<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): March 31, 1998
DAOU SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation)
0-22073 330284454
(Commission File Number) (IRS Employer Identification No.)
5120 Shoreham Place, San Diego, California 92122
(Address of principal executive offices, including zip code)
(619) 452-2221
(Registrant's telephone number, including area code)
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
1. On March 31, 1998, DAOU Systems, Inc., a Delaware corporation (the
"Company"), acquired 100% of the issued and outstanding shares of Sentient
Systems, Inc., a Maryland corporation ("Sentient"), through the issuance of
1,397,550 shares of the Company's Common Stock, par value $.001 per share
("Common Stock") to the stockholders of Sentient (the "Sentient
Stockholders"). The acquisition was accomplished by means of a merger (the
"Sentient Merger") of Sentient with and into DAOU-Sentient, Inc., a Delaware
corporation and wholly-owned subsidiary of the Company ("DAOU-Sentient"),
pursuant to the terms of an Agreement and Plan of Merger, dated as of March
30, 1998 (the "Sentient Merger Agreement"), by and among the Company,
DAOU-Sentient, Sentient and the Sentient Stockholders.
As a result of the Sentient Merger, all of the shares of Sentient
were canceled and retired, and Sentient was merged with and into
DAOU-Sentient. Pursuant to the terms of the Sentient Merger Agreement, the
Sentient Stockholders received 1,397,550 shares of Common Stock, having an
aggregate value of approximately $26 million at the time of the Sentient
Merger. The Sentient Merger constituted a nontaxable reorganization under
Section 368(a)(1)(A) of the Internal Revenue Code of 1986, and will be
recorded as a pooling of interests for accounting purposes.
Sentient, a privately held corporation based in Kensington,
Maryland, is a systems integration and information technology firm which is
focused within the healthcare information technology market.
2. On March 31, 1998, the Company acquired 100% of the issued and
outstanding shares of Synexus Incorporated, a Pennsylvania corporation
("Synexus"), through the issuance of 161,235 shares of Common Stock to the
stockholders of Synexus (the "Synexus Stockholders"). The acquisition was
accomplished by means of a merger (the "Synexus Merger") of Synexus with and
into DAOU-Synexus, Inc., a Delaware corporation and wholly-owned subsidiary
of the Company ("DAOU-Synexus"), pursuant to the terms of an Agreement and
Plan of Merger, dated as of March 27, 1998 (the "Synexus Merger Agreement"),
by and among the Company, DAOU-Synexus, Synexus and the Synexus Stockholders.
As a result of the Synexus Merger, all of the shares of Synexus
were canceled and retired, and Synexus was merged with and into DAOU-Synexus.
Pursuant to the terms of the Synexus Merger Agreement, the Synexus
Stockholders received 161,235 shares of Common Stock, having an aggregate
value of approximately $3 million at the time of the Synexus Merger. The
Synexus Merger constituted a nontaxable reorganization under Section
368(a)(1)(A) of the Internal Revenue Code of 1986, and will be recorded as a
pooling of interests for accounting purposes.
Synexus, a privately held corporation based in Exton, Pennsylvania,
is a healthcare information technology firm specializing in software
application interface systems, network integration and project management.
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<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of businesses acquired.
As of the date of filing of this Current Report on Form 8-K, it is
impracticable for the Company to provide the financial statements, if any,
required by Item 7(a) of Form 8-K. In accordance with Item 7(a)(4) of Form
8-K, such financial statements, if any, shall be filed by amendment to this
Current Report on Form 8-K on or about May 15, 1998.
(b) Pro forma financial information.
As of the date of filing of this Current Report on Form 8-K, it is
impracticable for the Company to provide the pro forma financial information,
if any, required by Item 7(b) of Form 8-K. In accordance with Item 7(b)(2)
of Form 8-K, such pro forma financial information, if any, shall be filed by
amendment to this Current Report on Form 8-K on or about May 15, 1998.
(c) Exhibits.
The following exhibits are filed herewith or incorporated by
reference as part of this report:
<TABLE>
<CAPTION>
Exhibit
No. Document Description
<S> <C>
---------- --------------------------------------------------
2.1*+ Agreement and Plan of Merger, dated as of March 30,
1998 (the "Sentient Merger Agreement"), by and among DAOU
Systems, Inc., a Delaware corporation, DAOU-Sentient, Inc.,
a Delaware corporation and wholly-owned subsidiary of DAOU
Systems, Inc., Sentient Systems, Inc., a Maryland
corporation, and the stockholders of Sentient Systems, Inc.
2.2**+ Agreement and Plan of Merger, dated as of March 27, 1998
(the "Synexus Merger Agreement"), by and among DAOU
Systems, Inc., a Delaware corporation, DAOU-Synexus, Inc.,
a Delaware corporation and wholly-owned subsidiary of DAOU
Systems, Inc., Synexus Incorporated, a Pennsylvania
corporation, and the stockholders of Synexus Incorporated.
99.1*** Press release entitled "DAOU Systems Merges with Sentient
Systems, Inc."
99.2*** Press release entitled "DAOU Systems Merges with Synexus
Incorporated"
</TABLE>
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<PAGE>
* The table of contents to the Sentient Merger Agreement lists the
exhibits and schedules to the Sentient Merger Agreement. In accordance with
Item 601(b)(2) of Regulation S-K, the exhibits and schedules to the Sentient
Merger Agreement have been excluded; such exhibits and/or schedules will be
furnished supplementally upon request by the Securities and Exchange Commission.
** The table of contents to the Synexus Merger Agreement lists the
exhibits and schedules to the Synexus Merger Agreement. In accordance with Item
601(b)(2) of Regulation S-K, the exhibits and schedules to the Synexus Merger
Agreement have been excluded; such exhibits and/or schedules will be furnished
supplementally upon request by the Securities and Exchange Commission.
*** Filed as an exhibit to the Company's Current Report on Form 8-K
which was filed with the Securities and Exchange Commission on April 2, 1998 and
incorporated herein by reference.
+ Confidential treatment has been requested for portions of this
exhibit.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: April 14, 1998 DAOU SYSTEMS, INC.
By: /s/ Fred C. McGee
----------------------------------------
Fred C. McGee, Chief Financial Officer
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<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
Exhibit
No. Document Description
<S> <C>
--------- ----------------------------------------------------------------
2.1*+ Agreement and Plan of Merger, dated as of March 30, 1998 (the
"Sentient Merger Agreement"), by and among DAOU Systems, Inc.,
a Delaware corporation, DAOU-Sentient, Inc., a Delaware
corporation and wholly- owned subsidiary of DAOU Systems,
Inc., Sentient Systems, Inc., a Maryland corporation, and the
stockholders of Sentient Systems, Inc.
2.2**+ Agreement and Plan of Merger, dated as of March 27, 1998 (the
"Synexus Merger Agreement"), by and among DAOU Systems, Inc.,
a Delaware corporation, DAOU-Synexus, Inc., a Delaware
corporation and wholly-owned subsidiary of DAOU Systems,
Inc., Synexus Incorporated, a Pennsylvania corporation, and
the stockholders of Synexus Incorporated.
99.1*** Press release entitled "DAOU Systems Merges with Sentient
Systems, Inc."
99.2*** Press release entitled "DAOU Systems Merges with Synexus
Incorporated"
</TABLE>
* The table of contents to the Sentient Merger Agreement lists the
exhibits and schedules to the Sentient Merger Agreement. In accordance with
Item 601(b)(2) of Regulation S-K, the exhibits and schedules to the Sentient
Merger Agreement have been excluded; such exhibits and/or schedules will be
furnished supplementally upon request by the Securities and Exchange Commission.
** The table of contents to the Synexus Merger Agreement lists the
exhibits and schedules to the Synexus Merger Agreement. In accordance with Item
601(b)(2) of Regulation S-K, the exhibits and schedules to the Synexus Merger
Agreement have been excluded; such exhibits and/or schedules will be furnished
supplementally upon request by the Securities and Exchange Commission.
*** Filed as an exhibit to the Company's Current Report on Form 8-K
which was filed with the Securities and Exchange Commission on April 2, 1998 and
incorporated herein by reference.
+ Confidential treatment has been requested for portions of this
exhibit.
-5-
<PAGE>
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
DAOU SYSTEMS, INC.,
DAOU-SENTIENT, INC.,
SENTIENT SYSTEMS, INC.
AND
THE STOCKHOLDERS OF SENTIENT SYSTEMS, INC.
LISTED ON THE SIGNATURE PAGE HERETO
Dated as of March 30, 1998
<PAGE>
TABLE OF CONTENTS
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<S> <C>
ARTICLE I THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . -2-
SECTION 1.01 THE MERGER. . . . . . . . . . . . . . . . . . . . -2-
SECTION 1.02 EFFECTIVE TIME. . . . . . . . . . . . . . . . . . -2-
SECTION 1.03 EFFECT OF THE MERGER. . . . . . . . . . . . . . . -2-
SECTION 1.04 CERTIFICATE OF INCORPORATION; BY-LAWS . . . . . . -2-
SECTION 1.05 DIRECTORS AND OFFICERS. . . . . . . . . . . . . . -2-
ARTICLE II CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES . . . . . . . -3-
SECTION 2.01 CONVERSION OF SECURITIES. . . . . . . . . . . . . -3-
SECTION 2.02 DELIVERY OF CERTIFICATES. . . . . . . . . . . . . -4-
SECTION 2.03 STOCK TRANSFER BOOKS. . . . . . . . . . . . . . . -6-
ARTICLE IIA VOTING RIGHTS AND PROXY. . . . . . . . . . . . . . . . . . . . . -6-
SECTION 2.01A. CONSENT AND VOTING AGREEMENT. . . . . . . . . . . -6-
SECTION 2.02A. GRANT OF PROXY. . . . . . . . . . . . . . . . . . -6-
ARTICLE III REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY. . . . . . -7-
SECTION 3.01 ORGANIZATION AND QUALIFICATION; SUBSIDIARIES. . . -7-
SECTION 3.02 ARTICLES OF INCORPORATION AND BY-LAWS . . . . . . -7-
SECTION 3.03 CAPITALIZATION. . . . . . . . . . . . . . . . . . -7-
SECTION 3.04 AUTHORITY . . . . . . . . . . . . . . . . . . . . -8-
SECTION 3.05 NO CONFLICT; REQUIRED FILINGS AND CONSENTS. . . . -8-
SECTION 3.06 PERMITS; COMPLIANCE . . . . . . . . . . . . . . . -9-
SECTION 3.07 FINANCIAL STATEMENTS. . . . . . . . . . . . . . . -9-
SECTION 3.08 NO UNDISCLOSED LIABILITIES. . . . . . . . . . . . -9-
SECTION 3.09 ABSENCE OF CERTAIN CHANGES OR EVENTS. . . . . . . -9-
SECTION 3.10 ABSENCE OF LITIGATION . . . . . . . . . . . . . -12-
SECTION 3.11 VOTE REQUIRED . . . . . . . . . . . . . . . . . -12-
SECTION 3.12 BROKERS . . . . . . . . . . . . . . . . . . . . -12-
SECTION 3.13 COMPANY ACTION. . . . . . . . . . . . . . . . . -12-
SECTION 3.14 TAX MATTERS; "POOLING OF INTERESTS" . . . . . . -12-
SECTION 3.15 REAL PROPERTY . . . . . . . . . . . . . . . . . -13-
SECTION 3.16 INTELLECTUAL PROPERTY . . . . . . . . . . . . . -14-
SECTION 3.17 TANGIBLE ASSETS . . . . . . . . . . . . . . . . -16-
SECTION 3.18 INVENTORY . . . . . . . . . . . . . . . . . . . -16-
SECTION 3.19 CONTRACTS . . . . . . . . . . . . . . . . . . . -16-
SECTION 3.20 NOTES AND ACCOUNTS RECEIVABLE . . . . . . . . . -18-
SECTION 3.21 POWERS OF ATTORNEY. . . . . . . . . . . . . . . -18-
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<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<CAPTION>
PAGE
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SECTION 3.22 INSURANCE . . . . . . . . . . . . . . . . . . . -18-
SECTION 3.23 EMPLOYEES . . . . . . . . . . . . . . . . . . . -19-
SECTION 3.24 EMPLOYEE BENEFITS . . . . . . . . . . . . . . . -19-
SECTION 3.25 GUARANTIES. . . . . . . . . . . . . . . . . . . -20-
SECTION 3.26 ENVIRONMENT, HEALTH AND SAFETY. . . . . . . . . -20-
SECTION 3.27 CERTAIN BUSINESS RELATIONSHIPS WITH THE
COMPANY . . . . . . . . . . . . . . . . . . . . -21-
SECTION 3.28 [[RESERVED]]. . . . . . . . . . . . . . . . . . -21-
SECTION 3.29 PRODUCT AND SERVICE WARRANTIES. . . . . . . . . -21-
SECTION 3.30 PRODUCT AND SERVICE LIABILITY . . . . . . . . . -22-
SECTION 3.31 CUSTOMER/SUPPLIER RELATIONSHIPS . . . . . . . . -22-
SECTION 3.32 CERTAIN BUSINESS PRACTICES. . . . . . . . . . . -22-
SECTION 3.33 DISCLOSURE. . . . . . . . . . . . . . . . . . . -22-
SECTION 3.34 LIMITATION ON REPRESENTATIONS AND WARRANTIES. . -22-
ARTICLE IIIA REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER. . . . . -22-
SECTION 3.01A. AUTHORIZATION OF TRANSACTION. . . . . . . . . . -23-
SECTION 3.02A. NONCONTRAVENTION. . . . . . . . . . . . . . . . -23-
SECTION 3.03A. BROKERS . . . . . . . . . . . . . . . . . . . . -23-
SECTION 3.04A. COMPANY SHARES. . . . . . . . . . . . . . . . . -23-
SECTION 3.05A. ACCREDITED INVESTOR . . . . . . . . . . . . . . -23-
SECTION 3.06A. INVESTMENT INTENTION. . . . . . . . . . . . . . -24-
SECTION 3.07A. EMPLOYMENT. . . . . . . . . . . . . . . . . . . -24-
SECTION 3.08A. LIMITATION ON REPRESENTATIONS AND WARRANTIES. . -24-
SECTION 3.09A. DELIVERY OF INFORMATION . . . . . . . . . . . . -24-
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND PARENT SUB. . . . -24-
SECTION 4.01 ORGANIZATION AND QUALIFICATION. . . . . . . . . -24-
SECTION 4.02 CERTIFICATES OF INCORPORATION AND BY-LAWS . . . -25-
SECTION 4.03 PARENT COMMON STOCK; CAPITALIZATION . . . . . . -25-
SECTION 4.04 AUTHORITY . . . . . . . . . . . . . . . . . . . -25-
SECTION 4.05 NO CONFLICT; REQUIRED FILINGS AND CONSENTS. . . -25-
SECTION 4.06 REPORTS; FINANCIAL STATEMENTS . . . . . . . . . -26-
SECTION 4.07 ABSENCE OF CERTAIN CHANGES OR EVENTS. . . . . . -27-
SECTION 4.08 OWNERSHIP OF PARENT SUB; NO PRIOR ACTIVITIES. . -27-
SECTION 4.09 BROKERS . . . . . . . . . . . . . . . . . . . . -27-
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
(CONTINUED)
Page
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<S> <C>
SECTION 4.10 TAX MATTERS; "POOLING OF INTERESTS". . . . . -27-
SECTION 4.11 LIMITATION ON REPRESENTATIONS AND WARRANTIES -27-
SECTION 4.12 HART-SCOTT-RODINO REPRESENTATION . . . . . . -28-
ARTICLE V COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . -28-
SECTION 5.01 AFFIRMATIVE COVENANTS OF THE COMPANY . . . . -28-
SECTION 5.02 NEGATIVE COVENANTS OF THE COMPANY. . . . . . -28-
SECTION 5.03 NEGATIVE COVENANTS OF PARENT . . . . . . . . -30-
SECTION 5.04 ACCESS AND INFORMATION . . . . . . . . . . . -31-
SECTION 5.05 ESCROW AGREEMENT . . . . . . . . . . . . . . -31-
ARTICLE VI ADDITIONAL AGREEMENTS. . . . . . . . . . . . . . . . . . . . . -31-
SECTION 6.01 APPROPRIATE ACTION; CONSENTS; FILINGS. . . . -31-
SECTION 6.02 TAX TREATMENT; "POOLING OF INTERESTS";
AFFILIATES . . . . . . . . . . . . . . . . . -32-
SECTION 6.03 PUBLIC ANNOUNCEMENTS . . . . . . . . . . . . -32-
SECTION 6.04 OBLIGATIONS OF PARENT SUB. . . . . . . . . . -33-
SECTION 6.05 RESTRICTIVE LEGEND . . . . . . . . . . . . . -33-
SECTION 6.06 ***. . . . . . . . . . . . . . . . . . . . . -34-
SECTION 6.07 DELIVERY OF SEC FILINGS. . . . . . . . . . . -37-
SECTION 6.08 TERMINATION OF STOCKHOLDERS' AGREEMENT . . . -37-
SECTION 6.09 BEST EFFORTS . . . . . . . . . . . . . . . . -38-
SECTION 6.10 ***. . . . . . . . . . . . . . . . . . . . . -38-
ARTICLE VII CLOSING CONDITIONS . . . . . . . . . . . . . . . . . . . . . . -39-
SECTION 7.01 CONDITIONS TO OBLIGATIONS OF EACH PARTY UNDER
THIS AGREEMENT . . . . . . . . . . . . . . . -40-
SECTION 7.02 ADDITIONAL CONDITIONS TO OBLIGATIONS OF
PARENT . . . . . . . . . . . . . . . . . . . -40-
SECTION 7.03 ADDITIONAL CONDITIONS TO OBLIGATIONS OF THE
COMPANY. . . . . . . . . . . . . . . . . . . -42-
ARTICLE VIII TERMINATION, AMENDMENT, WAIVER AND INDEMNIFICATION . . . . . . -42-
SECTION 8.01 TERMINATION. . . . . . . . . . . . . . . . . -42-
SECTION 8.02 INVESTIGATION. . . . . . . . . . . . . . . . -43-
SECTION 8.03 AMENDMENT. . . . . . . . . . . . . . . . . . -43-
SECTION 8.04 WAIVER; REMEDIES CUMULATIVE. . . . . . . . . -43-
SECTION 8.05 FEES, EXPENSES AND OTHER PAYMENTS. . . . . . -44-
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(CONTINUED)
Page
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SECTION 8.06 STOCKHOLDER INDEMNIFICATION, HOLD BACK AND
ESCROW . . . . . . . . . . . . . . . . . . . -44-
ARTICLE IX GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . -47-
SECTION 9.01 EFFECTIVENESS OF REPRESENTATIONS, WARRANTIES AND
AGREEMENTS . . . . . . . . . . . . . . . . . -47-
SECTION 9.02 NOTICES. . . . . . . . . . . . . . . . . . . -47-
SECTION 9.03 CERTAIN DEFINITIONS. . . . . . . . . . . . . -49-
SECTION 9.04 HEADINGS; CONSTRUCTION . . . . . . . . . . . -55-
SECTION 9.05 SEVERABILITY . . . . . . . . . . . . . . . . -56-
SECTION 9.06 ENTIRE AGREEMENT; AMENDMENT. . . . . . . . . -56-
SECTION 9.07 ASSIGNMENT . . . . . . . . . . . . . . . . . -56-
SECTION 9.08 PARTIES IN INTEREST. . . . . . . . . . . . . -56-
SECTION 9.09 FURTHER ASSURANCES . . . . . . . . . . . . . -56-
SECTION 9.10 GOVERNING LAW. . . . . . . . . . . . . . . . -56-
SECTION 9.11 BINDING ARBITRATION. . . . . . . . . . . . . -56-
SECTION 9.12 WAIVER; REMEDIES CUMULATIVE. . . . . . . . . -57-
SECTION 9.13 COUNTERPARTS . . . . . . . . . . . . . . . . -57-
</TABLE>
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<PAGE>
INDEX TO EXHIBITS
<TABLE>
<S> <C>
Exhibit 2.01A Written Consent of the Stockholders of the Company
Exhibit 5.05 Form of Escrow Agreement
Exhibit 7.02(f) Legal Opinion of Counsel to the Company
Exhibit 7.02(g) Form of Affiliate Agreement
Exhibit 7.02(h)(i) Form of Employment Agreement
Exhibit 7.02(h)(ii) Form of Severance Agreements
Exhibit 7.02(i) Form of Noncompetition Agreement
Exhibit 7.02(j) Form of Spousal Consent
Exhibit 7.03(d) Legal Opinion of Counsel to Parent
</TABLE>
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<PAGE>
INDEX TO SCHEDULES
<TABLE>
<CAPTION>
SCHEDULE
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
3.02 Officers and Directors and Articles of Incorporation and By-Laws
3.03(a) Stockholders of the Company
3.05 Filings and Consents of the Company
3.07 Financial Statements of the Company
3.08 Liabilities of the Company
3.09 Certain Changes or Events of the Company
3.10 Litigation Matters
3.14(c) Tax Returns and Tax Related Information of the Company
3.14(f) Gains and Losses of the Company
3.15(b) Real Property Leased or Subleased by the Company
3.16(a) Intellectual Property Not Available Subsequent to the Effective
Time
3.16(b) Intellectual Property Infringement
3.16(c) Intellectual Property Owned by the Company
3.16(d) Intellectual Property Agreements or Permission
3.17 Tangible Assets of the Company
3.19 Contracts of the Company
3.20 Notes and Accounts Receivable of the Company
3.22 Insurance Policies of the Company
3.24 Employee Benefit Plans of the Company
3.26 Environmental Matters of the Company
3.27 Certain Business Relationships with the Company
3.29 Standard Sale, Lease and Performance Terms and Conditions of the
Company
3.31 Customer/Supplier Relationships with the Company
5.02 Negative Covenants
6.10(c) Share Units Agreements of the Company
6.10(d) ***
7.02(d) Contracts or Agreements Requiring Consents or Waivers with
respect to the Company
</TABLE>
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<PAGE>
THIS AGREEMENT AND PLAN OF MERGER, dated as of March 30, 1998 (this
"AGREEMENT"), by and among DAOU Systems, Inc., a Delaware corporation
("PARENT"), DAOU-Sentient, Inc., a Delaware corporation and a wholly-owned
subsidiary of Parent ("PARENT SUB"), Sentient Systems, Inc., a Maryland
corporation (the "COMPANY"), and all of the stockholders of the Company
listed on the signature page hereto (collectively, the "STOCKHOLDERS").
W I T N E S S E T H:
WHEREAS, upon the terms and subject to the conditions of this Agreement
and in accordance with the General Corporation Law of the State of Delaware
("DELAWARE LAW") and the Maryland General Corporation Law of the State of
Maryland ("MARYLAND LAW"), the Company will merge with and into Parent Sub
(the "MERGER");
WHEREAS, the Board of Directors of the Company has determined that the
Merger is in the best interests of the Company and the Stockholders, has
approved and adopted this Agreement and the transactions contemplated hereby,
and has recommended that the Stockholders approve and adopt this Agreement
and the transactions contemplated hereby;
WHEREAS, the Stockholders hold one hundred percent (100%) of the
outstanding voting power of the Company, have irrevocably consented to the
execution and delivery of this Agreement and the consummation of the Merger
and have irrevocably agreed to vote in favor of the Merger at a meeting of
Stockholders or by a written consent executed by each Stockholder, and such
consent and agreement is an essential condition and inducement to Parent and
Parent Sub to enter into this Agreement;
WHEREAS, the Boards of Directors of Parent and Parent Sub have
determined that the Merger is in the best interests of Parent and Parent Sub
and their respective stockholders, and have approved and adopted this
Agreement and the transactions contemplated hereby;
WHEREAS, the Company, Parent and Parent Sub intend that the Merger shall
constitute a "reorganization" under Section 368(a)(1)(A) of the Code, by
application of Section 368(a)(2)(D) of the Code, and that this Agreement
shall constitute a "plan of reorganization" for the purposes of Section 368
of the Code;
WHEREAS, for accounting purposes, it is intended that the Merger shall
be accounted for as a "pooling of interests"; and
WHEREAS, certain capitalized terms used in this Agreement are defined in
Section 9.03;
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement, the parties hereto agree as follows:
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
-1-
<PAGE>
ARTICLE I
THE MERGER
SECTION 1.01 THE MERGER. Upon the terms and subject to the
conditions set forth in this Agreement, and in accordance with Delaware Law
and Maryland Law, at the Effective Time (as defined in Section 1.02), the
Company shall be merged with and into Parent Sub. As a result of the Merger,
the separate corporate existence of the Company shall cease and Parent Sub
shall continue as the surviving corporation in the Merger (the "SURVIVING
CORPORATION"). The name of the Surviving Corporation shall be DAOU-Sentient,
Inc.
SECTION 1.02 EFFECTIVE TIME. As promptly as practicable after the
satisfaction or, if permissible, waiver of the closing conditions set forth
in Article VII, the parties hereto shall cause the Merger to be consummated
by filing a certificate of merger (the "CERTIFICATE OF MERGER") with the
Secretary of State of the State of Delaware, in such form as required by, and
executed in accordance with the relevant provisions of, Delaware Law, and by
filing articles of merger ("ARTICLES OF MERGER") with the State Department of
Assessments and Taxation ("SDAT") of the State of Maryland, in such form as
required by, and executed in accordance with the relevant provisions of,
Maryland Law (the later of the date and time of the filing of the Certificate
of Merger or the date and time when SDAT accepts the Articles of Merger, or
such later time as may be agreed to in writing by Parent, Parent Sub and the
Company and specified in the Certificate of Merger, being the "EFFECTIVE
TIME").
SECTION 1.03 EFFECT OF THE MERGER. At the Effective Time, the effect
of the Merger shall be as provided in the applicable provisions of Delaware
Law and Maryland Law. Without limiting the generality of the foregoing, and
subject thereto, at the Effective Time, except as otherwise provided herein,
all of the property, rights, privileges, powers and franchises of Parent Sub
and the Company shall vest in the Surviving Corporation, and all debts,
Liabilities and duties of Parent Sub and the Company shall become the debts,
Liabilities and duties of the Surviving Corporation.
SECTION 1.04 CERTIFICATE OF INCORPORATION; BY-LAWS. At the Effective
Time, the Certificate of Incorporation of Parent Sub as in effect immediately
prior to the Effective Time shall be the Certificate of Incorporation of the
Surviving Corporation, and the By-Laws of Parent Sub shall be the By-Laws of
the Surviving Corporation.
SECTION 1.05 DIRECTORS AND OFFICERS. The directors of Parent Sub
immediately prior to the Effective Time shall be the initial directors of the
Surviving Corporation, each to hold office in accordance with the Certificate
of Incorporation and By-Laws of the Surviving Corporation, and the officers
of Parent Sub immediately prior to the Effective Time shall be the initial
officers of the Surviving Corporation, in each case until their respective
successors are duly elected or appointed and qualified.
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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<PAGE>
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
SECTION 2.01 CONVERSION OF SECURITIES.
(a) At the Effective Time, by virtue of the Merger and without
any action on the part of Parent Sub, the Company or the holders of any of
the following securities, each share of the Company's common stock, $0.001
par value per share ("COMPANY COMMON STOCK"), issued and outstanding
immediately prior to the Effective Time, excluding any treasury shares held
by the Company and shares held by Parent, if any, shall be converted into the
right to receive that number of fully paid, nonassessable shares of Parent's
common stock, par value $0.001 per share ("PARENT COMMON STOCK"), equal to
the Exchange Ratio, subject to adjustment as set forth in Section 2.01(b) and
subject to pro rata withholding of shares to be held in escrow pursuant to
Section 5.05. ***
(b) If between the date of this Agreement and the Effective Time
the outstanding shares of Parent Common Stock or Company Common Stock shall
have been changed into a different number of shares of a different class, by
reason of any stock dividend, subdivision, reclassification,
recapitalization, split, combination or exchange of shares, the Exchange
Ratio shall be correspondingly adjusted to reflect such stock dividend,
subdivision, reclassification, recapitalization, split, combination or
exchange of shares.
(c) At the Effective Time, all of the shares of Company Common
Stock shall no longer be outstanding and shall automatically be canceled and
retired and shall cease to exist, and each Stock Register Entry previously
evidencing any such shares shall thereafter represent only the right to
receive the Merger Consideration (as defined in Section 2.02(b)). The
Company's stockholders corresponding to such Stock Register Entries
previously evidencing such shares of Company Common Stock outstanding
immediately prior to the Effective Time shall cease to have any rights with
respect to such shares of Company Common Stock, except as otherwise provided
herein or by Law. Such Stock Register Entries previously evidencing shares
of Company Common Stock shall entitle the corresponding stockholders of the
Company to receive certificates evidencing whole shares of Parent Common
Stock issued in consideration therefor in accordance with the allocation
procedures of this Section 2.01 and upon the delivery of a Secretary's
Certificate in accordance with the provisions of Section 2.02. No fractional
shares of Parent Common Stock shall be issued, and, in lieu thereof, a cash
payment shall be made pursuant to Section 2.02(e).
(d) Each share of Company Common Stock held in the treasury of
the Company and each share of Company Common Stock owned by Parent or any
direct or indirect wholly-owned Subsidiary of Parent or of the Company, if
any, immediately prior to the Effective Time shall be canceled and
extinguished without any conversion thereof and no payment shall be made with
respect thereto.
SECTION 2.2 DELIVERY OF CERTIFICATES.
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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<PAGE>
(a) EXCHANGE AGENT. As of the Effective Time, Parent shall
deposit, or shall cause to be deposited, with Baker & McKenzie or such other
Person designated by Parent and reasonably satisfactory to the Company (the
"EXCHANGE AGENT"), for the benefit of the Stockholders and for exchange in
accordance with this Article II through the Exchange Agent (i) certificates
evidencing such number of whole shares of Parent Common Stock equal to the
Exchange Ratio multiplied by the number of shares of Company Common Stock
outstanding and (ii) cash in consideration of fractional shares as provided
in Section 2.02(e) (such Parent Common Stock and cash being hereinafter
referred to as the "EXCHANGE FUND"). The Exchange Agent shall, pursuant to
irrevocable instructions, deliver the shares of Parent Common Stock (except
that *** of such shares of Parent Common Stock shall be delivered to an
escrow agent pursuant to Sections 5.05 and 8.06) and cash out of the Exchange
Fund. Except as contemplated by Section 2.02(f), the Exchange Fund shall not
be used for any other purpose.
(b) EXCHANGE PROCEDURES. As soon as reasonably practicable after
the Effective Time, Parent will instruct the Exchange Agent to mail to each
stockholder of record of the Company corresponding to a duly authorized entry
in the Company's Stock Register, which immediately prior to the Effective
Time evidenced outstanding shares of Company Common Stock (collectively, the
"STOCK REGISTER ENTRIES"), (i) a letter of transmittal (which shall specify
that delivery shall be effected, and risk of loss and title to the shares of
Company Common Stock evidenced by the Stock Register Entries shall pass, only
upon proper delivery to the Exchange Agent of a certificate duly executed by
the Company's Secretary (a "SECRETARY'S CERTIFICATE"), which letter of
transmittal and certificate shall be in such form and have such other
provisions as Parent may reasonably specify), and (ii) instructions for use
in effecting the exchange for certificates evidencing shares of Parent Common
Stock. Upon the delivery of a Secretary's Certificate to the Exchange Agent
together with such letter of transmittal, duly executed, and such other
customary documents as may be required pursuant to such instructions, the
corresponding stockholder shall be entitled to receive in exchange therefor
(A) certificates evidencing that number of whole shares of Parent Common
Stock which such stockholder has the right to receive in respect of the
shares of Company Common Stock formerly evidenced by the corresponding Stock
Register Entry in accordance with Section 2.01, less that stockholder's pro
rata portion of the shares (rounded to the nearest whole share) to be held in
escrow pursuant to Sections 5.05 and 8.06 and (B) cash in lieu of fractional
shares of Parent Common Stock to which such stockholder is entitled pursuant
to Section 2.02(e) (such shares of Parent Common Stock and cash, if any,
being collectively, the "MERGER CONSIDERATION"), and such shares of Company
Common Stock shall forthwith be canceled. Until delivery of a Secretary's
Certificate as contemplated by this Section 2.02, each of the Stock Register
Entries shall be deemed at any time after the Effective Time to evidence only
the right to receive, upon such surrender, the Merger Consideration.
(c) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES OF PARENT
COMMON STOCK. No dividends or other distributions declared or made after the
Effective Time with respect to Parent Common Stock with a record date after
the Effective Time shall be paid to a stockholder of the Company who
previously has not exchanged hereby his or her shares of Company Common Stock
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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<PAGE>
for the corresponding number of shares of Parent Common Stock, and no other
part of the Merger Consideration shall be paid to any such stockholder, until
such stockholder shall cause the delivery of a Secretary's Certificate to the
Exchange Agent, at which time, subject to the effect of applicable Laws,
there shall be issued to such stockholder (i) certificates evidencing whole
shares of Parent Common Stock issued in exchange therefor, and the amount of
any cash payable with respect to a fractional share of Parent Common Stock to
which such stockholder is entitled pursuant to Section 2.02(e) and the amount
of dividends or other distributions with a record date after the Effective
Time theretofore paid with respect to such whole shares of Parent Common
Stock, and (ii) at the appropriate payment date, the amount of dividends or
other distributions (without interest thereon), with a record date after the
Effective Time but prior to surrender and a payment date occurring after
surrender, payable with respect to such whole shares of Parent Common Stock.
No interest shall be paid on the Merger Consideration.
(d) NO FURTHER RIGHTS IN COMPANY COMMON STOCK. All shares of
Parent Common Stock issued and cash paid upon exchange of the shares of
Company Common Stock in accordance with the terms hereof shall be deemed to
have been issued or paid in full satisfaction of all rights pertaining to
such shares of Company Common Stock.
(e) NO FRACTIONAL SHARES.
(i) No certificates or scrip evidencing fractional shares of
Parent Common Stock shall be issued upon the exchange of any shares of
Company Common Stock for shares of Parent Common Stock hereby, and such
fractional share interests will not entitle the owner thereof to vote or to
any rights of a stockholder of Parent.
(ii) Each stockholder of the Company having a fractional interest
arising upon the exchange of shares of Company Common Stock for shares of
Parent Common Stock hereby shall, at the time of such exchange, be paid by
the Exchange Agent an amount in cash equal to the value of such fractional
interest based on a price per share equal to the Market Price.
(f) TERMINATION OF EXCHANGE FUND. Any portion of the Exchange
Fund which remains undistributed to the holders of Company Common Stock for
two (2) years after the Effective Time shall be delivered to Parent, upon
demand, and any holders of Company Common Stock who have not theretofore
complied with this Article II shall thereafter look only to Parent for the
Merger Consideration to which they are entitled.
