ANNEX A
Execution Copy
SECOND AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
Among
CARDIAC SCIENCE, INC.,
CARDIAC SCIENCE ACQUISITION CORP.,
and
SURVIVALINK CORPORATION
Dated as of August 3, 2001
(as amended)
Table of Contents
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ARTICLE I THE MERGER....................................................... A-1
SECTION 1.01. The Merger................................................. A-1
SECTION 1.02. Effect of the Merger....................................... A-1
SECTION 1.03. Articles of Incorporation; Bylaws.......................... A-2
SECTION 1.04. Directors and Officers..................................... A-2
ARTICLE II CONVERSION OF SECURITIES; MERGER CONSIDERATION; ESCROW.......... A-2
SECTION 2.01. Conversion of Securities; Merger Consideration............. A-2
SECTION 2.02. Exchange of Company Shares................................. A-3
SECTION 2.03. Dissenting Shares.......................................... A-4
SECTION 2.04. Escrow..................................................... A-4
SECTION 2.05. Maximum Purchase Price..................................... A-5
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY.................. A-5
SECTION 3.01. Organization and Qualification............................. A-5
SECTION 3.02. Articles of Incorporation and Bylaws....................... A-5
SECTION 3.03. Capitalization............................................. A-6
SECTION 3.04. Authority Relative to This Agreement....................... A-6
SECTION 3.05. Company Board Approval..................................... A-6
SECTION 3.06. No Conflict; Required Filings and Consents................. A-6
SECTION 3.07. Permits; Compliance........................................ A-7
SECTION 3.08. Financial Statements....................................... A-7
SECTION 3.09. Undisclosed Liabilities.................................... A-8
SECTION 3.10. Absence of Certain Changes or Events....................... A-8
SECTION 3.11. Absence of Litigation...................................... A-8
SECTION 3.12. Employee Benefit Matters................................... A-8
SECTION 3.13. Material Contracts......................................... A-9
SECTION 3.14. Environmental Matters...................................... A-10
SECTION 3.15. Title to Properties; Absence of Liens and Encumbrances..... A-10
SECTION 3.16. Intellectual Property...................................... A-10
SECTION 3.17. Taxes...................................................... A-11
SECTION 3.18. Insurance.................................................. A-13
SECTION 3.19. Affiliate Transactions..................................... A-13
SECTION 3.20. Labor Matters.............................................. A-13
SECTION 3.21. Customers and Suppliers.................................... A-13
SECTION 3.22. Brokers.................................................... A-14
SECTION 3.23. Additional Tax Matters..................................... A-14
SECTION 3.24. Entire Representations and Warranties...................... A-14
SECTION 3.25. Registration Statement; Proxy Statement/Prospectus......... A-14
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB......... A-15
SECTION 4.01. Organization and Qualification; Subsidiaries............... A-15
SECTION 4.02. Certificate of Incorporation and Bylaws.................... A-15
SECTION 4.03. Authority Relative to This Agreement....................... A-15
SECTION 4.04. No Conflict; Required Filings and Consents................. A-16
SECTION 4.05. Capitalization............................................. A-16
SECTION 4.06. Parent Securities.......................................... A-16
SECTION 4.07. SEC Reports................................................ A-16
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Table of Contents
(continued)
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SECTION 4.08. Financial Statements....................................... A-17
SECTION 4.09. Undisclosed Liabilities.................................... A-17
SECTION 4.10. Absence of Certain Changes or Events....................... A-17
SECTION 4.11. Absence of Litigation...................................... A-17
SECTION 4.12. Parent Board Approval...................................... A-17
SECTION 4.13. Operations of Merger Sub................................... A-17
SECTION 4.14. Financing.................................................. A-17
SECTION 4.15. Tax Matters................................................ A-18
SECTION 4.16. Entire Representations and Warranties...................... A-18
SECTION 4.17. Title to Properties; Absences of Liens and Encumbrances.... A-18
SECTION 4.18. Registration Statement; Proxy Statement/Prospectus......... A-18
ARTICLE V CONDUCT OF BUSINESSES PENDING THE MERGER......................... A-19
SECTION 5.01. Conduct of Business by the Company Pending the Merger...... A-19
SECTION 5.02. Conduct of Business by Parent Pending the Merger........... A-21
SECTION 5.03. Notification of Certain Matters............................ A-21
ARTICLE VI ADDITIONAL AGREEMENTS........................................... A-21
SECTION 6.01. Company Shareholders' Meeting.............................. A-21
SECTION 6.02. Parent Shareholder's Meeting............................... A-21
SECTION 6.03. Access to Information; Confidentiality..................... A-21
SECTION 6.04. No Solicitation of Transactions............................ A-22
SECTION 6.05. Directors' and Officers' Indemnification and Insurance..... A-22
SECTION 6.06. Obligations of Merger Sub.................................. A-22
SECTION 6.07. Further Action; Consents; Filings.......................... A-22
SECTION 6.08. Public Announcements....................................... A-23
SECTION 6.09. Certain Employee Benefits Matters.......................... A-23
SECTION 6.10. Break-Up Fee............................................... A-23
SECTION 6.11. Option Exercise Schedule and Account....................... A-23
SECTION 6.12. Further Assurances......................................... A-24
SECTION 6.13. Registration of Parent Common Shares....................... A-24
ARTICLE VII CONDITIONS TO THE MERGER....................................... A-24
SECTION 7.01. Conditions to the Obligations of Each Party................ A-24
SECTION 7.02. Conditions to the Obligations of Parent and Merger Sub..... A-24
SECTION 7.03. Conditions to the Obligations of the Company............... A-25
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER............................. A-26
SECTION 8.01. Termination................................................ A-26
SECTION 8.02. Effect of Termination...................................... A-26
SECTION 8.03. Amendment.................................................. A-26
SECTION 8.04. Waiver..................................................... A-27
ARTICLE IX INDEMNIFICATION................................................. A-27
SECTION 9.01. Survival of Representations and Warranties................. A-27
SECTION 9.02. Indemnification By Shareholders............................ A-27
SECTION 9.03. Indemnification By Parent.................................. A-28
SECTION 9.04. Indemnification Procedures................................. A-28
SECTION 9.05. Sole Remedy................................................ A-29
SECTION 9.06. Shareholders' Representative............................... A-29
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Table of Contents
(continued)
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ARTICLE X GENERAL PROVISIONS............................................ A-30
SECTION 10.01. Notices................................................ A-30
SECTION 10.02. Expenses............................................... A-31
SECTION 10.03. Severability........................................... A-31
SECTION 10.04. Assignment; Binding Effect; Benefit.................... A-31
SECTION 10.05. Specific Performance................................... A-32
SECTION 10.06. Governing Law.......................................... A-32
SECTION 10.07. Headings............................................... A-32
SECTION 10.08. Counterparts........................................... A-32
SECTION 10.09. Entire Agreement....................................... A-32
ARTICLE XI DEFINITIONS.................................................. A-32
SECTION 11.01. Certain Definitions.................................... A-32
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SECOND AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER dated as of
August 3, 2001 (this "Agreement") among Cardiac Science, Inc., a Delaware
corporation ("Parent"), Cardiac Science Acquisition Corp., a Minnesota
corporation and a wholly owned subsidiary of Parent ("Merger Sub"), and
Survivalink Corporation, a Minnesota corporation (the "Company").
WITNESSETH
WHEREAS, the respective Boards of Directors of Parent, Merger Sub and the
Company deem it fair to and in the best interests of each corporation and its
respective shareholders for Parent to acquire the Company upon the terms and
subject to the conditions set forth herein;
WHEREAS, the parties hereto have previously entered into an Agreement and
Plan of Merger, dated as of February 14, 2001 (the "Original Agreement")
pursuant to which the Company shall merge with and into Merger Sub (the
"Merger") in accordance with the Minnesota Business Corporations Act, as
amended (the "MBCA");
WHEREAS, the parties hereto have previously amended and restated the
Original Agreement, pursuant to the First Amended and Restated Agreement and
Plan of Merger, dated as of June 5, 2001 (the "First Amendment");
WHEREAS, the parties hereto desire to amend and restate in its entirety the
First Amendment on the terms and conditions set forth herein; and,
WHEREAS, for federal income tax purposes, the parties to this Agreement
intend for the Merger to qualify as a "reorganization" under Section 368(a) of
the Internal Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby,
Parent, Merger Sub, and the Company hereby agree as follows:
ARTICLE I
THE MERGER
SECTION 1.01. The Merger. Upon the terms of this Agreement and subject to
the conditions set forth in Article VII, and in accordance with the MBCA, at
the Effective Time (as defined below), the Company shall be merged with and
into Merger Sub. As a result of the Merger, the separate corporate existence of
the Company shall cease, and Merger Sub shall continue as the surviving
corporation of the Merger (the "Surviving Corporation"). As promptly as
practicable after the satisfaction or, if permissible, waiver of the conditions
set forth in Article VII, the parties hereto shall cause the Merger to be
consummated by executing and filing the articles of merger (the "Articles of
Merger") with the Secretary of State of the State of Minnesota and making all
other filings or recordings required by applicable law in connection with the
Merger. The Merger shall become effective at such time as the Articles of
Merger are duly filed with the Secretary of State of the State of Minnesota or
at such later time as is specified in the Articles of Merger in accordance with
the MBCA (the "Effective Time").
SECTION 1.02. Effect of the Merger. At the Effective Time, the effect of the
Merger shall be as provided in this Agreement, the Articles of Merger and the
applicable provisions of the MBCA. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time, all the property,
rights, privileges, powers and franchises of the Company and Merger Sub shall
vest in the Surviving Corporation, and all debts, liabilities and duties of the
Company and Merger Sub shall become the debts, liabilities and duties of the
Surviving Corporation.
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SECTION 1.03. Articles of Incorporation; Bylaws. From and after the
Effective Time until thereafter amended as provided by law, (i) the Articles of
Incorporation of Merger Sub as in effect immediately prior to the Effective
Time shall be the Articles of Incorporation of the Surviving Corporation, and
(ii) the Bylaws of Merger Sub as in effect immediately prior to the Effective
Time shall be the Bylaws of the Surviving Corporation.
SECTION 1.04. Directors and Officers. The directors of Merger Sub
immediately prior to the Effective Time shall be the initial directors of the
Surviving Corporation, each to hold office in accordance with the Articles of
Incorporation and Bylaws of the Surviving Corporation, and the officers of
Merger 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 or until their earlier
death, resignation or removal.
