persons to expressly assume its obligations hereunder.
|
10.3
|
Assignments.
|
No Party
may assign either this Agreement or any of its rights, interests, or obligations
hereunder without the prior written approval of Buyer and Seller; provided,
however, that Buyer may (a) assign any or all of its rights and interests
hereunder to one or more of its Affiliates and (b) designate one or more of its
Affiliates to perform its obligations hereunder (in any or all of which cases
Buyer nonetheless will remain responsible for the performance of all of its
obligations hereunder).
|
10.4
|
Notices.
|
All
notices, requests, demand, claims and other communications hereunder will be in
writing. Any notice, request, demand, claim or other communication hereunder
will be deemed duly given if (and then three Business Days after) it is sent by
registered or certified mail, return receipt requested, postage prepaid, and
addressed to the intended recipient as set forth below:
If to
Buyer and after Closing to the Acquired Entity:
Radnet
Managed Imaging Services, Inc.
0000
Xxxxxx Xxx.
Xxx
Xxxxxxx, XX 00000
Attn.:
Xxxxxx X. Xxxxxx, M.D., President
Tel.:
000-000-0000
Fax:
000-000-0000
If to the
Acquired Entity prior to Closing:
Image
Medical Corporation
0 Xxxxxxx
Xxxx
Xxxxxxxxxx,
XX 00000
Attn.:
Xxx X. Xxxxxx
Tel.:
000-000-0000
|
With
a copy to:
|
Much
Shelist
|
Attn:
Xxxxxx Xxxxxxxx
000 Xxxxx
Xxxxxx Xxxxx, Xxxxx 0000
Xxxxxxx,
Xxxxxxxx 00000
Tel: 000-
000-0000
Fax:
000-000-0000
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If to
Stockholder Representative:
Xxxxxx X.
Xxxxxxxx
Any Party
may send any notice, request, demand, claim, or other communication hereunder to
the intended recipient at the address set forth above using any other means
(including personal delivery, expedited courier, messenger service, telecopy,
telex, ordinary mail, or electronic mail), but no such notice, request, demand,
claim, or other communication will be deemed to have been duly given unless and
until it actually is received by the intended recipient. Any Party may change
the address to which notices, requests, demands, claims, and other
communications hereunder are to be delivered by giving the other Parties notice
in the manner herein set forth.
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10.5
|
Submission
to Jurisdiction.
|
(a) Submission to Jurisdiction.
Each Party submits to the jurisdiction of any state or federal court
sitting in Los Angeles, California, in any Action arising out of or relating to
this Agreement and agrees that all claims in respect of the Action may be heard
and determined in any such court. Each Party agrees that a final judgment in any
Action so brought will be conclusive and may be enforced by Action on the
judgment or in any other manner provided at Law or in equity. Each Party waives
any bond, surety, or other security that might be required of any other Party
with respect thereto.
|
10.6
|
Time.
|
Time is
of the essence in the performance of this Agreement. 103
|
10.7
|
Counterparts.
|
This
Agreement may be executed in two or more counterparts, each of which will be
deemed an original but all of which together will constitute one and the same
instrument.
|
10.8
|
Headings.
|
The
article and section headings contained in this Agreement are inserted for
convenience only and will not affect in any way the meaning or interpretation
()fails Agreement.
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10.9
|
Governing
Law.
|
This
Agreement and the performance of the Transaction and obligations of the Parties
hereunder will be governed by and construed in accordance with the laws of the
State of Delaware without giving effect to any choice of Law
principles.
|
10.10
|
Amendments
and Waivers.
|
No
amendment, modification, replacement, termination or cancellation of any
provision of this Agreement will be valid, unless the same will be in writing
and signed by Buyer and Acquired Entity. No waiver by any Party of any default,
misrepresentation, or Breach of warranty or covenant hereunder, whether
intentional or not, may be deemed to extend to any prior or subsequent default,
misrepresentation, or Breach of warranty or covenant hereunder or affect in any
way any rights arising because of any prior or subsequent such
occurrence.
|
10.11
|
Severability.
|
The
provisions of this Agreement will be deemed severable and the invalidity or
unenforceability of any provision will not affect the validity or enforceability
of the other provisions hereof; provided that if any provision of this
Agreement, as applied to any Party or any circumstance, is adjudged by a
Governmental Body, arbitrator, or mediator not to be enforceable in accordance
with its terms, the Parties agree that the Governmental Body, arbitrator, or
mediator making such determination will have the power to modify the provision
in a manner consistent with its objectives such that it is enforceable, and/or
to delete specific words or phrases, and in its reduced form, such provision
will then be enforceable and will be enforced.