(g) NO LIABILITY. Neither Parent nor the Surviving Corporation
shall be liable to any holder of shares of Company Common Stock for any
shares of Parent Common Stock, cash or dividends or distributions with
respect thereto delivered to a public official pursuant to any applicable
abandoned property, escheat or similar Law.
SECTION 2.3 STOCK TRANSFER BOOKS. On the date hereof, the stock
transfer books of the Company shall be closed and there shall be no further
registration of transfers of shares of
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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<PAGE>
Company Common Stock thereafter on the records of the Company. On or after
the Effective Time, any shares of Company Common Stock (or evidence thereof)
presented to the Exchange Agent for any reason shall be converted into the
Merger Consideration.
ARTICLE IIA
VOTING RIGHTS AND PROXY
SECTION 2.01A. CONSENT AND VOTING AGREEMENT. Each Stockholder hereby
(a) irrevocably consents to the execution and delivery of this Agreement and,
subject to the terms and conditions of this Agreement, to the consummation of
the Merger and shall contemporaneously herewith execute the written consent
attached hereto as EXHIBIT 2.01A (the "CONSENT"), and (b) as long as this
Agreement has not been terminated pursuant to its terms, further irrevocably
agrees to vote all Company Common Stock as to which such Stockholder is
entitled to vote at a meeting of the stockholders of the Company if any
meeting is so held, or by written consent without a meeting as follows: (i)
in favor of approval and adoption of this Agreement and the transactions
contemplated hereby; (ii) against any action or agreement that would result
in a breach of any covenant, representation or warranty or any other
obligation or agreement of the Company or such Stockholder under this
Agreement; (iii) against any action or agreement (other than this Agreement
or the transactions contemplated by this Agreement or the termination of this
Agreement in accordance with its terms), that would, directly or indirectly,
impede, interfere with, delay, postpone or attempt to discourage the Merger,
including, without limitation: (A) any extraordinary corporate transaction,
such as a merger, consolidation or other business combination involving the
Company; (B) a sale or transfer of a material amount of Assets of the Company
or a reorganization, recapitalization or liquidation of the Company; (C) any
change in the management or board of directors of the Company or any
Competing Transaction, except as otherwise agreed to in writing by Parent;
(D) any material change in the present capitalization or dividend policy of
the Company; or (E) any other material change in the Company's corporate
structure or business.
SECTION 2.02A. GRANT OF PROXY. Without waiving or limiting the rights
of the Stockholders either in their individual capacities or in their
capacities as stockholders of the Company, each Stockholder hereby
irrevocably appoints each of the Chief Executive Officer, President and Chief
Financial Officer of Parent, each with full power of substitution (each such
individual and his substitutes being referred to herein as the "PROXY"), as
attorneys and proxies to vote all Company Common Stock on all matters
referred to in Section 2.01A as to which such Stockholder is entitled to vote
at a meeting of the stockholders of the Company or to which he is entitled to
express consent or dissent to corporate action in writing without a meeting,
in the Proxy's absolute, sole and binding discretion. Each Stockholder
agrees to refrain from taking any action contrary to or in any manner
inconsistent with the terms of this Agreement. Each Stockholder agrees that
this grant of proxy is irrevocable and coupled with an interest and agrees
that a person designated as Proxy pursuant hereto may, at any time, name any
other person as his substituted Proxy to act pursuant hereto, either as to a
specific matter or as to all matters. Each Stockholder hereby revokes any
proxy previously granted by him or her with respect to voting his or her
shares
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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<PAGE>
of Company Common Stock. In discharging its powers under this Agreement, the
Proxy may rely upon advice of counsel to Parent, and any vote made or action
taken by the Proxy in reliance upon such advice of counsel shall be deemed to
have been made in good faith by the Proxy. This grant of proxy shall
terminate upon the termination of this Agreement pursuant to Article VIII
hereof.
ARTICLE III
REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY
Except as otherwise provided herein, each of the Company and the
Stockholders hereby represents and warrants, jointly and severally, to Parent
and Parent Sub as follows:
SECTION 3.01 ORGANIZATION AND QUALIFICATION; SUBSIDIARIES. The
Company is a corporation duly organized, validly existing and in good
standing under the Laws of the jurisdiction of its incorporation or
organization, has all requisite corporate or other power and authority to
own, lease and operate its properties and to carry on its business as it is
now being conducted, and is duly qualified and in good standing to do
business in each jurisdiction in which the nature of the business conducted
by it or the ownership or leasing of its properties makes such qualification
necessary, except where the lack of such qualification would not have a
Company Material Adverse Effect. The Company has no Subsidiaries, and does
not, directly or indirectly, own or control any investment or interest
(whether in the form of debt or equity) in any other Person.
SECTION 3.02 ARTICLES OF INCORPORATION AND BY-LAWS. SCHEDULE 3.02
contains (i) a list of the officers and directors of the Company and (ii)
complete and correct copies of the Articles of Incorporation and By-Laws or
equivalent organizational documents, in each case as amended or restated, of
the Company. The Company is not in violation of any of the provisions of its
Articles of Incorporation or By-Laws or equivalent organizational documents,
in each case as amended or restated.
SECTION 3.03 CAPITALIZATION.
(a) The authorized capital stock of the Company consists of Six
Million Two Hundred Fifty Thousand (6,250,000) shares of Company Common
Stock. As of March 30, 1998, (i) Five Million Two Hundred Fifty Thousand
(5,250,000) shares of Company Common Stock were issued and outstanding, all
of which are duly authorized, validly issued, fully paid and nonassessable
and not subject to preemptive rights created by statute, the Company's
Articles of Incorporation or By-Laws or any agreement to which the Company is
a party or bound, (ii) except as provided in SCHEDULE 3.03(a), no shares of
Company Common Stock were held in treasury of the Company and (iii) SCHEDULE
3.03(a) sets forth the name and address of each holder of Company Common
Stock and the number of shares of Company Common Stock held by such holder.
There are no bonds, debentures, notes or other indebtedness, issued or
outstanding, having the right to vote on any matters on which the
Stockholders may vote. Other than the Stockholders' Agreement, there are no
options, warrants, calls or other rights (including registration rights),
agreements, arrangements or
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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<PAGE>
commitments of any character, presently outstanding, which (x) obligate the
Company to issue, deliver or sell shares of its capital stock or debt
securities, (y) obligate the Company to grant, extend or enter into any such
option, warrant, call or other such right, agreement, arrangement or
commitment, or (z) obligate the Company to repurchase, redeem or otherwise
acquire any shares of Company Common Stock, or (aa) relate to the issued or
unissued capital stock of, or other equity interests in the Company.
(b) [[Reserved.]]
SECTION 3.04 AUTHORITY. The Company has all requisite corporate
power and authority to execute and deliver this Agreement, to perform its
obligations hereunder and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action (including, with respect to the Merger, the approval and
adoption of this Agreement by the Stockholders who hold one hundred percent
(100%) of the outstanding shares of Company Common Stock) and no other
corporate proceeding on the part of the Company is necessary to authorize the
execution, delivery and performance of this Agreement or to consummate the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by the Company and, assuming the due authorization, execution and
delivery thereof by the Stockholders, Parent and Parent Sub, constitutes the
legal, valid and binding obligation of the Company enforceable in accordance
with its terms.
SECTION 3.05 NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) Except as set forth in SCHEDULE 3.05 and subject to the
accuracy of Parent's representation in Section 4.12, the execution and
delivery of this Agreement by the Company does not, and the performance of
this Agreement by the Company will not (i) conflict with or violate the
Articles of Incorporation or By-Laws or the equivalent organizational
documents, in each case as amended or restated, of the Company, (ii) conflict
with or violate any federal, state, foreign or local law, statute, ordinance,
rule, regulation, order, judgment or decree (collectively, "LAWS") in effect
as of the date of this Agreement and applicable to the Company or by which
any of its properties is bound or subject to, or (iii) result in any breach
of or constitute a default (or an event that with notice or lapse of time or
both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or require payment
under, or result in the creation of an Encumbrance on, any of the properties
or Assets of the Company pursuant to, any note, bond, mortgage, indenture,
Contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which the Company is a party or by which the Company or any of
its properties is bound or subject.
(b) Except as provided in SCHEDULE 3.05, the execution and
delivery of this Agreement by the Company does not, and the performance of
this Agreement by the Company will not, require the Company to obtain any
consent, approval, authorization or permit of, or to make any filing with or
notification to, any governmental or regulatory authority, domestic or foreign
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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<PAGE>
("GOVERNMENTAL ENTITIES") based on Laws and other requirements of
Governmental Entities in effect as of the date of this Agreement, except for
applicable requirements, if any, of the state securities or blue sky laws
("BLUE SKY LAWS"), and the filing and recordation of appropriate merger
documents as required by Delaware Law and Maryland Law.
SECTION 3.06 PERMITS; COMPLIANCE. The Company is in possession of
all *** franchises, grants, authorizations, licenses, permits, easements,
variances, exemptions, consents, certificates, approvals and orders necessary
to own, lease and operate its properties and to carry on its business as it
is now being conducted (collectively, the "COMPANY PERMITS"), and there is no
action, proceeding or investigation pending or *** threatened regarding
suspension or cancellation of any of the Company Permits. The Company is not
in conflict with, or in default or violation of (a) any Law applicable to the
Company or which any of its respective properties is bound by or subject to
or (b) any of the Company Permits. Since December 31, 1997, the Company has
not received from any Governmental Entity any written notification with
respect to possible conflicts, defaults or violations of Laws.
SECTION 3.07 FINANCIAL STATEMENTS. SCHEDULE 3.07 contains true,
correct and complete copies of the audited Balance Sheet of the Company as of
December 31, 1997 (the "BALANCE SHEET") and as of December 31, 1996, November
30, 1995 and November 30, 1994, and the related audited Statements of
Operations, Statements of Cash Flows and Statements of Stockholders Equity
for the fiscal years then ended, and the notes and schedules thereto
(collectively, the "FINANCIAL STATEMENTS"). The Financial Statements are
attached hereto as SCHEDULE 3.07 and have been prepared from books and
records of the Company in accordance with GAAP applied on a basis consistent
with preceding years and throughout the periods involved (except as otherwise
noted therein). The Financial Statements fairly present the financial
condition, results of operations and changes in cash flows of the Company at
the dates thereof and for the periods indicated. No financial statement of
any Person is required by GAAP to be included in the Financial Statements.
SECTION 3.08 NO UNDISCLOSED LIABILITIES. Except as set forth on
SCHEDULE 3.08 , *** there are no liabilities or other obligations of the
Company of any kind whatsoever, whether accrued, contingent, absolute,
determined, determinable or otherwise ("LIABILITIES"),*** and there is no
existing condition, situation or set of circumstances which could reasonably
be expected to result in such Liabilities, other than Liabilities fully
reflected or reserved against on the face of the Balance Sheet as adjusted
for Liabilities incurred in the Ordinary Course of Business since December
31, 1997 through the Effective Time.
SECTION 3.09 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since December
31, 1997, there has not been any material adverse change in the business,
financial condition, operations, results of operations or future prospects of
the Company. Without limiting the generality of the foregoing, since that
date and except as otherwise disclosed in SCHEDULE 3.09:
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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<PAGE>
(a) the Company has not sold, leased, transferred, or assigned
any of its Assets, tangible or intangible, other than sales to its customers
for fair consideration in the Ordinary Course of Business or other than as
fully reflected on the face of the Balance Sheet;
(b) the Company has not entered into any agreement, Contract,
lease or license (or series of related agreements, Contracts, leases and
licenses) outside the Ordinary Course of Business;
(c) *** there is no fact, condition or event relating to (i) the
potential loss of the benefit of, or any material change in, any relationship
with any customers, clients, suppliers, key employees or insurers, *** or
(ii) price increases for parts, raw materials, supplies, services or
equipment purchased from present suppliers or vendors which is, with the
lapse of time or the occurrence of such event or condition, reasonably likely
to be materially adverse to the financial condition, business, Assets,
properties or operations of the Company;
(d) no party (including the Company) has accelerated, terminated,
modified or canceled any *** agreement, Contract, lease or license (or series
of related agreements, Contracts, leases and licenses) to which any of the
Company is a party or by which it is bound;
(e) the Company has not imposed any Security Interest upon any of
its Assets, tangible or intangible;
(f) the Company has not made any capital expenditure (or series
of related capital expenditures) either involving more than *** or outside
the Ordinary Course of Business;
(g) the Company has not made any capital investment in, any loan
to, or any acquisition of the securities or Assets of, any other Person (or
series of related capital investments, loans, and acquisitions);
(h) the Company has not issued any note, bond, or other debt
security or created, incurred, assumed, or guaranteed any indebtedness for
borrowed money or capitalized lease obligation;
(i) the Company has not delayed or postponed the payment of
accounts payable or other Liabilities outside the Ordinary Course of Business;
(j) the Company has not canceled, compromised, waived or released
any right or claim (or series of related rights and claims);
(k) the Company has not granted any license or sublicense of any
rights under or with respect to any Intellectual Property ***;
(l) there has been no change made or authorized in the Articles
of Incorporation
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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<PAGE>
or By-Laws or equivalent organizational documents, in each case as amended
or restated, of the Company;
(m) the Company has not issued, sold or otherwise disposed of any
of its capital stock, or granted any options, warrants, or other rights to
purchase or obtain (including upon conversion, exchange, or exercise) any of
its capital stock;
(n) the Company has not declared, set aside, or paid any dividend
or made any distribution with respect to its capital stock (whether in cash
or in kind) or redeemed, purchased, or otherwise acquired any of its capital
stock;
(o) the Company has not experienced any damage, destruction or
Loss (whether or not covered by insurance) to its property;
(p) the Company has not made any loan to, or entered into any
other transaction with, any of its directors, officers or employees;
(q) the Company has not entered into any employment Contract or
collective bargaining agreement, written or oral, or modified the terms of
any such Contract or agreement existing as of the date hereof;
(r) the Company has not granted any increase in the base
compensation of any of its directors, officers or employees;
(s) the Company has not adopted, amended, modified or terminated
any bonus, profit-sharing, incentive, severance or other plan, Contract or
commitment for the benefit of any of its directors, officers and employees
(or taken any such action with respect to any other Employee Benefit Plan);
(t) the Company has not made any other change in employment terms
for any of its directors, officers or employees outside the Ordinary Course
of Business;
(u) the Company has not made or pledged to make any charitable or
other capital contribution;
(v) there has not been any other occurrence, event, incident,
action, failure to act or transaction outside the Ordinary Course of Business
involving the Company; and
(w) the Company has not committed to any of the foregoing.
SECTION 3.10 ABSENCE OF LITIGATION. Except as set forth on
SCHEDULE 3.10, (a) there is no claim, action, suit, litigation, proceeding,
arbitration or investigation of any kind, at law or in equity (including
actions or proceedings seeking injunctive relief), pending or *** threatened
against
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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<PAGE>
the Company or any properties or rights of the Company, and (b) the Company
is not subject to any continuing order of, consent decree, settlement
agreement or other similar written agreement with or continuing investigation
by, any Governmental Entity, or any judgment, order, writ, injunction, decree
or award of any Governmental Entity or arbitrator. In respect of the matters
relating to or arising in connection with the actions set forth in
SCHEDULE 3.10, *** there is no fact, event, condition, circumstance or other
matter which either has, or is reasonably likely to have resulted in, an
event or determination having a Company Material Adverse Effect. The Company
has delivered to or made available for inspection by Parent copies of all
pleadings, correspondence and other documents relating to each matter
disclosed in SCHEDULE 3.10.
SECTION 3.11 VOTE REQUIRED. The affirmative vote of the holders of
two-thirds (2/3) of the outstanding shares of Company Common Stock is the
only vote of the holders of any class or series of the Company's capital
stock necessary to approve the Merger. The Stockholders, by executing this
Agreement and the consents set forth in EXHIBIT 2.01A hereto, have taken
action by the Stockholders sufficient to constitute stockholder approval of
the Merger.
SECTION 3.12 BROKERS. The Company has no Liability or obligation to
pay any fees or commissions to any broker, finder or agent with respect to
the transactions contemplated by this Agreement or for which Parent or Parent
Sub could become liable or obligated.
SECTION 3.13 COMPANY ACTION. The Board of Directors of the Company (at
a meeting duly called and held in compliance with Maryland Law or by written
consent) has (a) determined that the Merger is in the best interests of the
Company and fair to the Stockholders, (b) approved the Merger in accordance
with the provisions of Maryland Law, and (c) recommended the approval of this
Agreement and the Merger by the holders of the Company Common Stock.
SECTION 3.14 TAX MATTERS; "POOLING OF INTERESTS".
(a) Neither the Company nor any of its Affiliates has taken or
agreed to take any action that would prevent the Merger from constituting
(i) a "reorganization" under Section 368(a)(1)(A) of the Code, by application
of Section 368(a)(2)(D) of the Code, or (ii) a "pooling of interests" in
accordance with GAAP and applicable SEC rules, including, without limitation,
the sale of any shares of Company Common Stock or Parent Common Stock during
the period commencing on the date which is thirty (30) days prior to the
Effective Time and ending on the Financial Result Date. The Company has
timely filed or will timely file all Tax Returns that it was or is required
to file. All such Tax Returns were correct and complete in all material
respects. Except as set forth on SCHEDULE 3.14(c), all Taxes owed by the
Company (whether or not shown on any Tax Return) have been paid or accrued.
The Company is not currently the beneficiary of any extension of time within
which to file any Tax Return. *** no claim has ever been made by an authority
in a jurisdiction where the Company does not file Tax Returns that it is or
may be subject to taxation by that jurisdiction. There are no Security
Interests on any of the Assets of the Company that arose in connection with
any failure (or alleged failure) to pay any Tax.
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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(b) The Company has withheld and paid or accrued all Taxes
required to have been withheld and paid or accrued in connection with amounts
paid or owing to any employee, independent contractor, creditor, stockholder
or other third party.
(c) Except as set forth on SCHEDULE 3.14(c), there is no dispute
or claim concerning any Tax Liability of the Company claimed or raised by any
Governmental Entity. SCHEDULE 3.14(c) lists all federal, state, local and
foreign income Tax Returns filed with respect to the Company for taxable
periods ended on or after December 31, 1994, and indicates those Tax Returns
that have been audited and those Tax Returns that currently are the subject
of audit by any Governmental Entity. The Company has delivered to Parent
correct and complete copies of all federal income Tax Returns, examination
reports and statements of deficiencies assessed against or agreed to by the
Company for taxable periods ended on or after December 31, 1994.
(d) The Company has not waived any statute of limitations in
respect of Taxes or agreed to any extension of time with respect to a Tax
assessment or deficiency.
(e) The Company has not made any payments, or is not obligated to
make any payments, and is not a party to any agreement that under certain
circumstances could obligate it to make any payments, that will not be
deductible under Section 280G of the Code.
(f) SCHEDULE 3.14(f) sets forth the following information with
respect to the Company, as of December 31, 1997: (i) the tax basis of the
Company in its Assets; and (ii) the amount of any net operating loss, net
capital loss, unused investment or other credit, unused foreign tax credit,
or excess charitable contribution allocable to the Company.
(g) The unpaid Taxes of the Company (i) do not exceed the reserve
for Tax Liability (rather than any reserve for deferred Taxes established to
reflect timing differences between book and Tax income) set forth on the face
of the Balance Sheet (rather than in any notes thereto) and (ii) will not
exceed that reserve as adjusted for the passage of time through the Effective
Time in accordance with the past custom and practice of the Company in filing
their Tax Returns.
SECTION 3.15 REAL PROPERTY.
(a) The Company does not own any real property.
(b) SCHEDULE 3.15(b) lists and describes briefly all real
property leased or subleased to the Company. The Company has delivered to
Parent correct and complete copies of the leases and subleases listed in
SCHEDULE 3.15(b). With respect to each lease and sublease listed in
SCHEDULE 3.15(b):
(i) the lease or sublease is legal, valid, binding, enforceable
and in full force and effect in all material respects;
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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(ii) the lease or sublease will continue to be legal, valid,
binding, enforceable and in full force and effect on identical terms
following the consummation of the transactions contemplated hereby;
(iii) no party to the lease or sublease is in breach or default,
and no event has occurred which, with notice or lapse of time, would
constitute a breach or default or permit termination, modification of a
material term or condition, or acceleration thereunder, except as disclosed
in SCHEDULE 3.15(b);
(iv) no party to the lease or sublease has repudiated any
provision thereof;
(v) there are no disputes, oral agreements or forbearance
programs in effect as to the lease or sublease;
(vi) The Company has not assigned, transferred, conveyed,
mortgaged, deeded in trust or encumbered any interest in the leasehold or
subleasehold;
(vii) all facilities leased or subleased thereunder have received
all approvals of Governmental Entities (including licenses and permits)
required in connection with the operation thereof and have been operated and
maintained in accordance with applicable Laws; and
(viii) all facilities leased or subleased thereunder are supplied
with utilities and other services necessary for the operation of said
facilities.
SECTION 3.16 INTELLECTUAL PROPERTY.
(a) The Company owns or has the right to use pursuant to license,
sublicense, agreement or permission all Intellectual Property necessary for
the operation of the Company's business as presently conducted. Except as
set forth on SCHEDULE 3.16(a), each item of Intellectual Property owned or
used by the Company is owned or available for use by the Company on identical
terms and conditions immediately subsequent to the Effective Time. The
Company has taken all reasonably necessary and desirable action to maintain
and protect each item of Intellectual Property that it owns or uses.
(b) *** since January 1, 1990 and except as provided in
SCHEDULE 3.16(b), the Company has not interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any Intellectual
Property rights of third parties, and none of the Stockholders and none of
the directors and officers (and employees with responsibility for
Intellectual Property matters) of the Company has ever received any oral or
written charge, complaint, claim, demand or notice alleging any such
interference, infringement, misappropriation or violation (including any
claim that the
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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<PAGE>
Company must license or refrain from using any Intellectual Property rights
of any third party). *** no third party has interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any Intellectual
Property rights of the Company.
(c) SCHEDULE 3.16(c) identifies each patent or trademark and
copyright registration which has been issued to the Company or any Affiliate
with respect to any of its Intellectual Property, identifies each pending
patent application or application for registration which the Company or any
Affiliate has made with respect to any of its Intellectual Property, and
identifies each license, sublicense, agreement, or other permission which the
Company or any Affiliate has granted to any third party with respect to any
of its Intellectual Property (together with any exceptions). The Company has
delivered to Parent correct and complete copies of all such patents,
registrations, applications, licenses, sublicenses, agreements and
permissions (as amended to date). SCHEDULE 3.16(c) also identifies each
trade name or unregistered trademark used by the Company or any Affiliate in
connection with any of its businesses. With respect to each item of
Intellectual Property required to be identified in SCHEDULE 3.16(c):
(i) the Company possesses all right, title, and interest in and
to the item, free and clear of any Security Interest, license or other
restriction;
(ii) such item is not subject to any outstanding injunction,
judgment, order, decree, ruling or charge;
(iii) no action, suit, proceeding, hearing, investigation, charge,
complaint, claim or demand is pending or, to the Knowledge of the
Stockholders and the Company, threatened which challenges the legality,
validity, enforceability, use or ownership of such item; and
(iv) the Company has never agreed to indemnify any Person for or
against any interference, infringement, misappropriation or other conflict
with respect to such item.
(d) SCHEDULE 3.16(d) identifies each *** item of Intellectual
Property that any third party owns and that the Company or any Affiliate uses
pursuant to any license, sublicense, agreement or permission, other than
shrink-wrap licenses for personal computer software. The Company has
delivered to Parent correct and complete copies of all such licenses,
sublicenses, agreements, and permissions (as amended to date). With respect
to each item of Intellectual Property required to be identified in
SCHEDULE 3.16(d) ***:
(i) the license, sublicense, agreement or permission covering
such item is legal, valid, binding, enforceable and in full force and
effect ***;
(ii) the license, sublicense, agreement or permission will
continue to be legal, valid, binding, enforceable and in full force and
effect on identical terms following the Effective Time;
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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(iii) no party to the license, sublicense, agreement, or
permission is in material breach or default, and no event has occurred which
with notice or lapse of time would constitute a *** breach or default or
permit termination, modification or acceleration thereunder;
(iv) no party to the license, sublicense, agreement or
permission has repudiated any *** provision thereof;
(v) with respect to each sublicense, the representations and
warranties set forth in items (i) through (iv) above are true and correct
with respect to the underlying license;
(vi) the underlying item of Intellectual Property is not subject
to any outstanding injunction, judgment, order, decree, ruling or charge;
(vii) no action, suit, proceeding, hearing, investigation,
charge, complaint, claim or demand is pending or *** threatened which
challenges the legality, validity or enforceability of the underlying item of
Intellectual Property; and
(viii) the Company has not granted any sublicense or similar right
with respect to the license, sublicense, agreement, or permission.
(e) Except as disclosed in SCHEDULE 3.16(d), none of the
Stockholders and the directors and officers (and employees with
responsibility for Intellectual Property matters) of the Company has any
Knowledge of any new products, inventions, procedures or methods of
manufacturing or processing that any competitors or other third parties have
developed which reasonably could be expected to supersede or make obsolete
any product or process of any of the Company.
SECTION 3.17 TANGIBLE ASSETS. Except as set forth on SCHEDULE 3.17,
the Company owns and has good and marketable title to the tangible property
and Assets necessary for the conduct of its business as presently conducted
and as proposed to be conducted. Each such tangible Asset is free from
material defects, has been maintained in accordance with normal industry
practice and is in *** operating condition and repair (subject to normal wear
and tear).
SECTION 3.18 INVENTORY. The Company maintains no inventory of raw
materials, supplies, manufactured or purchased parts, goods in process or
finished goods, whatsoever.
SECTION 3.19 CONTRACTS. SCHEDULE 3.19 lists the following Contracts
and other agreements to which the Company is a party as of the date hereof:
(a) any agreement (or group of related agreements) for the lease
of personal property to or from any Person providing for lease payments in
excess of *** per annum or a term of more than one (1) year;
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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<PAGE>
(b) any agreement (or group of related agreements) for the
purchase or sale of raw materials, commodities, supplies, products or other
personal property, which involves consideration in excess of ***, or for the
furnishing or receipt of services, the performance of which has a term more
than six months, or involves consideration in excess of ***;
(c) any partnership or joint venture agreement;
(d) any agreement (or group of related agreements) under which it
has created, incurred, assumed or guaranteed any indebtedness for borrowed
money, or any capitalized lease obligation, in excess of ***, or under which
it has imposed a Security Interest on any of its Assets, tangible or
intangible;
(e) any agreement concerning confidentiality or
noncompetition,***;
(f) any agreement with any of the Stockholders and their
respective Affiliates;
(g) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance or other material plan or
arrangement (including any Employee Benefit Plan) for the benefit of its
current or former directors, officers and employees;
(h) any collective bargaining agreement;
(i) any agreement for the employment of any individual on a
full-time, part-time, consulting or other basis providing annual compensation
in excess of ***, or providing severance benefits;
(j) any agreement under which the consequences of a default or
termination would *** have a Company Material Adverse Effect; or
(k) any other agreement (or group of related agreements) the
performance of which involves consideration in excess of ***.
The Company has delivered to Parent a correct and complete copy of each
written agreement in Sections 3.19(a), (b), (c), (d), (f), (g), (h), (i) and
(j) listed in SCHEDULE 3.19 and a written summary setting forth the material
terms and conditions of each oral agreement referred to in SCHEDULE 3.19.
The Company has delivered to Parent written agreements relating to its top
twelve (12) clients and customers and has made available to Parent all other
written agreements listed in SCHEDULE 3.19. With respect to each such
agreement, and except as otherwise disclosed in SCHEDULE 3.19: (i) such
agreement is legal, valid, binding, enforceable and in full force and effect
in all material respects; (ii) such agreement will continue to be legal,
valid, binding, enforceable and in full force and effect in all material
respects following the consummation of the transactions contemplated hereby;
(iii) no party is in breach or default, and no event has occurred which with
notice or lapse of time would constitute a breach or default, or permit
termination, modification of any material term or condition
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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<PAGE>
or acceleration, under such agreement; and (iv) no party has repudiated any
provision of such agreement.
SECTION 3.20 NOTES AND ACCOUNTS RECEIVABLE. Except as set forth on
SCHEDULE 3.20, all notes and accounts receivable of the Company are reflected
properly on its books and records and are valid receivables subject to no
setoffs or counterclaims, are current and collectible in accordance with
their terms at their recorded amounts, subject only to the reserve for bad
debts set forth on the face of the Balance Sheet (rather than in any notes
thereto) as adjusted for the passage of time through the Effective Time in
accordance with the past custom and practice of the Company.
SECTION 3.21 POWERS OF ATTORNEY. There are no outstanding powers of
attorney executed on behalf of the Company.
SECTION 3.22 INSURANCE. SCHEDULE 3.22 sets forth the following
information with respect to each current insurance policy (including policies
providing property, casualty, liability and workers' compensation coverage
and bond and surety arrangements) to which the Company has been a party, a
named insured, or otherwise the beneficiary of coverage:
(a) the name, address, and telephone number of the agent;
(b) the name of the insurer, the name of the policyholder and the
name of each covered insured;
(c) the policy number and the period of coverage;
(d) the scope (including an indication of whether the coverage
was on a claims made, occurrence or other Basis) and amount (with a summary
of the amount of any deductibles and ceilings) of coverage; and
(e) a description of any retroactive premium adjustments or other
loss-sharing arrangements.
Except as set forth on SCHEDULE 3.22, with respect to each such insurance
policy: (i) such policy is legal, valid, binding, enforceable and in full
force and effect in all material respects; (ii) such policy will continue to
be legal, valid, binding, enforceable and in full force and effect in all
material respects following the consummation of the transactions contemplated
hereby; (iii) neither the Company nor any other party to the policy is in
breach or default (including with respect to the payment of premiums or the
giving of notices), and no event has occurred which, with notice or the lapse
of time, would constitute such a breach or default, or permit termination,
modification, or acceleration, under such policy; and (iv) no party to the
policy has repudiated any provision thereof. The Company has been covered
during the past three (3) years by insurance in scope and amount
substantially equivalent to the scope and amounts shown as the current
coverage on SCHEDULE 3.22. SCHEDULE 3.22 also describes any self-insurance
arrangements affecting the Company.
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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<PAGE>
SECTION 3.23 EMPLOYEES. The Company has delivered to Parent a true
and complete list of all employees of the Company, their respective
positions, locations, salaries or hourly wages and severance arrangements,
each as of the date hereof. To the Knowledge of any of the Stockholders and
the directors and officers (and employees with responsibility for employment
matters) of the Company, no executive, key employee or group of employees,
except as contemplated by the Severance Agreements, has any plans to
terminate employment with any of the Company. Each employee of the Company
is employed on an "at will" basis and has no right to any material
compensation following termination of employment. The Company is not a party
to or bound by any collective bargaining agreement, nor has it experienced
any strikes, grievances, claims of unfair labor practices or other collective
bargaining disputes. *** the Company has not committed any unfair labor
practice and there is no organizational effort presently being made or
threatened by or on behalf of any labor union with respect to employees of
the Company.
SECTION 3.24 EMPLOYEE BENEFITS.
(a) Except as set forth on SCHEDULE 3.24, with respect to all
employees, former employees, directors and independent contractors of the
Company and their dependents and beneficiaries, neither the Company nor any
ERISA Affiliate presently maintains, contributes to or has any Liability
under or with respect to any Employee Benefit Plan. The plans, programs and
arrangements set forth on SCHEDULE 3.24 are herein referred to as the
"COMPANY EMPLOYEE BENEFIT PLANS." Each Company Employee Benefit Plan (and
each related trust, insurance Contract or other funding arrangement) complies
in form and in operation in all material respects with the applicable
requirements of ERISA, the Code, other applicable Laws and governing
documents and agreements. With respect to each Company Employee Benefit
Plan, *** there has been no act or omission by the Company or any ERISA
Affiliate that would impair the right or ability of the Company or any ERISA
Affiliate to unilaterally amend in whole or part or terminate such Company
Employee Benefit Plan at any time, subject to the terms of any insurance
Contract or other contractual arrangements with third parties, and the
Company has delivered to Parent true and complete copies of: (i) the plan
documents, including any related trust agreements, insurance Contracts or
other funding arrangements and all amendments thereto, or a written summary
of the terms and conditions of the plan if there is no written plan document;
(ii) the most recent IRS Form 5500; (iii) the most recent financial statement
and, if applicable, actuarial valuation; (iv) all correspondence with the
Internal Revenue Service, the Department of Labor and other Governmental
Entities with respect to the past three (3) plan years other than IRS Form
5500 filings; and (v) the most recent summary plan description.
(b) Neither the Company nor any of its directors, officers or
employees has any *** Liability with respect to any Company Employee Benefit
Plan for failure to comply with ERISA, the Code, any other applicable Laws or
any governing documents or agreements.
(c) No Company Employee Benefit Plan is an Employee Pension
Benefit Plan, and no Company Employee Benefit Plan has any *** unfunded
Liability. With respect to the Company Employee Benefit Plans, all
applicable contributions and premium payments for all
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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<PAGE>
periods ending prior to the Effective Time (including periods from the first
day of the then current plan year to the Effective Time) shall be made prior
to the Effective Time in accordance with past practice or as expressly agreed
to in advance by Parent.
(d) Neither the Company nor any ERISA Affiliate maintains,
maintained, contributes to, or has any Liability (including, but not limited
to, current or potential withdrawal Liability) with respect to any
Multiemployer Plan or Employee Pension Benefit Plan.
(e) With respect to all employees and former employees of the
Company, neither the Company nor any ERISA Affiliate presently maintains,
contributes to or has any Liability under any funded or unfunded medical,
health or life insurance plan or arrangement for present or future retirees
or present or future terminated employees except as required by the
Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, or state
continuation coverage Laws. There has been no act or acts or failure or
failures to act which would result in a disallowance of a deduction or the
imposition of a Tax pursuant to Section 4980B, or any predecessor provision,
of the Code or any related regulations. No event has occurred with respect
to which the Company or any Affiliates could be liable for a Tax imposed by
any of Sections 4972, 4976, 4977, 4979 or 4980 of the Code, or for a civil
penalty under Section 502(c) of ERISA.
(f) There is no pending, or *** threatened legal action,
proceeding, audit, examination or investigation against or involving any
Company Employee Benefit Plan maintained by the Company or any ERISA
Affiliate (other than routine claims for benefits). *** there is no Basis
for, and there are no facts which could give rise to, any such condition,
legal action, proceeding or investigation. Any bonding required with respect
to any Company Employee Benefit Plans in accordance with applicable
provisions of ERISA has been obtained and is in full force and effect.
SECTION 3.25 GUARANTIES. The Company is not a guarantor or otherwise
is liable for any Liability or obligation (including indebtedness) of any
other Person.
SECTION 3.26 ENVIRONMENT, HEALTH AND SAFETY.