ARTICLE II
CONVERSION OF SECURITIES; MERGER CONSIDERATION; ESCROW
SECTION 2.01. Conversion of Securities; Merger Consideration. At the
Effective Time, by virtue of the Merger and without any further action on the
part of Parent, Merger Sub, the Company or the Shareholders' Representative,
pursuant to this Agreement, the Articles of Merger and the MBCA:
(a) Subject to the other provisions of this Section 2.01, each of the
shares of Company Common Stock issued and outstanding immediately prior to
the Effective Time (excluding Dissenting Shares) shall be canceled and
extinguished and converted into the right to receive (i) the Stock Merger
Consideration Per Common Share (less 5% of that amount, which represents
the Parent Common Shares that are to be placed in escrow in accordance with
Section 2.04 below), and (ii) the Non-Stock Merger Consideration Per Common
Share (less 5% of that amount, as to which Parent Notes are to be placed in
escrow in accordance with Section 2.04 below), subject to adjustment for
amounts withheld pursuant to Section 2.02(h) below.
(b) Subject to the other provisions of this Section 2.01, each of the
shares of Company Preferred Stock issued and outstanding immediately prior
to the Effective Time (excluding Dissenting Shares) shall be canceled and
extinguished and converted into the right to receive (i) the Stock Merger
Consideration Per Preferred Share (less 5% of that amount, which represents
the Parent Common Shares that are to be placed in escrow in accordance with
Section 2.04 below), and (ii) the Non-Stock Merger Consideration Per
Preferred Share (less 5% of that amount, as to which of Parent Notes are to
be placed in escrow in accordance with Section 2.04 below), subject to
adjustment for amounts withheld pursuant to Section 2.02(h) below.
(c) The Company shall take all necessary action, including obtaining the
consent of holders of Company Options to the extent necessary, to provide
that each Company Option outstanding immediately prior to the Effective
Time, whether vested or unvested shall automatically become immediately
vested and exercisable and each holder of a Company Option shall exercise,
or the Company shall cancel, all such Company Options prior to the
Effective Time such that no Company Options or other rights to purchase the
capital stock of the Company shall be outstanding at the Effective Time.
Subject to the provisions of this Section 2.01, each cancelled Company
Option shall be converted into the right to receive (i) the Stock Merger
Consideration Per Option Share (less 5% of that amount, which represents
the Parent Common Shares that are to be placed in escrow in accordance with
Section 2.04 below), and (ii) the Non-Stock Merger Consideration Per Option
Share (less 5% of that amount, as to which Parent Notes are to be placed in
escrow in accordance with Section 2.04 below), subject to adjustment for
amounts withheld pursuant to Section 2.02(h) below.
(d) Holders of Dissenting Shares shall only be entitled to receive from
Parent an amount per Dissenting Share determined pursuant to Section 2.03.
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SECTION 2.02. Exchange of Company Shares.
(a) Prior to the Effective Time, Parent shall designate a bank or trust
company reasonably acceptable to the Company (the "Exchange Agent") to act
as agent for the holders of the Company Outstanding Shares (excluding
holders of Dissenting Shares) for the purpose of exchanging certificates
representing shares of Company Common Stock and Company Preferred Stock
("Certificates") and documents representing Company Options (the "Option
Agreements"), in each case as of immediately prior to the Effective Time,
for the applicable Merger Consideration Per Share pursuant to an agreement
(the "Exchange Agreement") among Parent, the Company and the Exchange Agent
reasonably satisfactory to such parties. The fees and expenses of the
Exchange Agent shall be paid by Parent and Parent shall indemnify the
Exchange Agent against any actions taken by the Exchange Agent pursuant
hereto or to the Exchange Agreement, other than acts or omissions which
constitute bad faith, willful misconduct or gross negligence.
(b) At the Effective Time, Parent shall remit to the Exchange Agent the
cash, Parent Common Shares, and Parent Notes representing the Total Merger
Consideration, (i) less the Escrow Amount and any amounts withheld pursuant
to Section 2.02(h) and (ii) as adjusted pursuant to Section 2.03 in the
event there are any Dissenting Shares (collectively, the "Payment Fund").
The Exchange Agent shall, pursuant to irrevocable instructions, deliver the
applicable Merger Consideration Per Share contemplated to be paid to each
holder of Company Outstanding Shares (excluding holders of Dissenting
Shares) pursuant to Section 2.01 out of the Payment Fund. The Payment Fund
shall not be used for any purpose except as expressly set forth in this
Agreement.
(c) As soon as practicable after the Effective Date, the Surviving
Corporation shall cause the Exchange Agent to mail to the holders of
Certificates and Option Agreements a letter of transmittal and other
appropriate materials and instructions for use in effecting the surrender
of the Certificates and the Option Agreements for payment of the Merger
Consideration Per Share therefor. Upon the surrender of each Certificate
and/or Option Agreement, together with such letter of transmittal, duly
completed and validly executed in accordance with the instructions thereto,
and such other documents as may reasonably be required pursuant to such
instructions, the Exchange Agent shall pay to the holders of such
Certificates and/or Option Agreements out of the Payment Fund the
applicable Merger Consideration Per Share, as adjusted, multiplied by the
number of Company Outstanding Shares represented by such Certificates
and/or Option Agreements.
(d) Immediately after the Effective Time, the stock transfer books of
the Company shall be closed and there shall not be any further registration
of transfers of shares of Company capital stock thereafter on the records
of the Company.
(e) After the Effective Time, no dividends or other distributions shall
be paid to the holder of any unsurrendered Company Outstanding Shares.
(f) Until surrendered as contemplated by this Section 2.02, each
Certificate and Option Agreement shall be deemed at all times after the
Effective Time to represent only the right to receive upon such surrender
the applicable Merger Consideration Per Share. The Total Merger
Consideration paid pursuant to this Agreement shall be deemed to have been
paid in full satisfaction of all rights pertaining to all Outstanding
Shares.
(g) Promptly following the first anniversary date of the Effective Date,
the Exchange Agent shall return to the Surviving Corporation all of the
remaining Payment Fund, and the Exchange Agent's duties shall terminate.
Thereafter, each holder of an unsurrendered Certificate or an Option
Agreement may surrender the same to the Surviving Corporation and upon such
surrender (subject to applicable abandoned property, escheat or similar
laws) shall receive the applicable Merger Consideration Per Share, as
adjusted pursuant to Section 2.01(a), (b) and (c); provided, however, that
in no event shall the amount paid pursuant
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to this Section 2.02(g) exceed the amount of the remaining Payment Fund
returned to the Surviving Corporation pursuant to the preceding sentence.
Notwithstanding the foregoing, neither the Exchange Agent nor any party
hereto shall be liable to any former holder of Outstanding Shares or
Company Options for any amount delivered to a public official pursuant to
applicable abandoned property, escheat or similar law.
(h) Each of the Surviving Corporation and Parent shall be entitled to
deduct and withhold from the Non-Stock Merger Consideration Per Share
otherwise payable pursuant to this Agreement to any holder of any
Certificate or Option Agreement such amounts, if any, as it is required to
deduct and withhold under the Code, or any provision of state, local or
foreign tax law. To the extent that amounts are so withheld by either the
Surviving Corporation or Parent, such withheld amounts shall be treated for
all purposes of this Agreement as having been paid to the holder of the
Certificate or Option Agreement in respect of which such deduction and
withholding was made.
SECTION 2.03. Dissenting Shares.
(a) Notwithstanding anything in this Agreement to the contrary, if
Sections 302A.471 and 302A.473 of the MBCA are applicable to the Merger,
Outstanding Shares that are issued and outstanding as of the record date of
the meeting of the Company Shareholders called for the purpose of voting on
this Agreement and the Merger and that are held by Company Shareholders who
have not voted such shares in favor of the Merger, who shall have
delivered, prior to any vote on the Merger, a written demand for the fair
value of such shares in the manner provided in Section 302A.473 of the MBCA
and who, as of the Effective Time, shall not have effectively withdrawn or
lost such right to appraisal rights ("Dissenting Shares"), shall not be
converted into or represent a right to receive any portion of the Total
Merger Consideration, but the holders thereof shall be entitled only to
such rights as are granted by Sections 302A.471 and 302A.473 of the MBCA.
Each holder of Dissenting Shares who becomes entitled to payment for such
shares pursuant to Sections 302A.471 and 302A.473 of the MBCA shall receive
payment therefor from the Surviving Corporation in accordance with the
MBCA; provided, however, that if, prior to the Effective Time, any such
holder of Dissenting Shares shall have effectively withdrawn such holder's
demand for appraisal of such shares or lost such holder's right to
appraisal of such shares under Sections 302A.471 and 302A.473 of the MBCA,
such holder or holders (as the case may be) shall forfeit the right to
appraisal of such shares and each such share shall thereupon be deemed to
have been canceled, extinguished and converted, as of the Effective Time,
into and represent the right to receive payment of the Merger Consideration
Per Share to be paid therefor pursuant to Section 2.01, and such shares
shall not be deemed to be Dissenting Shares.
(b) The Company shall give Parent (i) prompt notice of any written
demand for fair value, any withdrawal of a demand for fair value and any
other instrument served pursuant to Sections 302A.471 and 302A.473 of the
MBCA received by the Company and (ii) the opportunity to direct all
negotiations and proceedings with respect to demands for fair value under
such sections of the MBCA. The Company shall have the right to participate
in such negotiations and proceedings. The Company shall not, except with
the prior written consent of Parent (which will not be unreasonably
withheld or delayed) or as otherwise required by law, make any payment with
respect to, settle or offer to settle, any such demands.
SECTION 2.04. Escrows.
(a) Purchase Price Holdback. Prior to the Effective Time, Parent, the
Shareholders' Representative and the Escrow Agent (defined below) shall
enter into a one-year escrow agreement (the "Purchase Price Escrow
Agreement") with an escrow agent selected by Parent and reasonably
acceptable to the Company (the "Escrow Agent") substantially in the form of
Exhibit A hereto. Pursuant to the terms of the Purchase Price Escrow
Agreement, at the Effective Time, Parent shall deposit Parent Common Shares
and Parent Notes in an amount equal to 5% of the Total Merger Consideration
to be issued to the Company Holders (as defined in Section 9.02) pursuant
this Agreement (the "Escrow Amount") into an
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escrow account, which account is to be managed by the Escrow Agent (the
"Escrow Account"). Distributions of any amounts from the Escrow Account
shall be governed by the terms and conditions of the Purchase Price Escrow
Agreement. The portion of the Escrow Amount contributed on behalf of each
holder of Company Outstanding Shares shall be in proportion to the
aggregate amount of cash that such holder would otherwise be entitled to
receive under Section 2.01 by virtue of ownership of Company Outstanding
Shares.
(b) Company Employee Tax Loans Escrow. Prior to the Effective Time,
Parent, the Shareholders' Representative, and the Escrow Agent shall enter
into an escrow agreement in a form mutually agreed upon by the parties (the
"Tax Escrow Agreement"), which shall terminate upon the earlier of (i) full
repayment and satisfaction of indebtedness under the then-outstanding
Parent Notes, or (ii) December 31, 2002. Pursuant to the terms of the Tax
Escrow Agreement, at the Effective Time, Parent shall deposit a maximum
aggregate of $2,200,000 in cash into an escrow account for the purpose of
making loans to employees of the Company to facilitate satisfaction of such
employees' tax obligations arising in connection with the disposition
and/or exercise of employee options at the Effective Time (the "Tax Escrow
Account"). Each such loan shall be evidenced by a secured non-recourse note
in a form reasonably acceptable to Company and Parent, which note shall be
secured by, and as to which Parent shall have a right of offset against,
any amounts payable to such employee under Parent Notes issued to such
employee as consideration for the Merger. On or before the Effective Time,
the Company shall provide a schedule of such estimated Company employee tax
liabilities, on a per-employee basis, and an estimated allocation of funds
in the Tax Escrow Account with regard thereto. Distributions of any amounts
from the Tax Escrow Account shall be governed by the terms and conditions
of the Tax Escrow Agreement.