|
10.12
|
Expenses.
|
Except as
otherwise expressly provided in this Agreement, each Party will bear its own
costs and expenses incurred in connection with the preparation, execution and
performance of this Agreement and the Transaction including all fees and
expenses of agents, representatives, financial advisors, legal counsel and
accountants. If the Merger is consummated, the success fee payable to Xxxxxxx
Partners and Xxxxxx Xxxxx, any unpaid legal and accounting fees and expenses as
of the Closing Date, and any other unpaid direct costs incurred by the Acquired
Entity in connection with this Agreement and the transactions contemplated
hereby (the "Transaction Expenses") shall be deemed expenses of the Stockholders
and shall reduce the Merger Consideration as provided in Section
2.5(e).
|
10.13
|
Arbitration.
|
Any party
may submit any dispute arising in connection with this Agreement to final,
binding arbitration. The arbitration shall be held in Los Angeles, California,
and will be conducted in accordance with the rules of the American Arbitration
Association ("AAA") but will not be submitted to the AAA. Disputes will be heard
and determined by a single arbitrator with knowledge of the rules of the AAA
agreed to by Buyer and the Stockholder Representative. Judgment upon the award
rendered may be entered in any court having jurisdiction, or application may be
made to such court for a judicial acceptance of the award and an order of
enforcement. In addition, nothing in this Agreement shall prevent any party from
seeking injunctive relief against the other party from any judicial or
administrative authority pending the resolution of a controversy or claim by
arbitration.
- 43
-
|
10.14
|
Construction.
|
The
Parties have participated jointly in the negotiation and drafting of this
Agreement. If an ambiguity or question of intent or interpretation arises, this
Agreement will bc construed as if drafted jointly by the Parties and no
presumption or burden of proof will arise favoring or disfavoring any Party
because of the authorship of any provision of this Agreement. Any reference to
any federal, state, local, or foreign Law will be deemed also to refer to Law as
amended and all rules and regulations promulgated thereunder, unless the context
requires otherwise. The words "include," "includes," and "including" will be
deemed to be followed by "without limitation." Pronouns in masculine, feminine,
and neuter genders will be construed to include the plural and vice versa,
unless the context otherwise requires. The words "this Agreement," "herein,"
"hereof," "hereby," "hereunder," and words of similar import refer to this
Agreement as a whole and not to any particular subdivision unless expressly so
limited. The Parties intend that each representation, warranty, and covenant
contained herein will have independent significance. If any Party has Breached
any representation, warranty, or covenant contained herein in any respect, the
fact that there exists another representation, warranty or covenant relating to
the same subject matter (regardless of the relative levels of specificity) which
the Party has not Breached will not detract from or mitigate the fact that the
Party is in Breach of the first representation, warranty, or
covenant,
|
10.15
|
Incorporation
of Exhibits, Annexes, and
Schedules.
|
The
Exhibits, Annexes, Schedules, and other attachments identified in this Agreement
are incorporated herein by reference and made a part hereof.
|
10.16
|
Remedies.
|
Except as
expressly provided herein, the rights, obligations and remedies created by this
Agreement are cumulative and in addition to any other rights, obligations, or
remedies otherwise available at Law or in equity. Except as expressly provided
herein, nothing herein will be considered an election of remedies.
|
10.17
|
Electronic
Signatures.
|
(a) Notwithstanding
the Electronic Signatures in Global and National Commerce Act (15 U.S.C. Sec.
7001 et. seq.), the Uniform Electronic Transactions Act, or any other Law
relating to or enabling the creation, execution, delivery, or recordation of any
Contract or signature by electronic means, and notwithstanding any course of
conduct engaged in by the Parties, no Party will be deemed to have executed a
Transaction Document or other document contemplated thereby (including any
amendment or other change thereto) unless and until such Party shall have
executed such Transaction Document or other document on paper by a handwritten
original signature or any other symbol executed or adopted by a Party with
current intention to authenticate such Transaction Document or such other
document contemplated.
(b) Delivery
of a copy of a Transaction Document or such other document bearing an original
signature by facsimile transmission (whether directly from one facsimile device
to another by means of a dial-up connection or whether mediated by the worldwide
web), by electronic mail in "portable document format" (".pdf") form, or by any
other electronic means intended to preserve the original graphic and pictorial
appearance of a document, will have the same effect as physical delivery of the
paper document bearing the original signature. "originally signed" or "original
signature" means or refers to a signature that has not been mechanically or
electronically reproduced.