(a) Except as set forth on SCHEDULE 3.26 and *** the Company has
complied with all Environmental, Health and Safety Laws, and no action, suit,
proceeding, hearing, investigation, charge, complaint, claim, demand or
notice has been filed or commenced against it alleging any failure so to
comply. Without limiting the generality of the preceding sentence, the
Company has obtained and been in compliance with all of the terms and
conditions of all permits, licenses, and other authorizations which are
required under, and has complied with all other limitations, restrictions,
conditions, standards, prohibitions, requirements, obligations, schedules,
and timetables which are contained in, all Environmental, Health and Safety
Laws.
(b) Except as set forth on SCHEDULE 3.26 and *** the Company has
no Liability (and the Company has not handled or disposed of any substance,
arranged for the disposal of any
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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substance, exposed any employee or other individual to any substance or
condition, or owned or operated any property or facility in any manner that
could form the Basis for any present or future action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand against the
Company giving rise to any Liability) for damage to any site, location, or
body of water (surface or subsurface), for any illness of or personal injury
to any employee or other individual, or for any reason under any
Environmental, Health and Safety Law.
(c) *** all properties owned or leased and equipment used in the
business of the Company, and its predecessors and Affiliates, have been free
of asbestos, PCB's, methylene chloride, trichloroethylene,
1,2-transdichloroethylene, dioxins, dibenzofurans, and Extremely Hazardous
Substances.
SECTION 3.27 CERTAIN BUSINESS RELATIONSHIPS WITH THE COMPANY. Except
as described in SCHEDULE 3.27, none of the Stockholders and their Affiliates
has been involved in any business arrangement or relationship with the
Company (other than in an employment or consulting capacity) within the past
twelve (12) months, and none of the Stockholders and their Affiliates owns
any Asset, tangible or intangible, which is used in the business of the
Company.
SECTION 3.28 [[RESERVED]]
SECTION 3.29 PRODUCT AND SERVICE WARRANTIES. Except as set forth on
SCHEDULE 3.29, *** each product sold, leased or delivered, and each service
performed, by the Company has been in conformity with all applicable
contractual commitments and all express and implied warranties, and the
Company has no *** Liability (and there is no Basis for any present or future
action, suit, proceeding, hearing, investigation, charge, complaint, claim or
demand against any of them giving rise to any *** Liability) for the
replacement or repair of any product, the substandard performance of any
service, or other damages in connection with the products sold or services
provided by the Company, subject only to the reserve for product and service
warranty claims set forth on the face of the Balance Sheet (rather than in
any notes thereto) as adjusted for the passage of time through the Effective
Time in accordance with the past custom and practice of the Company. No
product sold, leased or delivered, or service performed by the Company is
subject to any guaranty, warranty or other indemnity beyond the applicable
standard terms and conditions of sale, lease or performance. SCHEDULE 3.29
includes copies of the standard terms and conditions of sale, lease or
performance for each of the Company (containing applicable guaranty, warranty
and indemnity provisions).
SECTION 3.30 PRODUCT AND SERVICE LIABILITY. The Company has no ***
Liability (and *** there is no Basis for any present or future action, suit,
proceeding, hearing, investigation, charge, complaint, claim or demand
against the Company giving rise to any Liability) arising out of any injury
or damages (whether actual or alleged) to any Person or its property or its
business operations or prospects as a result of the ownership, possession or
use of any product sold, leased or delivered or any service performed by the
Company.
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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SECTION 3.31 CUSTOMER/SUPPLIER RELATIONSHIPS. Except as provided in
SCHEDULE 3.31, the Company enjoys good commercial relationships with each of
their customers and suppliers. Since December 31, 1997, the Company has not
received any communication from any of its customers or suppliers expressing
significant dissatisfaction with its commercial relationship with the Company.
SECTION 3.32 CERTAIN BUSINESS PRACTICES. Neither the Company nor any
director, officer, stockholder, agent or employee of the Company has (i) used
any funds for unlawful contributions, gifts, entertainment or other unlawful
expenses relating to political activity, (ii) made any unlawful payment to
foreign or domestic government officials or employees or to foreign or
domestic political parties or campaigns or violated any provision of the
Foreign Corrupt Practices Act of 1977, as amended, or (iii) made any other
unlawful payment.
SECTION 3.33 DISCLOSURE. No representation or warranty made by the
Company and/or the Stockholders, nor any document, written information,
statement, financial statement, certificate, schedule or exhibit prepared and
furnished or to be prepared and furnished by the Company or its
representatives pursuant hereto or in connection with the transactions
contemplated hereby, contains or will contain any untrue statement of a
material fact, or omits or will omit to state a material fact necessary to
make the statements of facts contained herein or therein not misleading in
light of the circumstances under which they were furnished.
SECTION 3.34 LIMITATION ON REPRESENTATIONS AND WARRANTIES. The
Company makes no representation or warranty to the Parent regarding the
probable success or profitability of the Surviving Corporation. ***
ARTICLE IIIA
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Each Stockholder hereby represents and warrants, *** to Parent and
Parent Sub as follows:
SECTION 3.01A. AUTHORIZATION OF TRANSACTION. Such Stockholder has full
power and authority to execute and deliver this Agreement and the Consent and
to perform its obligations hereunder and thereunder. This Agreement
constitutes the valid and legally binding obligation of such Stockholder,
enforceable in accordance with its terms and conditions. Such Stockholder is
a natural person, is over 21 years of age and has not had a legal
representative appointed by a court of law or otherwise act in his or her
behalf or with respect to any of his or her property. Such Stockholder need
not give any notice to, make any filing with, or obtain any authorization,
consent or approval of any Governmental Entity in order to consummate the
transactions contemplated by this Agreement.
SECTION 3.02A. NONCONTRAVENTION. Neither the execution and the
delivery of this Agreement and the Consent, nor the consummation of the
transactions contemplated hereby and
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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thereby, will (a) violate any constitution, statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge or other restriction of
any government, Governmental Entity, or court to which such Stockholder is
subject or (b) conflict with, result in a breach of, constitute a default
under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify or cancel, or require any notice under any
agreement, Contract, lease, license, instrument or other arrangement to which
such Stockholder is a party, by which it is bound or to which any of its
Assets is subject.
SECTION 3.03A. BROKERS. Other than the commissions payable to Stephen
M. Casey by Kristin Johnson and Nicholas Johnson pursuant to the Shareholders
and Commission Agreement, dated as of March 27, 1998 (the "COMMISSION
AGREEMENT"), by and among the Company and the Stockholders, such Stockholder
has no Liability or obligation to pay any fees or commissions to any broker,
finder or agent with respect to the transactions contemplated by this
Agreement or for which Parent or Parent Sub could become liable or obligated.
Neither Parent nor Parent Sub shall be liable for any such fees or
commissions payable by the Stockholders.
SECTION 3.04A. COMPANY SHARES. Such Stockholder holds of record and
owns beneficially the number of shares of Company Common Stock set forth next
to his name on the signature page hereto, free and clear of any restrictions
on transfer (other than any restrictions under the Securities Act and state
securities laws and the restrictions in that certain Stockholders' Agreement
(as defined herein) which is to be terminated pursuant to Section 6.08),
Encumbrances, Security Interests, options, warrants, purchase rights,
Contracts, commitments and/or equities. Except for the Stockholders'
Agreement, such Stockholder is not a party to any option, warrant, purchase
right or other Contract or commitment that could require such Stockholder to
sell, transfer or otherwise dispose of any capital stock of the Company
(other than this Agreement). Such Stockholder is not a party to any voting
trust, proxy or other agreement or understanding with respect to the voting
of any capital stock of the Company (other than this Agreement).
SECTION 3.05A. ACCREDITED INVESTOR. Assuming that the Merger
Consideration has an aggregate value greater than or equal to Twenty-Six
Million Dollars ($26,000,000) at the Effective Time and that such
Stockholder's proportionate share of the Merger Consideration equals his or
her percentage ownership of the Company Common Stock prior to the Effective
Time, such Stockholder is an "accredited investor" as that term is defined in
Regulation D of the Securities Act. In addition, such Stockholder is
sufficiently knowledgeable and experienced in financial and business matters
that he is capable of evaluating the merits and risks of the transactions
contemplated by this Agreement and making an informed business decision.
SECTION 3.06A. INVESTMENT INTENTION. Such Stockholder has no present
intention to dispose of any shares of Parent Common Stock to be issued in the
Merger.
SECTION 3.07A. EMPLOYMENT. In the event that such Stockholder is
entering into an Employment Agreement pursuant to Section 7.02(h), such
Stockholder currently intends to remain in the employ of the Surviving
Corporation (and/or Parent and its Subsidiaries) and has no intention
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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to seek other employment opportunities. Each of the Stockholders has no
intention to compete with the Surviving Corporation (and/or Parent and its
Subsidiaries).
SECTION 3.08A. LIMITATION ON REPRESENTATIONS AND WARRANTIES. The
Stockholders make no representation or warranty to the Parent regarding the
probable success or profitability of the Surviving Corporation.
SECTION 3.09A. DELIVERY OF INFORMATION. Each of the Stockholders has
received a copy of the following documents relating to Parent: (i) the final
Prospectus to the Registration Statement on Form SB-2 dated August 15, 1997;
(ii) the Quarterly Reports on Form 10-QSB for the quarters ended March 31,
1997, June 30, 1997 and September 30, 1997; (iii) the Annual Report on Form
10-KSB for the year ended December 31, 1997; and (iv) the Certificates of
Incorporation and By-Laws of Parent and Parent Sub, respectively, as amended
and restated. Each of the Stockholders acknowledges that he has reviewed
carefully the risk factors contained in the above referenced registration
statement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND PARENT SUB
Parent and Parent Sub hereby represent and warrant, jointly and
severally, to the Company and each Stockholder that:
SECTION 4.01 ORGANIZATION AND QUALIFICATION. Each of Parent and
Parent Sub is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or
organization and has all requisite power and authority to own, lease and
operate its properties and to carry on its business as it is now being
conducted, and Parent is duly qualified and in good standing to do business
in each jurisdiction in which the nature of the business conducted by it or
the ownership or leasing of its properties makes such qualification
necessary, except for such failures to be so qualified or licensed and in
good standing as would not, individually or in the aggregate, have a Parent
Material Adverse Effect.
SECTION 4.02 CERTIFICATES OF INCORPORATION AND BY-LAWS. Neither
Parent nor Parent Sub is in violation of any of the provisions of its
Certificate of Incorporation or By-Laws, respectively, in each case as
amended or restated.
SECTION 4.03 PARENT COMMON STOCK; CAPITALIZATION.
(a) The shares of Parent Common Stock to be issued pursuant to
the Merger (i) will be duly authorized, validly issued, fully paid and
nonassessable and not subject to preemptive rights created by statute,
Parent's Certificate of Incorporation or By-Laws or any agreement to which
Parent is a party or is bound ***.
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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(b) The authorized capital stock of Parent consists of Fifty
Million (50,000,000) shares of Parent Common Stock and Five Million
(5,000,000) shares of preferred stock, par value $.001 per share (the "PARENT
PREFERRED STOCK"). As of March 6, 1998, (i) Eleven Million Eight Hundred
Twenty-Six Thousand Six Hundred Fifty Four (11,826,654) shares of Parent
Common Stock were issued and outstanding, all of which are duly authorized,
validly issued, fully paid and nonassessable, (ii) no shares of Parent
Preferred Stock were outstanding, (iii) no shares of Parent Common Stock were
held in treasury of Parent and (iv) subject to stockholder approval, Three
Million (3,000,000) shares of Parent Common Stock were reserved for issuance
pursuant to option and employee benefit plans and in connection with the
exercise of outstanding warrants. As of December 31, 1997, options to
purchase a total of 1,221,495 shares of Parent Common Stock were outstanding
under Parent's 1996 Stock Option Plan, and an additional 112,240 shares of
Parent Common Stock were subject to other outstanding stock options.
(c) The authorized capital stock of Parent Sub consists of one
thousand (1,000) shares of Parent Sub Common Stock, of which one hundred
(100) shares are issued and outstanding and held by Parent.
SECTION 4.04 AUTHORITY. Each of Parent and Parent Sub has all
requisite corporate power and authority to execute and deliver this
Agreement, to perform its respective obligations hereunder and to consummate
the transactions contemplated hereby. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have
been duly authorized by all necessary corporate action and no other corporate
proceeding on the part of Parent or Parent Sub is necessary to authorize this
Agreement or to consummate the transactions contemplated hereby. This
Agreement has been duly executed and delivered by Parent and Parent Sub and,
assuming the due authorization, execution and delivery thereof by the
Stockholders and the Company, constitutes the legal, valid and binding
obligations of Parent and Parent Sub enforceable in accordance with its terms.
SECTION 4.05 NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement by Parent and
Parent Sub do not, and the performance of this Agreement by Parent and Parent
Sub will not, (i) conflict with or violate the Certificate of Incorporation
or By-Laws, as amended or restated, of Parent or Parent Sub, (ii) conflict
with or violate any Laws in effect as of the date of this Agreement
applicable to Parent or Parent Sub or by which any of their respective
properties is bound, or (iii) result in any breach of or constitute a default
(or an event that with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, or require payment under, or result in the
creation of a Lien or Encumbrance on, any of the properties or Assets of
Parent or Parent Sub pursuant to, any note, bond, mortgage, indenture,
Contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which Parent or Parent Sub is a party or by which Parent or
Parent Sub or any of their respective properties is bound by or subject to,
except for breaches, defaults, events, rights of termination, amendment,
acceleration or cancellation, payment obligations or Liens or Encumbrances
that would not have a
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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Parent Material Adverse Effect.
(b) The execution and delivery of this Agreement by Parent and
Parent Sub do not, and the performance of this Agreement by Parent and Parent
Sub will not, require Parent or Parent Sub to obtain any consent, approval,
authorization or permit of, or to make any filing with or notification to,
any Governmental Entities, except (i) for applicable requirements, if any, of
the Securities Act, the Exchange Act, Blue Sky Laws, the Nasdaq and the
filing and recordation of appropriate merger documents as required by
Delaware Law and Maryland Law and (ii) where the failure to obtain such
consents, approvals, authorizations or permits, or to make such filings or
notifications, would not, either individually or in the aggregate, prevent
Parent or Parent Sub from performing its obligations under this Agreement.
SECTION 4.06 REPORTS; FINANCIAL STATEMENTS.
(a) Since February 12, 1997, Parent has timely filed all forms,
reports, statements and other documents required to be filed by it with the
SEC (collectively, the "PARENT SEC REPORTS"). The Parent SEC Reports,
including all Parent SEC Reports filed after the date of this Agreement and
prior to the Effective Time, were or will be prepared in all material
respects in accordance with the requirements of the Securities Act and the
Exchange Act, as the case may be, and the rules and regulations of the SEC
thereunder applicable to such Parent SEC Reports. As of their respective
dates, the Parent SEC Reports did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein
or necessary to make the statements made therein, in the light of the
circumstances under which they were made, not misleading.
(b) Each of the consolidated financial statements (including, in
each case, any related notes thereto) contained in the Parent SEC Reports
filed prior to, on or after the date of this Agreement (i) have been or will
be prepared in accordance with, and complied or will comply as to form with,
the published rules and regulations of the SEC and GAAP applied on a
consistent basis throughout the periods involved (except as otherwise noted
therein) and (ii) fairly present or will fairly present the consolidated
financial position of Parent and its Subsidiaries as of the respective dates
thereof and the consolidated results of their operations and their cash flows
for the periods indicated, except that any unaudited interim financial
statements were or will be subject to normal and recurring year-end
adjustments.
SECTION 4.07 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as and to
the extent disclosed in the Parent SEC Reports filed prior to the date of
this Agreement or as contemplated in this Agreement or as otherwise disclosed
in writing by Parent to the Stockholders prior to the Effective Time, since
December 31, 1997, there has not been (a) a Parent Material Adverse Effect or
(b) any significant change by Parent in its accounting methods, principles or
practices.
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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SECTION 4.08 OWNERSHIP OF PARENT SUB; NO PRIOR ACTIVITIES.
(a) Parent Sub was formed solely for the purpose of engaging in
the transactions contemplated by this Agreement. All of the outstanding
capital stock of Parent Sub is owned directly by Parent.
(b) Except for obligations or liabilities incurred in connection
with its incorporation or organization and the transactions contemplated by
this Agreement and except for this Agreement and any other agreements or
arrangements contemplated by this Agreement, Parent Sub has not and will not
have incurred, directly or indirectly, through any Subsidiary or Affiliate,
any obligations or liabilities or engaged in any business activities or any
type or kind whatsoever or entered into any agreements or arrangements with
any Person.
SECTION 4.09 BROKERS. There is no broker, finder or investment banker
which is entitled to any brokerage, finder's or other fee or commission in
connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of Parent or Parent Sub. Notwithstanding
anything herein to the contrary, the Stockholders shall not be liable or
obligated for any such brokerage, finder's or other fee or commission.
SECTION 4.10 TAX MATTERS; "POOLING OF INTERESTS". Neither Parent nor
Parent Sub nor any of its respective Affiliates has taken or agreed to take
any action that would prevent the Merger from constituting (a) a
"reorganization" under Section 368(a)(1)(A) of the Code, by application of
Section 368(a)(2)(D) of the Code, or (b) a "pooling of interests" in
accordance with GAAP and applicable SEC rules.
SECTION 4.11 LIMITATION ON REPRESENTATIONS AND WARRANTIES.
(a) Except as and to the extent expressly set forth in this
Article IV, included on any schedule hereto or included in any writing
delivered by Parent to the Company concurrently herewith or subsequent hereto
expressly pursuant to this Agreement, each of Parent and Parent Sub makes no
other representation or warranty and disclaims all Liability and
responsibility for any representation, warranty, statement or information
(financial or otherwise) made or communicated (orally or in writing) to the
Company or any of its stockholders, employees, agents, consultants or
representatives.
(b) Parent makes no representation or warranty to the Company or
the Stockholders regarding the probable success or profitability of Parent.
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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SECTION 4.12 HART-SCOTT-RODINO REPRESENTATION. For purposes of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, (the "HSR
ACT"), Parent Sub and Parent hereby represent and warrant that, separately
and on a combined basis, they do not have "annual net sales" or "total
assets" of at least $100 million and that Parent is the "ultimate parent
entity," as those terms are defined in the HSR Act or the rules or
regulations interpreting the HSR Act.
ARTICLE V
COVENANTS
SECTION 5.01 AFFIRMATIVE COVENANTS OF THE COMPANY. The Company hereby
covenants and agrees that, prior to the Effective Time, unless otherwise
expressly contemplated by this Agreement or consented to in writing by
Parent, the Company will: (a) operate only in the Ordinary Course of
Business; and (b) use its best efforts to (i) preserve and/or maintain, in
all material respects and consistent with past custom and practice, its
business and properties, including its present operations, physical
facilities, working conditions and relationships with its present employees
and Persons having significant business relations with it, including, without
limitation, suppliers and customers, (ii) maintain and keep its properties
and Assets in as good repair and condition as at present, ordinary wear and
tear excepted, and (iii) keep in full force and effect insurance and bonds
comparable in amount and scope of coverage to that currently maintained.
SECTION 5.02 NEGATIVE COVENANTS OF THE COMPANY. Except as expressly
contemplated by this Agreement or as previously disclosed to Parent in
writing on SCHEDULE 5.02, or otherwise consented to in writing by Parent,
from the date of this Agreement until the Effective Time, the Company shall
not, directly or indirectly through any Affiliate or otherwise (and the
Stockholders shall not and shall not cause the Company to), and shall not
permit any Affiliate to directly or indirectly, do any of the following:
(a) (i) increase the compensation payable to, or to become payable
to, any employee, director or executive officer; (ii) grant any severance or
termination pay to, or enter into any employment or severance agreement with,
any director, officer or employee; (iii) establish, adopt, enter into, amend,
modify or terminate any Employee Benefit Plan or arrangement except as may be
required by applicable Law; or (iv) hire any salaried person earning annual
compensation, including salary, cash bonuses and commissions, in excess of
***;
(b) declare or pay any dividend on or make any other distribution
in respect of, outstanding shares of capital stock;
(c) (i) redeem, purchase or otherwise acquire any shares of its
capital stock or any securities or obligations convertible into or
exchangeable for any shares of its capital stock, or any options, warrants or
conversion or other rights to acquire any shares of its capital stock or any
such securities or obligations; (ii) effect any reorganization or
recapitalization; or (iii) split, combine or reclassify any of its capital
stock or issue or authorize or propose the issuance of any other securities
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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in respect of, in lieu of or in substitution for, shares of its capital stock;
(d) (i) issue, deliver, award, grant or sell, or authorize or
propose the issuance, delivery, award, grant or sale (including the grant of
any Security Interests, Liens, claims, pledges, limitations in voting rights,
charges or other Encumbrances) of, any shares of any class of its capital
stock (including shares held in treasury), any securities convertible into or
exercisable or exchangeable for any other shares, or any rights, warrants or
options to acquire, any such shares; and (ii) amend or otherwise modify the
terms of any such rights, warrants or options the effect of which shall be to
make such terms more favorable to the holders thereof;
(e) acquire or agree to acquire, by merging or consolidating with,
by purchasing an equity interest in, all or a portion of the Assets of, or by
any other manner, any corporation, partnership, association or other
business, organization or division thereof, or otherwise acquire or agree to
acquire any Assets of any other Person (other than the purchase of Assets
from suppliers or vendors in the Ordinary Course of Business) which are
material, individually or in the aggregate, to the Company;
(f) sell, lease, exchange, mortgage, pledge, transfer or otherwise
dispose of, or agree to sell, lease, exchange, mortgage, pledge, transfer or
otherwise dispose of, any of its material Assets;
(g) initiate, solicit or encourage (including by way of furnishing
information or assistance), respond to, or take any other action to
facilitate, any inquiries or the making of any proposal that constitutes, or
may reasonably be expected to lead to, any Competing Transaction, or enter
into discussions or negotiate with any person or entity in furtherance of
such inquiries to obtain a Competing Transaction, or enter into an agreement
with respect to any Competing Transaction or agree to or endorse any
Competing Transaction, or authorize or permit any of the officers, directors
or employees of the Company or any investment banker, financial advisor,
attorney, accountant or other representative retained by the Company to take
any such action, and the Company shall promptly notify Parent of all relevant
terms of any such inquiries and proposals received by the Company or by any
such officer, director, employee, investment banker, financial advisor or
attorney, and if such inquiry or proposal is in writing, the Company shall
deliver or cause to be delivered to Parent a copy of such inquiry or
proposal.
(h) propose or adopt any amendments to its Articles of
Incorporation or its By-Laws;
(i) (A) change any of its methods of accounting in effect at
December 31, 1997, or (B) make or rescind any material election relating to
Taxes, settle or compromise any claim, action, suit, litigation, proceeding,
arbitration, investigation, audit or controversy relating to Taxes (except
where the amount of such settlements or controversies, individually or in the
aggregate, does not exceed ***), or change in any material respect any of its
methods of reporting income or deductions for federal income Tax purposes
from those employed in the preparation of the federal
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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income Tax Return for the taxable year ended December 31, 1997, except, in
the case of clause (A) or clause (B), as may be required by Law or GAAP;
(j) enter into any Contract outside the Ordinary Course of Business;
(k) create, or permit the creation of, any Lien upon any Assets
outside the Ordinary Course of Business;
(l) enter into any employment Contract or collective bargaining
agreement, or modify the terms of any existing such Contract or agreement;
(m) sell, lease, exchange, mortgage, pledge, transfer, assign or
otherwise dispose of, or agree to sell, lease, exchange, mortgage, pledge,
transfer, assign or otherwise dispose of, any Assets with a Fair Market Value
of *** or more, or Assets with an aggregate Fair Market Value of *** or more,
in each case tangible or intangible;
(n) make any capital expenditures other than in the Ordinary
Course of Business, or make any capital expenditures in the aggregate in
excess of ***;
(o) amend or renew, or enter into any Contract involving
operations outside of the United States;
(p) take or agree to take any action that would or is reasonably
likely to result in any of the Company's representations and warranties set
forth in this Agreement being untrue or in any of the conditions to the
Merger not being satisfied; or
(q) agree in writing or otherwise to do any of the foregoing.
SECTION 5.03 NEGATIVE COVENANTS OF PARENT. Except as expressly
contemplated by this Agreement or otherwise consented to in writing by the
Company, from the date of this Agreement until the Effective Time, Parent
will not do any of the following:
(a) amend any of the terms or provisions of the Parent Common
Stock which amendment would have a material adverse effect on the
Stockholders;
(b) knowingly take any action which would result in a failure to
maintain the quotation of the Parent Common Stock on Nasdaq;
(c) declare or pay any dividends or other distribution (whether in
cash, stock or other property) on outstanding shares of capital stock;
(d) take or agree to take any action that would or is reasonably
likely to result in any of Parent's representations and warranties set forth
in this Agreement being untrue in any
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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material respect or in any of the conditions to the Merger not being
satisfied in any material respect; or
(e) agree in writing or otherwise to do any of the foregoing.
SECTION 5.04 ACCESS AND INFORMATION. The Company shall provide Parent
and its officers, directors, employees, agents, counsel, accountants,
financial advisors, consultants and other representatives (collectively, the
"PARENT REPRESENTATIVES"), with full access, upon reasonable prior notice, to
all officers, employees and accountants of the Company and to its Assets,
properties, Contracts, books, records and all such other information and data
concerning the business and operations of the Company as Parent or any of the
Parent Representatives reasonably may request in connection with such
investigation. Such investigation will involve, among other things, Parent's
review and confirmation of the Company's Financial Statements, the legal
review of the Contracts and leases of the Company, the review of the client
lists of the Company and reference checks of the Company. Parent will
provide the Stockholders with all information reasonably requested by them to
enable them to evaluate the merits of the Merger.
SECTION 5.05 ESCROW AGREEMENT. At or before the Effective Time, each
Stockholder, Parent, and a third party acceptable to Parent and each
Stockholder as escrow agent, shall execute and deliver the escrow agreement,
substantially in the form of EXHIBIT 5.05 hereof (the "ESCROW AGREEMENT").
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01 APPROPRIATE ACTION; CONSENTS; FILINGS.
(a) The Company, Parent and Parent Sub shall each use its best
efforts to: (i) take, or cause to be taken, all appropriate action, and do,
or cause to be done, all things necessary, proper or advisable under
applicable Law or otherwise to consummate and make effective the transactions
contemplated by this Agreement; (ii) obtain from any Governmental Entities
any consents, licenses, permits, waivers, approvals, authorizations or orders
required to be obtained or made by Parent, Parent Sub or the Company or any
of their Subsidiaries in connection with the authorization, execution and
delivery of this Agreement and the consummation of the transactions
contemplated herein, including, without limitation, the Merger; (iii) make
all necessary filings, and thereafter make any other required submissions,
with respect to this Agreement and the Merger required under (A) Delaware Law
and Maryland Law (including holding a stockholders meeting and/or sending
notice of merger and appraisal rights) and the federal securities laws and
the rules and regulations thereunder, if any, and any other applicable
federal or state securities laws, and (B) any other applicable Law; provided
that Parent, Parent Sub and the Company shall cooperate with each other in
connection with the making of all such filings, including providing copies of
all such documents to the non-filing party and its advisors prior to filing
and, if requested, accepting all reasonable
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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additions, deletions or changes suggested in connection therewith. The
Company, Parent and Parent Sub shall furnish all information required for any
application or other filing to be made pursuant to the rules and regulations
of any applicable Law in connection with the transactions contemplated by
this Agreement.
(b) (i) Each of the Company, Parent and Parent Sub shall give any
notices to third parties, and use its best efforts to obtain any third party
consents (A) necessary, proper or advisable to consummate the transactions
contemplated in this Agreement, (B) disclosed or required to be disclosed in
the schedules contained herein, (C) otherwise required under any Contracts,
licenses, leases or other agreements in connection with the consummation of
the transactions contemplated herein or (D) required to prevent a Company
Material Adverse Effect from occurring prior to or after the Effective Time
or a Parent Material Adverse Effect from occurring prior to or after the
Effective Time.
(ii) In the event that any party shall fail to obtain any
third party consent described in subsection (b) (i) above, such party shall
use its best efforts, and shall take any such actions reasonably requested by
the other party hereto, to minimize any adverse effect upon the Company,
Parent, Parent Sub, their respective Subsidiaries and their respective
businesses resulting, or which could reasonably be expected to result after
the Effective Time, from the failure to obtain such consent.
SECTION 6.02 TAX TREATMENT; "POOLING OF INTERESTS"; AFFILIATES. The
Company, Parent and Parent Sub shall use their best efforts, and shall cause
their respective Subsidiaries and Affiliates to use their best efforts, to
cause the Merger to qualify, and will not take any actions which would
prevent the Merger from qualifying, as a "reorganization" under Section
368(a)(1)(A) of the Code, by application of Section 368(a)(2)(D) of the Code.
The Company, Parent and the Stockholders shall, and shall cause each of
their respective Subsidiaries and Affiliates to, use their best efforts not
to take any action (regardless of whether such action would otherwise be
permitted or not prohibited hereunder) that would prevent Parent from
accounting for the Merger as a "pooling of interests." Each Stockholder
agrees and undertakes that from the date hereof until such time as financial
results (including combined sales and net income) covering at least thirty
(30) days of post-Merger operations have been published (the date on which
such financial results are published shall be the "FINANCIAL RESULT DATE"),
such Stockholder shall not sell or in any other way alter his risk relative
to any shares of Parent Common Stock received in the Merger (within the
meaning of the Codification of Financial Reporting Policies 201.01 (reprinted
in 7 Fed. Sec. L. Rep. (CCH) 72,951)). Each Stockholder understands that
Parent will advise it when the Financial Result Date shall have occurred.
Each Stockholder undertakes to inform the Company and Parent of any
transactions involving Company Common Stock or Parent Common Stock that he
may wish to consummate during any time prior to the Financial Result Date and
will not consummate such transaction unless Parent shall consent thereto in
writing. ***
SECTION 6.03 PUBLIC ANNOUNCEMENTS.
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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(a) Any public announcement or similar publicity with respect to
this Agreement or the transactions contemplated hereby will be issued, if at
all, at such time and in such manner as Parent determines. Subject to Section
6.03(b) below and prior to the Effective Time, each of the Stockholders and
Parent shall, and the Stockholders shall cause the Company to, keep this
Agreement and the transactions contemplated hereby strictly confidential and
shall not make any disclosure of this Agreement or the transactions
contemplated hereby to any Person. The parties hereto shall consult with
each other concerning the means by which the Company's employees, customers
and suppliers and other Persons having dealings with the Company will be
informed of the transactions contemplated hereby and Parent will have the
right to be present for any such communication.
(b) Each party hereto acknowledges that, as a publicly traded
company, Parent has disclosure obligations under the federal securities laws
and, depending on the facts and circumstances, may be required to announce
the existence of this Agreement and/or the Merger prior to the Effective
Time. If so required, Parent will first consult with the Company regarding
the timing and contents of any such announcement. Each of the parties hereto
further acknowledges that this Agreement and/or the Merger may constitute
material, non-public information and agrees that it or he shall not, and
shall cause its respective representatives or Affiliates to not, engage in or
effect any transaction of Parent's securities until the Effective Time,
subject to the additional restrictions imposed by the federal securities laws
concerning the purchase or sale of securities.
SECTION 6.04 OBLIGATIONS OF PARENT SUB. Parent shall take all action
necessary to cause Parent Sub to perform its obligations under this Agreement
and to consummate the Merger on the terms and conditions set forth in this
Agreement.
SECTION 6.05 RESTRICTIVE LEGEND. Each of the Stockholders
acknowledges and agrees that the certificates of Parent Common Stock issued
to the Stockholders pursuant to the Merger shall bear a restrictive legend in
substantially the following form and a stop-transfer order may be placed
against their transfer:
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended.
The securities have been acquired for investment and may not
be sold, transferred or assigned in the absence of an
effective registration statement for the securities under
the Securities Act of 1933, as amended, or an opinion of
counsel that registration is not required under said Act or
unless sold pursuant to Rule 144.
The legend set forth above shall be removed and Parent shall issue a
certificate without such legend to the holder of the shares of Parent Common
Stock upon which it is stamped, if, unless otherwise required by applicable
state securities laws, (a) the such shares are included in an effective
registration statement under the Securities Act covering the resale thereof,
or (b) such holder provides Parent with an opinion of legal counsel, in form,
substance and scope reasonably
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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acceptable to Parent and its legal counsel, to the effect that a public sale
or transfer of such shares may be made without registration under the
Securities Act and such shares are being sold or transferred in accordance
with the method described therein, or (c) such holder provides Parent with
reasonable assurances that such shares can be sold pursuant to Rule 144 under
the Securities Act (or a successor rule thereto) without any restriction as
to the number of shares acquired as of a particular date that can then be
immediately sold. Each of the Stockholders agrees to sell all of the shares
of Parent Common Stock acquired pursuant to the Merger, including those
represented by a certificate(s) from which the legend has been removed, (x)
in compliance with the prospectus delivery requirements, if any, under
applicable securities Laws, (y) through an investment bank designated by
Parent and (z) in a manner reasonably designed not to affect adversely the
market price of the Parent Common Stock.
SECTION 6.06 ***
SECTION 6.07 DELIVERY OF SEC FILINGS. Parent shall promptly deliver
to the Company or to the Company's counsel a copy of all filings of the
Parent SEC Reports with the SEC, from the date hereof to the Effective Time,
or any other document which Parent deems to be appropriate for provision to
the Stockholders. Upon delivery of any such document by Parent to the
Company, the Company shall promptly deliver to each holder of capital stock
of the Company a copy of such document, including all exhibits thereto, and
an officer of the Company shall promptly provide to Parent an affidavit of
delivery of such copies.
SECTION 6.08 TERMINATION OF STOCKHOLDERS' AGREEMENT. Each of the
Stockholders (as applicable) and the Company hereby agree to and approve of
the termination, effective as of immediately before the Effective Time, of
that certain Stockholders' Agreement, dated as of September 1, 1985, by and
among the Company and the Stockholders named therein (as so executed and
amended from time to time, the "STOCKHOLDERS' AGREEMENT"); and (b) any
buy-sell agreement or other agreement or arrangement similar to the
Stockholders' Agreement between and among such parties.
SECTION 6.09 BEST EFFORTS. The parties hereto shall use their best
efforts to consummate the Merger and the other transactions contemplated
hereby as soon as reasonably practicable after the date of this Agreement.
The parties hereto agree to execute such amendments to this Agreement, the
Escrow Agreement and any other document as may be necessary to enable the
Merger to qualify for "pooling of interests" accounting treatment; provided
that such amendments or documents do not adversely affect such party.
SECTION 6.10 ***
ARTICLE VII
CLOSING CONDITIONS
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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SECTION 7.01 CONDITIONS TO OBLIGATIONS OF EACH PARTY UNDER THIS
AGREEMENT. The respective obligations of each party to effect the Merger and
the other transactions contemplated herein shall be subject to the
satisfaction at or prior to the Effective Time of the following conditions,
any or all of which may be waived, in whole or in part, to the extent
permitted by applicable Law:
(a) NO ORDER. No Governmental Entity or federal or state court of
competent jurisdiction shall have enacted, issued, promulgated, enforced or
entered any statute, rule, regulation, executive order, decree, injunction or
other order (whether temporary, preliminary or permanent) which is in effect
and which has the effect of making the Merger illegal or otherwise
prohibiting consummation of the Merger.