SECTION 2.05. Maximum Merger Consideration. Notwithstanding anything to the
contrary contained in this Agreement, the aggregate value delivered by Parent
in exchange for the Company Outstanding Shares shall not exceed: (i) cash in
the amount of $10,500,000; (ii) Parent Notes in aggregate principal amount of
$25,800,000; and (iii) 18,150,000 shares of Parent Common Stock, except in the
event of a Tax Free Reorganization Adjustment. Total Exercise Price (as defined
in Section 6.11).
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Merger Sub that:
SECTION 3.01. Organization and Qualification.
(a) The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Minnesota and has all
requisite power and authority and all necessary governmental approvals to
own, lease and operate its properties and to carry on its business as it is
now being conducted, except where the failure to have such power, authority
or governmental approvals would not have a Material Adverse Effect. The
Company is duly qualified or licensed as a foreign corporation or
organization to do business, and is in good standing, in each jurisdiction
where the character of the properties owned, leased or operated by it or
the nature of its business makes such qualification or licensing necessary,
except for such failures to be so qualified or licensed and in good
standing that would not have a Material Adverse Effect.
(b) Except as set forth in Section 3.01(b) of the disclosure schedule
delivered by the Company to Parent concurrently with the execution of the
Original Agreement (the "Company Disclosure Schedule"), the Company does
not directly or indirectly own, or have outstanding contractual obligations
to acquire, any equity or similar interest in, or any interest convertible
into or exchangeable or exercisable for, any corporation, partnership,
joint venture or other business association or entity.
SECTION 3.02. Articles of Incorporation and Bylaws. The Company has
heretofore made available to Parent a complete and correct copy of the Articles
of Incorporation and the Bylaws of the Company, each as
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amended to date. Such Articles of Incorporation and Bylaws are in full force
and effect. The Company is not in violation of any of the provisions of its
Articles of Incorporation or Bylaws.
SECTION 3.03. Capitalization. As of the date of the Original Agreement, the
authorized capital stock of the Company consists of 50,000,000 shares, par
value $.01 per share, comprising the following: (i) 4,188,094 shares of Company
Series A Stock, of which 3,717,037 shares are issued and outstanding;
(ii) 891,085 shares of Company Series B Stock, of which 760,824 shares are
issued and outstanding; and (iii) 44,920,821 shares of Company Common Stock, of
which 5,930,391 shares are issued and outstanding. As of the date of the
Original Agreement, no person holds or is entitled to any outstanding
subscriptions, warrants, options, calls, convertible securities, commitments of
sale or similar rights to purchase or otherwise acquire any shares of, or any
security convertible into or exchangeable for, the issued or unissued capital
stock of, or other ownership interest in, the Company, except for (a) the
conversion privileges of the Company Preferred Stock, (b) currently outstanding
options to purchase 4,831,100 shares of Company Common Stock, (c) currently
outstanding warrants to purchase 1,610,207 shares of Company Common Stock, and
(d) as disclosed in Section 3.03 of the Company Disclosure Schedule. Except as
disclosed in Section 3.03 of the Company Disclosure Schedule, the Company is
not a party to or subject to any agreement or understanding, and, to the
Company's knowledge, there is no agreement or understanding between any persons
which affects or relates to the voting or giving of written consents with
respect to any capital stock or by an officer, director or employee of the
Company. All shares of capital stock of the Company have been duly authorized
and validly issued and are fully paid and nonassessable and were not issued in
violation of any preemptive rights. In the case of unissued shares, upon
issuance on the terms and conditions specified in the instruments pursuant to
which they are issuable, will be duly authorized, validly issued, fully paid
and nonassessable and will not be issued in violation of any preemptive rights.
There are no outstanding contractual obligations of the Company to repurchase,
redeem or otherwise acquire any shares of capital stock of the Company. There
are no outstanding contractual obligations of the Company to provide funds to,
or make any investment (in the form of a loan, capital contribution or
otherwise) in, any other person. All Company Outstanding Shares have been
issued or granted in material compliance with applicable federal and state
securities laws.
SECTION 3.04. Authority Relative to This Agreement. The Company has all
necessary corporate power and authority to execute and deliver this Agreement,
and, subject to obtaining the necessary approvals of the Company's
shareholders, to perform its obligations hereunder and to consummate the Merger
and the other transactions contemplated by this Agreement. The execution and
delivery of this Agreement by the Company and the consummation by the Company
of the Merger and the other transactions contemplated by this Agreement, have
been duly and validly authorized by all necessary corporate action and no other
corporate proceedings on the part of the Company are necessary to authorize
this Agreement or to consummate the Merger and the other transactions
contemplated by this Agreement, other than with respect to the Merger, (i) the
approval and adoption of this Agreement and the Merger by the vote of the
shareholders of the Company in accordance with the Company's Articles of
Incorporation (the "Company Shareholders' Vote"), and (ii) the filing of the
Articles of Merger with the Secretary of State of the State of Minnesota, in
each case as required by the MBCA. This Agreement has been duly and validly
executed and delivered by the Company and, assuming the due authorization,
execution and delivery by Parent and Merger Sub, constitutes a legal, valid and
binding obligation of the Company, enforceable against the Company in
accordance with its terms.
SECTION 3.05. Company Board Approval. The Board of Directors of the Company
has (i) approved this Second Amendment and Restated Agreement and the Merger,
(ii) determined that the Merger is in the best interest of the Company
Shareholders and is on terms that are fair to the Company Shareholders and
(iii) voted to submit this Agreement and the Merger, the transactions
contemplated by this Agreement and any related proposals to the vote and
approval of the Company Shareholders.
SECTION 3.06. No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by the Company do not,
and the performance of this Agreement by the Company will not: (i) conflict
with or violate the Articles of Incorporation or
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Bylaws of the Company; (ii) assuming that all consents, approvals,
authorizations and other actions described in Section 3.06(b) have been
obtained and all filings and obligations described in Section 3.06(b) have
been made, conflict with or violate any federal, national, state,
provincial, municipal or local law, statute, ordinance, rule, regulation,
order, injunction, judgment or decree, whether of the U.S., or another
jurisdiction ("Law"), applicable to the Company or by which any property or
asset of the Company is bound or affected; or (iii) except as set forth in
Section 3.06 of the Company Disclosure Schedule, result in any breach of or
constitute a default (or an event which with notice or lapse of time or
both would become a default) under, or give to others any right of
termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or other encumbrance on any property or asset of the
Company pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or
obligation, except, with respect to clauses (ii) and (iii) for any such
conflicts, violations, breaches, defaults or other occurrences that would
not have a Material Adverse Effect, or otherwise prevent or materially
delay the consummation of the transactions contemplated by this Agreement.
(b) The execution and delivery of this Agreement by the Company do not,
and the performance of this Agreement by the Company will not, require any
consent, approval, authorization or permit of, or filing with or
notification to, any federal, national, state, provincial, municipal or
local government, any instrumentality, subdivision, court, administrative
agency or commission or other authority thereof, or any quasi-governmental
or private body exercising any regulatory, taxing, importing or any other
governmental or quasi-governmental authority, whether of the U.S., or
another jurisdiction (a "Governmental Entity") or any other third party,
except: (i) for the applicable requirements of (A) the MBCA with respect to
the filing of the Articles of Merger; and (B) the consent of the parties
listed in Section 3.06 of the Company Disclosure Schedule (the "Company
Required Consents") and (ii) where the failure to obtain such consents,
approvals, authorizations or permits, or to make such filings or
notifications would not have a Material Adverse Effect, or otherwise
prevent or materially delay the consummation of the transactions
contemplated by this Agreement.
SECTION 3.07. Permits; Compliance.
(a) Except as disclosed in Section 3.07(a) of the Company Disclosure
Schedule, the Company is in possession of all franchises, grants,
authorizations, licenses, permits, easements, variances, exceptions,
consents, certificates, approvals and orders of any Governmental Entity
necessary for the Company to own, lease and operate its properties or to
carry on its business as it is now being conducted (the "Company Permits"),
except where such failure would not have a Material Adverse Effect, and no
suspension or cancellation of any of the Company Permits is pending or, to
the knowledge of the Company, threatened, except where such failure would
not have a Material Adverse Effect.
(b) Except as disclosed in Section 3.07(b) of the Company Disclosure
Schedule, the Company is not in conflict with, or in default, breach or
violation of, (i) any Law applicable to the Company or by which any
property or asset of the Company is bound or affected, (ii) 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 property or asset of the Company is bound or
affected or (iii) any Company Permits, except in each case for any such
conflicts, defaults or violations that would not have a Material Adverse
Effect.
SECTION 3.08. Financial Statements. The Company has delivered to Parent
copies of (a) the audited balance sheet as of December 31, 2000 of the Company
(the "Company Balance Sheet"), the audited income statement for the twelve
months ended December 31, 2000, the unaudited balance sheet as of March 31,
2001 of the Company, and the unaudited income statement for the period ended
March 31, 2001 (such statements and the Company Balance Sheet are referred to
herein as the "Latest Financial Statements") and (b) the audited balance
sheets, as of December 31, 1999, December 31, 1998 and December 31, 1997 of the
Company and the audited statements of earnings, shareholders' equity and cash
flows of the Company for each of the
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years ended December 31, 1999, December 31, 1998 and December 31, 1997
(collectively, the "Audited Financial Statements"). The Latest Financial
Statements and the Audited Financial Statements are based upon the information
contained in the books and records of the Company and fairly present in all
material respects the financial condition of the Company as of the dates
thereof and the cash flows and results of operations for the periods referred
to therein. The Audited Financial Statements have been prepared in accordance
with GAAP. The Latest Financial Statements have been prepared in accordance
with GAAP applicable to unaudited interim financial statements (and thus may
not contain all notes, normal year-end adjustments and prior period comparative
data that are required to be prepared in accordance with GAAP), applied in a
manner consistent with the Audited Financial Statements, and reflect all
adjustments necessary to a fair statement of the results for the interim
period(s) presented.
SECTION 3.09. Undisclosed Liabilities. Except for those liabilities that are
reflected or reserved against on the Company Balance Sheet (or in the notes
thereto) or as set forth in Section 3.09 of the Company Disclosure Schedule,
the Company does not have outstanding any liability or obligation of any nature
whatsoever (whether absolute, accrued, contingent or otherwise and whether due
or to become due), except for liabilities and obligations, which have been
incurred since the date of the Company Balance Sheet in the ordinary course of
business and which would not have a Material Adverse Effect.