- 44
-
IN
WITNESS WHEREOF, the Parties have executed this Agreement as of the date first
above written.
|
RADNET
MANAGED IMAGING SERVICES,
INC.
|
||
|
By:
|
/S/ XXXXXX X. XXXXXX
M.D.
|
|
|
Xxxxxx
X. Xxxxxx, M.D., President
|
||
|
IMAGE
MEDICAL CORPORATION, a Delaware
corporation
|
||
|
By:
|
/S/ XXX X. XXXXXX
|
|
|
Xxx
X. Xxxxxx, President
|
||
|
Stockholder
Representative:
|
||
|
/S/ XXXXXX X. XXXXXXXX
|
||
|
Xxxxxx
X.
Xxxxxxxx
|
||
- 45
-
Schedule
3.3
NONE
- 46
-
Schedule
7
Employment
Contracts and Confidentiality and Non-Solicitation Agreements
Xxxxx
Xxxxxxx
Xxxxxx X.
Xxxxxxxx
Xxxxxxx
Xxxxx
Xxxx
Xxxxxxx
- 47
-
Exhibit 2 - Employee
Obligations
|
Employee
|
Deferred
Compensation
Or Retention
Bonus
|
Employee Payment
(paid at Closing)
|
Deferred Amount (paid
over 4 years)
|
|||||||||
|
Xxxxxxx
Xxxxx
|
$ | 26,937 | $ | 21,550 | $ | 5,387 | ||||||
|
Xxx
Xxxxxx
|
$ | 26,937 | $ | 21,550 | $ | 5,387 | ||||||
|
Xxxxxx
Xxxxxxxx
|
$ | 360,638 | $ | 288,510 | $ | 72,128 | ||||||
|
Xxxxxxx
Xxxxxxxx
|
$ | 785,648 | $ | 628,518 | $ | 157,130 | ||||||
|
Xxxxx
Xxxxxxx
|
$ | 26,937 | $ | 21,550 | $ | 5,387 | ||||||
|
Xxxx
Xxxxx
|
$ | 53,875 | $ | 43,100 | $ | 10,775 | ||||||
|
Xxxxx
Xxxxxxxx
|
$ | 53,875 | $ | 43,100 | $ | 10,775 | ||||||
|
Xxx
IVIifler
|
$ | 474,624 | $ | 379,699 | $ | 94,925 | ||||||
|
Xxxxx
Xxxxx
|
$ | 26,937 | $ | 21,550 | $ | 5,387 | ||||||
|
Xxxx
Xxxxxxx
|
$ | 53,875 | $ | 43,100 | $ | 10,775 | ||||||
|
Xxxxx
Xxxxxxx
|
$ | 26,937 | $ | 21,550 | $ | 5,387 | ||||||
|
Xxxxx
Xxxxxx
|
$ | 675,000 | $ | 540,000 | $ | 135,000 | ||||||
- 48
-
Exhibit 3 —
Creditors
|
Total Agreed Debt
|
Negotiated Debt (to be
paid at Closing)
|
Tier 1 Notes
|
Tier 2 Notes
|
|||||||||||||
|
Xxxxx
Xxxxxx & Xxxxxx Xxxxxxxx
|
$ | 1,388,520 | $ | 1,110,816 | $ | 277,704 | ||||||||||
|
Xxxxxx
Xxxxxxxx Estate
|
$ | 83,709 | $ | 66,967 | $ | 16,742 | ||||||||||
|
Xxxx
Xxxxxxxxx
|
$ | 19,000 | $ | 15,200 | $ | 3,800 | ||||||||||
|
Xxxxxxxx
Family Trust
|
$ | 19,000 | $ | 15,200 | $ | 3,800 | ||||||||||
|
Xxxxxx
Xxxxx
|
$ | 20,000 | $ | 20,000 | ||||||||||||
|
Xxxx
Xxxxxxx
|
$ | 10,000 |
$
|
10,000
|
||||||||||||
|
Xxxxxxx
Partners
|
$ | 47,500 | — | $ | 47,500 | |||||||||||
|
Xxxxx
Birch
|
$ | 275,369 | $ | 215,495 | $ | 59,874 | ||||||||||
- 49
-