(b) CONSENTS AND APPROVALS. All material consents, approvals and
authorizations legally required to be obtained to consummate the Merger shall
have been obtained from all required Governmental Entities.
(c) EMPLOYMENT AND SEVERANCE AGREEMENTS. Parent Sub and Stephen
M. Casey shall execute the Employment Agreement; and Parent Sub and Kristin
Johnson and Nicholas Johnson, respectively, shall execute the Severance
Agreements.
SECTION 7.02 ADDITIONAL CONDITIONS TO OBLIGATIONS OF PARENT. The
obligations of Parent to effect the Merger and the other transactions
contemplated herein are also subject to the following conditions, each of
which may be waived by Parent, in whole or in part, to the extent permitted
by applicable Law:
(a) REPRESENTATIONS AND WARRANTIES.
(i) Notwithstanding any due diligence performed by Parent and the
Parent Representatives, each of the representations and warranties of the
Company contained in this Agreement shall be true and correct when made and
on and as of the Effective Time, as if made on and as of such date, except
where failure to be so true and correct would not have a Company Material
Adverse Effect, individually or in the aggregate, and except that those
representations and warranties which address matters only as of a particular
date shall remain true and correct as of such date, except where the failure
to be so true and correct would not have a Company Material Adverse Effect.
Parent shall have received a certificate of the President of the Company to
such effect; and
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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(ii) Notwithstanding any due diligence performed by Parent and the
Parent Representatives, each of the representations and warranties of the
Stockholders contained in this Agreement shall be true and correct when made
and on and as of the Effective Time, as if made on and as of such date,
except that those representations and warranties which address matters only
as of a particular date shall remain true and correct as of such date.
(b) AGREEMENTS AND COVENANTS. The Company shall have performed or
complied in all material respects with all agreements and covenants required
by this Agreement to be performed or complied with by it on or prior to the
Effective Time. Parent shall have received a certificate of the President or
Chief Financial Officer of the Company to that effect.
(c) "POOLING OF INTERESTS". The Merger shall qualify for "pooling
of interests" accounting treatment and Parent shall have received a letter,
dated as of the Effective Time, from Ernst & Young LLP regarding such firm's
concurrence with Parent's conclusion as to the appropriateness of "pooling of
interests" accounting treatment for the Merger under Accounting Principles
Board Opinion No. 16 if the Merger is closed and consummated in accordance
with this Agreement.
(d) THIRD PARTY CONSENTS AND WAIVERS. The Company shall have
obtained consents and waivers, in form and substance reasonably satisfactory
to Parent, in respect of the Contracts or agreements set forth on
SCHEDULE 7.02(d).
(e) COMPANY MATERIAL ADVERSE EFFECT. The Company shall not have
become subject to any action or event which resulted in or may likely result
in a Company Material Adverse Effect.
(f) LEGAL OPINION. Parent shall have received the legal opinions
of Freedman, Levy, Kroll & Simonds and Richter, Miller & Finn, covering the
matters set forth on EXHIBIT 7.02(f) hereto.
(g) AFFILIATE AGREEMENTS. Parent shall have received from each
Affiliate of the Company and any other Person who may be deemed to have
become an Affiliate of the Company (under Rule 145 under the Securities Act
or otherwise under applicable SEC accounting releases with respect to
"pooling of interests" accounting treatment) after the date of this Agreement
and or prior to the Effective Time a signed Affiliate Agreement in the form
of EXHIBIT 7.02(g). Each such Affiliate agrees to execute and deliver
similar Affiliate Agreements upon the reasonable request of Parent (or any of
its Subsidiaries or Affiliates) in connection with future business
transactions of Parent (or any of its Subsidiaries or Affiliates).
(h) EMPLOYMENT AND SEVERANCE AGREEMENTS. Stephen M. Casey shall
execute the employment agreement (the "EMPLOYMENT AGREEMENT") in the form
attached hereto as EXHIBIT 7.02(h)(i); and Kristin Johnson and Nicholas
Johnson, respectively, shall each execute the severance
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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agreements (the "SEVERANCE AGREEMENTS"), in the respective forms attached
hereto as EXHIBIT 7.02(H)(II).
(i) NONCOMPETITION AGREEMENTS. Each Stockholder shall execute a
noncompetition agreement in the form attached hereto as EXHIBIT 7.02(i).
(j) SPOUSAL CONSENTS. Parent shall have obtained from each of the
spouses of the Stockholders, respectively, the executed consent, in the form
attached hereto as EXHIBIT 7.02(j), in respect of the consummation of the
Merger and the transactions contemplated by this Agreement.
SECTION 7.03 ADDITIONAL CONDITIONS TO OBLIGATIONS OF THE COMPANY. The
obligation of the Company to effect the Merger and the other transactions
contemplated in this Agreement is subject to the following conditions, each
of which may be waived, in whole or in part, to the extent permitted by
applicable Law, by the Company:
(a) REPRESENTATIONS AND WARRANTIES. Each of the representations
and warranties of Parent and Parent Sub contained in this Agreement shall be
true and correct when made and on and as of the Effective Time as if made on
and as of such date, except where the failure to be so true and correct would
not have a Parent Material Adverse Effect, and except that those
representations and warranties which address matters only as of a particular
date shall remain true and correct as of such date, except where the failure
to be so true and correct would not have a Parent Material Adverse Effect.
The Company shall have received a certificate of the President of Parent to
such effect.
(b) AGREEMENTS AND COVENANTS. Parent shall have performed or
complied in all material respects with all agreements and covenants required
by this Agreement to be performed or complied with by it on or prior to the
Effective Time. The Company shall have received a certificate of the
President of Parent to that effect.
(c) PARENT MATERIAL ADVERSE EFFECT. Parent shall not have become
subject to any action or event which resulted in or may likely result in a
Parent Material Adverse Effect.
(d) LEGAL OPINION. The Company shall have received the legal
opinion of Baker & McKenzie, covering the matters set forth on EXHIBIT 7.03(d).
(e) ***
ARTICLE VIII
TERMINATION, AMENDMENT, WAIVER AND INDEMNIFICATION
SECTION 8.01 TERMINATION. This Agreement may be terminated at any time
prior to
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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the Effective Time:
(a) by mutual consent of Parent and the Company;
(b) by Parent, upon a material breach of any covenant or agreement
on the part of the Company set forth in this Agreement;
(c) by the Company, upon a material breach of any covenant or
agreement on the part of Parent or Parent Sub set forth in this Agreement;
(d) by either Parent or the Company, if there shall be any order
of a Governmental Entity which is final and nonappealable preventing the
consummation of the Merger;
(e) on or before 5:00 p.m., San Diego time, on March 31, 1998, by
Parent, if Parent is not satisfied with the results of its continuing due
diligence review regarding the Company;
(f) by either Parent or the Company, if the Merger shall not have
been consummated before April 30, 1998 (unless the failure to consummate the
Merger by such date shall be due to the action or failure to act of the party
seeking to terminate this Agreement);
(g) by Parent, upon a material breach of a representation and
warranty made by the Company or the Stockholders which has resulted in a
Company Material Adverse Effect, or which constitutes a material breach of
any representation and warranty set forth in Article IIIA; or
(h) by the Company, upon a material breach of a representation and
warranty made by Parent which has resulted in a Parent Material Adverse
Effect.
SECTION 8.02 INVESTIGATION. Notwithstanding any of the foregoing, the
right of any party hereto to terminate this Agreement pursuant to Section 8.01
shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any party hereto, any Person
controlling any such party or any of their respective officers or directors,
whether prior to or after the execution of this Agreement.
SECTION 8.03 AMENDMENT. This Agreement may not be amended except by an
instrument in writing signed by the parties hereto (in the case of the
Stockholders, by a number of Stockholders who are entitled to receive or have
received, in the aggregate, *** of the shares of Parent Common Stock to be
issued hereby at the Effective Time if prior to the Effective Time, or a
majority of the shares of Parent Common Stock issued hereby if subsequent to
the Effective Time).
SECTION 8.04 WAIVER; REMEDIES CUMULATIVE. No failure or delay on the
part of any party hereto in the exercise of any right hereunder shall impair
such right or be construed to be a waiver of, or acquiescence in, any breach
of any representation, warranty or agreement herein, nor shall any single or
partial exercise of any such right preclude other or further exercise thereof
or of
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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any other right. To the maximum extent permitted by applicable law, (a) no
claim or right arising out of this Agreement or the documents referred to in
this Agreement can be discharged by one party hereto, in whole or in part, by
a waiver or renunciation of the claim or right unless in writing signed by
the other party or parties hereto (in the case of the Stockholders, by a
number of Stockholders who are entitled to receive or have received, in the
aggregate, *** of the shares of Parent Common Stock to be issued hereby at
the Effective Time if prior to the Effective Time, or a majority of the
shares of Parent Common Stock issued hereby if subsequent to the Effective
Time); (b) no waiver that may be given by a party hereto will be applicable
except in the specific instance for which it is given; and (c) no notice to
or demand on one party will be deemed to be a waiver of any obligation of
such party or of the right of the party giving such notice or demand to take
further action without notice or demand as provided in this Agreement or the
documents referred to in this Agreement. All rights and remedies existing
under this Agreement are in addition to, and not exclusive of, any rights or
remedies otherwise available.
SECTION 8.05 FEES, EXPENSES AND OTHER PAYMENTS. Except as otherwise
expressly provided in this Agreement, Parent and *** shall bear all of their
respective costs and expenses which are incurred in connection with the
preparation, negotiation and performance of this Agreement (including the
draft, undated letter of intent) and the transactions contemplated hereby,
including, without limitation, all due diligence expenses and fees and
expenses of agents, representatives, counsel and accountants. ***
SECTION 8.06 STOCKHOLDER INDEMNIFICATION, HOLD BACK AND ESCROW.
(a) Each of the Stockholders jointly and severally shall indemnify
and defend each of Parent and Parent Sub, and hold it harmless, from and
against any and all losses, damages, Liabilities, claims, demands, judgments,
settlements, costs and expenses of any nature whatsoever (including
reasonable attorneys' fees) (collectively, "LOSS"), resulting from or arising
out of any breach of any representation or warranty or agreement of the
Company or any Stockholder contained herein; *** No claim for
indemnification pursuant to this Section 8.06(a) may be made subsequent to
the date which is *** after the Effective Time or in respect of a Loss in
respect of accounts receivable or for which Parent has otherwise been
previously reimbursed by the Stockholders.
(b) (i) If any third party shall notify Parent with respect to
any third party claim (a "THIRD PARTY CLAIM") that may give rise to a Loss,
then Parent shall promptly notify the Stockholders thereof in writing;
PROVIDED, HOWEVER, that no delay on the part of Parent in notifying the
Stockholders shall relieve the Stockholders from any obligation hereunder
unless (and then solely to the extent) such Stockholders thereby are
prejudiced. Each of the Stockholders shall promptly provide copies of any
notices received or given under this Section 8.06 to the other Stockholders.
(ii) The Stockholders will have the right to defend Parent against
the Third Party Claim with counsel of their choice reasonably satisfactory to
Parent, so long as: (A) the Stockholders so notify Parent in writing within
fifteen (15) days, acknowledging that such claim is in respect of
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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a Loss described in Section 8.06(a); (B) the Third Party Claim involves only
money damages and does not seek an injunction or other equitable relief; (C)
settlement of, or an adverse judgment with respect to, the Third Party Claim
is not, in the good faith judgment of Parent, likely to establish a
precedential custom or practice materially adverse to the continuing business
interests of Parent; and (D) the Stockholders conduct the defense of the
Third Party Claim actively and diligently.
(iii) So long as the Stockholders are conducting the defense of the
Third Party Claim in accordance with Section 8.06(b)(ii), (A) Parent may
retain separate co-counsel at its sole cost and expense and participate in
the defense of the Third Party Claim, (B) Parent will not consent to the
entry of any judgment or enter into any settlement with respect to the Third
Party Claim without the prior written consent of the Stockholders (which
consent will not be withheld unreasonably); and (C) the Stockholders will not
consent to the entry of any judgment or enter into any settlement with
respect to the Third Party Claim without the prior written consent of Parent
(which consent will not be withheld unreasonably).
(iv) In the event that any of the conditions in Section
8.06(b)(ii) is or becomes unsatisfied, (A) Parent may defend against the
Third Party Claim in any manner it reasonably may deem appropriate; PROVIDED,
HOWEVER, that Parent shall not consent to the entry of any judgment or enter
into any settlement or agreement to settle a Third Party Claim without the
prior written consent of the Stockholders, which consent will not be withheld
unreasonably; (B) Parent shall be reimbursed from the Escrow Account promptly
and periodically for the costs of defending against the Third Party Claim
(including reasonable attorneys' fees and expenses); and (C) the Stockholders
will remain responsible for any Loss that Parent actually suffers resulting
from, arising out of, relating to, in the nature of, or caused by the Third
Party Claim to the fullest extent provided in this Section 8.06.
(c) (i) Each Stockholder of the Company hereby agrees that, at
the Effective Time, Parent shall hold back and place into escrow pursuant to
the Escrow Agreement (the "ESCROW ACCOUNT"), a number of Parent Shares equal
to ***, rounded to the nearest whole share, of the total number of shares of
Parent Common Stock to be received by such Stockholder (the total value of
all such shares as valued at the Market Price to be collectively referred to
as the "INDEMNIFICATION AMOUNT"), as partial security for such Stockholder's
indemnity obligations herein.
(ii) At any time Parent shall have a claim for indemnification,
Parent shall submit such claim to the Stockholders and, within thirty (30)
calendar days thereof, the Stockholders shall notify Parent, in writing,
whether he agrees with such claim; PROVIDED, HOWEVER, that in the event that
the Stockholders fail to so notify Parent, the Stockholders shall be deemed
to have agreed to the release of securities or cash from the Escrow Account.
In the event that the Stockholders notify Parent that they disagree with such
claim, the Stockholders shall provide Parent with a written notice specifying
the Basis for such disagreement and, if the Stockholders and Parent shall be
unable to reach agreement within thirty (30) days, the matter will be
submitted to arbitration pursuant to the terms of Section 9.11.
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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(iii) For purposes of calculating quantities of shares to be paid
to Parent pursuant to this Section 8.06, each share of Parent Common Stock
shall be valued at the Market Price at the time of the notification pursuant
to Section 8.06(b)(i). Any and all distributions to and from the Escrow
Account shall be allocated among the Stockholders, pro rata, based on each
Stockholder's interest in shares of Parent Common Stock to be issued pursuant
to the Merger, as separate subaccounts for each holder.
(iv) Each of the Stockholders hereby acknowledges and agrees that
the indemnity obligations set forth above shall not be the exclusive remedy
of Parent and Parent Sub with respect to such Stockholder's indemnity
obligations herein and the Indemnification Amount in no way limits the amount
or sources of recovery of Parent and Parent Sub with respect to such
indemnity obligations; ***
(d) [[Reserved.]]
(e) [[Reserved.]]
(f) The right to indemnification, payment of damages or other
remedy based on the representations, warranties, covenants and obligations of
the Company and the Stockholders contained herein will not be affected by any
investigation conducted by Parent or the Parent Representatives with respect
to, or any Knowledge acquired (or capable of being acquired) by Parent or the
Parent Representatives, at any time whether before or after the execution and
delivery of this Agreement or the Effective Time, with respect to the
accuracy or inaccuracy of or compliance with, any such representation,
warranty, covenant or obligation. The waiver of any condition based on the
accuracy of any representation or warranty, or on the performance of or
compliance with any covenant or obligation, will not affect the right to
indemnification, payment of damages, or other remedy based on such
representations, warranties, covenants and obligations.
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.1 EFFECTIVENESS OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
(a) Except as set forth below in Section 9.01(b), the
representations, warranties and agreements of each party hereto shall remain
operative and in full force and effect regardless of any investigation made
by or on behalf of any other party hereto, any Person controlling any such
party or any of its officers or directors, whether prior to or after the
execution of this Agreement.
(b) The representations, warranties and agreements in this
Agreement shall terminate (i) with respect to the Stockholders and the
Company, on the *** anniversary of the Effective Time and (ii) with respect
to Parent and Parent Sub, at the Effective Time; PROVIDED, HOWEVER, that the
representations, warranties and agreements set forth in *** shall not so
terminate.
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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SECTION 9.2 NOTICES. All notices and other communications given or
made pursuant hereto shall be in writing and shall be deemed to have been
duly given or made as of the date delivered, mailed or transmitted, and shall
be effective upon receipt, if delivered personally, mailed by registered or
certified mail (postage prepaid, return receipt requested) to the parties at
the following addresses (or at such other address for a party as shall be
specified by like changes of address) or sent by electronic transmission to
the facsimile number specified below:
(a) If to Parent or Parent Sub:
DAOU Systems, Inc.
5120 Shoreham Place
San Diego, CA 92122
ATTENTION: President and Chief Financial Officer
Fax No.: (619) 452-2789
with a copy to:
Baker & McKenzie
101 West Broadway, Twelfth Floor
San Diego, California 92101
ATTENTION: John J. Hentrich, Esq.
Fax No.: (619) 236-0429
(b) If to the Company:
Sentient Systems, Inc.
10410 North Kensington Parkway
Kensington, Maryland 20895
ATTENTION: Mr. Stephen M. Casey
Fax No.: (301) 977-7767
with a copy to:
Freedman, Levy, Kroll & Simonds
1050 Connecticut Avenue, N.W., Suite 825
Washington, D.C. 20036-5303
ATTENTION: Wayne M. Zell, Esq.
Fax No.: (202) 457-5151
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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(c) If to the Stockholders:
Mr. Stephen M. Casey
10410 North Kensington Parkway
Kensington, Maryland 20895
Fax No.: (301) 929-7677
with a copy to:
John R. Orrick, Jr.
Linowes and Blocher, LLP
1010 Wayne Avenue, Tenth Floor
Silver Spring, Maryland 20910
Fax No.: (301) 495-9044
Ms. Kristin Johnson
3300 Lighthouse Drive
Lighthouse Point, Florida 33064
Fax No.: (970) 728-5092
with a copy to:
Lee H. Spence, Esq.
Sherman, Meehan, Curtin & Ain
1900 M Street, NW, Suite 600
Wahington, D.C. 20036
Fax No.: (202) 530-4411
Mr. Nicholas Johnson
10412 Church Hill Rd.
Myersville, Maryland 21773
Fax No.: (301) 293-3492
with a copy to:
Davis G. Litt, Esq.
O'Melveny & Myers, LLP
555 13th Street, NW
Washington, D.C. 20004-1109
Fax No.: (202) 383-5414
SECTION 9.3 CERTAIN DEFINITIONS. For purposes of this Agreement, the
term:
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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"AAA" as defined in Section 9.11;
"AFFILIATE" means a Person that directly or indirectly, through one or
more intermediaries, controls, is controlled by, or is under common control
with, the first mentioned Person;
"AGREEMENT" as defined in the preamble to this Agreement;
"ARTICLES OF MERGER" as defined in Section 1.02;
"ASSETS" means any and all properties and assets (real, personal or
mixed, tangible or intangible) of any Person;
"BALANCE SHEET" as defined in Section 3.07;
"BASIS" means any past or present fact, situation, circumstance, status,
condition, activity, practice, plan, occurrence, event, incident, action,
failure to act, or transaction that forms or could form the basis for any
specified consequence;
"BLUE SKY LAWS" as defined in Section 3.05(b);
"BUSINESS DAY" means any day other than a day on which banks in the
State of California are authorized or obligated to be closed;
"CERTIFICATE OF MERGER" as defined in Section 1.02;
"CODE" means the Internal Revenue Code of 1986, as amended;
"COMMISSION AGREEMENT" as defined in Section 3.03A;
"COMPANY" as defined in the preamble to this Agreement;
"COMPANY COMMON STOCK" as defined in Section 2.01(a);
"COMPANY EMPLOYEE BENEFIT PLAN" as defined in Section 3.24;
"COMPANY MATERIAL ADVERSE EFFECT" means any change or effect that,
individually or when taken together with all other such changes or effects,
is or is reasonably likely to be materially adverse to the business,
properties, Assets, condition (financial or otherwise), liabilities,
operations or prospects of the Company at the time of such change or effect.
A Company Material Adverse Effect shall be deemed to exist if there shall
occur any event which causes or may reasonably be expected to cause or result
in estimable monetary loss which, individually or when aggregated with all
other events, exceeds ***;
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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<PAGE>
"COMPANY PERMITS" as defined in Section 3.06;
"COMPETING TRANSACTION" means any of the following involving the Company
or any Subsidiary or Affiliate of the Company: (i) any merger, consolidation,
share exchange, business combination, or other similar transaction (other
than the transactions contemplated by this Agreement); (ii) any sale, lease,
exchange, mortgage, pledge, transfer or other disposition of ten percent
(10%) or more of the Assets of the Company in a single transaction or series
of transactions; (iii) any offer (whether cash or securities) for ten percent
(10%) or more of the outstanding shares of capital stock of the Company; or
(iv) any public announcement of a proposal, plan or intention to do any of
the foregoing;
"CONSENT" as defined in Section 2.01A;
"CONTRACT" of any Person means any contract, agreement or instrument of
any type whatsoever (i) to which such Person is a party and by which such
Person either has made a binding undertaking to perform an obligation or is
entitled to any property or right, or (ii) by which any of the Assets of such
Person is bound;
"CONTROL" (including the terms "CONTROLLING," "CONTROLLED," "CONTROLLED
BY" and "UNDER COMMON CONTROL WITH") means the possession, directly or
indirectly or as trustee or executor, of the power to direct or cause the
direction of the management or policies of a Person, whether through the
ownership of stock or as trustee or executor, by Contract or credit
arrangement or otherwise;
"DELAWARE LAW" as defined in the recitals to this Agreement;
***;
"EFFECTIVE TIME" as defined in Section 1.02;
"EMPLOYEE BENEFIT PLAN" means (a) any bonus, incentive compensation,
profit sharing, retirement, pension, group insurance, death benefit, group
health, medical expense reimbursement, workers' compensation, dependent care,
flexible benefits or cafeteria, stock option, stock purchase, stock
appreciation rights, savings, deferred compensation, consulting, severance
pay or termination pay, vacation pay, life insurance, disability, welfare or
other employee benefit or fringe benefit plan, program or arrangement; or (b)
any plan, program or arrangement which is an Employee Pension Benefit Plan,
Employee Welfare Benefit Plan or Multiemployer Plan.
"EMPLOYEE PENSION BENEFIT PLAN" has the meaning set forth in ERISA
Section 3(2);
"EMPLOYEE WELFARE BENEFIT PLAN" has the meaning set forth in ERISA
Section 3(1);
"EMPLOYMENT AGREEMENT" as defined in Section 7.02(h);
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
-45-
<PAGE>
"ENCUMBRANCES" means any Security Interests, Liens, claims, pledges,
agreements, limitations on voting rights, charges or other encumbrances of
any nature whatsoever;
"ENVIRONMENTAL, HEALTH AND SAFETY LAWS" means the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, the Resource
Conservation and Recovery Act of 1976, and the Occupational Safety and Health
Act of 1970, each as amended, together with all other Laws (including rules,
regulations, codes, plans, injunctions, judgments, orders, decrees, rulings,
and charges thereunder) of federal, state, local, and foreign governments
(and all agencies thereof), concerning pollution or protection of the
environment, public health and safety, or employee health and safety,
including Laws relating to emissions, discharges, releases, or threatened
releases of pollutants, contaminants, or chemical, industrial, hazardous, or
toxic materials or wastes into ambient air, surface water, ground water, or
lands or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport, or handling of pollutants,
contaminants, or chemical, industrial, hazardous, or toxic materials or
wastes;
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended;
"ERISA AFFILIATE" means each person (as defined in Section 3(9) of
ERISA) that together with the Company (or any person whose Liabilities the
Company has assumed or is otherwise subject to) would be considered or has
been a single employer under Section 4001(b) of ERISA or would be considered
or has been a member of the same "controlled group," under common control, a
member of the same affiliated service group or otherwise a single employer
within the meaning of Section 414(b), (c), (m) and (o) of the Code (PROVIDED,
HOWEVER, that when the subject of the provision is a Multiemployer Plan only
subsections (b) and (c) of Section 414 of the Code shall be taken into
account).
"ESCROW ACCOUNT" as defined in Section 8.06(c);
"ESCROW AGREEMENT" as defined in Section 5.05;
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended;
"EXCHANGE AGENT" as defined in Section 2.02(a);
"EXCHANGE FUND" as defined in Section 2.02(a);
"EXCHANGE RATIO" means, subject to adjustment as set forth in Sections
2.01(b), the quotient obtained from dividing (i) as the numerator of such
quotient, the number of shares of Parent Common Stock obtained from dividing
Twenty-Six Million Dollars ($26,000,000) by the Market Price, by (ii) as the
denominator of such quotient, the total number of shares of Company Common
Stock issued and outstanding immediately prior to the Effective Time. All
calculations made to determine the Exchange Ratio shall be made through the
fourth decimal place (i.e., rounded to the closest ten-thousandth);
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
-46-
<PAGE>
"EXTREMELY HAZARDOUS SUBSTANCE" has the meaning set forth in Section 302
of the Emergency Planning and Community Right-to-Know Act of 1986, as amended;
"FAIR MARKET VALUE" of any Asset means the value that would be obtained
in an arm's length transaction between an informed and willing buyer and an
informed and willing seller;
"FINANCIAL RESULT DATE" as defined in Section 6.02;
"FINANCIAL STATEMENTS" as defined in Section 3.07;
"GAAP" means United States generally accepted accounting principles as
in effect from time to time;
"GOVERNMENTAL ENTITIES" as defined in Section 3.05(b);
"HSR ACT" as defined in Section 4.12;
"INDEMNIFICATION AMOUNT" as defined in Section 8.06(c);
"INTELLECTUAL PROPERTY" means (a) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements
thereto, and all patents, patent applications, and patent disclosures,
together with all reissuances, continuations, continuations-in-part,
revisions, extensions, and reexaminations thereof, (b) all trademarks,
service marks, trade dress, logos, trade names, and corporate names, together
with all translations, adaptations, derivations, and combinations thereof and
including all goodwill associated therewith, and all applications,
registrations, and renewals in connection therewith, (c) all copyrightable
works, all copyrights, and all applications, registrations, and renewals in
connection therewith, (d) all mask works and all applications, registrations,
and renewals in connection therewith, (e) all trade secrets and confidential
business information (including ideas, research and development, know-how,
formulas, compositions, manufacturing and production processes and
techniques, technical data, designs, drawings, specifications, customer and
supplier lists, pricing and cost information, and business and marketing
plans and proposals), (f) all computer software (including data and related
documentation), (g) all other proprietary rights, and (h) all copies and
tangible embodiments thereof (in whatever form or medium);
"KNOWLEDGE" or "KNOWN" means, with respect to a particular fact or other
matter, that *** an individual actually is aware of such fact or other matter
***; a Person (other than an individual) will be deemed to have "Knowledge"
of a particular fact or other matter if any individual who is serving, or who
has at any time served, as a director, officer, partner, executor or trustee
of such Person (or in any similar capacity) has, or at any time had,
Knowledge of such fact or other matter;
"LAWS" as defined in Section 3.05(a);
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
-47-
<PAGE>
"LIABILITIES" as defined in Section 3.08;
"LIEN" means any lien, charge, Encumbrance, mortgage, conditional sale
agreement, title retention agreement, financing lease, pledge or Security
Interest of any kind or type and whether arising by Contract or under Law;
"LOSS" as defined in Section 8.06(a);
"MARKET PRICE" means the average of the closing bid and ask prices of
the Parent Common Stock as reported on the Nasdaq National Market Quotation
System for the ten (10) trading days prior to the Effective Time.
"MARYLAND LAW" means the Maryland General Corporation Law, as codified
in Titles 1 through 3 of the Corporations and Associations Article of the
Maryland Code Annotated, as amended from time to time, and as defined in the
recitals to this Agreement.
"MERGER" as defined in the recitals to this Agreement;
"MERGER CONSIDERATION" as defined in Section 2.02(b);
"MULTIEMPLOYER PLAN" has the meaning set forth in ERISA Section 3(37);
"NASDAQ" means The Nasdaq Stock Market, Inc.;
"ORDINARY COURSE OF BUSINESS" with respect to any entity, means the
ordinary course of business consistent with past custom and practice
(including with respect to quantity and frequency) of that entity;
"PARENT" as defined in the preamble to this Agreement;
"PARENT COMMON STOCK" as defined in Section 2.01(a);
"PARENT MATERIAL ADVERSE EFFECT" shall mean any change or effect that,
individually or when taken together with all such other changes or effects,
is or is reasonably likely to be materially adverse to the business,
properties, Assets, condition (financial or otherwise), Liabilities,
operations or prospects of Parent and its Subsidiaries, taken as a whole at
the time of such change or effect. A Parent Material Adverse Effect shall be
deemed to exist if there shall occur any event which causes or may reasonably
be expected to cause or result in estimable monetary loss which, individually
or when aggregated with all other events, exceeds ***;
"PARENT PREFERRED STOCK" as defined in Section 4.03(b);
"PARENT REPRESENTATIVES" as defined in Section 5.04;
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
-48-
<PAGE>
"PARENT SEC REPORTS" as defined in Section 4.06(a);
"PARENT SUB" as defined in the preamble to this Agreement;
"PARENT SUB COMMON STOCK" means Parent Sub's common stock, par value
$.001 per share;
"PERSON" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization, a Governmental Entity (or any
department, agency, or political subdivision thereof) or any other entity;
***;
***;
"PROXY" as defined in Section 2.02A;
***;
"RULES" as defined in Section 9.11;
"SDAT" as defined in Section 1.02;
"SEC" means the Securities and Exchange Commission;
"SECRETARY'S CERTIFICATE" as defined in Section 2.02(b);
"SECURITIES ACT" means the Securities Act of 1933, as amended;
"SECURITY INTEREST" means any mortgage, pledge, Lien, Encumbrance,
charge, or other security interest, other than (a) mechanic's, materialmen's,
and similar Liens, (b) Liens for Taxes not yet due and payable, (c) purchase
money Liens and Liens securing rental payments under capital lease
arrangements, and (d) other Liens arising in the Ordinary Course of Business
and not incurred in connection with the borrowing of money;
"SEVERANCE AGREEMENTS" as defined in Section 7.02(h);
***;
"STOCK REGISTER ENTRIES" as defined in Section 2.02(b);
"STOCKHOLDERS" as defined in the preamble to this Agreement;
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
-49-
<PAGE>
"STOCKHOLDERS' AGREEMENT" as defined in Section 6.08;
"SUBSIDIARY" or "SUBSIDIARIES" of the Company, Parent, the Surviving
Corporation or any other Person, means any corporation, partnership, joint
venture or other legal entity of which the Company, Parent, the Surviving
Corporation or such other Person, as the case may be (either alone or through
or together with any other subsidiary), owns, directly or indirectly, fifty
percent (50%) or more of the capital stock or other equity interests which
the holders thereof are generally entitled to vote for the election of the
board of directors or other governing body of such corporation or other legal
entity;
"SURVIVING CORPORATION" as defined in Section 1.01;
"TAX" or "TAXES" shall mean any and all taxes, charges, fees or levies,
payable to any federal, state, local or foreign taxing authority or agency,
including, without limitation, (i) income, franchise, profits, gross
receipts, minimum, alternative minimum, estimated, AD valorem, value added,
sales, use, service, real or personal property, capital stock, license,
payroll, withholding, disability, employment, social security, workers
compensation, unemployment compensation, utility, severance, excise, stamp,
windfall profits, transfer and capital gains taxes, (ii) custom duties,
imposts, charges, levies or other similar assessments of any kind, and (iii)
interest, penalties and additions to tax imposed with respect thereto;
"TAX RETURN" shall mean any return, declaration, report, claim for
refund, or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof; and
"THIRD PARTY CLAIM" as defined in Section 8.06(b).
SECTION 9.4 HEADINGS; CONSTRUCTION. The headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. All words used in this
Agreement will be construed to be of such gender or number as the
circumstances require. Unless otherwise expressly provided, the word
"including" does not limit the preceding words or terms.
SECTION 9.5 SEVERABILITY. If any term or other provision of this
Agreement is determined to be invalid, illegal or incapable of being enforced
by any rule of law or public policy, all other conditions and provisions of
this Agreement shall nevertheless remain in full force and effect so long as
the economic or legal substance of the transactions contemplated hereby is
not affected in any manner materially adverse to any party. Upon such
determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith
to modify this Agreement so as to effect the original intent of the parties
hereto as closely as possible in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the extent possible.
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
-50-
<PAGE>
SECTION 9.6 ENTIRE AGREEMENT; AMENDMENT. This Agreement (together
with the exhibits and schedules) constitutes the entire agreement of the
parties and supersedes all prior agreements and undertakings, both written
and oral, between the parties hereto, or any of them, with respect to the
subject matter hereof. This Agreement may not be amended except by a written
agreement executed by the party to be charged with the amendment.
SECTION 9.7 ASSIGNMENT. This Agreement shall not be assigned by
operation of law or otherwise except Parent Sub may, without the Company's
approval, assign its interests to a wholly-owned Subsidiary of Parent.
SECTION 9.8 PARTIES IN INTEREST. This Agreement shall be binding
upon and inure solely to the benefit of each party hereto, and nothing in
this Agreement, express or implied, is intended to or shall confer upon any
other Person any right, benefit or remedy of any nature whatsoever under or
by reason of this Agreement.
SECTION 9.9 FURTHER ASSURANCES. The parties hereto agree (a) to
furnish upon request to each other such further information, (b) to execute
and deliver to each other such other documents, and (c) to do such other acts
and things, all as another party hereto may reasonably request for the
purpose of carrying out the intent of this Agreement and the documents
referred to in this Agreement.
SECTION 9.10 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA, REGARDLESS
OF THE LAWS THAT MIGHT OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES OF
CONFLICTS OF LAW.