SECTION 3.10. Absence of Certain Changes or Events. Since the date of the
Company Balance Sheet, (a) the Company has conducted its business only in the
ordinary course and in a manner consistent with past practice, and (b) the
Company has not suffered any Material Adverse Effect.
SECTION 3.11. Absence of Litigation. Except as disclosed in Section 3.11 of
the Company Disclosure Schedule, there is no litigation, suit, claim, action,
proceeding or investigation (an "Action") pending or, to the knowledge of the
Company, threatened against the Company, or any property or asset of the
Company, before any court, arbitrator or Governmental Entity. Neither the
Company nor any property or asset of the Company is subject to any continuing
order of, consent decree, settlement agreement or other similar written
agreement with, or, to the knowledge of the Company, continuing investigation
by, any Governmental Entity, or any order, writ, judgment, injunction, decree,
determination or award of any Governmental Entity or arbitrator.
SECTION 3.12. Employee Benefit Matters.
(a) Plans and Material Documents. Section 3.12(a) of the Company
Disclosure Schedule lists: (i) all employee benefit plans (as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA")) and all bonus, stock option, stock purchase, restricted
stock, long term incentive, deferred compensation, retiree medical or life
insurance, supplemental retirement, severance or other benefit plans,
programs or arrangements, and all employment, change in control, and
severance agreements, to which the Company is a party, with respect to
which the Company has any obligation or which are maintained, contributed
to or sponsored by the Company for the benefit of any current or former
employee, officer or director of the Company; (ii) each employee benefit
plan for which the Company could incur liability under Section 4069 of
ERISA in the event such plan has been or were to be terminated; (iii) any
plan in respect of which the Company could incur liability under Section
4212(c) of ERISA; and (iv) any contracts, arrangements or understandings
between the Company and any employee of the Company including, without
limitation, any contracts, arrangements or understandings relating to a
sale of the Company (collectively, the "Company Benefit Plans"). Copies or
summaries of each material Company Benefit Plan have been provided to
Parent. The Company has no express or implied commitment to create, adopt
or amend any employee benefit plan, program, arrangement or agreement,
other than any immaterial modification or any modification or change
required by applicable law.
(b) Absence of Certain Types of Plans. None of the Company Benefit Plans
is a multi employer plan (within the meaning of Section 3(37) or 4001(a)(3)
of ERISA) (a "Multiemployer Plan") or a single employer pension plan
(within the meaning of Section 4001(a)(15) of ERISA) for which the Company
could incur liability under Section 4063 or 4064 of ERISA (a "Multiple
Employer Plan").
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(c) Compliance. Each Company Benefit Plan is now and always has been
operated in all material respects in accordance with its terms and the
requirements of all applicable laws and regulations, including, without
limitation, ERISA and the Code. No material legal action, claim or
proceeding is pending or, to the knowledge of the Company, threatened with
respect to any Company Benefit Plan (other than claims for benefits in the
ordinary course) and, to the knowledge of the Company, no fact or event
exists that could give rise to any such action, claim or proceeding.
(d) Qualification of Certain Plans. Each Company Benefit Plan that is
intended to be qualified under Section 401(a) of the Code or Section 401(k)
of the Code has received a favorable determination letter from the Internal
Revenue Service (the "IRS") concerning all provisions applicable to the
plan for which determination letters are currently available and that the
Company Benefit Plan is so qualified and each trust established in
connection with any Company Benefit Plan that is intended to be exempt from
federal income taxation under Section 501(a) of the Code has received a
determination letter from the IRS that it is so exempt.
(e) Absence of Certain Liabilities. The Company has not incurred any
material liability to the Pension Benefit Guaranty Corporation (the "PBGC")
under Title IV of ERISA (other than liability for premiums to the PBGC
arising in the ordinary course). There has been no prohibited transaction
(within the meaning of Section 406 of ERISA or Section 4975 of the Code)
with respect to any Company Benefit Plan. The Company has not incurred any
liability for any penalty or tax arising under Section 4971, 4972, 4980,
4980B or 6652 of the Code or any liability under Section 502 of ERISA. No
complete or partial termination has occurred within the five years
preceding the date hereof with respect to any Company Benefit Plan. None of
the assets of the Company is the subject of any lien arising under Section
302(f) of ERISA or Section 412(n) of the Code. The Company has not been
required to post any security under Section 307 of ERISA or Section
401(a)(29) of the Code.
(f) Plan Contributions and Funding. All contributions, premiums or
payments required to be made with respect to any Company Benefit Plan have
been made on or before their due dates, and all contributions to the
Company Benefit Plans intended to be qualified pursuant to Section 401(a)
of the Code have been or will be fully deductible.
(g) No Severance Payments. Except as described in Section 3.12(g) of the
Company Disclosure Schedule, the consummation of the transactions
contemplated by this Agreement will not, either alone or in combination
with another event, (i) entitle any current or former employee, officer or
director of the Company to severance pay, unemployment compensation or any
other payment, (ii) accelerate the time of payment or vesting, or increase
the amount of compensation due any such employee, officer or director or
(iii) constitute a "change in control" under any Company Benefit Plan or
within the meaning of such term under Section 280G of the Code. Assuming
approval by the Company Shareholders of the 280G Payments (as defined in
Section 6.09(d)), no amounts payable as a result of the consummation of the
transaction contemplated by this Agreement, whether solely or in connection
with another event, will fail to be deductible for federal income tax
purposes by virtue of Section 280G of the Code.
SECTION 3.13. Material Contracts.
(a) Subsections (i) through (iv) of Section 3.13(a) of the Company
Disclosure Schedule contain a list of the following types of written
contracts and agreements (including all amendments thereto) to which the
Company is a party as of the date of the Original Agreement (collectively,
the "Company Material Contracts"):
(i) each contract and agreement which (A) is likely to involve
consideration of more than $100,000 in the aggregate during the fiscal
year ending December 31, 2001, or (B) is likely to involve
consideration of more than $100,000 in the aggregate, over the
remaining term of such contract, and which, in either case, cannot be
canceled by the Company without penalty or further payment and without
more than 60 days' notice;
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(ii) all contracts and agreements evidencing indebtedness of more
than $100,000;
(iii) all contracts and agreements, other than distributor
agreements entered into in the ordinary course of business, that limit
the ability of the Company to compete in any line of business or with
any person or entity or in any geographic area or during any period of
time;
(iv) all other contracts and agreements, whether or not made in the
ordinary course of business, which are material to the Company or the
conduct of its business, or the absence of which would prevent or
materially delay the consummation of the Merger or otherwise prevent or
materially delay the Company from performing its obligations under this
Agreement or would have a Material Adverse Effect.
(b) (i) Each Company Material Contract is a legal, valid and binding
agreement in full force and effect in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting the rights of creditors generally, and general principles of
equity (regardless of whether such enforceability is considered in a
proceeding in equity or at law, and in the case of any indemnity provisions
contained therein, is limited by public policy considerations); (ii) the
Company is not in default in any material respect, or has not received
notice that it is in default, under any Company Material Contract and, to
the Company's knowledge, no other party is in default in any material
respect under any Company Material Contract; and (iii) neither the
execution of this Agreement nor the consummation of the transactions
contemplated by this Agreement shall constitute a material default, give
rise to cancellation rights or otherwise adversely affect any of the
Company's material rights under any Company Material Contract. The Company
has provided or made available to Parent true and complete copies of all
Company Material Contracts, including any amendments thereto.
SECTION 3.14. Environmental Matters. Except as described in Section 3.14 of
the Company Disclosure Schedule: (a) the Company is in material compliance with
all applicable Environmental Laws; (b) the Company has not received notice of a
violation of any Environmental Law; (c) the Company has no material liability
for environmental clean-up, removal, remediation, or damages; and (d) the
Company has all permits, licenses and other authorizations required under any
applicable Environmental Law ("Environmental Permits") and is in compliance in
all material respects with its Environmental Permits.
SECTION 3.15. Title to Properties; Absence of Liens and Encumbrances. The
Company has good and valid title to, or, in the case of leased properties and
assets, valid leasehold interests in, all of its tangible properties and
assets, real, personal and mixed, used or held for use in its business, free
and clear of any liens, pledges, charges, claims, security interests or other
encumbrances of any sort ("Liens") except (i) as reflected in the Audited
Financial Statements or Latest Financial Statements; (ii) as disclosed in
Section 3.15 of the Company Disclosure Schedule; or (iii) for such Liens or
other imperfections of title and encumbrances, if any, which would not have a
Material Adverse Effect.
SECTION 3.16. Intellectual Property. Except as described in Section 3.16 of
the Company Disclosure Schedule:
(a) to the knowledge of the Company, the conduct of the business of the
Company as currently conducted does not infringe upon or misappropriate the
Intellectual Property rights of any third party, and no claim has been
asserted to the Company that the conduct of the business of the Company as
currently conducted infringes upon or may infringe upon or misappropriates
the Intellectual Property rights of any third party;
(b) with respect to each item of Intellectual Property owned by the
Company and material to the business, financial condition or results of
operations of the Company ("Company Owned Intellectual Property"), the
Company is the owner of the entire right, title and interest in and to such
Company Owned Intellectual Property and is entitled to use such Company
Owned Intellectual Property in the continued operation of its business;
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(c) the Company does not license from any third party any Intellectual
Property that is material to the business, financial condition or results
of operations of the Company;
(d) to the knowledge of the Company, the Company Owned Intellectual
Property is valid and enforceable, and has not been adjudged invalid or
unenforceable in whole or in part;
(e) to the knowledge of the Company, no person is engaging in any
activity that infringes upon the Company Owned Intellectual Property;
(f) to the knowledge of the Company, no party to any license of the
Company Licensed Intellectual Property is in breach thereof or default
thereunder;
(g) neither the execution of this Agreement nor the consummation of any
of the transactions contemplated by this Agreement shall adversely affect
any of the Company's rights with respect to the Company Owned Intellectual
Property; and
(h) Section 3.16 of the Company Disclosure Schedule contains a complete
list of the Company Owned Intellectual Property.
SECTION 3.17. Taxes. Except as set forth in Section 3.17 of the Company
Disclosure Schedule:
(a) All Tax Returns required to be filed by the Company on or prior to
the date hereof have been duly filed on a timely basis and such Tax Returns
are true, complete and correct in all respects. All Taxes shown to be
payable on the Tax Returns or on subsequent assessments with respect
thereto have been paid in full on a timely basis, and no other Taxes are
payable by the Company with respect to items or periods covered by such Tax
Returns (whether or not shown or reportable on such Tax Returns) or with
respect to any period prior to the date of this Agreement. The foregoing
Tax Returns are not subject to penalties under Section 6662 of the Code or
any corresponding provision of the Tax law. The Company has withheld and
paid over all Taxes required to have been withheld and paid over, and
complied with all information reporting and backup withholding
requirements, including maintenance of required records with respect
thereto, in connection with amounts paid or owing to any employee,
creditor, independent contractor, stockholder or other third party. There
are no liens on any of the assets of the Company with respect to Taxes,
other than liens for Taxes not yet due and payable and Taxes that the
Company is contesting in good faith through appropriate proceedings and for
which appropriate reserves have been established. An extension of time
within which to file any Tax Return which has not been filed has not been
requested or granted.
(b) No director or officer (or employee responsible for Tax matters) of
the Company expects any authority to assess any additional Taxes for any
period for which Tax Returns have been filed. There is no dispute or claim
concerning any Tax liability of the Company either (A) claimed or raised by
any authority in writing or (B) as to which the Shareholders'
Representative or the directors or officers (and employees responsible for
Tax matters) of the Company has knowledge based upon contact with any agent
of such authority. The Tax Returns of the Company have never been audited
by a government or taxing authority, nor is any such audit in process,
pending or, to the Company's knowledge, threatened (either in writing or
verbally, formally or informally). No Tax deficiencies exist or have been
asserted (either in writing or verbally, formally or informally) or are
expected to be asserted with respect to Taxes of the Company, and the
Company has not received notice (either in writing or verbally, orally or
informally) and does not expect to receive notice that it has not filed a
Tax Return or paid Taxes required to be filed or paid by it. The Company is
neither a party to any proceeding for assessment or collection of Taxes,
nor has such event been asserted or threatened (either in writing or
verbally, formally or informally) against the Company or any of its assets.
(c) The Company has furnished Parent true and complete copies of all
federal and state income tax income or franchise Tax Returns for the
Company for all periods ending in 1997, 1998 and 1999, and
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those in 2000 that have been filed. 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, nor has such waiver or extension
been requested from the Company.
(d) The Company has not: (A) filed a consent under Code Section 341(f)
concerning collapsible corporations; (B) been a United States real property
holding corporation within the meaning of Code Section 897(c)(2) during the
applicable period specified in Code Section 897(c)(1)(A)(ii); (C) been a
member of an affiliated group filing a consolidated federal income Tax
Return, (D) executed, become subject to, or entered into any closing
agreement pursuant to Section 7121 of the Code or any similar or
predecessor provision thereof under the Code or other Tax law, (E) received
approval to make or agreed to a change in accounting method, or (F)
incurred or assumed any liability for the Taxes of any person. The Company
has disclosed on its federal income Tax Returns all positions taken therein
that could give rise to a substantial understatement of federal income Tax
within the meaning of Section 6662 of the Code.
(e) The Company is not a party to any agreement, contract, arrangement
or plan that, individually or in the aggregate, has resulted or would
result in connection with this Agreement, in the payment of any "excess
parachute payment" within the meaning of Code Section 280G.
(f) No Company asset is property which the Company is required to treat
as being owned by any other person pursuant to the so-called "safe harbor
lease" provisions of former Section 168(f)(8) of the Code; none of the
Company assets is "Tax-exempt use property" within the meaning of Section
168(h) of the Code; the Company has not agreed to make, nor is it required
to make, any adjustment under Section 481(a) of the Code by reason of a
change in accounting method or otherwise; neither Seller nor the Company is
a person other than a United States person within the meaning of the Code;
the transaction contemplated herein is not subject to the Tax withholding
provisions of Code Section 3406, or of subchapter A of Chapter 3, of the
Code or of any other provision of law; the Company does not have and has
not had a permanent establishment in any foreign country, as defined in any
applicable Tax treaty or convention between the United States of America
and such foreign country; and the Company is not a party to any joint
venture, partnership, or other arrangement or contract which could be
treated as a partnership for federal income Tax purposes.
(g) The Company has no liabilities for unpaid Taxes which have not been
accrued or reserved against in the Company Balance Sheet, and the Company
has not incurred any liabilities for Taxes since the date of the Company
Balance Sheet other than in the ordinary course of business consistent with
past practice.
(h) The Company is not a party to any tax allocation or sharing
agreement with any person, or a party to any agreement to indemnify any
person with respect to Taxes.
(i) The Company has obtained all exemption certificates for sales and
use tax purposes or other appropriate documentation that meets the
requirements of the relevant taxing authorities for establishing exemption
from sale and use tax.
(j) For purposes of this Agreement, (i) "Tax" or "Taxes" shall mean any
income, gross income, gross receipts, profits, franchise, withholding,
payroll, social security, workers compensation, unemployment, disability,
property, ad valorem, stamp, excise, occupation, service, sales, use,
license, lease, transfer, import, export, value added, alternative minimum,
estimated or other similar tax imposed by any governmental entity or
political subdivision thereof, and any interest, penalties, additions to
tax, or additional amounts in respect of the foregoing, and (ii) "Tax
Return" shall mean any report of Taxes due, any claims for refund of Taxes
paid, any information return with respect to Taxes, or any other similar
report, statement, declaration, or document required to be filed under the
Code or other taxing authority, including any attachments, exhibits, or
other materials submitted with any of the foregoing, and including any
amendments or supplements to any of the foregoing.
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SECTION 3.18. Insurance. The Company has provided or made available to
Parent true and complete copies of all policies of insurance to which the
Company is a party or is a beneficiary or named insured. The Company maintains
insurance coverage with reputable insurers in such amounts and covering such
risks as are in accordance with normal industry practice for companies engaged
in businesses similar to that of the Company.
SECTION 3.19. Affiliate Transactions. (a) Except as set forth in Section
3.19(a) of the Company Disclosure Schedule, no officer or director of the
Company:
(i) has any direct or indirect financial interest in any competitor,
supplier or customer of the Company, provided, however, that the
ownership of securities (A) by a mutual fund to which a director is
affiliated or (B) representing no more than five percent of the
outstanding voting power of any competitor, supplier or customer, and
which are listed on any national securities exchange or traded actively
in the national over-the-counter market, shall not be deemed to be a
"financial interest" as long as the person owning such securities has
no other connection or relationship with such competitor, supplier or
customer;
(ii) owns, directly or indirectly, in whole or in part, or has any
other interest in any tangible or intangible property which the Company
uses in the conduct of its business (except for any such ownership or
interest resulting from the ownership of securities in a public
company); or
(iii) has outstanding any indebtedness to the Company.
(b) Except as set forth in Section 3.19(b) of the Company Disclosure
Schedule, except for the payment of employee compensation in the ordinary
course of business, the Company does not have any liability or any other
obligation of any nature whatsoever to any shareholder of the Company or
any affiliate thereof or to any officer or director of the Company.
SECTION 3.20. Labor Matters. Except as described in Section 3.20 of the
Company Disclosure Schedule, (i) the Company is currently in material
compliance with all applicable Laws relating to the employment of labor,
including those related to wages, hours, collective bargaining and the payment
and withholding of taxes and other sums as required by the appropriate
Governmental Entity and has withheld and paid to the appropriate Governmental
Entity or is holding for payment not yet due to such Governmental Entity all
amounts required to be withheld from employees of the Company and are not
liable for any arrears of wages, taxes, penalties or other sums for failure to
comply with any of the foregoing; (ii) the Company has paid in full to all of
its employees or adequately accrued for in accordance with GAAP all wages,
salaries, commissions, bonuses, benefits and other compensation due to or on
behalf of such employees; (iii) there is no claim with respect to payment of
wages, salary or overtime pay that has been asserted or is now pending or, to
the knowledge of the Company, threatened before any Governmental Entity with
respect to any current or former employees of the Company; and (iv) there is no
charge of discrimination in employment or employment practices, for any reason,
including, without limitation, age, gender, race, religion or other legally
protected category, which charge has been asserted or now pending or, to the
knowledge of the Company, threatened before the United States Equal Employment
Opportunity Commission, or any other Governmental Entity in any jurisdiction in
which the Company has employed or currently employed any person.
SECTION 3.21. Customers and Suppliers. No customer which individually
accounted for more than 5% of the Company's gross revenues during the twelve-
month period preceding the date hereof, and no material supplier of the
Company, has cancelled or otherwise terminated prior to the expiration of the
contract term, or, to the Company's knowledge, made any written threat to the
Company to cancel or otherwise terminate its relationship with the Company. The
Company has not (i) breached (so as to provide a benefit to the Company that
was not intended by the parties) any agreement with or (ii) engaged in any
fraudulent conduct with respect to, any customer or supplier of the Company.
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SECTION 3.22. Brokers. No broker, finder or investment banker (other than
Xxxxxxx Xxxxx & Company) is entitled to any brokerage, finder's or other fee or
commission in connection with the Merger or the other transactions contemplated
by this Agreement based upon arrangements made by or on behalf of the Company.
SECTION 3.23. Additional Tax Matters. Except as set forth in Section 3.23 of
the Company Disclosure Schedule:
(a) Pursuant to the Merger, Merger Sub will acquire at least 90% of the
fair market value of the net assets of the Company and at least 70% of the
fair market value of the of the gross assets of the Company held
immediately prior to the Merger. For purposes of this Section 3.23, amounts
paid by the Company to holders of Dissenting Shares, amounts paid by the
Company to holders of Company Outstanding Shares who received cash or other
property, amounts used by the Company to pay reorganization expenses, and
all redemptions and distributions (except for regular, normal dividends)
made by the Company will be included as assets of Company immediately prior
to the Merger.
(b) The liabilities of the Company assumed by Merger Sub and the
liabilities to which the transferred assets of the Company are subject were
incurred by the Company in the ordinary course of its business.
(c) The Company is not under the jurisdiction of a court in a Title 11
or similar case within the meaning of Section 368(a)(3)(A) of the Code.
(d) The Company is not aware of any plan or intention of Parent, Merger
Sub nor any person related to Parent or Merger Sub (as defined in Treasury
Regulations Section 1.368-1(e)(3)) to acquire or redeem any Parent Common
Stock issued in the Merger either directly or through any transaction,
agreement, or arrangement with any other person.
(e) To the knowledge of the Company, prior to or in the Merger, neither
Parent, Merger Sub nor any person related to Parent or Merger Sub (as
defined in Treasury Regulations Section 1.368-1(e)(3)) will have acquired
directly or through any transaction, agreement or arrangement with any
other person, stock of the Company with consideration other than Parent
Common Stock.
(f) There is no intercorporate indebtedness existing between Parent and
the Company or between Merger Sub and the Company and Parent will be in
control of Merger Sub within the meaning of Section 368(c) of the Code.
(g) The Company is not an investment company as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code.
SECTION 3.24. Entire Representations and Warranties. Except for the
representations and warranties contained in this Agreement or any other
agreement or document contemplated hereby, the Company makes no other express
or implied representation or warranty in respect of the Company that could give
rise to a claim for indemnification hereunder.