SECTION 9.11 BINDING ARBITRATION. Subject to the arbitration provisions
set forth below, the parties hereto agree that all disputes arising out of or
related to the terms and conditions of this Agreement or to the performance,
breach or termination thereof, shall be submitted to binding arbitration
pursuant to the Expedited Procedures of the Commercial Arbitration Rules (the
"RULES") of the American Arbitration Association (the "AAA"). The arbitration
will take place in *** San Diego, California at the offices of the AAA ***. The
dispute will be resolved by a single arbitrator appointed by the AAA in
accordance with the list procedure described in Paragraph 13 of the Rules,
except that the AAA will transmit the list within ten (10) Business Days of the
filing of the demand for arbitration, and the parties thereto will have five (5)
Business Days to return the list to the AAA with their objections and
preferences. Discovery will be limited to no more than seven (7) depositions by
each side and written document requests, requesting the production of specific
documents. The parties to the dispute will voluntarily produce any and all
documents that they intend to use at the hearing before the close of discovery,
subject to supplementation for purposes of rebuttal or good cause shown. The
period for taking discovery will be sixty (60) Business Days, commencing upon
the day that the answer is due under the Rules. The arbitrator will hold a pre-
hearing conference within three (3) Business Days of the close of discovery and
will schedule the hearing within thirty (30) Business Days of the close of
discovery. After the arbitrator is selected,
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
-51-
<PAGE>
the arbitrator will have sole jurisdiction to hear such applications, except
that any measure ordered by the arbitrator may be immediately and
specifically enforced by a court otherwise having jurisdiction over the
parties. All fees and costs will be allocated to the parties to the
arbitration as determined by the arbitrator. Each party will pay its own
fees and costs associated with the arbitration and each party will pay
one-half the estimated arbitrator's fees up front and if either party fails
to do so a default will be entered against such party solely with respect to
such fees. Any determination of the arbitrator shall be final and binding on
the parties hereto. Nothing in this Agreement will prevent a party hereto
from applying to a court that would otherwise have jurisdiction for
provisional or interim injunctive or other equitable measures.
SECTION 9.12 WAIVER; REMEDIES CUMULATIVE. No failure or delay on the
part of any party hereto in the exercise of any right hereunder shall impair
such right or be construed to be a waiver of, or acquiescence in, any breach
of any representation, warranty or agreement herein, nor shall any single or
partial exercise of any such right preclude other or further exercise thereof
or of any other right. To the maximum extent permitted by applicable Law,
(a) no claim or right arising out of this Agreement or the documents referred
to in this Agreement can be discharged by one party, in whole or in part, by
a waiver or renunciation of the claim or right unless in writing signed by
the other party; (b) no waiver that may be given by a party will be
applicable except in the specific instance for which it is given; and (c) no
notice to or demand on one party will be deemed to be a waiver of any
obligation of such party or of the right of the party giving notice or demand
to take further action without notice or demand as provided in this Agreement
or the documents referred to in this Agreement. All rights and remedies
existing under this Agreement are in addition to, and not exclusive of, any
rights or remedies otherwise available.
SECTION 9.13 COUNTERPARTS. This Agreement may be executed in one or
more counterparts, and by the different parties hereto in separate
counterparts, each of which when executed shall be deemed to be an original
but all of which taken together shall constitute one and the same agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed or caused this
Agreement to be executed as of the date first written above by their
respective officer thereunto duly authorized.
DAOU SYSTEMS, INC.
By /s/ Daniel J. Daou
----------------------------------------
Daniel J. Daou, President
DAOU-SENTIENT, INC.
By /s/ Daniel J. Daou
----------------------------------------
Daniel J. Daou, President
SENTIENT SYSTEMS, INC.
By /s/ Stephen M. Casey
----------------------------------------
Stephen M. Casey, President
STOCKHOLDERS OF
SENTIENT SYSTEMS, INC.
/s/ Stephen M. Casey
-----------------------------------------
Stephen M. Casey, 250,000 shares
/s/ Kristin N. Johnson
-----------------------------------------
Kristin N. Johnson, 2,500,000 shares
/s/ Nicholas S. Johnson
-----------------------------------------
Nicholas S. Johnson, 2,500,000 shares
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
DAOU SYSTEMS, INC.,
DAOU-SYNEXUS, INC.,
SYNEXUS INCORPORATED
AND
THE STOCKHOLDERS OF SYNEXUS INCORPORATED
LISTED ON THE SIGNATURE PAGE HERETO
Dated as of March 27, 1998
<PAGE>
TABLE OF CONTENTS
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<S> <C> <C>
ARTICLE I THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . -2-
SECTION 1.01 THE MERGER . . . . . . . . . . . . . . . . . . . -2-
SECTION 1.02 EFFECTIVE TIME . . . . . . . . . . . . . . . . . -2-
SECTION 1.03 EFFECT OF THE MERGER . . . . . . . . . . . . . . -2-
SECTION 1.04 CERTIFICATE OF INCORPORATION; BY-LAWS. . . . . . -2-
SECTION 1.05 DIRECTORS AND OFFICERS . . . . . . . . . . . . . -2-
ARTICLE II CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES . . . . . . . . -2-
SECTION 2.01 CONVERSION OF SECURITIES . . . . . . . . . . . . -2-
SECTION 2.02 EXCHANGE OF CERTIFICATES . . . . . . . . . . . . -3-
SECTION 2.03 STOCK TRANSFER BOOKS . . . . . . . . . . . . . . -5-
SECTION 2.04 DISSENTING SHARES. . . . . . . . . . . . . . . . -5-
ARTICLE IIA VOTING RIGHTS AND PROXY. . . . . . . . . . . . . . . . . . . . . . -6-
SECTION 2.01A. CONSENT AND VOTING AGREEMENT . . . . . . . . . . -6-
SECTION 2.02A. GRANT OF PROXY . . . . . . . . . . . . . . . . . -6-
ARTICLE III REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY
AND ITS SUBSIDIARIES . . . . . . . . . . . . . . . . . . . . . . . -7-
SECTION 3.01 ORGANIZATION AND QUALIFICATION; SUBSIDIARIES . . -7-
SECTION 3.02 CERTIFICATE OF INCORPORATION AND BY-LAWS . . . . -7-
SECTION 3.03 CAPITALIZATION . . . . . . . . . . . . . . . . . -7-
SECTION 3.04 AUTHORITY. . . . . . . . . . . . . . . . . . . . -8-
SECTION 3.05 NO CONFLICT; REQUIRED FILINGS AND CONSENTS . . . -8-
SECTION 3.06 PERMITS; COMPLIANCE. . . . . . . . . . . . . . . -9-
SECTION 3.07 FINANCIAL STATEMENTS . . . . . . . . . . . . . . -9-
SECTION 3.08 NO UNDISCLOSED LIABILITIES . . . . . . . . . . . -9-
SECTION 3.09 ABSENCE OF CERTAIN CHANGES OR EVENTS . . . . . . -9-
SECTION 3.10 ABSENCE OF LITIGATION. . . . . . . . . . . . . . -11-
SECTION 3.11 VOTE REQUIRED. . . . . . . . . . . . . . . . . . -12-
SECTION 3.12 BROKERS. . . . . . . . . . . . . . . . . . . . . -12-
SECTION 3.13 COMPANY ACTION . . . . . . . . . . . . . . . . . -12-
SECTION 3.14 TAX MATTERS; "POOLING OF INTERESTS". . . . . . . -12-
SECTION 3.15 REAL PROPERTY. . . . . . . . . . . . . . . . . . -13-
SECTION 3.16 INTELLECTUAL PROPERTY. . . . . . . . . . . . . . -14-
SECTION 3.17 TANGIBLE ASSETS. . . . . . . . . . . . . . . . . -16-
SECTION 3.18 INVENTORY. . . . . . . . . . . . . . . . . . . . -16-
SECTION 3.19 CONTRACTS. . . . . . . . . . . . . . . . . . . . -16-
SECTION 3.20 NOTES AND ACCOUNTS RECEIVABLE. . . . . . . . . . -17-
SECTION 3.21 POWERS OF ATTORNEY . . . . . . . . . . . . . . . -17-
SECTION 3.22 INSURANCE. . . . . . . . . . . . . . . . . . . . -18-
SECTION 3.23 EMPLOYEES. . . . . . . . . . . . . . . . . . . . -18-
SECTION 3.24 EMPLOYEE BENEFITS. . . . . . . . . . . . . . . . -19-
SECTION 3.25 GUARANTIES . . . . . . . . . . . . . . . . . . . -20-
</TABLE>
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<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
<S> <C> <C>
SECTION 3.26 ENVIRONMENT, HEALTH AND SAFETY . . . . . . . . . -20-
SECTION 3.27 CERTAIN BUSINESS RELATIONSHIPS WITH THE COMPANY. -21-
SECTION 3.28 [[RESERVED]] . . . . . . . . . . . . . . . . . . -21-
SECTION 3.29 PRODUCT AND SERVICE WARRANTIES . . . . . . . . . -21-
SECTION 3.30 PRODUCT AND SERVICE LIABILITY. . . . . . . . . . -21-
SECTION 3.31 CUSTOMER/SUPPLIER RELATIONSHIPS. . . . . . . . . -21-
SECTION 3.32 CERTAIN BUSINESS PRACTICES . . . . . . . . . . . -21-
SECTION 3.33 DISCLOSURE . . . . . . . . . . . . . . . . . . . -22-
SECTION 3.34 LIMITATION ON REPRESENTATIONS AND WARRANTIES . . -22-
ARTICLE IIIA REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER . . . . . . . . -22-
SECTION 3.01A. AUTHORIZATION OF TRANSACTION . . . . . . . . . . -22-
SECTION 3.02A. NONCONTRAVENTION . . . . . . . . . . . . . . . . -22-
SECTION 3.03A. BROKERS. . . . . . . . . . . . . . . . . . . . . -22-
SECTION 3.04A. COMPANY SHARES . . . . . . . . . . . . . . . . . -22-
SECTION 3.05A. ACCREDITED INVESTOR. . . . . . . . . . . . . . . -23-
SECTION 3.06A. INVESTMENT INTENTION . . . . . . . . . . . . . . -23-
SECTION 3.07A. EMPLOYMENT . . . . . . . . . . . . . . . . . . . -23-
SECTION 3.08A. LIMITATION ON REPRESENTATIONS AND WARRANTIES . . -23-
SECTION 3.09A. DELIVERY OF INFORMATION. . . . . . . . . . . . . -23-
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND PARENT SUB. . . . . . -23-
SECTION 4.01 ORGANIZATION AND QUALIFICATION . . . . . . . . . -23-
SECTION 4.02 CERTIFICATES OF INCORPORATION AND BY-LAWS. . . . -24-
SECTION 4.03 PARENT COMMON STOCK; CAPITALIZATION. . . . . . . -24-
SECTION 4.04 AUTHORITY. . . . . . . . . . . . . . . . . . . . -24-
SECTION 4.05 NO CONFLICT; REQUIRED FILINGS AND CONSENTS . . . -24-
SECTION 4.06 REPORTS; FINANCIAL STATEMENTS. . . . . . . . . . -25-
SECTION 4.07 ABSENCE OF CERTAIN CHANGES OR EVENTS . . . . . . -25-
SECTION 4.08 OWNERSHIP OF PARENT SUB; NO PRIOR ACTIVITIES . . -26-
SECTION 4.09 BROKERS. . . . . . . . . . . . . . . . . . . . . -26-
SECTION 4.10 [[RESERVED]] . . . . . . . . . . . . . . . . . . -26-
SECTION 4.11 LIMITATION ON REPRESENTATIONS AND WARRANTIES . . -26-
ARTICLE V COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . -26-
SECTION 5.01 AFFIRMATIVE COVENANTS OF THE COMPANY . . . . . . -26-
SECTION 5.02 NEGATIVE COVENANTS OF THE COMPANY. . . . . . . . -27-
SECTION 5.03 NEGATIVE COVENANTS OF PARENT . . . . . . . . . . -29-
SECTION 5.04 ACCESS AND INFORMATION . . . . . . . . . . . . . -29-
</TABLE>
-ii-
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
<S> <C> <C>
SECTION 5.05 ESCROW AGREEMENT . . . . . . . . . . . . . . .-29-
ARTICLE VI ADDITIONAL AGREEMENTS. . . . . . . . . . . . . . . . . . . . . .-30-
SECTION 6.01 APPROPRIATE ACTION; CONSENTS; FILINGS. . . . .-30-
SECTION 6.02 TAX TREATMENT; "POOLING OF INTERESTS";
AFFILIATES . . . . . . . . . . . . . . . . . .-31-
SECTION 6.03 PUBLIC ANNOUNCEMENTS . . . . . . . . . . . . .-31-
SECTION 6.04 OBLIGATIONS OF PARENT SUB. . . . . . . . . . .-31-
SECTION 6.05 RESTRICTIVE LEGEND . . . . . . . . . . . . . .-32-
SECTION 6.06 ***. . . . . . . . . . . . . . . . . . . . . .-32-
SECTION 6.07 DELIVERY OF SEC FILINGS. . . . . . . . . . . .-36-
SECTION 6.08 TERMINATION OF SHAREHOLDERS' AGREEMENT AND
FIRST REFUSAL AGREEMENT . . . . . . . . . . . -36-
SECTION 6.09 BEST EFFORTS . . . . . . . . . . . . . . . . .-36-
ARTICLE VII CLOSING CONDITIONS . . . . . . . . . . . . . . . . . . . . . . .-36-
SECTION 7.01 CONDITIONS TO OBLIGATIONS OF EACH PARTY UNDER
THIS AGREEMENT . . . . . . . . . . . . . . . .-36-
SECTION 7.02 ADDITIONAL CONDITIONS TO OBLIGATIONS OF PARENT-37-
SECTION 7.03 ADDITIONAL CONDITIONS TO OBLIGATIONS OF THE
COMPANY . . . . . . . . . . . . . . . . . . . -38-
ARTICLE VIII TERMINATION, AMENDMENT, WAIVER AND
INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . .-39-
SECTION 8.01 TERMINATION. . . . . . . . . . . . . . . . . .-39-
SECTION 8.02 INVESTIGATION. . . . . . . . . . . . . . . . .-39-
SECTION 8.03 AMENDMENT. . . . . . . . . . . . . . . . . . .-39-
SECTION 8.04 WAIVER; REMEDIES CUMULATIVE. . . . . . . . . .-40-
SECTION 8.05 FEES, EXPENSES AND OTHER PAYMENTS. . . . . . .-40-
SECTION 8.06 STOCKHOLDER INDEMNIFICATION, HOLD BACK AND
ESCROW . . . . . . . . . . . . . . . . . . . .-40-
ARTICLE IX GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . .-43-
SECTION 9.01 EFFECTIVENESS OF REPRESENTATIONS, WARRANTIES
AND AGREEMENTs. . . . . . . . . . . . . . . . -43-
SECTION 9.02 NOTICES. . . . . . . . . . . . . . . . . . . .-43-
SECTION 9.03 CERTAIN DEFINITIONS. . . . . . . . . . . . . .-44-
SECTION 9.04 HEADINGS; CONSTRUCTION . . . . . . . . . . . .-50-
SECTION 9.05 SEVERABILITY . . . . . . . . . . . . . . . . .-50-
SECTION 9.06 ENTIRE AGREEMENT; AMENDMENT. . . . . . . . . .-51-
SECTION 9.07 ASSIGNMENT . . . . . . . . . . . . . . . . . .-51-
SECTION 9.08 PARTIES IN INTEREST. . . . . . . . . . . . . .-51-
SECTION 9.09 FURTHER ASSURANCES . . . . . . . . . . . . . .-51-
SECTION 9.10 GOVERNING LAW. . . . . . . . . . . . . . . . .-51-
</TABLE>
-iii-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
SECTION 9.11 BINDING ARBITRATION. . . . . . . . . . . . . .-51-
SECTION 9.12 WAIVER; REMEDIES CUMULATIVE. . . . . . . . . .-52-
SECTION 9.13 COUNTERPARTS . . . . . . . . . . . . . . . . .-52-
</TABLE>
-iv-
<PAGE>
<TABLE>
<CAPTION>
INDEX TO EXHIBITS
-----------------
<S> <C>
Exhibit 2.01A Written Consent of the Stockholders of the Company
Exhibit 5.05 Form of Escrow Agreement
Exhibit 7.02(f) Legal Opinion of Counsel to the Company
Exhibit 7.02(g) Form of Affiliate Agreement
Exhibit 7.02(h) Form of Employment Agreement
Exhibit 7.02(i) Form of Noncompetition Agreement
Exhibit 7.02(j) Form of Spousal Consent
Exhibit 7.03(d) Legal Opinion of Counsel to Parent
</TABLE>
-v-
<PAGE>
INDEX TO SCHEDULES
------------------
<TABLE>
<CAPTION>
SCHEDULE
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
3.01 Subsidiaries and Investments in Other Persons
3.02 Officers and Directors and Certificates of Incorporation and By-
Laws
3.03(a) Stockholders of the Company
3.03(b) Encumbrances
3.05 Filings and Consents of the Company
3.07 Financial Statements of the Company
3.08 Liabilities of the Company
3.09 Certain Changes or Events of the Company
3.10 Litigation Matters
3.14(c) Tax Returns and Tax Related Information of the Company
3.14(f) Gains and Losses of the Company
3.15(b) Real Property Leased or Subleased of the Company
3.16(c) Intellectual Property Owned of the Company
3.16(d) Intellectual Property Agreements or Permission
3.17 Tangible Assets of the Company
3.19 Contracts of the Company
3.20 Notes and Accounts Receivable of the Company
3.22 Insurance Policies of the Company
3.24 Employee Benefit Plans of the Company
3.26 Environmental Matters of the Company
3.27 Certain Business Relationships with the Company
3.29 Standard Sale, Lease and Performance Terms and Conditions of the
Company
5.02 Negative Covenants
7.02(d) Contracts or Agreements Requiring Consents or Waivers with
respect to the Company
</TABLE>
-vi-
<PAGE>
THIS AGREEMENT AND PLAN OF MERGER, dated as of March 27, 1998 (this
"AGREEMENT"), by and among DAOU Systems, Inc., a Delaware corporation
("PARENT"), DAOU-Synexus, Inc., a Delaware corporation and a wholly-owned
subsidiary of Parent ("PARENT SUB"), Synexus Incorporated, a Pennsylvania
corporation (the "COMPANY"), and all of the stockholders of the Company
listed on the signature page hereto (collectively, the "STOCKHOLDERS").
W I T N E S S E T H:
WHEREAS, upon the terms and subject to the conditions of this Agreement
and in accordance with the General Corporation Law of the State of Delaware
("DELAWARE LAW"), the Company will merge with and into Parent Sub (the
"MERGER");
WHEREAS, the Board of Directors of the Company has determined that the
Merger is in the best interests of the Company and the Stockholders, has
approved and adopted this Agreement and the transactions contemplated hereby,
and has recommended that the Stockholders approve and adopt this Agreement
and the transactions contemplated hereby;
WHEREAS, the Stockholders hold one hundred percent (100%) of the
outstanding voting power of the Company, have irrevocably consented to the
execution and delivery of this Agreement and the consummation of the Merger
and have irrevocably agreed to vote in favor of the Merger at a meeting of
Stockholders or by a written consent executed by each Stockholder, and such
consent and agreement is an essential condition and inducement to Parent and
Parent Sub to enter into this Agreement;
WHEREAS, the Boards of Directors of Parent and Parent Sub have
determined that the Merger is in the best interests of Parent and Parent Sub
and their respective stockholders, and have approved and adopted this
Agreement and the transactions contemplated hereby;
WHEREAS, the Company, Parent and Parent Sub intend that the Merger shall
constitute a "reorganization" under Section 368(a)(1)(A) of the Code, by
application of Section 368(a)(2)(D) of the Code, and that this Agreement
shall constitute a "plan of reorganization" for the purposes of Section 368
of the Code;
WHEREAS, for accounting purposes, it is intended that the Merger shall
be accounted for as a "pooling of interests"; and
WHEREAS, certain capitalized terms used in this Agreement are defined in
Section 9.03;
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement, the parties hereto agree as follows:
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
-1-
<PAGE>
ARTICLE I
THE MERGER
1.01 THE MERGER. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with Delaware Law, at the
Effective Time (as defined in Section 1.02), the Company shall be merged with
and into Parent Sub. As a result of the Merger, the separate corporate
existence of the Company shall cease and Parent Sub shall continue as the
surviving corporation in the Merger (the "SURVIVING CORPORATION"). The name
of the Surviving Corporation shall be DAOU-Synexus, Inc.
1.02 EFFECTIVE TIME. As promptly as practicable after the satisfaction
or, if permissible, waiver of the closing conditions set forth in Article
VII, the parties hereto shall cause the Merger to be consummated by filing a
certificate of merger (the "CERTIFICATE OF MERGER") with the Secretary of
State of the State of Delaware, in such form as required by, and executed in
accordance with the relevant provisions of, Delaware Law (the date and time
of such filing, or such later time as may be agreed to in writing by Parent,
Parent Sub and the Company and specified in the Certificate of Merger, being
the "EFFECTIVE TIME").
1.03 EFFECT OF THE MERGER. At the Effective Time, the effect of the
Merger shall be as provided in the applicable provisions of Delaware Law.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time, except as otherwise provided herein, all of the property,
rights, privileges, powers and franchises of Parent Sub and the Company shall
vest in the Surviving Corporation, and all debts, Liabilities and duties of
Parent Sub and the Company shall become the debts, Liabilities and duties of
the Surviving Corporation.
1.04 CERTIFICATE OF INCORPORATION; BY-LAWS. At the Effective Time, the
Certificate of Incorporation of Parent Sub as in effect immediately prior to
the Effective Time shall be the Certificate of Incorporation of the Surviving
Corporation, and the By-Laws of Parent Sub shall be the By-Laws of the
Surviving Corporation.
1.05 DIRECTORS AND OFFICERS. The directors of Parent Sub immediately
prior to the Effective Time shall be the initial directors of the Surviving
Corporation, each to hold office in accordance with the Certificate of
Incorporation and By-Laws of the Surviving Corporation, and the officers of
Parent Sub immediately prior to the Effective Time shall be the initial
officers of the Surviving Corporation, in each case until their respective
successors are duly elected or appointed and qualified.
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
2.01 CONVERSION OF SECURITIES.
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
-2-
<PAGE>
(a) At the Effective Time, by virtue of the Merger and without
any action on the part of Parent Sub, the Company or the holders of any of
the following securities, each share of the Company's common stock, $0.01 par
value per share ("COMPANY COMMON STOCK"), issued and outstanding immediately
prior to the Effective Time, excluding any treasury shares held by the
Company, shares held by Parent and the Dissenting Shares, if any, shall be
converted into the right to receive that number of fully paid, nonassessable
shares of Parent's common stock, par value $0.001 per share ("PARENT COMMON
STOCK"), equal to the Exchange Ratio, subject to adjustment as set forth in
Section 2.01(b) and subject to pro rata withholding of shares to be held in
escrow pursuant to Section 5.05.
(b) If between the date of this Agreement and the Effective Time
the outstanding shares of Parent Common Stock or Company Common Stock shall
have been changed into a different number of shares of a different class, by
reason of any stock dividend, subdivision, reclassification,
recapitalization, split, combination or exchange of shares, the Exchange
Ratio shall be correspondingly adjusted to reflect such stock dividend,
subdivision, reclassification, recapitalization, split, combination or
exchange of shares.
(c) At the Effective Time, all of the shares of Company Common
Stock shall no longer be outstanding and shall automatically be canceled and
retired and shall cease to exist, and each Certificate previously evidencing
any such shares shall thereafter represent only the right to receive the
Merger Consideration (as defined in Section 2.02(b)). The holders of such
Certificates previously evidencing such shares of Company Common Stock
outstanding immediately prior to the Effective Time shall cease to have any
rights with respect to such shares of Company Common Stock, except as
otherwise provided herein or by Law. Such Certificates previously evidencing
shares of Company Common Stock shall be exchanged for certificates evidencing
whole shares of Parent Common Stock issued in consideration therefor in
accordance with the allocation procedures of this Section 2.01 and upon the
surrender of such Certificates in accordance with the provisions of Section
2.02. No fractional shares of Parent Common Stock shall be issued, and, in
lieu thereof, a cash payment shall be made pursuant to Section 2.02(e).
(d) Each share of Company Common Stock held in the treasury of
the Company and each share of Company Common Stock owned by Parent or any
direct or indirect wholly-owned Subsidiary of Parent or of the Company, if
any, immediately prior to the Effective Time shall be canceled and
extinguished without any conversion thereof and no payment shall be made with
respect thereto.
2.02 EXCHANGE OF CERTIFICATES.
(a) EXCHANGE AGENT. As of the Effective Time, Parent shall
deposit, or shall cause to be deposited, with Baker & McKenzie or such other
Person designated by Parent and reasonably satisfactory to the Company (the
"EXCHANGE AGENT"), for the benefit of the Stockholders and for exchange in
accordance with this Article II through the Exchange Agent (i) certificates
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
-3-
<PAGE>
evidencing such number of whole shares of Parent Common Stock equal to the
Exchange Ratio multiplied by the number of shares of Company Common Stock
outstanding and (ii) cash in consideration of fractional shares as provided
in Section 2.02(e) (such Parent Common Stock and cash being hereinafter
referred to as the "EXCHANGE FUND"). The Exchange Agent shall, pursuant to
irrevocable instructions, deliver the shares of Parent Common Stock (except
that *** of such shares of Parent Common Stock shall be delivered to an
escrow agent pursuant to Sections 5.05 and 8.06) and cash out of the Exchange
Fund. Except as contemplated by Section 2.02(f), the Exchange Fund shall not
be used for any other purpose.
(b) EXCHANGE PROCEDURES. As soon as reasonably practicable after
the Effective Time, Parent will instruct the Exchange Agent to mail to each
holder of record of a certificate or certificates which immediately prior to
the Effective Time evidenced outstanding shares of Company Common Stock
(other than Dissenting Shares, if applicable) (collectively, the
"CERTIFICATES"), (i) a letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates
shall pass, only upon proper delivery of the Certificates to the Exchange
Agent and shall be in such form and have such other provisions as Parent may
reasonably specify) and (ii) instructions for use in effecting the surrender
of the Certificates in exchange for certificates evidencing shares of Parent
Common Stock. Upon surrender of a Certificate for cancellation to the
Exchange Agent together with such letter of transmittal, duly executed, and
such other customary documents as may be required pursuant to such
instructions, the holder of such Certificate shall be entitled to receive in
exchange therefor (A) certificates evidencing that number of whole shares of
Parent Common Stock which such holder has the right to receive in respect of
the shares of Company Common Stock formerly evidenced by such Certificate in
accordance with Section 2.01, less that holder's pro rata portion of the
shares (rounded to the nearest whole share) to be held in escrow pursuant to
Sections 5.05 and 8.06 and (B) cash in lieu of fractional shares of Parent
Common Stock to which such holder is entitled pursuant to Section 2.02(e)
(such shares of Parent Common Stock and cash, if any, being collectively, the
"MERGER CONSIDERATION"), and the Certificate so surrendered shall forthwith
be canceled. In the event of a transfer of ownership of shares of Company
Common Stock which is not registered in the transfer records of the Company,
a certificate evidencing the proper number of shares of Parent Common Stock
may be issued in accordance with this Article II to a transferee if the
Certificate evidencing such shares of Company Common Stock is presented to
the Exchange Agent, accompanied by all documents required to evidence and
effect such transfer and by evidence that any applicable stock transfer taxes
have been paid. Until surrendered as contemplated by this Section 2.02, each
of the Certificates shall be deemed at any time after the Effective Time to
evidence only the right to receive, upon such surrender, the Merger
Consideration.
(c) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES OF PARENT
COMMON STOCK. No dividends or other distributions declared or made after the
Effective Time with respect to Parent Common Stock with a record date after
the Effective Time shall be paid to the holder of any unsurrendered
Certificate with respect to the shares of Parent Common Stock evidenced
thereby, and no other part of the Merger Consideration shall be paid to any
such holder, until the holder of such Certificate shall surrender such
Certificate, at which time, subject to the effect of applicable
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
-4-
<PAGE>
Laws, there shall be issued to the holder (i) certificates evidencing whole
shares of Parent Common Stock issued in exchange therefor, and the amount of
any cash payable with respect to a fractional share of Parent Common Stock to
which such holder is entitled pursuant to Section 2.02(e) and the amount of
dividends or other distributions with a record date after the Effective Time
theretofore paid with respect to such whole shares of Parent Common Stock,
and (ii) at the appropriate payment date, the amount of dividends or other
distributions (without interest thereon), with a record date after the
Effective Time but prior to surrender and a payment date occurring after
surrender, payable with respect to such whole shares of Parent Common Stock.
No interest shall be paid on the Merger Consideration.
(d) NO FURTHER RIGHTS IN COMPANY COMMON STOCK. All shares of
Parent Common Stock issued and cash paid upon exchange of the shares of
Company Common Stock in accordance with the terms hereof shall be deemed to
have been issued or paid in full satisfaction of all rights pertaining to
such shares of Company Common Stock.
(e) NO FRACTIONAL SHARES.
(i) No certificates or scrip evidencing fractional shares of
Parent Common Stock shall be issued upon the surrender for exchange of the
Certificates, and such fractional share interests will not entitle the owner
thereof to vote or to any rights of a stockholder of Parent.
(ii) Each holder of a Certificate having a fractional interest
arising upon the conversion of such Certificate shall, at the time of
surrender of such Certificate, be paid by the Exchange Agent an amount in
cash equal to the value of such fractional interest based on a price per
share equal to the Market Price.
(f) TERMINATION OF EXCHANGE FUND. Any portion of the Exchange
Fund which remains undistributed to the holders of Company Common Stock for
two (2) years after the Effective Time shall be delivered to Parent, upon
demand, and any holders of Company Common Stock who have not theretofore
complied with this Article II shall thereafter look only to Parent for the
Merger Consideration to which they are entitled.
(g) NO LIABILITY. Neither Parent nor the Surviving Corporation
shall be liable to any holder of shares of Company Common Stock for any
shares of Parent Common Stock, cash or dividends or distributions with
respect thereto delivered to a public official pursuant to any applicable
abandoned property, escheat or similar Law.
2.03 STOCK TRANSFER BOOKS. On the date hereof, the stock transfer
books of the Company shall be closed and there shall be no further
registration of transfers of shares of Company Common Stock thereafter on the
records of the Company. On or after the Effective Time, any Certificates
presented to the Exchange Agent for any reason shall be converted into the
Merger Consideration.
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
-5-
<PAGE>
2.04 DISSENTING SHARES. If required under Delaware Law,
notwithstanding any other provisions of this Agreement to the contrary,
shares of Company Common Stock that are outstanding immediately prior to the
Effective Time and which are held by stockholders who shall have not voted in
favor of the Merger or consented thereto in writing and who shall have
demanded properly, in writing, appraisal for such shares in accordance with
Section 262 of Delaware Law (collectively, the "DISSENTING SHARES") shall not
be converted into or represent the right to receive the Merger Consideration.
Such stockholders shall be entitled to receive payment of the appraised
value of such shares of Company Common Stock held by them in accordance with
the provisions of Section 262 of Delaware Law, except that all Dissenting
Shares held by stockholders who have failed to perfect or who effectively
have withdrawn or lost their rights to appraisal of such shares of Company
Common Stock under Section 262 of Delaware Law shall thereupon be deemed to
have been converted into and to have become exchangeable, as of the Effective
Time, for the right to receive, without any interest thereon, the Merger
Consideration, upon surrender, in the manner provided in Section 2.02, of the
Certificate or Certificates that formerly evidenced such shares of Company
Common Stock. Any payments required to be made to the holders of any
Dissenting Shares shall be funded by Parent or the Surviving Corporation.
ARTICLE IIA
VOTING RIGHTS AND PROXY
SECTION 2.01A. CONSENT AND VOTING AGREEMENT. Each Stockholder hereby
(a) irrevocably consents to the execution and delivery of this Agreement and
to the consummation of the Merger and shall contemporaneously herewith
execute the written consent attached hereto as EXHIBIT 2.01A (the "CONSENT"),
and (b) as long as this Agreement has not been terminated prior to the date
specified in Section 8.01(f), further irrevocably agrees to vote all Company
Common Stock as to which such Stockholder is entitled to vote at a meeting of
the stockholders of the Company if any meeting is so held, or by written
consent without a meeting as follows: (i) in favor of approval and adoption
of this Agreement and the transactions contemplated hereby; (ii) against any
action or agreement that would result in a breach of any covenant,
representation or warranty or any other obligation or agreement of the
Company or such Stockholder under this Agreement; (iii) against any action or
agreement (other than this Agreement or the transactions contemplated by this
Agreement or the termination of this Agreement in accordance with its terms),
that would, directly or indirectly, impede, interfere with, delay, postpone
or attempt to discourage the Merger, including, without limitation: (A) any
extraordinary corporate transaction, such as a merger, consolidation or other
business combination involving the Company and its Subsidiaries; (B) a sale
or transfer of a material amount of Assets of the Company and its
Subsidiaries or a reorganization, recapitalization or liquidation of the
Company and its Subsidiaries; (C) any change in the management or board of
directors of the Company or any Competing Transaction, except as otherwise
agreed to in writing by Parent; (D) any material change in the present
capitalization or dividend policy of the Company; or (E) any other material
change in the Company's corporate structure or business.
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
-6-
<PAGE>
SECTION 2.02A. GRANT OF PROXY. Each Stockholder hereby irrevocably
appoints each of the Chief Executive Officer, President and Chief Financial
Officer of Parent, each with full power of substitution (each such individual
and his substitutes being referred to herein as the "PROXY"), as attorneys
and proxies to vote all Company Common Stock on all matters referred to in
Section 2.01A as to which such Stockholder is entitled to vote at a meeting
of the stockholders of the Company or to which he is entitled to express
consent or dissent to corporate action in writing without a meeting, in the
Proxy's absolute, sole and binding discretion. Each Stockholder agrees to
refrain from taking any action contrary to or in any manner inconsistent with
the terms of this Agreement. Each Stockholder agrees that this grant of
proxy is irrevocable and coupled with an interest and agrees that a person
designated as Proxy pursuant hereto may, at any time, name any other person
as his substituted Proxy to act pursuant hereto, either as to a specific
matter or as to all matters. Each Stockholder hereby revokes any proxy
previously granted by him or her with respect to voting his or her shares of
Company Common Stock. In discharging its powers under this Agreement, the
Proxy may rely upon advice of counsel to Parent, and any vote made or action
taken by the Proxy in reliance upon such advice of counsel shall be deemed to
have been made in good faith by the Proxy. This grant of proxy shall
terminate upon the termination of this Agreement pursuant to Article VIII
hereof.
ARTICLE III
REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY AND ITS SUBSIDIARIES
Each of the Company and the Stockholders hereby represents and warrants,
jointly and severally, to Parent and Parent Sub as follows:
3.01 ORGANIZATION AND QUALIFICATION; SUBSIDIARIES. Each of the
Company and its Subsidiaries is a corporation duly organized, validly
existing and in good standing under the Laws of the jurisdiction of its
incorporation or organization, has all requisite corporate or other power and
authority to own, lease and operate its properties and to carry on its
business as it is now being conducted, and is duly qualified and in good
standing to do business in each jurisdiction in which the nature of the
business conducted by it or the ownership or leasing of its properties makes
such qualification necessary. SCHEDULE 3.01 contains a true and complete list
of (i) all of the Company's directly or indirectly owned Subsidiaries, (ii)
the officers and directors of each Subsidiary, (iii) the jurisdiction of
organization of each Subsidiary and (iv) the percentage of each Subsidiary's
outstanding capital stock or other equity interests owned by the Company or
another Subsidiary of the Company.