SECTION 3.25. Registration Statement; Proxy Statement/Prospectus. The
information supplied by the Company for inclusion in (i) the Registration
Statement (as defined in Section 6.13), at the time the Registration Statement
(including any amendments or supplements thereto) is declared effective by the
SEC, or, (ii) the Exemption Application (including any amendments or
supplements thereto), at the time the Exemption Application is filed with the
appropriate securities regulatory authority shall not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading. The
information supplied by the Company for inclusion in the proxy
statement/prospectus to be sent to the Company Shareholders in connection with
the solicitation of proxies for the Company Shareholder Vote (such proxy
statement/prospectus as amended or supplemented is referred to herein as the
"Proxy Statement/Prospectus")
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shall not, on the date the Proxy Statement/Prospectus is first mailed to
Company Shareholders and at the time of the Effective Time, contain any
statement which, at such time, is false or misleading with respect to any
material fact, or omit to state any material fact necessary in order to make
the statements made therein, in light of the circumstances under which they are
made, not false or misleading; or omit to state any material fact necessary to
correct any statement in any earlier communication with respect to the
solicitation of proxies for the Company Shareholder Vote which has become false
or misleading. If at any time prior to the Effective Time any event or
information should be discovered by the Company which should be set forth in an
amendment to the Registration Statement or a supplement to the Proxy
Statement/Prospectus, the Company shall promptly inform Parent. Notwithstanding
the foregoing, the Company makes no representation, warranty or covenant with
respect to any information supplied by Parent or Merger Sub which is contained
in any of the foregoing documents.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub hereby jointly and severally represent and warrant to
the Company that:
SECTION 4.01. Organization and Qualification; Subsidiaries. Parent and each
subsidiary of Parent, including Merger Sub (collectively, the "Parent
Subsidiaries"), is a corporation or other legal entity duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or formation and has all requisite power and authority and all
necessary governmental approvals to own, lease and operate its properties and
to carry on its business as it is now being conducted, except where the failure
to have such power, authority or governmental approvals would not prevent or
materially delay the consummation of the transactions contemplated by this
Agreement. Each of Parent and the Parent Subsidiaries is duly qualified or
licensed as a foreign corporation or organization to do business, and is in
good standing, in each jurisdiction where the character of the properties
owned, leased or operated by it or the nature of its business makes such
qualification or licensing necessary, except for such failures to be so
qualified or licensed and in good standing that would not have a Material
Adverse Effect.
SECTION 4.02. Certificate of Incorporation and Bylaws. Parent has heretofore
made available to the Company a complete and correct copy of the Certificate of
Incorporation or equivalent charter document and Bylaws, each as amended to
date, of Parent and the Articles of Incorporation and Bylaws of Merger Sub,
each as amended to date. Such respective organizational documents are in full
force and effect and neither Parent nor Merger Sub is in violation of any of
the provisions of its respective organizational documents.
SECTION 4.03. Authority Relative to This Agreement. Each of Parent and
Merger Sub has all necessary corporate power and authority to execute and
deliver this Agreement and, subject to obtaining the necessary approvals of
Parent's and Merger Sub's stockholders, to perform its obligations hereunder
and to consummate the Merger and the other transactions contemplated by this
Agreement. The execution and delivery of this Agreement by each of Parent and
Merger Sub and the consummation by each of Parent and Merger Sub of the Merger
and the other transactions contemplated by this Agreement have been duly and
validly authorized by all necessary corporate action, and no other corporate
proceedings on the part of Parent or Merger Sub are necessary to authorize this
Agreement or to consummate the Merger and the other transactions contemplated
by this Agreement, other than (i) the approval and adoption of this Agreement
and the Merger by the vote of the sole stockholder of Merger Sub in accordance
with the Articles of Incorporation of Merger Sub and/or applicable law ("Merger
Sub Stockholder's Vote"), (ii) the approval and adoption by the vote of the
stockholders of Parent of (A) the Parent Charter Amendment in accordance with
the Certificate of Incorporation of Parent and (B) the Nasdaq Stock Issuance in
accordance with the regulations of the National Association of Securities
Dealers and The Nasdaq Stock Market ("Parent Stockholders' Vote"), and (iii)
the filing of the Articles of Merger with the Secretary of State of the State
of Minnesota as required by the MBCA. This Agreement has been duly and validly
executed and delivered by each of Parent and Merger Sub and,
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assuming the due authorization, execution and delivery by the Company,
constitutes a legal, valid and binding obligation of each of Parent and Merger
Sub, enforceable against each of Parent and Merger Sub in accordance with its
terms.
SECTION 4.04. No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by each of Parent and
Merger Sub and the performance of this Agreement by each of Parent and
Merger Sub will not, (i) conflict with or violate the Certificate of
Incorporation or Bylaws of Parent, the Articles of Incorporation or Bylaws
of Merger Sub or any equivalent organizational documents of any other
Parent Subsidiary, (ii) assuming that all consents, approvals,
authorizations and other actions described in Section 4.04(b) have been
obtained and all filings and obligations described in Section 4.04(b) have
been made, conflict with or violate any Law applicable to Parent or any
Parent Subsidiary or by which any property or asset of Parent or any Parent
Subsidiary is bound or affected or (iii) result in any breach of or
constitute a default (or an event which with notice or lapse of time or
both would become a default) under, or give to others any right of
termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or other encumbrance on any property or asset of Parent
or any Parent Subsidiary pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument
or obligation, except, with respect to clauses (ii) and (iii), for any such
conflicts, violations, breaches, defaults or other occurrences that would
not have a Material Adverse Effect, or otherwise prevent or materially
delay the consummation of the transactions contemplated by this Agreement.
(b) The execution and delivery of this Agreement by each of Parent and
Merger Sub and the performance of this Agreement by each of Parent and
Merger Sub will not require any consent, approval, authorization or permit
of, or filing with or notification to, any Governmental Entity, except (i)
the MBCA with respect to the filing of the Articles of Merger; (ii) the
filing by Parent with the SEC, any state securities law authorities and the
Nasdaq National Market of any notices, filings, reports or information as
may be required under the Securities Act, the Exchange Act, any other
applicable federal or state securities laws or the rules and regulations of
the Nasdaq National Market in connection with the issuance of the Parent
Common Shares and the Parent Notes, and the other transactions contemplated
by this Agreement (the "Parent Required Consents"), and (iii) where the
failure to obtain such consents, approvals, authorizations or permits, or
to make such filings or notifications would not have a Material Adverse
Effect, or otherwise prevent or materially delay the consummation of the
transactions contemplated by this Agreement.
SECTION 4.05. Capitalization. As of the date of the Original Agreement, the
authorized capital stock of Parent consists of 40,000,000 shares of Parent
Common Stock, of which 24,779,572 shares are issued and outstanding. As of the
date of the Original Agreement, no person holds or is entitled to any
outstanding subscriptions, warrants, options, calls, convertible securities,
commitments of sale or similar rights to purchase or otherwise acquire any
shares of, or any security convertible into or exchangeable for, the issued or
unissued capital stock of, or other ownership interest in, Parent, except for
(i) currently outstanding options to purchase 2,686,045 shares of Parent Common
Stock and (ii) currently outstanding warrants to purchase 1,111,101 shares of
Parent Common Stock. All shares of capital stock of Parent have been duly
authorized and validly issued and are fully paid and nonassessable and were not
issued in violation of any preemptive rights. There are no outstanding
contractual obligations of Parent to repurchase, redeem or otherwise acquire
any shares of capital stock of Parent.
SECTION 4.06. Parent Securities. The Parent Common Shares and Parent Notes
to be issued pursuant to this Agreement, when so issued, will be duly
authorized, validly issued, fully paid and nonassessable, and will not be
issued in violation of any preemptive right.
SECTION 4.07. SEC Reports. Prior to the date of this Agreement, Parent has
timely filed, and has made available to the Company, complete and accurate
copies of all forms, reports, schedules, statements and
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other documents filed or required to be filed by it with the Securities and
Exchange Commission ("SEC") since January 1, 1998 under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), or the Securities Act of 1933, as
amended (the "Securities Act") (collectively, the "Parent SEC Reports"). At the
time filed, the Parent SEC Reports (i) did not contain any untrue statement of
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading and (ii) complied in all material respects
with the applicable laws and rules and regulations of the SEC.
SECTION 4.08. Financial Statements. The financial statements of Parent
(including any footnotes) contained in the Parent SEC Reports (i) complied, at
the time filed, as to form in all material respects with the applicable
published rules and regulations of the SEC with respect thereto, (ii) are based
upon the information contained in the books and records of Parent and its
consolidated subsidiaries and (iii) fairly present in all material respects the
financial condition of Parent and its consolidated subsidiaries as of the dates
thereof and the cash flows and results of operations for the periods referred
to therein, subject to normal and recurring year-end adjustments. The audited
financial statements of Parent (including any footnotes) contained in the
Parent SEC Reports have been prepared in accordance with GAAP. The unaudited
financial statements of Parent (including any footnotes) contained in the
Parent SEC Reports have been prepared in accordance with GAAP applicable to
unaudited financial statements and in conformity with the requirements of Form
10Q of the Exchange Act.
SECTION 4.09. Undisclosed Liabilities. Except for those liabilities that are
reflected or reserved against on the balance sheet of Parent contained in the
most recent Parent SEC Report (or in the notes thereto) (the "Parent Balance
Sheet"), Parent does not have outstanding any liability or obligation of any
nature whatsoever (whether absolute, accrued, contingent or otherwise and
whether due or to become due), except for liabilities and obligations, which
have been incurred since the date of the Parent Balance Sheet in the ordinary
course of business and which would not have a Material Adverse Effect.
SECTION 4.10. Absence of Certain Changes or Events. Since the date of the
Parent Balance Sheet, other than its pending publicly disclosed transaction,
(a) Parent has conducted its business only in the ordinary course and in a
manner consistent with past practice, and (b) Parent has not suffered any
Material Adverse Effect.
SECTION 4.11. Absence of Litigation. Except as disclosed in the Parent SEC
Reports, there is no Action pending or, to the knowledge of Parent, threatened
against Parent, or any property or asset of Parent, before any court,
arbitrator or Governmental Entity. Neither Parent nor any property or asset of
Parent is subject to any continuing order of, consent decree, settlement
agreement or other similar written agreement with, or, to the knowledge of
Parent, continuing investigation by, any Governmental Entity, or any order,
writ, judgment, injunction, decree, determination or award of any Governmental
Entity or arbitrator.
SECTION 4.12. Parent Board Approval. The Board of Directors of Parent has
(i) approved this Second Amended and Restated Agreement and the Merger, the
Parent Charter Amendment and the Nasdaq Stock Issuance, (ii) determined that
the Merger is in the best interest of the stockholders of Parent and (iii)
voted to submit the Parent Charter Amendment and the Nasdaq Stock Issuance to
the vote and approval of the stockholders of Parent.
SECTION 4.13. Operations of Merger Sub. Merger Sub is a direct, wholly owned
subsidiary of Parent, was formed solely for the purpose of engaging in the
transactions contemplated by this Agreement, has engaged in no other business
activities and has conducted its operations only as contemplated by this
Agreement.
SECTION 4.14. Financing. By the Termination Date, Parent shall have
sufficient funds available to complete the transactions contemplated hereby.
Any equity financing, or series of financings, of Parent prior to the date that
is ninety days following the Effective Time shall be (i) at a price per share
of Parent Common Stock of not less than $2.00 (with the price per share of any
preferred or convertible stock being calculated on an as-if-converted into
Common Stock basis), and (ii) shall not include an issuance of preferred stock
with an aggregate purchase price of more than $15,000,000.
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SECTION 4.15. Tax Matters.
(a) Prior to or in the Merger, neither Parent, Merger Sub nor any person
related to Parent or Merger Sub (as defined in Treasury Regulations Section
1.368-1(e)(3)) will have acquired directly or through any transaction,
agreement or arrangement with any other person, capital stock of the
Company with consideration other than Parent Common Stock.
(b) Merger Sub has no plan or intention to issue additional shares of
its capital stock following the Merger that would result in Parent losing
"control" of Merger Sub within the meaning of Section 368(c) of the Code.
(c) Parent has no plan or intention to liquidate Merger Sub; to merge
Merger Sub with or into another corporation, except if Merger Sub is
surviving corporation; to sell or otherwise dispose of the stock of Merger
Sub, except for transfers of capital stock to corporations controlled by
Parent; or to cause Merger Sub to sell or otherwise dispose of any of its
assets acquired from the Company, except for dispositions made in the
ordinary course of business or transfers of assets to a corporation
controlled by Merger Sub.
(d) Following the Merger, Merger Sub will continue the historic business
of the Company or use a significant portion of the historic business assets
of the Company in a business.
(e) There is not intercorporate indebtedness existing between Parent and
the Company or between Merger Sub and the Company that was issued, acquired
or will be settled at a discount.
(f) Prior to the Merger, Parent will own directly all of the outstanding
capital stock of Merger Sub and Parent will be in control of Merger Sub
within the meaning of Section 368(c) of the Code.
(g) Neither Parent nor Merger Sub is an investment company as defined in
Section 368(a)(2)(F)(iii) and (iv) of the Code.
SECTION 4.16. Entire Representations and Warranties. Except for the
representations and warranties contained in this Agreement or any other
agreement or document contemplated hereby, Parent and Merger Sub make no other
express or implied representation or warranty in respect of Parent or Merger
Sub that could give rise to a claim for indemnification hereunder.
SECTION 4.17. Title to Properties; Absences of Liens and
Encumbrances. Except as described in Schedule 4.17, to the knowledge of Parent
after due and reasonable investigation, Parent has good and valid title to, or,
in the case of leased properties and assets, valid leasehold interests in, all
of its tangible properties and assets, real, personal, and mixed, used or held
for use in its business, free and clear of any Liens, except as reflected in
the financial statements contained in the SEC Reports.
SECTION 4.18. Registration Statement; Proxy Statement/Prospectus. The
information supplied by Parent and Merger Sub for inclusion in the Registration
Statement, at the time the Registration Statement (including any amendments or
supplements thereto) is declared effective by the SEC, and (ii) the Exemption
Application (including any amendments or supplements thereto), at the time the
Exemption Application is filed with the appropriate securities regulatory
authority, shall not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
information supplied by Parent or Merger Sub for inclusion in the Proxy
Statement/Prospectus shall not, on the date the Proxy Statement/Prospectus is
first mailed to the Company Shareholders and at the Effective Time, contain any
statement which, at such time, is false or misleading with respect to any
material fact, or omit to state any material fact necessary in order to make
the statements therein, in light of the circumstances under which it is made,
not false or misleading; or omit to state any material fact necessary to
correct any statement in any earlier communication with respect to the
solicitation of proxies for the Company Shareholder Vote which has become false
or misleading. If at any time
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prior to the Effective Time any event or information should be discovered by
Parent or Merger Sub which should be set forth in an amendment to the
Registration Statement or a supplement to the Proxy Statement/Prospectus,
Parent and Merger Sub will promptly inform the Company. Notwithstanding the
foregoing, Parent and Merger Sub make no representation, warranty or covenant
with respect to any information supplied by the Company which is contained in
any of the foregoing documents.
ARTICLE V
CONDUCT OF BUSINESSES PENDING THE MERGER
SECTION 5.01. Conduct of Business by the Company Pending the Merger.
(a) The Company agrees that, between the date of the Original Agreement
and the Effective Time, except as set forth in Section 5.01 of the Company
Disclosure Schedule or as specifically contemplated by any other provision
of this Agreement, unless Parent shall otherwise consent in writing:
(i) the business of the Company shall be conducted only in, and the
Company shall not take any action except in, the ordinary course of
business and in a manner consistent with past practice; and
(ii) the Company shall use commercially reasonable efforts to
preserve substantially intact its business organization, to keep
available the services of the current officers, employees and
consultants of the Company and to preserve the current relationships of
the Company with customers, suppliers, licensors, licensees and other
persons with which the Company has significant business relations.
(b) By way of amplification of Section 5.01(a) and not limitation,
except as contemplated by this Agreement or as set forth in Section 5.01 of
the Company Disclosure Schedule, the Company shall not, between the date of
the Original Agreement and the Effective Time, directly or indirectly, do,
or propose to do, any of the following without the prior written consent of
Parent:
(i) amend or change its Articles of Incorporation or Bylaws, except
in connection with the Company Charter Amendment (as defined in Section
6.01);
(ii) transfer, issue, sell, pledge, lease, license, dispose, grant,
encumber, or authorize for transfer, issuance, sale, pledge, lease,
license, disposition, grant or encumbrance (i) any shares of its
capital stock of any class or series, or any options, warrants,
convertible securities or other rights of any kind to acquire any
shares of such capital stock, or any other ownership interest
(including, without limitation, any phantom interest) of the Company
(except for (A) the issuance of Common Stock of the Company pursuant to
the exercise or conversion of a Company Option or Company Preferred
Stock outstanding as of the date hereof and (B) the transfer by gift or
donation of capital stock of the Company by a Company Shareholder to a
third party donee) or (ii) any assets of the Company, except, in the
case of this subsection (ii), in the ordinary course of business and in
a manner consistent with past practice;
(iii) authorize, declare, set aside, make or pay any dividend
payment or other distribution, payable in cash, stock, property or
otherwise, with respect to any of its capital stock, other than the
declaration and payment of the payment-in-kind dividend to the holders
of Company Preferred Stock and the related common stock dividends to
Venture Lending & Leasing, Inc., and Venture Lending & Leasing II,
Inc.;
(iv) reclassify, combine, split, subdivide or redeem, purchase or
otherwise acquire, directly or indirectly, any of its capital stock;
(v) acquire (including, without limitation, by merger,
consolidation, acquisition of stock or assets or any other business
combination) any interest in any corporation, partnership, other
business
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organization or any division thereof or any assets, other than
acquisitions of assets in the ordinary course of business consistent
with past practice and which are not in connection with the acquisition
of all, or substantially all of a business;
(vi) incur any additional indebtedness for borrowed money or issue
any debt securities or assume, guarantee or endorse the obligations of
any person, or make any loans or advances or grant any security
interest in any of its assets, except for trade payables in the
ordinary course of business and indebtedness under the Company's
existing credit arrangements incurred in the ordinary course of
business and consistent with past practice and for other indebtedness
with a maturity of not more than one year in a principal amount not, in
the aggregate, in excess of $100,000, other than a bridge financing of
up to $1,000,000 with certain holders of Company Preferred Stock;
(vii) enter into any contracts or agreements requiring the payment,
or receipt of payment, of consideration in excess of $150,000, or
modify, amend or terminate any existing Company Material Contract or
modify, amend, waive or consent to the termination of any of the
Company's rights thereunder, other than modifications, amendments or
terminations in the ordinary course of business consistent with past
practices, other than extension of the due date of the promissory notes
issued to certain holders of Company Preferred Stock;
(viii) make or authorize any capital expenditures, other than
capital expenditures (a) reflected in the capital expenditure budgets
previously provided to Parent or (b) less than $150,000 in the
aggregate;
(ix) waive any stock repurchase or acceleration rights, amend or
change the terms of any warrants, options or restricted stock, or
reprice options granted under any Company Benefit Plan or authorize
cash payments in exchange for any options granted under any such plans;
(x) increase the compensation payable or to become payable to its
directors, officers or employees, except for increases in accordance
with past practices, in salaries or wages of officers and employees of
the Company, or grant any rights to severance or termination pay to, or
enter into any employment or severance agreement with, any director,
officer or other employee of the Company (except, in the case of
employees who are not officers or directors, as consistent with
existing policies of the Company or past practices), or establish,
adopt, enter into or amend any collective bargaining, bonus, profit
sharing, thrift, compensation, stock option, restricted stock, pension,
retirement, deferred compensation, employment, termination, severance
or other plan, agreement, trust, fund, policy or arrangement for the
benefit of any director, officer or employee;
(xi) commence or settle any Action;
(xii) pay, discharge, satisfy any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise),
other than the payment, discharge or satisfaction, in the ordinary
course of business and consistent with past practice, of liabilities
reflected or reserved against in the Audited Financial Statements or
subsequently incurred in the ordinary course of business and consistent
with past practice;
(xiii) make or revoke any Tax elections, adopt or change any method
of Tax accounting, settle any Tax liabilities or take any action with
respect to the computation of Taxes or the preparation of Tax returns
that is inconsistent with past practice;
(xiv) take any action, other than as required by GAAP, with respect
to accounting principles or procedures, including, without limitation,
any revaluation of assets;
(xv) agree to any audit assessment by any tax authority or file any
income or franchise tax return unless copies of such returns have been
delivered to Parent for its review prior to filing;
(xvi) fail to maintain its equipment and other assets in good
working condition and repair according to the standards it has
maintained to the date of this Agreement, subject only to ordinary wear
and tear;
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(xvii) change any insurance coverage other than in the ordinary
course of business;
(xviii) announce an intention to, agree in writing to or otherwise
take any action with respect to, the actions described in clauses (i)
through (xviii) above; or
(xix) take any action to cause the Company's representations and
warranties set forth in Article III to be untrue in any material
respect.
SECTION 5.02. Conduct of Business by Parent Pending the Merger. Parent
agrees that, between the date of the Original Agreement and the Effective Time,
except as contemplated by any other provision of this Agreement, Parent shall
not directly or indirectly, take any action to cause Parent's representations
and warranties set forth in Article IV to be untrue in any material respect.
SECTION 5.03. Notification of Certain Matters. Parent shall give prompt
notice to the Company, and the Company shall give prompt notice to Parent, of
(i) the occurrence or nonoccurrence of any event the occurrence or
nonoccurrence of which would be likely to cause (A) any representation or
warranty contained in this Agreement to be materially untrue or inaccurate or
(B) any covenant, condition or agreement contained in this Agreement not to be
complied with or satisfied in all material respects and (ii) any failure of
Parent or the Company, as the case may be, to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder; provided, however, that the delivery of any notice pursuant to this
Section 5.03 shall not limit or otherwise affect the remedies available
hereunder to the party receiving such notice.