3.02 CERTIFICATE OF INCORPORATION AND BY-LAWS. SCHEDULE 3.02 contains
(i) a list of the officers and directors of the Company and its Subsidiaries
and (ii) complete and correct copies of the Certificate of Incorporation and
By-Laws or equivalent organizational documents, in each case as amended or
restated, of the Company and each of the entities listed on SCHEDULE 3.01.
Neither the Company nor any of the entities listed on SCHEDULE 3.01 is in
violation of any of the provisions
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
-7-
<PAGE>
of its Certificate of Incorporation or By-Laws or equivalent organizational
documents, in each case as amended or restated.
3.03 CAPITALIZATION.
(a) The authorized capital stock of the Company consists of
Ten Thousand (10,000) shares of Company Common Stock. As of March 25, 1998,
(i) One Thousand Seven Hundred Fifty (1,750) shares of Company Common Stock
were issued and outstanding, all of which are duly authorized, validly
issued, fully paid and nonassessable and not subject to preemptive rights
created by statute, the Company's Certificate of Incorporation or By-Laws or
any agreement to which the Company is a party or bound, (ii) no shares of
Company Common Stock were held in treasury of the Company and (iii) SCHEDULE
3.03(a) sets forth the name and address of each holder of Company Common
Stock and the number of shares of Company Common Stock held by such holder.
There are no bonds, debentures, notes or other indebtedness, issued or
outstanding, having the right to vote on any matters on which the
Stockholders may vote. There are no options, warrants, calls or other rights
(including registration rights), agreements, arrangements or commitments of
any character, presently outstanding, which (x) obligate the Company to
issue, deliver or sell shares of its capital stock or debt securities, (y)
obligate the Company to grant, extend or enter into any such option, warrant,
call or other such right, agreement, arrangement or commitment, or (z)
obligate the Company to repurchase, redeem or otherwise acquire any shares of
Company Common Stock.
(b) All the outstanding shares of capital stock of, or other
equity interests in, each Subsidiary of the Company are duly authorized,
validly issued, fully paid and nonassessable and except as set forth in
SCHEDULE 3.03(b), such shares or other equity interests are owned solely by
the Company free and clear of any Security Interests, Liens, claims, pledges,
agreements, limitations on voting rights, charges or other Encumbrances of
any nature whatsoever. Except as set forth on SCHEDULE 3.03(b), there are no
options, warrants, calls or other rights (including registration rights),
agreements, arrangements or commitments of any character to which the Company
or any of its Subsidiaries is a party relating to the issued or unissued
capital stock of, or other equity interests in, any of the Subsidiaries of
the Company. The Company does not directly or indirectly own any interest in
any other corporation, partnership, joint venture or other business
association or entity.
3.04 AUTHORITY. The Company has all requisite corporate power and
authority to execute and deliver this Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action (including, with respect to the Merger, the approval and
adoption of this Agreement by the Stockholders who hold one hundred percent
(100%) of the outstanding shares of Company Common Stock) and no other
corporate proceeding on the part of the Company is necessary to authorize the
execution, delivery and performance of this Agreement or to consummate the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by the Company and, assuming the due authorization, execution and
delivery thereof by the Stockholders, Parent and
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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<PAGE>
Parent Sub, constitutes the legal, valid and binding obligation of the
Company enforceable in accordance with its terms.
3.05 NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) Except as set forth in SCHEDULE 3.05, the execution and
delivery of this Agreement by the Company does not, and the performance of
this Agreement by the Company will not (i) conflict with or violate the
Certificate of Incorporation or By-Laws or the equivalent organizational
documents, in each case as amended or restated, of the Company or any of its
Subsidiaries, (ii) conflict with or violate any federal, state, foreign or
local law, statute, ordinance, rule, regulation, order, judgment or decree
(collectively, "LAWS") in effect as of the date of this Agreement and
applicable to the Company or any of its Subsidiaries or by which any of their
respective properties is bound or subject to, or (iii) result in any breach
of or constitute a default (or an event that with notice or lapse of time or
both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or require payment
under, or result in the creation of an Encumbrance on, any of the properties
or Assets of the Company or any of its Subsidiaries pursuant to, any note,
bond, mortgage, indenture, Contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which the Company or any of
its Subsidiaries is a party or by which the Company or any of its
Subsidiaries or any of their respective properties is bound or subject.
(b) The execution and delivery of this Agreement by the
Company does not, and the performance of this Agreement by the Company will
not, require the Company to obtain any consent, approval, authorization or
permit of, or to make any filing with or notification to, any governmental or
regulatory authority, domestic or foreign ("GOVERNMENTAL ENTITIES") based on
Laws and other requirements of Governmental Entities in effect as of the date
of this Agreement, except for applicable requirements, if any, of the state
securities or blue sky laws ("BLUE SKY LAWS"), and the Hart-Scott Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR ACT"), and the
filing and recordation of appropriate merger documents as required by
Delaware Law.
3.06 PERMITS; COMPLIANCE. Each of the Company and its Subsidiaries is
in possession of all franchises, grants, authorizations, licenses, permits,
easements, variances, exemptions, consents, certificates, approvals and
orders necessary to own, lease and operate its properties and to carry on its
business as it is now being conducted (collectively, the "COMPANY PERMITS"),
and there is no action, proceeding or investigation pending or *** threatened
regarding suspension or cancellation of any of the Company Permits. Neither
the Company nor any of its Subsidiaries is in conflict with, or in default or
violation of (a) any Law applicable to the Company or any of its Subsidiaries
or which any of their respective properties is bound by or subject to or (b)
any of the Company Permits. Since December 31, 1996, neither the Company nor
any of its Subsidiaries has received from any Governmental Entity any written
notification with respect to possible conflicts, defaults or violations of
Laws.
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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<PAGE>
3.07 FINANCIAL STATEMENTS. SCHEDULE 3.07 contains true, correct and
complete copies of the unaudited Consolidated Balance Sheet of the Company as
of December 31, 1997 (the "BALANCE SHEET") and as of December 31, 1996, 1995
and 1994, and the related unaudited Consolidated Statements of Operations,
Consolidated Statements of Cash Flows and Consolidated Statements of
Stockholders Equity for the fiscal years then ended, and the notes and
schedules thereto (collectively, the "FINANCIAL STATEMENTS"). For purposes
of this Agreement and except with respect to the representations and
warranties made in this Section 3.07, references to the Balance Sheet shall
not include any notes and schedules in the Financial Statements. The
Financial Statements are attached hereto as SCHEDULE 3.07 and have been
prepared from books and records of the Company and its Subsidiaries in
accordance with GAAP applied on a basis consistent with preceding years and
throughout the periods involved (except as otherwise noted therein). The
Financial Statements fairly present the consolidated financial condition,
results of operations and changes in cash flows of the Company and its
Subsidiaries as at the dates thereof and for the periods indicated in the
statements of earnings, operations and cash flows. No financial statement of
any Person other than the Subsidiaries is required by GAAP to be included in
the Financial Statements
3.08 NO UNDISCLOSED LIABILITIES. Except as set forth on SCHEDULE
3.08, there are no liabilities or other obligations of the Company or any
Subsidiary of any kind whatsoever, whether accrued, contingent, absolute,
determined, determinable or otherwise ("LIABILITIES"), and there is no
existing condition, situation or set of circumstances which could reasonably
be expected to result in such Liabilities, other than Liabilities fully
reflected or reserved against on the face of the Balance Sheet as adjusted
for Liabilities incurred in the Ordinary Course of Business since December
31, 1997 through the Effective Time, and (b) Liabilities under this Agreement
and fees and expenses related hereto.
3.09 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since December 31, 1996,
there has not been any material adverse change in the business, financial
condition, operations, results of operations or future prospects of the
Company or any of its Subsidiaries. Without limiting the generality of the
foregoing, since that date and except as otherwise disclosed in SCHEDULE 3.09:
(a) none of the Company and its Subsidiaries has sold, leased,
transferred, or assigned any of its Assets, tangible or intangible, other
than sales to its customers for fair consideration in the Ordinary Course of
Business or other than as fully reflected on the face of the Balance Sheet;
(b) none of the Company and its Subsidiaries has entered into
any agreement, Contract, lease or license (or series of related agreements,
Contracts, leases and licenses) outside the Ordinary Course of Business;
(c) there is no fact, condition or event relating to (i) the
potential loss of the benefit of, or any material change in, any relationship
with any customers, clients, suppliers, key employees or insurers, or (ii)
price increases for parts, raw materials, supplies, services or equipment
purchased from present suppliers or vendors which is, with the lapse of time
or the occurrence of
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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<PAGE>
such event or condition, reasonably likely to be materially adverse to the
financial condition, business, Assets, properties or operations of the
Company;
(d) no party (including any of the Company and its
Subsidiaries) has accelerated, terminated, modified or canceled any
agreement, Contract, lease or license (or series of related agreements,
Contracts, leases and licenses) to which any of the Company and its
Subsidiaries is a party or by which any of them is bound;
(e) none of the Company and its Subsidiaries has imposed any
Security Interest upon any of its Assets, tangible or intangible;
(f) none of the Company and its Subsidiaries has made any
capital expenditure (or series of related capital expenditures) either
involving more than *** or outside the Ordinary Course of Business;
(g) none of the Company and its Subsidiaries has made any
capital investment in, any loan to, or any acquisition of the securities or
Assets of, any other Person (or series of related capital investments, loans,
and acquisitions);
(h) none of the Company and its Subsidiaries has issued any
note, bond, or other debt security or created, incurred, assumed, or
guaranteed any indebtedness for borrowed money or capitalized lease
obligation;
(i) none of the Company and its Subsidiaries has delayed or
postponed the payment of accounts payable or other Liabilities outside the
Ordinary Course of Business;
(j) none of the Company and its Subsidiaries has canceled,
compromised, waived or released any right or claim (or series of related
rights and claims);
(k) none of the Company and its Subsidiaries has granted any
license or sublicense of any rights under or with respect to any Intellectual
Property;
(l) there has been no change made or authorized in the
Certificate of Incorporation or By-Laws or equivalent organizational
documents, in each case as amended or restated, of the Company or any of its
Subsidiaries;
(m) none of the Company and its Subsidiaries has issued, sold
or otherwise disposed of any of its capital stock, or granted any options,
warrants, or other rights to purchase or obtain (including upon conversion,
exchange, or exercise) any of its capital stock;
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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<PAGE>
(n) none of the Company and its Subsidiaries has declared, set
aside, or paid any dividend or made any distribution with respect to its
capital stock (whether in cash or in kind) or redeemed, purchased, or
otherwise acquired any of its capital stock;
(o) none of the Company and its Subsidiaries has experienced
any damage, destruction or Loss (whether or not covered by insurance) to its
property;
(p) none of the Company and its Subsidiaries has made any loan
to, or entered into any other transaction with, any of its directors,
officers or employees;
(q) none of the Company and its Subsidiaries has entered into
any employment Contract or collective bargaining agreement, written or oral,
or modified the terms of any such Contract or agreement existing as of the
date hereof;
(r) none of the Company and its Subsidiaries has granted any
increase in the base compensation of any of its directors, officers or
employees;
(s) none of the Company and its Subsidiaries has adopted,
amended, modified or terminated any bonus, profit-sharing, incentive,
severance or other plan, Contract or commitment for the benefit of any of its
directors, officers and employees (or taken any such action with respect to
any other Employee Benefit Plan);
(t) none of the Company and its Subsidiaries has made any other
change in employment terms for any of its directors, officers or employees
outside the Ordinary Course of Business;
(u) none of the Company and its Subsidiaries has made or
pledged to make any charitable or other capital contribution;
(v) there has not been any other occurrence, event, incident,
action, failure to act or transaction outside the Ordinary Course of Business
involving the Company; and
(w) none of the Company and its Subsidiaries has committed to
any of the foregoing.
3.10 ABSENCE OF LITIGATION. Except as set forth on SCHEDULE 3.10, (a)
there is no claim, action, suit, litigation, proceeding, arbitration or
investigation of any kind, at law or in equity (including actions or
proceedings seeking injunctive relief), pending or *** threatened against the
Company or any of its Subsidiaries or any properties or rights of the Company
or any of its Subsidiaries, and (b) neither the Company nor any of its
Subsidiaries is subject to any continuing order of, consent decree,
settlement agreement or other similar written agreement with or continuing
investigation by, any Governmental Entity, or any judgment, order, writ,
injunction, decree or award of any Governmental Entity or arbitrator. In
respect of the matters relating to or arising in
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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<PAGE>
connection with the actions set forth in SCHEDULE 3.10, there is no fact,
event, condition, circumstance or other matter which either has, or is
reasonably likely to have resulted in, an event or determination having a
Company Material Adverse Effect. The Company has delivered to Parent copies
of all pleadings, correspondence and other documents relating to each matter
disclosed in SCHEDULE 3.10.
3.11 VOTE REQUIRED. The affirmative vote of the holders of a majority
of the outstanding shares of Company Common Stock is the only vote of the
holders of any class or series of the Company's capital stock necessary to
approve the Merger. The Stockholders, by executing this Agreement, have
irrevocably consented to the Merger and have irrevocably agreed to vote in
favor of the Merger and have granted an irrevocable proxy to such effect.
Such action by the Stockholders is sufficient to constitute stockholder
approval of the Merger.
3.12 BROKERS. The Company has no Liability or obligation to pay any
fees or commissions to any broker, finder or agent with respect to the
transactions contemplated by this Agreement or for which Parent or Parent Sub
could become liable or obligated.
3.13 COMPANY ACTION. The Board of Directors of the Company (at a
meeting duly called and held in compliance with Pennsylvania Law or by
written consent) has (a) determined that the Merger is in the best interests
of the Company and fair to the Stockholders, (b) approved the Merger in
accordance with the provisions of Pennsylvania Law, and (c) recommended the
approval of this Agreement and the Merger by the holders of the Company
Common Stock.
3.14 TAX MATTERS; "POOLING OF INTERESTS".
(a) Neither the Company nor any of its Subsidiaries or
Affiliates has taken or agreed to take any action that would prevent the
Merger from constituting (i) a "reorganization" under Section 368(a)(1)(A) of
the Code, by application of Section 368(a)(2)(D) of the Code, or (ii) a
"pooling of interests" in accordance with GAAP and applicable SEC rules,
including, without limitation, the sale of any shares of Company Common Stock
or Parent Common Stock during the period commencing on the date which is
thirty (30) days prior to the Effective Time and ending on the Financial
Result Date. The Company has timely filed or will timely file all Tax
Returns that it was or is required to file. All such Tax Returns were
correct and complete in all material respects. Except as set forth on
SCHEDULE 3.14(C), all Taxes owed by the Company (whether or not shown on any
Tax Return) have been paid. The Company is not currently the beneficiary of
any extension of time within which to file any Tax Return. No claim has ever
been made by an authority in a jurisdiction where the Company does not file
Tax Returns that it is or may be subject to taxation by that jurisdiction.
There are no Security Interests on any of the Assets of the Company that
arose in connection with any failure (or alleged failure) to pay any Tax.
(b) The Company has withheld and paid all Taxes required to have
been withheld and paid in connection with amounts paid or owing to any
employee, independent contractor, creditor, stockholder or other third party.
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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<PAGE>
(c) Except as set forth on SCHEDULE 3.14(C), there is no dispute
or claim concerning any Tax Liability of the Company claimed or raised by any
Governmental Entity. SCHEDULE 3.14(C) lists all federal, state, local and
foreign income Tax Returns filed with respect to the Company for taxable
periods ended on or after December 31, 1994, and indicates those Tax Returns
that have been audited and those Tax Returns that currently are the subject
of audit by any Governmental Entity. The Company has delivered to Parent
correct and complete copies of all federal income Tax Returns, examination
reports and statements of deficiencies assessed against or agreed to by the
Company for taxable periods ended on or after December 31, 1994.
(d) The Company has not waived any statute of limitations in
respect of Taxes or agreed to any extension of time with respect to a Tax
assessment or deficiency.
(e) The Company has not made any payments, or is not obligated
to make any payments, and is not a party to any agreement that under certain
circumstances could obligate it to make any payments that will not be
deductible under Section 280G of the Code.
(f) SCHEDULE 3.14(f) sets forth the following information with
respect to the Company, as of the most recent practicable date: (i) the tax
basis of the Company in its Assets; (ii) the amount of any net operating
loss, net capital loss, unused investment or other credit, unused foreign
tax, or excess charitable contribution allocable to the Company; and (iii)
the amount of any intercompany items or any deferred gain or loss allocable
to the Company with respect to any intercompany transaction.
(g) The unpaid Taxes of the Company (i) do not exceed the
reserve for Tax Liability (rather than any reserve for deferred Taxes
established to reflect timing differences between book and Tax income) set
forth on the face of the Balance Sheet (rather than in any notes thereto) and
(ii) will not exceed that reserve as adjusted for the passage of time through
the Effective Time in accordance with the past custom and practice of the
Company in filing their Tax Returns.
3.15 REAL PROPERTY.
(a) The Company does not own any real property.
(b) SCHEDULE 3.15(b) lists and describes briefly all real
property leased or subleased to the Company. The Company has delivered to
Parent correct and complete copies of the leases and subleases listed in
SCHEDULE 3.15(b). With respect to each lease and sublease listed in SCHEDULE
3.15(b):
(i) the lease or sublease is legal, valid, binding, enforceable
and in full force and effect in all material respects;
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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<PAGE>
(ii) the lease or sublease will continue to be legal, valid,
binding, enforceable and in full force and effect on identical terms
following the consummation of the transactions contemplated hereby;
(iii) no party to the lease or sublease is in breach or default,
and no event has occurred which, with notice or lapse of time, would constitute
a breach or default or permit termination, modification of a material term or
condition, or acceleration thereunder, except as disclosed in SCHEDULE 3.15(b);
(iv) no party to the lease or sublease has repudiated any
provision thereof;
(v) there are no disputes, oral agreements or forbearance
programs in effect as to the lease or sublease;
(vi) The Company has not assigned, transferred, conveyed,
mortgaged, deeded in trust or encumbered any interest in the leasehold or
subleasehold;
(vii) all facilities leased or subleased thereunder have
received all approvals of Governmental Entities (including licenses and
permits) required in connection with the operation thereof and have been
operated and maintained in accordance with applicable Laws; and
(viii) all facilities leased or subleased thereunder are supplied
with utilities and other services necessary for the operation of said
facilities.
3.16 INTELLECTUAL PROPERTY.
(a) The Company owns or has the right to use pursuant to
license, sublicense, agreement or permission all Intellectual Property
necessary for the operation of the Company's business as presently conducted.
Each item of Intellectual Property owned or used by the Company is owned or
available for use by the Company on identical terms and conditions
immediately subsequent to the Effective Time. The Company has taken all
reasonably necessary and desirable action to maintain and protect each item
of Intellectual Property that it owns or uses.
(b) *** the Company has not interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any Intellectual
Property rights of third parties, and none of the Stockholders and none of
the directors and officers (and employees with responsibility for
Intellectual Property matters) of the Company has ever received any oral or
written charge, complaint, claim, demand or notice alleging any such
interference, infringement, misappropriation or violation (including any
claim that the Company must license or refrain from using any Intellectual
Property rights of any third party). *** no third party has interfered with,
infringed upon, misappropriated, or otherwise come into conflict with any
Intellectual Property rights of the Company.
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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<PAGE>
(c) SCHEDULE 3.16(c) identifies each patent or trademark and
copyright registration which has been issued to the Company or any Affiliate
with respect to any of its Intellectual Property, identifies each pending
patent application or application for registration which the Company or any
Affiliate has made with respect to any of its Intellectual Property, and
identifies each license, sublicense, agreement, or other permission which the
Company or any Affiliate has granted to any third party with respect to any
of its Intellectual Property (together with any exceptions). The Company has
delivered to Parent correct and complete copies of all such patents,
registrations, applications, licenses, sublicenses, agreements and
permissions (as amended to date). SCHEDULE 3.16(c) also identifies each
trade name or unregistered trademark used by the Company or any Affiliate in
connection with any of its businesses. With respect to each item of
Intellectual Property required to be identified in SCHEDULE 3.16(c):
(i) the Company possesses all right, title, and interest in and
to the item, free and clear of any Security Interest, license or other
restriction;
(ii) such item is not subject to any outstanding injunction,
judgment, order, decree, ruling or charge;
(iii) no action, suit, proceeding, hearing, investigation, charge,
complaint, claim or demand is pending or, to the Knowledge of the
Stockholders and the Company, threatened which challenges the legality,
validity, enforceability, use or ownership of such item; and
(iv) the Company has never agreed to indemnify any Person for or
against any interference, infringement, misappropriation or other conflict
with respect to such item, except as set forth in the Company's standard
customer license and/or service agreements.
(d) SCHEDULE 3.16(d) identifies each item of Intellectual Property
that any third party owns and that the Company or any Affiliate uses pursuant
to any license, sublicense, agreement or permission, other than shrink-wrap
licenses for personal computer software. The Company has delivered to Parent
correct and complete copies of all such licenses, sublicenses, agreements,
and permissions (as amended to date). With respect to each item of
Intellectual Property required to be identified in SCHEDULE 3.16(d):
(i) the license, sublicense, agreement or permission covering
such item is legal, valid, binding, enforceable and in full force and effect;
(ii) the license, sublicense, agreement or permission will
continue to be legal, valid, binding, enforceable and in full force and
effect on identical terms following the Effective Time;
(iii) no party to the license, sublicense, agreement, or permission
is in breach or default, and no event has occurred which with notice or lapse
of time would constitute a breach or default or permit termination,
modification or acceleration thereunder;
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
-16-
<PAGE>
(iv) no party to the license, sublicense, agreement or permission
has repudiated any provision thereof;
(v) with respect to each sublicense, the representations and
warranties set forth in items (i) through (iv) above are true and correct
with respect to the underlying license;
(vi) the underlying item of Intellectual Property is not subject
to any outstanding injunction, judgment, order, decree, ruling or charge;
(vii) no action, suit, proceeding, hearing, investigation, charge,
complaint, claim or demand is pending or threatened which challenges the
legality, validity or enforceability of the underlying item of Intellectual
Property; and
(viii) the Company has not granted any sublicense or similar right
with respect to the license, sublicense, agreement, or permission.
(e) None of the Stockholders and the directors and officers (and
employees with responsibility for Intellectual Property matters) of the
Company and its Subsidiaries has any Knowledge of any new products,
inventions, procedures or methods of manufacturing or processing that any
competitors or other third parties have developed which reasonably could be
expected to supersede or make obsolete any product or process of any of the
Company and its Subsidiaries.
3.17 TANGIBLE ASSETS. Except as set forth on SCHEDULE 3.17, the
Company and its Subsidiaries own and have good and marketable title to the
tangible property and Assets necessary for the conduct of their businesses as
presently conducted and as proposed to be conducted. Each tangible Asset is
free from material defects, has been maintained in accordance with normal
industry practice and is in good operating condition and repair (subject to
normal wear and tear).
3.18 INVENTORY. The inventory of the Company and its Subsidiaries
consists of raw materials and supplies, manufactured and purchased parts,
goods in process and finished goods, all of which is merchantable and fit for
the purpose for which it was procured or manufactured, and none of which is
slow-moving, obsolete, damaged or defective, subject only to the reserve for
inventory writedown set forth on the face of the Balance Sheet as adjusted
for the passage of time through the Closing Date in accordance with the past
custom and practice of the Company and its Subsidiaries.
3.19 CONTRACTS. SCHEDULE 3.19 lists the following Contracts and other
agreements to which the Company or any of its Subsidiaries is a party as of
the date hereof:
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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<PAGE>
(a) any agreement (or group of related agreements) for the lease
of personal property to or from any Person providing for lease payments in
excess of *** per annum or a term of more than one (1) year;
(b) any agreement (or group of related agreements) for the
purchase or sale of raw materials, commodities, supplies, products or other
personal property, which involves consideration in excess of ***, or for the
furnishing or receipt of services, the performance of which has a term more
than six months, or involves consideration in excess of ***;
(c) any partnership or joint venture agreement;
(d) any agreement (or group of related agreements) under which it
has created, incurred, assumed or guaranteed any indebtedness for borrowed
money, or any capitalized lease obligation, in excess of ***, or under which
it has imposed a Security Interest on any of its Assets, tangible or
intangible;
(e) any agreement concerning confidentiality or noncompetition;
(f) any agreement with any of the Stockholders and their
respective Affiliates;
(g) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance or other material plan or
arrangement (including any Employee Benefit Plan) for the benefit of its
current or former directors, officers and employees;
(h) any collective bargaining agreement;
(i) any agreement for the employment of any individual on a
full-time, part-time, consulting or other basis providing annual compensation
in excess of ***, or providing severance benefits;
(j) any agreement under which the consequences of a default or
termination could have a Company Material Adverse Effect; or
(k) any other agreement (or group of related agreements) the
performance of which involves consideration in excess of ***.
The Company has delivered to Parent a correct and complete copy of each
written agreement listed in SCHEDULE 3.19 and a written summary setting forth
the material terms and conditions of each oral agreement referred to in
SCHEDULE 3.19. With respect to each such agreement, and except as otherwise
disclosed in SCHEDULE 3.19: (i) such agreement is legal, valid, binding,
enforceable and in full force and effect in all material respects; (ii) such
agreement will continue to be legal, valid, binding, enforceable and in full
force and effect in all material respects following the consummation of the
transactions contemplated hereby; (iii) no party is in breach or default, and
no event has
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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<PAGE>
occurred which with notice or lapse of time would constitute a breach or
default, or permit termination, modification of any material term or
condition or acceleration, under such agreement; and (iv) no party has
repudiated any provision of such agreement.
3.20 NOTES AND ACCOUNTS RECEIVABLE. Except as set forth on SCHEDULE 3.20,
all notes and accounts receivable of the Company are reflected properly on
its books and records and are valid receivables subject to no setoffs or
counterclaims, are current and collectible and will be collected in
accordance with their terms at their recorded amounts, subject only to the
reserve for bad debts set forth on the face of the Balance Sheet (rather than
in any notes thereto) as adjusted for the passage of time through the
Effective Time in accordance with the past custom and practice of the Company
and its Subsidiaries.
3.21 POWERS OF ATTORNEY. There are no outstanding powers of attorney
executed on behalf of the Company or any of its Subsidiaries.
3.22 INSURANCE. SCHEDULE 3.22 sets forth the following information
with respect to each current insurance policy (including policies providing
property, casualty, liability and workers' compensation coverage and bond and
surety arrangements) to which the Company has been a party, a named insured,
or otherwise the beneficiary of coverage:
(a) the name, address, and telephone number of the agent;
(b) the name of the insurer, the name of the policyholder and the
name of each covered insured;
(c) the policy number and the period of coverage;
(d) the scope (including an indication of whether the coverage was
on a claims made, occurrence or other Basis) and amount (with a summary of
the amount of any deductibles and ceilings) of coverage; and
(e) a description of any retroactive premium adjustments or other
loss-sharing arrangements.
With respect to each such insurance policy: (i) such policy is legal, valid,
binding, enforceable and in full force and effect in all material respects;
(ii) such policy will continue to be legal, valid, binding, enforceable and
in full force and effect in all material respects following the consummation
of the transactions contemplated hereby; (iii) neither the Company nor any
other party to the policy is in breach or default (including with respect to
the payment of premiums or the giving of notices), and no event has occurred
which, with notice or the lapse of time, would constitute such a breach or
default, or permit termination, modification, or acceleration, under such
policy; and (iv) no party to the policy has repudiated any provision thereof.
The Company has been covered during the past three (3) years by insurance in
scope and amount customary and reasonable for the business in
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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<PAGE>
which it has engaged during the aforementioned period. SCHEDULE 3.22 also
describes any self-insurance arrangements affecting the Company.
3.23 EMPLOYEES. The Company has delivered to Parent a true and
complete list of all employees of the Company and its Subsidiaries, their
respective positions, locations, salaries or hourly wages and severance
arrangements, each as of the date hereof. To the Knowledge of any of the
Stockholders and the directors and officers (and employees with
responsibility for employment matters) of the Company and its Subsidiaries,
no executive, key employee or group of employees has any plans to terminate
employment with any of the Company and its Subsidiaries. Each employee of
the Company and its Subsidiaries is employed on an "at will" basis and has no
right to any material compensation following termination of employment. Each
employee of the Company and its Subsidiaries has executed a proprietary
information and inventions agreement in the form provided to counsel to
Parent. The Company is not a party to or bound by any collective bargaining
agreement, nor has it experienced any strikes, grievances, claims of unfair
labor practices or other collective bargaining disputes. *** the Company has
not committed any unfair labor practice and there is no organizational effort
presently being made or threatened by or on behalf of any labor union with
respect to employees of the Company.
3.24 EMPLOYEE BENEFITS.
(a) Except as set forth on SCHEDULE 3.24, with respect to all
employees, former employees, directors and independent contractors of the
Company and its Subsidiaries and their dependents and beneficiaries, neither
the Company, its Subsidiaries nor any ERISA Affiliate presently maintains,
contributes to or has any Liability under or with respect to any Employee
Benefit Plan. The plans, programs and arrangements set forth on SCHEDULE 3.24
are herein referred to as the "COMPANY EMPLOYEE BENEFIT PLANS." Each Company
Employee Benefit Plan (and each related trust, insurance Contract or other
funding arrangement) complies in form and in operation in all material
respects with the applicable requirements of ERISA, the Code, other
applicable Laws and governing documents and agreements. With respect to each
Company Employee Benefit Plan, there has been no act or omission by the
Company or any of its Subsidiaries or any ERISA Affiliate that would impair
the right or ability of the Company or any of its Subsidiaries or ERISA
Affiliate to unilaterally amend in whole or part or terminate such Company
Employee Benefit Plan at any time, subject to the terms of any insurance
Contract or other contractual arrangements with third parties, and the
Company has delivered to Parent true and complete copies of: (i) the plan
documents, including any related trust agreements, insurance Contracts or
other funding arrangements and all amendments thereto, or a written summary
of the terms and conditions of the plan if there is no written plan document;
(ii) the most recent IRS Form 5500; (iii) the most recent financial statement
and, if applicable, actuarial valuation; (iv) all correspondence with the
Internal Revenue Service, the Department of Labor and other Governmental
Entities with respect to the past three (3) plan years other than IRS Form
5500 filings; and (v) the most recent summary plan description with a summary
of material modifications to such plan.
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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<PAGE>
(b) Neither the Company nor any of its Subsidiaries and none
of their respective directors, officers or employees has any Liability with
respect to any Company Employee Benefit Plan for failure to comply with
ERISA, the Code, any other applicable Laws or any governing documents or
agreements.
(c) No Company Employee Benefit Plan is an Employee Pension
Benefit Plan, and no Company Employee Benefit Plan has any unfunded
Liability. With respect to the Company Employee Benefit Plans, all
applicable contributions and premium payments for all periods ending prior to
the Effective Time (including periods from the first day of the then current
plan year to the Effective Time) shall be made prior to the Effective Time in
accordance with past practice or as expressly agreed to in advance by Parent.
(d) Neither the Company, any of its Subsidiaries nor any ERISA
Affiliate maintains, maintained, contributes to, or has any Liability
(including, but not limited to, current or potential withdrawal Liability)
with respect to any Multiemployer Plan or Employee Pension Benefit Plan.
(e) With respect to all employees and former employees of the
Company and its Subsidiaries, neither the Company, any of its Subsidiaries
nor any ERISA Affiliate presently maintains, contributes to or has any
Liability under any funded or unfunded medical, health or life insurance plan
or arrangement for present or future retirees or present or future terminated
employees except as required by the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended, or state continuation coverage Laws.
There has been no act or acts or failure or failures to act which would
result in a disallowance of a deduction or the imposition of a Tax pursuant
to Section 4980B, or any predecessor provision, of the Code or any related
regulations. No event has occurred with respect to which the Company or any
of its Subsidiaries or Affiliates could be liable for a Tax imposed by any of
Sections 4972, 4976, 4977, 4979 or 4980 of the Code, or for a civil penalty
under Section 502(c) of ERISA.
(f) There is no pending, or *** threatened legal action,
proceeding, audit, examination or investigation against or involving any
Company Employee Benefit Plan maintained by the Company or any ERISA
Affiliate (other than routine claims for benefits). *** there is no Basis
for, and there are no facts which could give rise to, any such condition,
legal action, proceeding or investigation. Any bonding required with respect
to any Company Employee Benefit Plans in accordance with applicable
provisions of ERISA has been obtained and is in full force and effect.
3.25 GUARANTIES. None of the Company and its Subsidiaries is a
guarantor or otherwise is liable for any Liability or obligation (including
indebtedness) of any other Person.
3.26 ENVIRONMENT, HEALTH AND SAFETY.
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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<PAGE>
(a) Except as set forth on SCHEDULE 3.26 ***, the Company and
its Subsidiaries have complied with all Environmental, Health and Safety
Laws, and no action, suit, proceeding, hearing, investigation, charge,
complaint, claim, demand or notice has been filed or commenced against any of
them alleging any failure so to comply. Without limiting the generality of
the preceding sentence, the Company and its Subsidiaries have obtained and
been in compliance with all of the terms and conditions of all permits,
licenses, and other authorizations which are required under, and have
complied with all other limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations, schedules, and timetables which are
contained in, all Environmental, Health and Safety Laws.
(b) Except as set forth on SCHEDULE 3.26 ***, the Company and
its Subsidiaries have no Liability (and the Company and its Subsidiaries have
not handled or disposed of any substance, arranged for the disposal of any
substance, exposed any employee or other individual to any substance or
condition, or owned or operated any property or facility in any manner that
could form the Basis for any present or future action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand against the
Company or its Subsidiaries giving rise to any Liability) for damage to any
site, location, or body of water (surface or subsurface), for any illness of
or personal injury to any employee or other individual, or for any reason
under any Environmental, Health and Safety Law.
(c) *** all properties owned or leased and equipment used in
the business of the Company and its Subsidiaries, and their respective
predecessors and Affiliates, have been free of asbestos, PCB's, methylene
chloride, trichloroethylene, 1,2-transdichloroethylene, dioxins,
dibenzofurans, and Extremely Hazardous Substances.
3.27 CERTAIN BUSINESS RELATIONSHIPS WITH THE COMPANY. Except as
described in SCHEDULE 3.27, none of the Stockholders and their Affiliates has
been involved in any business arrangement or relationship with the Company or
any of its Subsidiaries (other than in an employment or consulting capacity)
within the past twelve (12) months, and none of the Stockholders and their
Affiliates owns any Asset, tangible or intangible, which is used in the
business of the Company or any of its Subsidiaries.
3.28 [[RESERVED]]
3.29 PRODUCT AND SERVICE WARRANTIES. Each product manufactured, sold,
leased or delivered, and each service performed, by the Company and its
Subsidiaries has been in conformity with all applicable contractual
commitments and all express and implied warranties, and none of the Company
and its Subsidiaries has any Liability (and there is no Basis for any present
or future action, suit, proceeding, hearing, investigation, charge,
complaint, claim or demand against any of them giving rise to any Liability)
for the replacement or repair of any product, the substandard performance of
any service, or other damages in connection with the products sold or
services performed by the Company and its Subsidiaries, subject only to the
reserve for product and service warranty claims set forth on the face of the
Balance Sheet (rather than in any notes thereto)
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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<PAGE>
as adjusted for the passage of time through the Effective Time in accordance
with the past custom and practice of the Company and its Subsidiaries. No
product manufactured, sold, leased or delivered, or service performed, by the
Company and its Subsidiaries is subject to any guaranty, warranty or other
indemnity beyond the applicable standard terms and conditions of sale, lease
or performance. SCHEDULE 3.29 includes copies of the standard terms and
conditions of sale, lease or performance for each of the Company and its
Subsidiaries (containing applicable guaranty, warranty and indemnity
provisions).
3.30 PRODUCT AND SERVICE LIABILITY. None of the Company and its
Subsidiaries has any Liability (and there is no Basis for any present or
future action, suit, proceeding, hearing, investigation, charge, complaint,
claim or demand against any of them giving rise to any Liability) arising out
of any injury or damages (whether actual or alleged) to any Person or its
property or its business operations or prospects as a result of the
ownership, possession or use of any product sold, leased or delivered or any
service performed by the Company and its Subsidiaries.
3.31 CUSTOMER/SUPPLIER RELATIONSHIPS. The Company and its
Subsidiaries enjoy good commercial relationships with each of their customers
and suppliers. Since December 31, 1996, neither the Company nor any of its
Subsidiaries has received any communication from any of their customers or
suppliers expressing significant dissatisfaction with its commercial
relationship with the Company and its Subsidiaries.
3.32 CERTAIN BUSINESS PRACTICES. Neither the Company, its
Subsidiaries nor any director, officer, stockholder, agent or employee of the
Company or its Subsidiaries has (i) used any funds for unlawful
contributions, gifts, entertainment or other unlawful expenses relating to
political activity, (ii) made any unlawful payment to foreign or domestic
government officials or employees or to foreign or domestic political parties
or campaigns or violated any provision of the Foreign Corrupt Practices Act
of 1977, as amended, or (iii) made any other unlawful payment.
3.33 DISCLOSURE. No representation or warranty made by the Company
and/or the Stockholders, nor any document, written information, statement,
financial statement, certificate, schedule or exhibit prepared and furnished
or to be prepared and furnished by the Company, its Subsidiaries, or its
representatives pursuant hereto or in connection with the transactions
contemplated hereby, contains or will contain any untrue statement of a
material fact, or omits or will omit to state a material fact necessary to
make the statements of facts contained herein or therein not misleading in
light of the circumstances under which they were furnished.
3.34 LIMITATION ON REPRESENTATIONS AND WARRANTIES. The Company makes
no representation or warranty to the Parent regarding the probable success or
profitability of the Surviving Corporation.
ARTICLE IIIA
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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<PAGE>
Each Stockholder hereby represents and warrants, jointly and severally,
to Parent and Parent Sub as follows:
SECTION 3.01A. AUTHORIZATION OF TRANSACTION. Such Stockholder has
full power and authority to execute and deliver this Agreement and the
Consent and to perform its obligations hereunder and thereunder. This
Agreement constitutes the valid and legally binding obligation of such
Stockholder, enforceable in accordance with its terms and conditions. Such
Stockholder is a natural person, is over 21 years of age and has not had a
legal representative appointed by a court of law or otherwise act in his or
her behalf or with respect to any of his or her property. Such Stockholder
need not give any notice to, make any filing with, or obtain any
authorization, consent or approval of any Governmental Entity in order to
consummate the transactions contemplated by this Agreement.
SECTION 3.02A. NONCONTRAVENTION. Neither the execution and the
delivery of this Agreement and the Consent, nor the consummation of the
transactions contemplated hereby and thereby, will (a) violate any
constitution, statute, regulation, rule, injunction, judgment, order, decree,
ruling, charge or other restriction of any government, Governmental Entity,
or court to which such Stockholder is subject or (b) conflict with, result in
a breach of, constitute a default under, result in the acceleration of,
create in any party the right to accelerate, terminate, modify or cancel, or
require any notice under any agreement, Contract, lease, license, instrument
or other arrangement to which such Stockholder is a party, by which it is
bound or to which any of its Assets is subject.
SECTION 3.03A. BROKERS. Such Stockholder has no Liability or
obligation to pay any fees or commissions to any broker, finder or agent with
respect to the transactions contemplated by this Agreement or for which
Parent or Parent Sub could become liable or obligated.
SECTION 3.04A. COMPANY SHARES. Such Stockholder holds of record and
owns beneficially the number of shares of Company Common Stock set forth next
to his name on the signature page hereto, free and clear of any restrictions
on transfer (other than any restrictions under the Securities Act and state
securities laws and the restrictions in that certain Shareholders' Agreement
(as defined herein) and First Refusal Agreement (as defined herein) which are
to be terminated pursuant to Section 6.08), Encumbrances, Security Interests,
options, warrants, purchase rights, Contracts, commitments and/or equities.
Except for the Shareholders' Agreement and the First Refusal Agreement, such
Stockholder is not a party to any option, warrant, purchase right or other
Contract or commitment that could require such Stockholder to sell, transfer
or otherwise dispose of any capital stock of the Company or any of its
Subsidiaries (other than this Agreement). Such Stockholder is not a party to
any voting trust, proxy or other agreement or understanding with respect to
the voting of any capital stock of the Company (other than this Agreement).
SECTION 3.05A. ACCREDITED INVESTOR. Such Stockholder, and each owner
of an equity interest in such Stockholder, is an "accredited investor" as
that term is defined in Regulation D of the Securities Act. In addition,
each Stockholder is sufficiently knowledgeable and experienced in
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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<PAGE>
financial and business matters that he is capable of evaluating the merits
and risks of the transactions contemplated by this Agreement and making an
informed business decision.
SECTION 3.06A. INVESTMENT INTENTION. Such Stockholder has no present
intention to dispose of any shares of Parent Common Stock to be issued in the
Merger ***
SECTION 3.07A. EMPLOYMENT. In the event that such Stockholder is
entering into an Employment Agreement pursuant to Section 7.02(h), such
Stockholder currently intends to remain in the employ of the Surviving
Corporation (and/or Parent and its Subsidiaries) and has no intention to seek
other employment opportunities. Each of the Stockholders has no intention to
compete with the Surviving Corporation (and/or Parent and its Subsidiaries).
SECTION 3.08A. LIMITATION ON REPRESENTATIONS AND WARRANTIES. The
Stockholders make no representation or warranty to the Parent regarding the
probable success or profitability of the Surviving Corporation.
SECTION 3.09A. DELIVERY OF INFORMATION. Each of the Stockholders has
received a copy of the following documents relating to Parent: (i) the final
Prospectus to the Registration Statement on Form SB-2 dated August 15, 1997;
(ii) the Quarterly Reports on Form 10-QSB for the quarters ended March 31,
1997, June 30, 1997 and September 30, 1997; and (iii) the Annual Report on
Form 10-KSB for the year ended December 31, 1997. Each of the Stockholders
acknowledges that he has reviewed carefully the risk factors contained in the
above referenced registration statement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND PARENT SUB
Parent and Parent Sub hereby represent and warrant, jointly and
severally, to the Company and each Stockholder that:
4.01 ORGANIZATION AND QUALIFICATION. Each of Parent and Parent Sub is
a corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation or organization and has all
requisite power and authority to own, lease and operate its properties and to
carry on its business as it is now being conducted, and Parent is duly
qualified and in good standing to do business in each jurisdiction in which
the nature of the business conducted by it or the ownership or leasing of its
properties makes such qualification necessary, except for such failures to be
so qualified or licensed and in good standing as would not, individually or
in the aggregate, have a Parent Material Adverse Effect.
4.02 CERTIFICATES OF INCORPORATION AND BY-LAWS. Neither Parent nor
Parent Sub is in violation of any of the provisions of its Certificate of
Incorporation or By-Laws, respectively, in each case as amended or restated.
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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<PAGE>
4.03 PARENT COMMON STOCK; CAPITALIZATION.
(a) The shares of Parent Common Stock to be issued pursuant to
the Merger will be duly authorized, validly issued, fully paid and
nonassessable and not subject to preemptive rights created by statute,
Parent's Certificate of Incorporation or By-Laws or any agreement to which
Parent is a party or is bound.
(b) The authorized capital stock of Parent consists of Fifty
Million (50,000,000) shares of Parent Common Stock and Five Million
(5,000,000) shares of preferred stock, par value $.001 per share (the "PARENT
PREFERRED STOCK"). As of March 6, 1998, (i) Eleven Million Eight Hundred
Twenty Six Thousand Six Hundred Fifty Four (11,826,654) shares of Parent
Common Stock were issued and outstanding, all of which are duly authorized,
validly issued, fully paid and nonassessable, (ii) no shares of Parent
Preferred Stock were outstanding, (iii) no shares of Parent Common Stock were
held in treasury of Parent and (iv) subject to stockholder approval, Three
Million (3,000,000) shares of Parent Common Stock were reserved for issuance
pursuant to option and employee benefit plans and in connection with the
exercise of outstanding warrants.
(c) The authorized capital stock of Parent Sub consists of one
thousand (1,000) shares of Parent Sub Common Stock, of which one hundred
(100) shares are issued and outstanding and held by Parent.
4.04 AUTHORITY. Each of Parent and Parent Sub has all requisite
corporate power and authority to execute and deliver this Agreement, to
perform its respective obligations hereunder and to consummate the
transactions contemplated hereby. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have
been duly authorized by all necessary corporate action and no other corporate
proceeding on the part of Parent or Parent Sub is necessary to authorize this
Agreement or to consummate the transactions contemplated hereby. This
Agreement has been duly executed and delivered by Parent and Parent Sub and,
assuming the due authorization, execution and delivery thereof by the
Stockholders and the Company, constitutes the legal, valid and binding
obligations of Parent and Parent Sub enforceable in accordance with its terms.
4.05 NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement by Parent and
Parent Sub do not, and the performance of this Agreement by Parent and Parent
Sub will not, (i) conflict with or violate the Certificate of Incorporation
or By-Laws, as amended or restated, of Parent or Parent Sub, (ii) conflict
with or violate any Laws in effect as of the date of this Agreement
applicable to Parent or Parent Sub or by which any of their respective
properties is bound, or (iii) result in any breach of or constitute a default
(or an event that with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, or require payment under, or result in the
creation of a Lien or Encumbrance on, any of the properties or Assets of
Parent or Parent Sub pursuant to, any note, bond, mortgage, indenture,
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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<PAGE>
Contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which Parent or Parent Sub is a party or by which Parent or
Parent Sub or any of their respective properties is bound by or subject to,
except for breaches, defaults, events, rights of termination, amendment,
acceleration or cancellation, payment obligations or Liens or Encumbrances
that would not have a Parent Material Adverse Effect.
(b) The execution and delivery of this Agreement by Parent and
Parent Sub do not, and the performance of this Agreement by Parent and Parent
Sub will not, require Parent or Parent Sub to obtain any consent, approval,
authorization or permit of, or to make any filing with or notification to,
any Governmental Entities, except (i) for applicable requirements, if any, of
the Securities Act, the Exchange Act, Blue Sky Laws, the Nasdaq and the
filing and recordation of appropriate merger documents as required by
Delaware Law and (ii) where the failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications, would
not, either individually or in the aggregate, prevent Parent or Parent Sub
from performing its obligations under this Agreement.
4.06 REPORTS; FINANCIAL STATEMENTS.
(a) Since February 12, 1997, Parent has timely filed all
forms, reports, statements and other documents required to be filed by it
with the SEC (collectively, the "PARENT SEC REPORTS"). The Parent SEC
Reports, including all Parent SEC Reports filed after the date of this
Agreement and prior to the Effective Time, were or will be prepared in all
material respects in accordance with the requirements of the Securities Act
and the Exchange Act, as the case may be, and the rules and regulations of
the SEC thereunder applicable to such Parent SEC Reports. As of their
respective dates, the Parent SEC Reports did not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements made therein, in the light of the
circumstances under which they were made, not misleading.
(b) Each of the consolidated financial statements (including,
in each case, any related notes thereto) contained in the Parent SEC Reports
filed prior to, on or after the date of this Agreement (i) have been or will
be prepared in accordance with, and complied or will comply as to form with,
the published rules and regulations of the SEC and GAAP applied on a
consistent basis throughout the periods involved (except as otherwise noted
therein) and (ii) fairly present or will fairly present the consolidated
financial position of Parent and its Subsidiaries as of the respective dates
thereof and the consolidated results of their operations and their cash flows
for the periods indicated, except that any unaudited interim financial
statements were or will be subject to normal and recurring year-end
adjustments.
4.07 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as and to the
extent disclosed in the Parent SEC Reports filed prior to the date of this
Agreement or as contemplated in this Agreement or as otherwise disclosed in
writing by Parent to the Stockholders prior to the Effective Time, since
December 31, 1997, there has not been (a) a Parent Material Adverse Effect or
(b) any significant change by Parent in its accounting methods, principles or
practices.
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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<PAGE>
4.08 OWNERSHIP OF PARENT SUB; NO PRIOR ACTIVITIES.
(a) Parent Sub was formed solely for the purpose of engaging
in the transactions contemplated by this Agreement. All of the outstanding
capital stock of Parent Sub is owned directly by Parent.
(b) Except for obligations or liabilities incurred in
connection with its incorporation or organization and the transactions
contemplated by this Agreement and except for this Agreement and any other
agreements or arrangements contemplated by this Agreement, Parent Sub has not
and will not have incurred, directly or indirectly, through any Subsidiary or
Affiliate, any obligations or liabilities or engaged in any business
activities or any type or kind whatsoever or entered into any agreements or
arrangements with any Person.
4.09 BROKERS. There is no broker, finder or investment banker which
is entitled to any brokerage, finder's or other fee or commission in
connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of Parent or Parent Sub. Notwithstanding
anything herein to the contrary, the Stockholders shall not be liable or
obligated for any such brokerage, finder's or other fee or commission.
4.10 [[RESERVED]]
4.11 LIMITATION ON REPRESENTATIONS AND WARRANTIES.
(a) Except as and to the extent expressly set forth in this
Article IV, included on any schedule hereto or included in any writing
delivered by Parent to the Company concurrently herewith or subsequent hereto
expressly pursuant to this Agreement, each of Parent and Parent Sub makes no
other representation or warranty and disclaims all Liability and
responsibility for any representation, warranty, statement or information
(financial or otherwise) made or communicated (orally or in writing) to the
Company or any of its stockholders, employees, agents, consultants or
representatives.
(b) Parent makes no representation or warranty to the Company
or the Stockholders regarding the probable success or profitability of Parent.
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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ARTICLE V
COVENANTS
5.01 AFFIRMATIVE COVENANTS OF THE COMPANY. The Company hereby
covenants and agrees that, prior to the Effective Time, unless otherwise
expressly contemplated by this Agreement or consented to in writing by
Parent, the Company will, and will cause each of its Subsidiaries to: (a)
operate only in the Ordinary Course of Business; and (b) use its best efforts
to (i) preserve and/or maintain, in all material respects and consistent with
past custom and practice, its business and properties, including its present
operations, physical facilities, working conditions and relationships with
its present employees and Persons having significant business relations with
it, including, without limitation, suppliers and customers, (ii) maintain and
keep its properties and Assets in as good repair and condition as at present,
ordinary wear and tear excepted, and (iii) keep in full force and effect
insurance and bonds comparable in amount and scope of coverage to that
currently maintained.
5.02 NEGATIVE COVENANTS OF THE COMPANY. Except as expressly
contemplated by this Agreement or as previously disclosed to Parent in
writing on SCHEDULE 5.02, or otherwise consented to in writing by Parent,
from the date of this Agreement until the Effective Time, the Company shall
not, directly or indirectly through any Affiliate or otherwise (and the
Stockholders shall not and shall not cause the Company to), and shall not
permit any Affiliate to directly or indirectly, do any of the following:
(a) (i) increase the compensation payable to, or to become
payable to, any employee, director or executive officer; (ii) grant any
severance or termination pay to, or enter into any employment or severance
agreement with, any director, officer or employee; (iii) establish, adopt,
enter into, amend, modify or terminate any Employee Benefit Plan or
arrangement except as may be required by applicable Law; or (iv) hire any
salaried person earning annual compensation, including salary, cash bonuses
and commissions, in excess of ***;
(b) declare or pay any dividend on or make any other
distribution in respect of, outstanding shares of capital stock;
(c) (i) redeem, purchase or otherwise acquire any shares of
its or any of its Subsidiaries' capital stock or any securities or
obligations convertible into or exchangeable for any shares of its or its
Subsidiaries' capital stock, or any options, warrants or conversion or other
rights to acquire any shares of its or its Subsidiaries' capital stock or any
such securities or obligations; (ii) effect any reorganization or
recapitalization; or (iii) split, combine or reclassify any of its or its
Subsidiaries' capital stock or issue or authorize or propose the issuance of
any other securities in respect of, in lieu of or in substitution for, shares
of its or its Subsidiaries' capital stock;
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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(d) (i) issue, deliver, award, grant or sell, or authorize or
propose the issuance, delivery, award, grant or sale (including the grant of
any Security Interests, Liens, claims, pledges, limitations in voting rights,
charges or other Encumbrances) of, any shares of any class of its or its
Subsidiaries' capital stock (including shares held in treasury), any
securities convertible into or exercisable or exchangeable for any other
shares, or any rights, warrants or options to acquire, any such shares; and
(ii) amend or otherwise modify the terms of any such rights, warrants or
options the effect of which shall be to make such terms more favorable to the
holders thereof;
(e) acquire or agree to acquire, by merging or consolidating
with, by purchasing an equity interest in, all or a portion of the Assets of,
or by any other manner, any corporation, partnership, association or other
business, organization or division thereof, or otherwise acquire or agree to
acquire any Assets of any other Person (other than the purchase of Assets
from suppliers or vendors in the Ordinary Course of Business) which are
material, individually or in the aggregate, to the Company;
(f) sell, lease, exchange, mortgage, pledge, transfer or
otherwise dispose of, or agree to sell, lease, exchange, mortgage, pledge,
transfer or otherwise dispose of, any of its material Assets or any material
Assets of any of its Subsidiaries;
(g) initiate, solicit or encourage (including by way of
furnishing information or assistance), respond to, or take any other action
to facilitate, any inquiries or the making of any proposal that constitutes,
or may reasonably be expected to lead to, any Competing Transaction, or enter
into discussions or negotiate with any person or entity in furtherance of
such inquiries to obtain a Competing Transaction, or enter into an agreement
with respect to any Competing Transaction or agree to or endorse any
Competing Transaction, or authorize or permit any of the officers, directors
or employees of the Company or any of its Subsidiaries or any investment
banker, financial advisor, attorney, accountant or other representative
retained by the Company or any of its Subsidiaries to take any such action,
and the Company shall promptly notify Parent of all relevant terms of any
such inquiries and proposals received by the Company or any of its
Subsidiaries or by any such officer, director, employee, investment banker,
financial advisor or attorney, and if such inquiry or proposal is in writing,
the Company shall deliver or cause to be delivered to Parent a copy of such
inquiry or proposal.
(h) propose or adopt any amendments to its Certificate of
Incorporation or its By-Laws;
(i) (A) change any of its methods of accounting in effect at
December 31, 1997, or (B) make or rescind any material election relating to
Taxes, settle or compromise any claim, action, suit, litigation, proceeding,
arbitration, investigation, audit or controversy relating to Taxes (except
where the amount of such settlements or controversies, individually or in the
aggregate, does not exceed ***), or change in any material respect any of its
methods of reporting income or deductions for federal income Tax purposes
from those employed in the preparation of the federal
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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income Tax Return for the taxable year ended December 31, 1997, except, in
the case of clause (A) or clause (B), as may be required by Law or GAAP;
(j) enter into any Contract outside the Ordinary Course of
Business;
(k) create, or permit the creation of, any Lien upon any Assets
outside the Ordinary Course of Business;
(l) enter into any employment Contract or collective bargaining
agreement, or modify the terms of any existing such Contract or agreement;
(m) sell, lease, exchange, mortgage, pledge, transfer, assign or
otherwise dispose of, or agree to sell, lease, exchange, mortgage, pledge,
transfer, assign or otherwise dispose of, any Assets with a Fair Market Value
of *** or more, or Assets with an aggregate Fair Market Value of *** or more,
in each case tangible or intangible;
(n) make any capital expenditures other than in the Ordinary
Course of Business, or make any capital expenditures in the aggregate in
excess of ***;
(o) amend or renew, or enter into any Contract involving
operations outside of the United States;
(p) take or agree to take any action that would or is reasonably
likely to result in any of the Company's representations and warranties set
forth in this Agreement being untrue or in any of the conditions to the
Merger not being satisfied; or
(q) agree in writing or otherwise to do any of the foregoing.
5.03 NEGATIVE COVENANTS OF PARENT. Except as expressly contemplated by
this Agreement or otherwise consented to in writing by the Company, from the
date of this Agreement until the Effective Time, Parent will not do any of
the following:
(a) amend any of the terms or provisions of the Parent Common
Stock which amendment would have a material adverse effect on the
Stockholders;
(b) knowingly take any action which would result in a failure to
maintain the quotation of the Parent Common Stock on Nasdaq;
(c) declare or pay any dividends or other distribution (whether
in cash, stock or other property) on outstanding shares of capital stock;
(d) take or agree to take any action that would or is reasonably
likely to result in any of Parent's representations and warranties set forth
in this Agreement being untrue in any
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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<PAGE>
material respect or in any of the conditions to the Merger not being
satisfied in any material respect; or
(e) agree in writing or otherwise to do any of the foregoing.
5.04 ACCESS AND INFORMATION. The Company shall, and shall cause its
Subsidiaries to, provide Parent and its officers, directors, employees,
agents, counsel, accountants, financial advisors, consultants and other
representatives (collectively, the "PARENT REPRESENTATIVES"), with full
access, upon reasonable prior notice, to all officers, employees and
accountants of the Company and its Subsidiaries and to their Assets,
properties, Contracts, books, records and all such other information and data
concerning the business and operations of the Company and its Subsidiaries as
Parent or any of the Parent Representatives reasonably may request in
connection with such investigation. Such investigation will involve, among
other things, Parent's review and confirmation of the Company's Financial
Statements, the legal review of the Contracts and leases of the Company and
its Subsidiaries, the review of the client lists of the Company and its
Subsidiaries and reference checks of the Company and its Subsidiaries.
Parent will provide the Stockholders with all information reasonably
requested by them to enable them to evaluate the merits of the Merger.
5.05 ESCROW AGREEMENT. At or before the Effective Time, John D.
Smaling, as representative and attorney-in-fact for the Stockholders (the
"STOCKHOLDERS' REPRESENTATIVE"), Parent, and a third party acceptable to
Parent and the Stockholders' Representative, as escrow agent, shall execute
and deliver the escrow agreement, substantially in the form of EXHIBIT 5.05
hereof (the "ESCROW AGREEMENT"). Each Stockholder hereby authorizes and
appoints the Stockholders' Representative to serve as its attorney-in-fact to
execute the Escrow Agreement, and agrees to be bound by the provisions
thereof.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.01 APPROPRIATE ACTION; CONSENTS; FILINGS.
(a) The Company, Parent and Parent Sub shall each use its best
efforts to: (i) take, or cause to be taken, all appropriate action, and do,
or cause to be done, all things necessary, proper or advisable under
applicable Law or otherwise to consummate and make effective the transactions
contemplated by this Agreement; (ii) obtain from any Governmental Entities
any consents, licenses, permits, waivers, approvals, authorizations or orders
required to be obtained or made by Parent, Parent Sub or the Company or any
of their Subsidiaries in connection with the authorization, execution and
delivery of this Agreement and the consummation of the transactions
contemplated herein, including, without limitation, the Merger; (iii) make
all necessary filings, and thereafter make any other required submissions,
with respect to this Agreement and the Merger required under (A) Delaware Law
and Pennsylvania Law (including holding a stockholders meeting and/or sending
notice of merger and appraisal rights) and the federal securities laws and
the rules and regulations
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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<PAGE>
thereunder, if any, and any other applicable federal or state securities
laws, and (B) the HSR Act, and (C) any other applicable Law; provided that
Parent, Parent Sub and the Company shall cooperate with each other in
connection with the making of all such filings, including providing copies of
all such documents to the non-filing party and its advisors prior to filing
and, if requested, accepting all reasonable additions, deletions or changes
suggested in connection therewith. The Company, Parent and Parent Sub shall
furnish all information required for any application or other filing to be
made pursuant to the rules and regulations of any applicable Law in
connection with the transactions contemplated by this Agreement.
(b) (i) Each of the Company, Parent and Parent Sub shall give,
and shall cause each of their respective Subsidiaries to give, any notices to
third parties, and use, and cause each of their respective Subsidiaries to
use, its best efforts to obtain any third party consents (A) necessary,
proper or advisable to consummate the transactions contemplated in this
Agreement, (B) disclosed or required to be disclosed in the schedules
contained herein, (C) otherwise required under any Contracts, licenses,
leases or other agreements in connection with the consummation of the
transactions contemplated herein or (D) required to prevent a Company
Material Adverse Effect from occurring prior to or after the Effective Time
or a Parent Material Adverse Effect from occurring prior to or after the
Effective Time.
(ii) In the event that any party shall fail to obtain any
third party consent described in subsection (b) (i) above, such party shall
use its best efforts, and shall take any such actions reasonably requested by
the other party hereto, to minimize any adverse effect upon the Company,
Parent, Parent Sub, their respective Subsidiaries and their respective
businesses resulting, or which could reasonably be expected to result after
the Effective Time, from the failure to obtain such consent.
6.02 TAX TREATMENT; "POOLING OF INTERESTS"; AFFILIATES. The Company,
Parent and Parent Sub shall use their best efforts, and shall cause their
respective Subsidiaries and Affiliates to use their best efforts, to cause
the Merger to qualify, and will not take any actions which would prevent the
Merger from qualifying, as a "reorganization" under Section 368(a)(1)(A) of
the Code, by application of Section 368(a)(2)(D) of the Code. The Company,
Parent and the Stockholders shall, and shall cause each of their respective
Subsidiaries and Affiliates to, use their best efforts not to take any action
(regardless of whether such action would otherwise be permitted or not
prohibited hereunder) that would prevent Parent from accounting for the
Merger as a "pooling of interests." Each Stockholder agrees and undertakes
that from the date hereof until such time as financial results (including
combined sales and net income) covering at least thirty (30) days of
post-Merger operations have been published (the date on which such financial
results are published shall be the "FINANCIAL RESULT DATE"), such Stockholder
shall not sell or in any other way alter his risk relative to any shares of
Parent Common Stock received in the Merger (within the meaning of the
Codification of Financial Reporting Policies 201.01 (reprinted in
7 Fed. Sec. L. Rep. (CCH) 72,951)). Each Stockholder understands that Parent
will advise it when the Financial Result Date shall have occurred. Each
Stockholder undertakes to inform the Company and Parent of any transactions
involving Company Common Stock or Parent Common Stock that he may wish to
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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<PAGE>
consummate during any time prior to the Financial Result Date and will not
consummate such transaction unless Parent shall consent thereto in writing.
6.03 PUBLIC ANNOUNCEMENTS.
(a) Any public announcement or similar publicity with respect to
this Agreement or the transactions contemplated hereby will be issued, if at
all, at such time and in such manner as Parent determines. Subject to
Section 6.03(b) below and prior to the Effective Time, each of the
Stockholders and Parent shall, and the Stockholders shall cause the Company
and its Subsidiaries to, keep this Agreement and the transactions
contemplated hereby strictly confidential and shall not make any disclosure
of this Agreement or the transactions contemplated hereby to any Person. The
parties hereto shall consult with each other concerning the means by which
the Company's employees, customers and suppliers and other Persons having
dealings with the Company will be informed of the transactions contemplated
hereby and Parent will have the right to be present for any such
communication.
(b) Each party hereto acknowledges that, as a publicly traded
company, Parent has disclosure obligations under the federal securities laws
and, depending on the facts and circumstances, may be required to announce
the existence of this Agreement and/or the Merger prior to the Effective
Time. If so required, Parent will first consult with the Company regarding
the timing and contents of any such announcement. Each of the parties hereto
further acknowledges that this Agreement and/or the Merger may constitute
material, non-public information and agrees that it or he shall not, and
shall cause its respective representatives or Affiliates to not, engage in or
effect any transaction of Parent's securities until the Effective Time,
subject to the additional restrictions imposed by the federal securities laws
concerning the purchase or sale of securities.
6.04 OBLIGATIONS OF PARENT SUB. Parent shall take all action necessary
to cause Parent Sub to perform its obligations under this Agreement and to
consummate the Merger on the terms and conditions set forth in this Agreement.
6.05 RESTRICTIVE LEGEND. Each of the Stockholders acknowledges and
agrees that the certificates of Parent Common Stock issued to the
Stockholders pursuant to the Merger shall bear a restrictive legend in
substantially the following form and a stop-transfer order may be placed
against their transfer:
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended.
The securities have been acquired for investment and may not
be sold, transferred or assigned in the absence of an
effective registration statement for the securities under
the Securities Act of 1933, as amended, or an opinion of
counsel that registration is not required under said Act or
unless sold pursuant to Rule 144.
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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The legend set forth above shall be removed and Parent shall issue a
certificate without such legend to the holder of the shares of Parent Common
Stock upon which it is stamped, if, unless otherwise required by applicable
state securities laws, (a) the such shares are included in an effective
registration statement under the Securities Act covering the resale thereof,
or (b) such holder provides Parent with an opinion of legal counsel, in form,
substance and scope reasonably acceptable to Parent and its legal counsel, to
the effect that a public sale or transfer of such shares may be made without
registration under the Securities Act and such shares are being sold or
transferred in accordance with the method described therein, or (c) such
holder provides Parent with reasonable assurances that such shares can be
sold pursuant to Rule 144 under the Securities Act (or a successor rule
thereto) without any restriction as to the number of shares acquired as of a
particular date that can then be immediately sold. Each of the Stockholders
agrees to sell all of the shares of Parent Common Stock acquired pursuant to
the Merger, including those represented by a certificate(s) from which the
legend has been removed, (x) in compliance with the prospectus delivery
requirements, if any, under applicable securities Laws, (y) through an
investment bank designated by Parent and (z) in a manner reasonably designed
not to affect adversely the market price of the Parent Common Stock.
6.06 ***
6.07 DELIVERY OF SEC FILINGS. Parent shall promptly deliver to the
Company or to the Company's counsel a copy of all filings of the Parent SEC
Reports with the SEC, from the date hereof to the Effective Time, or any
other document which Parent deems to be appropriate for provision to the
Stockholders. Upon delivery of any such document by Parent to the Company,
the Company shall promptly deliver to each holder of capital stock of the
Company a copy of such document, including all exhibits thereto, and an
officer of the Company shall promptly provide to Parent an affidavit of
delivery of such copies.
6.08 TERMINATION OF SHAREHOLDERS' AGREEMENT AND FIRST REFUSAL
AGREEMENT. Each of the Stockholders (as applicable) and the Company hereby
agree to and approve of the termination, effective as of immediately before
the Effective Time, of: (a) that certain Shareholders' Agreement (or any
similar agreement or arrangement) by and among the Company and the
Stockholders named therein (as so executed and amended from time to time, the
"SHAREHOLDERS' AGREEMENT"); (b) that certain Stockholders First Refusal
Agreement (or any similar agreement or arrangement) by and among the Company
and the Stockholders named therein (as so executed and amended from time to
time, the "FIRST REFUSAL AGREEMENT"); and (c) any buy-sell agreement or other
agreement or arrangement similar to the Shareholders' Agreement and/or the
First Refusal Agreement between and among such parties.
6.09 BEST EFFORTS. The parties hereto shall use their best efforts to
consummate the Merger and the other transactions contemplated hereby as soon
as reasonably practicable after the date of this Agreement. The parties
hereto agree to execute such amendments to this Agreement, the Escrow
Agreement and any other document as may be necessary to enable the Merger to
qualify for
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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<PAGE>
"pooling of interests" accounting treatment; provided that such amendments or
documents do not adversely affect such party.
ARTICLE VII
CLOSING CONDITIONS
7.01 CONDITIONS TO OBLIGATIONS OF EACH PARTY UNDER THIS AGREEMENT. The
respective obligations of each party to effect the Merger and the other
transactions contemplated herein shall be subject to the satisfaction at or
prior to the Effective Time of the following conditions, any or all of which
may be waived, in whole or in part, to the extent permitted by applicable Law:
(a) NO ORDER. No Governmental Entity or federal or state court of
competent jurisdiction shall have enacted, issued, promulgated, enforced or
entered any statute, rule, regulation, executive order, decree, injunction or
other order (whether temporary, preliminary or permanent) which is in effect
and which has the effect of making the Merger illegal or otherwise
prohibiting consummation of the Merger.
(b) CONSENTS AND APPROVALS. All material consents, approvals and
authorizations legally required to be obtained to consummate the Merger shall
have been obtained from all required Governmental Entities.
7.02 ADDITIONAL CONDITIONS TO OBLIGATIONS OF PARENT. The obligations of
Parent to effect the Merger and the other transactions contemplated herein
are also subject to the following conditions, each of which may be waived by
Parent, in whole or in part, to the extent permitted by applicable Law:
(a) REPRESENTATIONS AND WARRANTIES.
(i) Notwithstanding any due diligence performed by Parent and the
Parent Representatives, each of the representations and warranties of the
Company contained in this Agreement shall be true and correct when made and
on and as of the Effective Time, as if made on and as of such date, except
where failure to be so true and correct would not have a Company Material
Adverse Effect, individually or in the aggregate, and except that those
representations and warranties which address matters only as of a particular
date shall remain true and correct as of such date, except where the failure
to be so true and correct would not have a Company Material Adverse Effect.
Parent shall have received a certificate of the President of the Company to
such effect; and
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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(ii) Notwithstanding any due diligence performed by Parent and the
Parent Representatives, each of the representations and warranties of the
Stockholders contained in this Agreement shall be true and correct when made
and on and as of the Effective Time, as if made on and as of such date,
except that those representations and warranties which address matters only
as of a particular date shall remain true and correct as of such date.
(b) AGREEMENTS AND COVENANTS. The Company shall have performed or
complied in all material respects with all agreements and covenants required
by this Agreement to be performed or complied with by it on or prior to the
Effective Time. Parent shall have received a certificate of the President or
Chief Financial Officer of the Company to that effect.
(c) "POOLING OF INTERESTS". The Merger shall qualify for "pooling
of interests" accounting treatment and Parent shall have received a letter,
dated as of the Effective Time, from Ernst & Young LLP regarding such firm's
concurrence with Parent's conclusion as to the appropriateness of "pooling of
interests" accounting treatment for the Merger under Accounting Principles
Board Opinion No. 16 if the Merger is closed and consummated in accordance
with this Agreement.
(d) THIRD PARTY CONSENTS AND WAIVERS. The Company shall have
obtained consents and waivers, in form and substance reasonably satisfactory
to Parent, in respect of the Contracts or agreements set forth on SCHEDULE
7.02(d).
(e) COMPANY MATERIAL ADVERSE EFFECT. The Company shall not have
become subject to any action or event which resulted in or may likely result
in a Company Material Adverse Effect.
(f) LEGAL OPINION. Parent shall have received the legal opinion
of counsel to the Company, covering the matters set forth on EXHIBIT 7.02(f)
hereto.
(g) AFFILIATE AGREEMENTS. Parent shall have received from each
Affiliate of the Company and any other Person who may be deemed to have
become an Affiliate of the Company (under Rule 145 under the Securities Act
or otherwise under applicable SEC accounting releases with respect to
"pooling of interests" accounting treatment) after the date of this Agreement
and or prior to the Effective Time a signed Affiliate Agreement in the form
of EXHIBIT 7.02(g). Each such Affiliate agrees to execute and deliver
similar Affiliate Agreements upon the reasonable request of Parent (or any of
its Subsidiaries or Affiliates) in connection with future business
transactions of Parent (or any of its Subsidiaries or Affiliates).
(h) EMPLOYMENT AGREEMENTS. Each of Messrs. John D. Smaling and
Brian W. Cornell shall execute employment agreements (collectively, the
"EMPLOYMENT AGREEMENTS"), in the form attached hereto as EXHIBIT 7.02(h).
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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(i) NONCOMPETITION AGREEMENTS. Each of Messrs. John D. Smaling
and Brian W. Cornell shall execute a noncompetition agreement in the form
attached hereto as EXHIBIT 7.02(i).
(j) SPOUSAL CONSENTS. Parent shall have obtained from each of the
spouses of the Stockholders, respectively, the executed consent, in the form
attached hereto as EXHIBIT 7.02(j), in respect of the consummation of the
Merger and the transactions contemplated by this Agreement.
7.03 ADDITIONAL CONDITIONS TO OBLIGATIONS OF THE COMPANY. The
obligation of the Company to effect the Merger and the other transactions
contemplated in this Agreement is subject to the following conditions, each
of which may be waived, in whole or in part, to the extent permitted by
applicable Law, by the Company:
(a) REPRESENTATIONS AND WARRANTIES. Each of the representations
and warranties of Parent and Parent Sub contained in this Agreement shall be
true and correct when made and on and as of the Effective Time as if made on
and as of such date, except where the failure to be so true and correct would
not have a Parent Material Adverse Effect, and except that those
representations and warranties which address matters only as of a particular
date shall remain true and correct as of such date, except where the failure
to be so true and correct would not have a Parent Material Adverse Effect.
The Company shall have received a certificate of the President of Parent to
such effect.
(b) AGREEMENTS AND COVENANTS. Parent shall have performed or
complied in all material respects with all agreements and covenants required
by this Agreement to be performed or complied with by it on or prior to the
Effective Time. The Company shall have received a certificate of the
President of Parent to that effect.
(c) PARENT MATERIAL ADVERSE EFFECT. Parent shall not have become
subject to any action or event which resulted in or may likely result in a
Parent Material Adverse Effect.
(d) LEGAL OPINION. The Company shall have received the legal
opinion of Baker & McKenzie, covering the matters set forth on EXHIBIT
7.03(d).
ARTICLE VIII
TERMINATION, AMENDMENT, WAIVER AND INDEMNIFICATION
8.1 TERMINATION. This Agreement may be terminated at any time prior to
the Effective Time:
(a) by mutual consent of Parent and the Company;
(b) by Parent, upon a material breach of any covenant or agreement
on the part of the Company set forth in this Agreement;
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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(c) by the Company, upon a material breach of any covenant or
agreement on the part of Parent or Parent Sub set forth in this Agreement;
(d) by either Parent or the Company, if there shall be any order
of a Governmental Entity which is final and nonappealable preventing the
consummation of the Merger;
(e) on or before 5:00 p.m., San Diego time, on March 15, 1998, by
Parent, if Parent is not satisfied with the results of its continuing due
diligence review regarding the Company;
(f) by either Parent or the Company, if the Merger shall not have
been consummated before April 30, 1998 (unless the failure to consummate the
Merger by such date shall be due to the action or failure to act of the party
seeking to terminate this Agreement);
(g) by Parent, upon a material breach of a representation and
warranty made by the Company or the Stockholders which has resulted in a
Company Material Adverse Effect, or which constitutes a material breach of
any representation and warranty set forth in Article IIIA; or
(h) by the Company, upon a material breach of a representation and
warranty made by Parent which has resulted in a Parent Material Adverse
Effect.
8.02 INVESTIGATION. Notwithstanding any of the foregoing, the right of
any party hereto to terminate this Agreement pursuant to Section 8.01 shall
remain operative and in full force and effect regardless of any investigation
made by or on behalf of any party hereto, any Person controlling any such
party or any of their respective officers or directors, whether prior to or
after the execution of this Agreement.
8.03 AMENDMENT. This Agreement may not be amended except by an
instrument in writing signed by the parties hereto (in the case of the
Stockholders, by a number of Stockholders who are entitled to receive or have
received, in the aggregate, *** of the shares of Parent Common Stock to be
issued hereby at the Effective Time if prior to the Effective Time, or a
majority of the shares of Parent Common Stock issued hereby if subsequent to
the Effective Time).
8.04 WAIVER; REMEDIES CUMULATIVE. No failure or delay on the part of
any party hereto in the exercise of any right hereunder shall impair such
right or be construed to be a waiver of, or acquiescence in, any breach of
any representation, warranty or agreement herein, nor shall any single or
partial exercise of any such right preclude other or further exercise thereof
or of any other right. To the maximum extent permitted by applicable law,
(a) no claim or right arising out of this Agreement or the documents referred
to in this Agreement can be discharged by one party hereto, in whole or in
part, by a waiver or renunciation of the claim or right unless in writing
signed by the other party or parties hereto (in the case of the Stockholders,
by a number of Stockholders who are entitled to receive or have received, in
the aggregate, *** of the shares of Parent Common Stock to be issued hereby
at the Effective Time if prior to the Effective Time, or a majority of the
shares of
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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Parent Common Stock issued hereby if subsequent to the Effective Time); (b)
no waiver that may be given by a party hereto will be applicable except in
the specific instance for which it is given; and (c) no notice to or demand
on one party will be deemed to be a waiver of any obligation of such party or
of the right of the party giving such notice or demand to take further action
without notice or demand as provided in this Agreement or the documents
referred to in this Agreement. All rights and remedies existing under this
Agreement are in addition to, and not exclusive of, any rights or remedies
otherwise available.
8.05 FEES, EXPENSES AND OTHER PAYMENTS. Except as otherwise expressly
provided in this Agreement, Parent and *** shall bear all of their respective
costs and expenses which are incurred in connection with the preparation,
negotiation and performance of this Agreement (including the related letter
of intent dated February 19, 1998, as amended) and the transactions
contemplated hereby, including, without limitation, all due diligence
expenses and fees and expenses of agents, representatives, counsel and
accountants.
8.06 STOCKHOLDER INDEMNIFICATION, HOLD BACK AND ESCROW.
(a) Each of the Stockholders jointly and severally shall indemnify
and defend each of Parent and Parent Sub, and hold it harmless, from and
against any and all losses, damages, Liabilities, claims, demands, judgments,
settlements, costs and expenses of any nature whatsoever (including
reasonable attorneys' fees) (collectively, "LOSS"), resulting from or arising
out of any: (i) breach of any representation or warranty or agreement of the
Company or any Stockholder contained herein; or (ii) Liability of the
Company, whether or not addressed by a representation or warranty, which was
created, incurred or arose from facts, events, conditions or circumstances
existing on or before the Effective Time, to the extent that, but only to the
extent that, such Liability was not reflected or reserved against on the face
of the Balance Sheet as adjusted for Liabilities incurred in the Ordinary
Course of Business since December 31, 1997 (provided that the items listed on
SCHEDULE 3.08 shall be deemed to be incurred in the Ordinary Course of
Business) ***. No claim for indemnification pursuant to this Section 8.06(a)
may be made subsequent to the date which is *** after the Effective Time or
in respect of a Loss in respect of accounts receivable or for which Parent
has otherwise been previously reimbursed by the Stockholders.
(b) (i) If any third party shall notify Parent with respect to
any third party claim (a "THIRD PARTY CLAIM") that may give rise to a Loss,
then Parent shall promptly notify the Stockholders' Representative thereof in
writing; PROVIDED, HOWEVER, that no delay on the part of Parent in notifying
the Stockholders' Representative shall relieve the Stockholders from any
obligation hereunder unless (and then solely to the extent) such Stockholders
thereby are prejudiced.
(ii) The Stockholders will have the right to defend Parent against
the Third Party Claim with counsel of their choice reasonably satisfactory to
Parent, so long as: (A) the Stockholders so notify Parent in writing within
fifteen (15) days, acknowledging that such claim is in respect of a Loss
described in Section 8.06(a); (B) the Third Party Claim involves only money
damages and does not seek an injunction or other equitable relief; (C)
settlement of, or an adverse judgment with
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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respect to, the Third Party Claim is not, in the good faith judgment of
Parent, likely to establish a precedential custom or practice materially
adverse to the continuing business interests of Parent; and (D) the
Stockholders conduct the defense of the Third Party Claim actively and
diligently.
(iii) So long as the Stockholders are conducting the defense of
the Third Party Claim in accordance with Section 8.06(b)(ii), (A) Parent may
retain separate co-counsel at its sole cost and expense and participate in the
defense of the Third Party Claim, (B) Parent will not consent to the entry of
any judgment or enter into any settlement with respect to the Third Party Claim
without the prior written consent of the Stockholders' Representative (which
consent will not be withheld unreasonably); and (C) the Stockholders will not
consent to the entry of any judgment or enter into any settlement with respect
to the Third Party Claim without the prior written consent of Parent (which
consent will not be withheld unreasonably).
(iv) In the event that any of the conditions in Section
8.06(b)(ii) is or becomes unsatisfied, (A) Parent may defend against the
Third Party Claim in any manner it reasonably may deem appropriate; PROVIDED,
HOWEVER, that Parent shall not consent to the entry of any judgment or enter
into any settlement or agreement to settle a Third Party Claim without the
prior written consent of the Stockholders' Representative, which consent will
not be withheld unreasonably; (B) Parent shall be reimbursed from the Escrow
Account promptly and periodically for the costs of defending against the
Third Party Claim (including reasonable attorneys' fees and expenses); and
(C) the Stockholders will remain responsible for any Loss that Parent
actually suffers resulting from, arising out of, relating to, in the nature
of, or caused by the Third Party Claim to the fullest extent provided in this
Section 8.06.
(c) (i) Each Stockholder of the Company hereby agrees that, at the
Effective Time, Parent shall hold back and place into escrow pursuant to the
Escrow Agreement (the "ESCROW ACCOUNT"), a number of Parent Shares equal to
***, rounded to the nearest whole share, of the total number of shares of
Parent Common Stock to be received by such Stockholder (the total value of
all such shares as valued at the Market Price to be collectively referred to
as the "INDEMNIFICATION AMOUNT"), as partial security for such Stockholder's
indemnity obligations herein.
(ii) At any time Parent shall have a claim for indemnification,
Parent shall submit such claim to the Stockholders' Representative and within
thirty (30) calendar days thereof the Stockholders' Representative shall
notify Parent, in writing, whether he agrees with such claim; PROVIDED,
HOWEVER, that in the event that the Stockholders' Representative fails to so
notify Parent, the Stockholders' Representative shall be deemed to have
agreed to the release of securities or cash from the Escrow Account. In the
event that the Stockholders' Representative notifies Parent that he disagrees
with such claim, the Stockholders' Representative shall provide Parent with a
written notice specifying the Basis for such disagreement and, if the
Stockholders' Representative and Parent shall be unable to reach agreement
within thirty (30) days, the matter will be submitted to arbitration pursuant
to the terms of Section 9.11.
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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(iii) For purposes of calculating quantities of shares to be paid
to Parent pursuant to this Section 8.06, each share of Parent Common Stock shall
be valued at the Market Price at the time of the notification pursuant to
Section 8.06(b)(i). Any and all distributions to and from the Escrow Account
shall be allocated among the Stockholders, pro rata, based on each Stockholder's
interest in shares of Parent Common Stock to be issued pursuant to the Merger,
as separate subaccounts for each holder.
(iv) Each of the Stockholders hereby acknowledges and agrees that
the indemnity obligations set forth above shall not be the exclusive remedy
of Parent and Parent Sub with respect to such Stockholder's indemnity
obligations herein and the Indemnification Amount in no way limits the amount
or sources of recovery of Parent and Parent Sub with respect to such
indemnity obligations ***
(d) For the purposes of this Section 8.06, holders of a majority
of the shares of Parent Common Stock in the Escrow Account may, by written
notice signed by them and delivered to Parent, appoint any other individual
to act in the place and stead of the Stockholders' Representative. In the
event of the death, incapacity or resignation of the Stockholders'
Representative, if no such replacement is appointed within thirty (30) days,
Parent may designate an interim replacement to serve until such appointment.
(e) In connection with this Agreement and the Escrow Agreement and
the transactions contemplated hereby and thereby, respectively, the Company
and the Stockholders agree that the Stockholders' Representative shall not be
liable for any error of judgment or for any act done or omitted by the
Stockholders' Representative in good faith or for any mistake in fact or law,
except its own willful misconduct or gross negligence.
(f) The right to indemnification, payment of damages or other
remedy based on the representations, warranties, covenants and obligations of
the Company and the Stockholders contained herein will not be affected by any
investigation conducted by Parent or the Parent Representatives with respect
to, or any Knowledge acquired (or capable of being acquired) by Parent or the
Parent Representatives, at any time whether before or after the execution and
delivery of this Agreement or the Effective Time, with respect to the
accuracy or inaccuracy of or compliance with, any such representation,
warranty, covenant or obligation. The waiver of any condition based on the
accuracy of any representation or warranty, or on the performance of or
compliance with any covenant or obligation, will not affect the right to
indemnification, payment of damages, or other remedy based on such
representations, warranties, covenants and obligations.
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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ARTICLE IX
GENERAL PROVISIONS
9.01 EFFECTIVENESS OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
(a) Except as set forth below in Section 9.01(b), the
representations, warranties and agreements of each party hereto shall remain
operative and in full force and effect regardless of any investigation made
by or on behalf of any other party hereto, any Person controlling any such
party or any of its officers or directors, whether prior to or after the
execution of this Agreement.
(b) The representations, warranties and agreements in this
Agreement shall terminate (i) with respect to the Stockholders and the
Company, on the *** anniversary of the Effective Time and (ii) with respect
to Parent and Parent Sub, at the Effective Time; PROVIDED, HOWEVER, that the
representations, warranties and agreements set forth in *** shall not so
terminate.
9.02 NOTICES. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly
given or made as of the date delivered, mailed or transmitted, and shall be
effective upon receipt, if delivered personally, mailed by registered or
certified mail (postage prepaid, return receipt requested) to the parties at
the following addresses (or at such other address for a party as shall be
specified by like changes of address) or sent by electronic transmission to
the facsimile number specified below:
(a) If to Parent or Parent Sub:
DAOU Systems, Inc.
5120 Shoreham Place
San Diego, CA 92122
ATTENTION: President and Chief Financial Officer
Facsimile No.: (619) 452-2789
with a copy to:
Baker & McKenzie
101 West Broadway, Twelfth Floor
San Diego, California 92101
ATTENTION: John J. Hentrich, Esq.
Facsimile No.: (619) 236-0429
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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(b) If to the Company:
Synexus Incorporated
56 East Uwchlan Avenue, Suite 307
Exton, PA 19341
ATTENTION: Mr. John D. Smaling
Facsimile No.: (610) 594-7683
(c) If to the Stockholders:
107 Aspen Drive
Downingtown, PA 19335
ATTENTION: Mr. John D. Smaling
Facsimile No.: (610) 594-7683
with a copy to:
6 Sullivan Chase Drive
Avondale, PA 19311
ATTENTION: Mr. Brian W. Cornell
Facsimile No.: (610) 594-7683
9.3 CERTAIN DEFINITIONS. For purposes of this Agreement, the term:
"AAA" as defined in Section 9.11;
"AFFILIATE" means a Person that directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common control with, the
first mentioned Person;
"AGREEMENT" as defined in the preamble to this Agreement;
"ASSETS" means any and all properties and assets (real, personal or mixed,
tangible or intangible) of any Person;
"BALANCE SHEET" as defined in Section 3.07;
"BASIS" means any past or present fact, situation, circumstance, status,
condition, activity, practice, plan, occurrence, event, incident, action,
failure to act, or transaction that forms or could form the basis for any
specified consequence;
"BLUE SKY LAWS" as defined in Section 3.05(b);
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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"BUSINESS DAY" means any day other than a day on which banks in the State
of California are authorized or obligated to be closed;
"CERTIFICATE OF MERGER" as defined in Section 1.02;
"CERTIFICATES" as defined in Section 2.02(b);
"CODE" means the Internal Revenue Code of 1986, as amended;
"COMPANY" as defined in the preamble to this Agreement;
"COMPANY COMMON STOCK" as defined in Section 2.01(a);
"COMPANY EMPLOYEE BENEFIT PLAN" as defined in Section 3.24;
"COMPANY MATERIAL ADVERSE EFFECT" means any change or effect that,
individually or when taken together with all other such changes or effects, is
or is reasonably likely to be materially adverse to the business, properties,
Assets, condition (financial or otherwise), liabilities, operations or prospects
of the Company at the time of such change or effect. A Company Material Adverse
Effect shall be deemed to exist if there shall occur any event which causes or
may reasonably be expected to cause or result in estimable monetary loss which,
individually or when aggregated with all other events, exceeds ***;
"COMPANY PERMITS" as defined in Section 3.06;
"COMPETING TRANSACTION" means any of the following involving the Company or
any Subsidiary or Affiliate of the Company: (i) any merger, consolidation, share
exchange, business combination, or other similar transaction (other than the
transactions contemplated by this Agreement); (ii) any sale, lease, exchange,
mortgage, pledge, transfer or other disposition of ten percent (10%) or more of
the Assets of the Company in a single transaction or series of transactions;
(iii) any offer (whether cash or securities) for ten percent (10%) or more of
the outstanding shares of capital stock of the Company; or (iv) any public
announcement of a proposal, plan or intention to do any of the foregoing;
"CONSENT" as defined in Section 2.01A;
"CONTRACT" of any Person means any contract, agreement or instrument of any
type whatsoever (i) to which such Person is a party and by which such Person
either has made a binding undertaking to perform an obligation or is entitled to
any property or right, or (ii) by which any of the Assets of such Person is
bound;
"CONTROL" (including the terms "CONTROLLING," "CONTROLLED," "CONTROLLED BY"
and "UNDER COMMON CONTROL WITH") means the possession, directly or indirectly or
as trustee or executor, of the
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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power to direct or cause the direction of the management or policies of a
Person, whether through the ownership of stock or as trustee or executor, by
Contract or credit arrangement or otherwise;
"DELAWARE LAW" as defined in the recitals to this Agreement;
"DISSENTING SHARES" as defined in Section 2.04;
***;
"EFFECTIVE TIME" as defined in Section 1.02;
"EMPLOYEE BENEFIT PLAN" means (a) any bonus, incentive compensation,
profit sharing, retirement, pension, group insurance, death benefit, group
health, medical expense reimbursement, workers' compensation, dependent care,
flexible benefits or cafeteria, stock option, stock purchase, stock
appreciation rights, savings, deferred compensation, consulting, severance
pay or termination pay, vacation pay, life insurance, disability, welfare or
other employee benefit or fringe benefit plan, program or arrangement; or (b)
any plan, program or arrangement which is an Employee Pension Benefit Plan,
Employee Welfare Benefit Plan or Multiemployer Plan.
"EMPLOYEE PENSION BENEFIT PLAN" has the meaning set forth in ERISA
Section 3(2);
"EMPLOYEE WELFARE BENEFIT PLAN" has the meaning set forth in ERISA
Section 3(1);
"EMPLOYMENT AGREEMENTS" as defined in Section 7.02(h);
"ENCUMBRANCES" means any Security Interests, Liens, claims, pledges,
agreements, limitations on voting rights, charges or other encumbrances of
any nature whatsoever;
"ENVIRONMENTAL, HEALTH AND SAFETY LAWS" means the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, the Resource
Conservation and Recovery Act of 1976, and the Occupational Safety and Health
Act of 1970, each as amended, together with all other Laws (including rules,
regulations, codes, plans, injunctions, judgments, orders, decrees, rulings,
and charges thereunder) of federal, state, local, and foreign governments
(and all agencies thereof), concerning pollution or protection of the
environment, public health and safety, or employee health and safety,
including Laws relating to emissions, discharges, releases, or threatened
releases of pollutants, contaminants, or chemical, industrial, hazardous, or
toxic materials or wastes into ambient air, surface water, ground water, or
lands or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport, or handling of pollutants,
contaminants, or chemical, industrial, hazardous, or toxic materials or
wastes;
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended;
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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"ERISA AFFILIATE" means each person (as defined in Section 3(9) of
ERISA) that together with the Company (or any person whose Liabilities the
Company has assumed or is otherwise subject to) would be considered or has
been a single employer under Section 4001(b) of ERISA or would be considered
or has been a member of the same "controlled group," under common control, a
member of the same affiliated service group or otherwise a single employer
within the meaning of Section 414(b), (c), (m) and (o) of the Code (PROVIDED,
HOWEVER, that when the subject of the provision is a Multiemployer Plan only
subsections (b) and (c) of Section 414 of the Code shall be taken into
account).
"ESCROW ACCOUNT" as defined in Section 8.06(c);
"ESCROW AGREEMENT" as defined in Section 5.05;
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended;
"EXCHANGE AGENT" as defined in Section 2.02(a);
"EXCHANGE FUND" as defined in Section 2.02(a);
"EXCHANGE RATIO" means, subject to adjustment as set forth in Sections
2.01(b), the quotient obtained from dividing (i) as the numerator of such
quotient, the number of shares of Parent Common Stock obtained from dividing
Three Million Dollars ($3,000,000) by the Market Price, by (ii) as the
denominator of such quotient, the total number of shares of Company Common
Stock issued and outstanding immediately prior to the Effective Time
(excluding any Dissenting Shares, if applicable). All calculations made to
determine the Exchange Ratio shall be made through the fourth decimal place
(i.e., rounded to the closest ten-thousandth);
"EXTREMELY HAZARDOUS SUBSTANCE" has the meaning set forth in Section 302
of the Emergency Planning and Community Right-to-Know Act of 1986, as amended;
"FAIR MARKET VALUE" of any Asset means the value that would be obtained
in an arm's length transaction between an informed and willing buyer and an
informed and willing seller;
"FINANCIAL RESULT DATE" as defined in Section 6.02;
"FINANCIAL STATEMENTS" as defined in Section 3.07;
"FIRST REFUSAL AGREEMENT" as defined in Section 6.08;
"GAAP" means United States generally accepted accounting principles as
in effect from time to time;
"GOVERNMENTAL ENTITIES" as defined in Section 3.05(b);
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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"HSR ACT" as defined in Section 3.05(b);
"INDEMNIFICATION AMOUNT" as defined in Section 8.06(c);
"INTELLECTUAL PROPERTY" means (a) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements
thereto, and all patents, patent applications, and patent disclosures,
together with all reissuances, continuations, continuations-in-part,
revisions, extensions, and reexaminations thereof, (b) all trademarks,
service marks, trade dress, logos, trade names, and corporate names, together
with all translations, adaptations, derivations, and combinations thereof and
including all goodwill associated therewith, and all applications,
registrations, and renewals in connection therewith, (c) all copyrightable
works, all copyrights, and all applications, registrations, and renewals in
connection therewith, (d) all mask works and all applications, registrations,
and renewals in connection therewith, (e) all trade secrets and confidential
business information (including ideas, research and development, know-how,
formulas, compositions, manufacturing and production processes and
techniques, technical data, designs, drawings, specifications, customer and
supplier lists, pricing and cost information, and business and marketing
plans and proposals), (f) all computer software (including data and related
documentation), (g) all other proprietary rights, and (h) all copies and
tangible embodiments thereof (in whatever form or medium);
"KNOWLEDGE" or "KNOWN" means, with respect to a particular fact or other
matter, that (i) an individual should be aware of such fact or other matter
or (ii) such individual could reasonably be expected to discover or otherwise
become aware of such fact or other matter; a Person (other than an
individual) will be deemed to have "Knowledge" of a particular fact or other
matter if any individual who is serving, or who has at any time served, as a
director, officer, partner, executor or trustee of such Person (or in any
similar capacity) has, or at any time had, Knowledge of such fact or other
matter;
"LAWS" as defined in Section 3.05(a);
"LIABILITIES" as defined in Section 3.08;
"LIEN" means any lien, charge, Encumbrance, mortgage, conditional sale
agreement, title retention agreement, financing lease, pledge or Security
Interest of any kind or type and whether arising by Contract or under Law;
"LOSS" as defined in Section 8.06(a);
"MARKET PRICE" means the average of the closing bid and ask prices of
the Parent Common Stock as reported on the Nasdaq National Market Quotation
System for the ten (10) trading days prior to the Effective Time.
"MERGER" as defined in the recitals to this Agreement;
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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"MERGER CONSIDERATION" as defined in Section 2.02(b);
"MULTIEMPLOYER PLAN" has the meaning set forth in ERISA Section 3(37);
"NASDAQ" means The Nasdaq Stock Market, Inc.;
"ORDINARY COURSE OF BUSINESS" with respect to any entity, means the
ordinary course of business consistent with past custom and practice
(including with respect to quantity and frequency) of that entity;
"PARENT" as defined in the preamble to this Agreement;
"PARENT COMMON STOCK" as defined in Section 2.01(a);
"PARENT MATERIAL ADVERSE EFFECT" shall mean any change or effect that,
individually or when taken together with all such other changes or effects,
is or is reasonably likely to be materially adverse to the business,
properties, Assets, condition (financial or otherwise), Liabilities,
operations or prospects of Parent and its Subsidiaries, taken as a whole at
the time of such change or effect. A Parent Material Adverse Effect shall be
deemed to exist if there shall occur any event which causes or may reasonably
be expected to cause or result in estimable monetary loss which, individually
or when aggregated with all other events, exceeds ***;
"PARENT PREFERRED STOCK" as defined in Section 4.03(b);
"PARENT REPRESENTATIVES" as defined in Section 5.04;
"PARENT SEC REPORTS" as defined in Section 4.06(a);
"PARENT SUB" as defined in the preamble to this Agreement;
"PARENT SUB COMMON STOCK" means Parent Sub's common stock, par value
$.001 per share;
"PERSON" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization, a Governmental Entity (or any
department, agency, or political subdivision thereof) or any other entity;
"PROXY" as defined in Section 2.02A;
***;
"RULES" as defined in Section 9.11;
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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"SEC" means the Securities and Exchange Commission;
"SECURITIES ACT" means the Securities Act of 1933, as amended;
"SECURITY INTEREST" means any mortgage, pledge, Lien, Encumbrance,
charge, or other security interest, other than (a) mechanic's, materialmen's,
and similar Liens, (b) Liens for Taxes not yet due and payable, (c) purchase
money Liens and Liens securing rental payments under capital lease
arrangements, and (d) other Liens arising in the Ordinary Course of Business
and not incurred in connection with the borrowing of money;
***;
"STOCKHOLDERS" as defined in the preamble to this Agreement;
"SHAREHOLDERS' AGREEMENT" as defined in Section 6.08;
"STOCKHOLDERS' REPRESENTATIVE" as defined in Section 5.05;
"SUBSIDIARY" or "SUBSIDIARIES" of the Company, Parent, the Surviving
Corporation or any other Person, means any corporation, partnership, joint
venture or other legal entity of which the Company, Parent, the Surviving
Corporation or such other Person, as the case may be (either alone or through
or together with any other subsidiary), owns, directly or indirectly, fifty
percent (50%) or more of the capital stock or other equity interests which
the holders thereof are generally entitled to vote for the election of the
board of directors or other governing body of such corporation or other legal
entity;
"SURVIVING CORPORATION" as defined in Section 1.01;
"TAX" or "TAXES" shall mean any and all taxes, charges, fees or levies,
payable to any federal, state, local or foreign taxing authority or agency,
including, without limitation, (i) income, franchise, profits, gross
receipts, minimum, alternative minimum, estimated, AD VALOREM, value added,
sales, use, service, real or personal property, capital stock, license,
payroll, withholding, disability, employment, social security, workers
compensation, unemployment compensation, utility, severance, excise, stamp,
windfall profits, transfer and capital gains taxes, (ii) custom duties,
imposts, charges, levies or other similar assessments of any kind, and (iii)
interest, penalties and additions to tax imposed with respect thereto;
"TAX RETURN" shall mean any return, declaration, report, claim for
refund, or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof;
***;
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***;
***; and
"THIRD PARTY CLAIM" as defined in Section 8.06(b).
9.04 HEADINGS; CONSTRUCTION. The headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning
or interpretation of this Agreement. All words used in this Agreement will
be construed to be of such gender or number as the circumstances require.
Unless otherwise expressly provided, the word "including" does not limit the
preceding words or terms.
9.05 SEVERABILITY. If any term or other provision of this Agreement
is determined to be invalid, illegal or incapable of being enforced by any
rule of law or public policy, all other conditions and provisions of this
Agreement shall nevertheless remain in full force and effect so long as the
economic or legal substance of the transactions contemplated hereby is not
affected in any manner materially adverse to any party. Upon such
determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith
to modify this Agreement so as to effect the original intent of the parties
hereto as closely as possible in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the extent possible.
9.06 ENTIRE AGREEMENT; AMENDMENT. This Agreement (together with the
exhibits and schedules) constitutes the entire agreement of the parties and
supersedes all prior agreements and undertakings, both written and oral,
between the parties hereto, or any of them, with respect to the subject
matter hereof. This Agreement may not be amended except by a written
agreement executed by the party to be charged with the amendment.
9.07 ASSIGNMENT. This Agreement shall not be assigned by operation of
law or otherwise except Parent Sub may, without the Company's approval,
assign its interests to a wholly-owned Subsidiary of Parent.
9.08 PARTIES IN INTEREST. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to or shall confer upon any other
Person any right, benefit or remedy of any nature whatsoever under or by
reason of this Agreement.
9.09 FURTHER ASSURANCES. The parties hereto agree (a) to furnish upon
request to each other such further information, (b) to execute and deliver to
each other such other documents, and (c) to do such other acts and things,
all as another party hereto may reasonably request for the purpose of
carrying out the intent of this Agreement and the
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9.10 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA, REGARDLESS
OF THE LAWS THAT MIGHT OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES OF
CONFLICTS OF LAW.
9.11 BINDING ARBITRATION. Subject to the arbitration provisions set
forth below, the parties hereto agree that all disputes arising out of or
related to the terms and conditions of this Agreement or to the performance,
breach or termination thereof, shall be submitted to binding arbitration
pursuant to the Expedited Procedures of the Commercial Arbitration Rules (the
"RULES") of the American Arbitration Association (the "AAA"). The
arbitration will take place in *** at the offices of the AAA. The dispute
will be resolved by a single arbitrator appointed by the AAA in accordance
with the list procedure described in Paragraph 13 of the Rules, except that
the AAA will transmit the list within ten (10) Business Days of the filing of
the demand for arbitration, and the parties thereto will have five (5)
Business Days to return the list to the AAA with their objections and
preferences. Discovery will be limited to no more than seven (7) depositions
by each side and written document requests, requesting the production of
specific documents. The parties to the dispute will voluntarily produce any
and all documents that they intend to use at the hearing before the close of
discovery, subject to supplementation for purposes of rebuttal or good cause
shown. The period for taking discovery will be sixty (60) Business Days,
commencing upon the day that the answer is due under the Rules. The
arbitrator will hold a pre-hearing conference within three (3) Business Days
of the close of discovery and will schedule the hearing within thirty (30)
Business Days of the close of discovery. After the arbitrator is selected,
the arbitrator will have sole jurisdiction to hear such applications, except
that any measure ordered by the arbitrator may be immediately and
specifically enforced by a court otherwise having jurisdiction over the
parties. All fees and costs will be allocated to the parties to the
arbitration as determined by the arbitrator. Each party will pay its own
fees and costs associated with the arbitration and each party will pay
one-half the estimated arbitrator's fees up front and if either party fails
to do so a default will be entered against such party solely with respect to
such fees. Any determination of the arbitrator shall be final and binding on
the parties hereto. Nothing in this Agreement will prevent a party hereto
from applying to a court that would otherwise have jurisdiction for
provisional or interim injunctive or other equitable measures.
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REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
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9.12 WAIVER; REMEDIES CUMULATIVE. No failure or delay on the part of
any party hereto in the exercise of any right hereunder shall impair such
right or be construed to be a waiver of, or acquiescence in, any breach of
any representation, warranty or agreement herein, nor shall any single or
partial exercise of any such right preclude other or further exercise thereof
or of any other right. To the maximum extent permitted by applicable Law,
(a) no claim or right arising out of this Agreement or the documents referred
to in this Agreement can be discharged by one party, in whole or in part, by
a waiver or renunciation of the claim or right unless in writing signed by
the other party; (b) no waiver that may be given by a party will be
applicable except in the specific instance for which it is given; and (c) no
notice to or demand on one party will be deemed to be a waiver of any
obligation of such party or of the right of the party giving notice or demand
to take further action without notice or demand as provided in this Agreement
or the documents referred to in this Agreement. All rights and remedies
existing under this Agreement are in addition to, and not exclusive of, any
rights or remedies otherwise available.
9.13 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts,
each of which when executed shall be deemed to be an original but all of
which taken together shall constitute one and the same agreement.
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IN WITNESS WHEREOF, the parties hereto have executed or caused this
Agreement to be executed as of the date first written above by their
respective officer thereunto duly authorized.
DAOU SYSTEMS, INC.
By /s/ Daniel J. Daou
--------------------------------------
Daniel J. Daou, President
DAOU-SYNEXUS, INC.
By /s/ Daniel J. Daou
--------------------------------------
Daniel J. Daou, President
SYNEXUS INCORPORATED
By /s/ John D. Smaling
--------------------------------------
John D. Smaling, President
STOCKHOLDERS OF
SYNEXUS INCORPORATED
/s/ John D. Smaling
-----------------------------------------
John D. Smaling, 1,250 shares
/s/ Brian W. Cornell
-----------------------------------------
Brian W. Cornell, 500 shares
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS MARKED WITH A *** AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