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01. Company Shareholders' Meeting. The Company shall (i) in
accordance with the MBCA and its Articles of Incorporation and Bylaws, duly
call, give notice of, convene and hold a meeting of the Company Shareholders
(the "Company Shareholders' Meeting") for the purpose of voting upon the
approval of (a) the Merger and this Agreement, (b) the 280G Payments, (c) an
amendment to its Articles of Incorporation decreasing the number of authorized
shares of Company Series A Stock and Company Series B Stock (the "Company
Charter Amendment"), and (d) any related proposals; and (ii) recommend that the
Company Shareholders vote in favor of all such matters. The Company shall use
commercially reasonable efforts to hold the Company Shareholders' Meeting as
soon as practicable after the date hereof.
SECTION 6.02. Parent Stockholder's Meeting. Parent shall (i) in accordance
with the Delaware General Corporation Law ("DGCL") and its Certificate of
Incorporation and Bylaws, duly call, give notice of, convene and hold a meeting
of the stockholders of Parent (the "Parent Stockholders' Meeting") for the
purpose of voting upon the approval of (A) an amendment to the Certificate of
Incorporation of Parent increasing the number of authorized shares of Parent
Common Stock (the "Parent Charter Amendment"), (B) the issuance of the Parent
Common Shares pursuant to this Agreement, as required under the regulations of
the National Association of Securities Dealers and The Nasdaq Stock Market (the
"Nasdaq Stock Issuance"), (C) any other proposals to come properly before the
meeting; and (ii) recommend that the stockholders of Parent vote in favor of
all such matters. Parent shall use commercially reasonable efforts to hold the
Parent Stockholders' Meeting as soon as practicable after the date hereof.
SECTION 6.03. Access to Information; Confidentiality. Except as required
pursuant to any confidentiality agreement or similar agreement or arrangement
to which the Company is a party or pursuant to applicable law, from the date of
this Agreement to the Effective Time, the Company shall, and shall cause its
officers, directors, employees, accountants, legal counsel, investment banks,
agents and other representatives (collectively, "Representatives") to, (i)
provide to Parent and its Representatives access at reasonable times during
normal business hours upon prior notice to the officers, employees, agents,
properties, offices and other facilities of the Company and to the books and
records thereof; and (ii) furnish promptly such information
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concerning the business, properties, contracts, assets, liabilities, personnel
and other aspects of the Company as Parent or its Representatives may
reasonably request; provided, however, that the access and information shall be
provided pursuant to clauses (i) and (ii) in such a way as to minimize
disruption to the operations of the business of the Company. Parent shall, and
Parent shall cause its Representatives to, keep such information confidential
in accordance with the terms of the Confidentiality Agreement, dated as of
November 1, 2000, as supplemented, between Parent and the Company (the
"Confidentiality Agreement").
SECTION 6.04. No Solicitation of Transactions. Subject to the fiduciary
duties of the Board of Directors under applicable Law, the Company shall not,
and will instruct its Representatives not to, directly or indirectly, (i)
initiate, solicit, negotiate or encourage (including by way of furnishing
nonpublic information), or take any other action knowingly to facilitate, any
inquiries or the making of any proposal or offer (including, without
limitation, any proposal or offer to its shareholders) that constitutes, or may
reasonably be expected to lead to a merger, consolidation, share exchange,
business combination or a transfer of all or a substantial part of the
Company's business or assets (each, a "Competing Transaction"), or (ii) enter
into, maintain or continue discussions, or negotiate with, or provide any
information to, any person or entity in furtherance of such inquiries or in
order to obtain a Competing Transaction, or agree to or endorse any Competing
Transaction, or authorize or permit any of its Representatives to take any such
action.
SECTION 6.05. Directors' and Officers' Indemnification and Insurance.
(a) For a period of six years after the Effective Time, Parent shall
cause to be maintained in effect the current directors' and officers'
liability insurance policies maintained by the Company (provided that
Parent may substitute therefor policies of at least the same coverage
containing terms and conditions that are no less advantageous) with respect
to claims arising from facts or events that occurred prior to the Effective
Time.
(b) In the event the Surviving Corporation or any of its respective
successors or assigns (i) consolidates with or merges into any other person
and shall not be the continuing or surviving corporation or entity in such
consolidation or merger or (ii) transfers all or substantially all of its
properties and assets to any person, then, and in each case, proper
provision shall be made so that the successors and assigns of the Surviving
Corporation shall honor the indemnification obligations set forth in this
Section 6.04.
SECTION 6.06. Obligations of Merger Sub. Parent shall take all action
necessary to cause Merger Sub to perform its obligations under this Agreement
and to consummate the Merger on the terms and subject to the conditions set
forth in this Agreement.
SECTION 6.07. Further Action; Consents; Filings. Upon the terms and subject
to the conditions hereof, each of the parties hereto shall (i) use all
commercially reasonable efforts to 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 Merger
and the other transactions contemplated by this Agreement, (ii) use all
commercially reasonable efforts to obtain from Governmental Entities and third
parties any consents, licenses, permits, waivers, approvals, authorizations or
orders required to be obtained or made by Parent or the Company or any Parent
Subsidiary, including any Company Required Consents and Parent Required
Consents, as the case may be, in connection with the authorization, execution
and delivery of this Agreement and the consummation of the Merger and the other
transactions contemplated by this Agreement and (iii) make all necessary
filings, and thereafter make any other required submissions, with respect to
this Agreement, the Merger and the other transactions contemplated by this
Agreement that are required under (A) the HSR Act, and any other antitrust
regulations and (B) any other applicable Law, provided, however, that neither
the Company nor Parent will be required by this Section 6.06 to take any
action, including entering into any consent decree, hold separate orders or
other arrangements, that (x) requires the divestiture of any assets of Parent,
any Parent Subsidiary or the Company or (y) limits Parent's freedom of action
with respect to, or its ability to retain, the Company or any portion thereof
or any of Parent's or its affiliates' other assets or businesses.
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SECTION 6.08. Public Announcements. Each of Parent and the Company shall
consult with each other before issuing any press release or making any public
statements with respect to this Agreement or any of the transactions
contemplated by this Agreement and shall not issue any such press release or
make any such public statement prior to such consultation, except as may be
required by Law.
SECTION 6.09. Certain Employee Benefits Matters. (a) For a period of one
year following the Effective Time and effective upon the Merger, Parent shall,
or shall cause the Surviving Corporation to, provide employee benefits to
Surviving Corporation employees that, in the aggregate, are substantially
comparable to the employee benefits that were provided to such Surviving
Corporation employees under the employee benefit plans, programs and
arrangements of the Company listed in Schedule 3.12(a) (excluding items 3, 4,
and 13 listed in Schedule 3.12(a)) as in effect immediately prior to the
Effective Time and that have been provided to Parent.
(b) Parent covenants and agrees that it shall cause the Surviving
Corporation to satisfy all severance obligations arising in connection with
the transactions contemplated by the Merger and this Agreement pursuant to
any Company Benefit Plan that has been provided to Parent.
(c) Parent covenants and agrees that it shall cause the Surviving
Corporation to satisfy, within 10 business days of the Effective Time, all
obligations of the Company arising from and relating to the Company's 2000
bonus plan, as set forth on Schedule 6.09.
(d) The Company covenants and agrees that, prior to the Effective Time,
it shall take all action necessary to obtain shareholder approval, in
accordance with the procedures prescribed under Proposed Treasury
Regulation Section 1.280G-1, of all payments by the Company that may be
subject to Section 280G of the Code (the "280G Payments") in connection
with the consummation of the transactions contemplated by this Agreement in
order to exclude such payments from the definition of the term "parachute
payment" (as defined in Proposed Treasury Regulation Section 1.280G-1).
SECTION 6.10. Break-Up Fee. The Break-Up Fee shall be a cash amount equal to
$3,500,000. In the event that the transactions contemplated by this Agreement
are not consummated prior to the Termination Date (as defined in Section
8.01(b)), due to failure to satisfy any condition to closing set forth in
Section 7.03, other than the condition set forth in Section 7.03(b), the Break-
Up Fee shall be promptly delivered by Parent to the Company on or before six
(6) calendar days subsequent to the Termination Date. In the event that the
transactions contemplated by this Agreement are not consummated prior to the
Termination Date due to failure to comply with Section 6.04 or failure to
satisfy any condition to closing set forth in Section 7.02, other than the
condition set forth in Section 7.02(b), the Break-Up Fee shall be promptly
delivered by Company to Parent on or before six (6) calendar days subsequent to
the Termination Date. The parties acknowledge and agree that the failure to
satisfy any condition to closing set forth in Section 7.01 shall not trigger
payment of the Break-Up Fee by either party. The Break-Up Fee, if required to
be delivered pursuant to this Section 6.10, shall constitute the sole and
exclusive remedy of the party receiving the Break-Up Fee for any and all claims
arising in connection with this Agreement.
SECTION 6.11. Option Exercise Schedule and Account. (a) In connection with
the closing of the Merger, immediately prior to the Effective Time, the Company
shall deliver to Parent a schedule ("Option Exercise Schedule") setting forth
(i) the number of Company Options exercised between the date of the Original
Agreement and the Effective Time ("Exercised Options"), including the number of
shares of Company Common Stock issued in connection with such Exercised Options
and (ii) the exercise price of such Company Options. Parent shall have the
right to review and approve the Option Exercise Schedule. The Company hereby
covenants and agrees to cause any person exercising an Exercised Option to pay
the exercise price due in connection therewith in cash on the date of exercise.
(b) All proceeds from the exercise of such Company Options shall be
deposited by the Company into a separate bank account of the Company. No
funds shall be disbursed from such separate account for any reason without
the prior written authorization of Parent.
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SECTION 6.12. Further Assurances. Subject to the terms and conditions
hereof, each party hereto, at the reasonable request of another party hereto,
shall execute and deliver such other instruments and do and perform such other
acts and things as may be necessary or desirable for effecting completely the
consummation of the Merger and the transactions contemplated herein.
SECTION 6.13. Registration of Parent Common Shares. As soon as reasonably
practicable using its reasonable best efforts, Parent shall file (i) a
registration statement under the Securities Act for the offer and sale of the
Parent Common Shares to the Company Shareholders with the SEC (the
"Registration Statement"), and (ii) an application for exemption from such
registration with the appropriate securities regulatory authority, pursuant to
an exemption available under the Securities Act and applicable state securities
laws (the "Exemption Application"). Parent shall take all action reasonably
necessary to cause the Registration Statement to be declared effective or the
issuance of securities under the Exemption Application to be confirmed by the
appropriate securities regulatory authority, including, without limitation,
diligently and promptly responding to any comments, inquiries or requests for
additional information from the SEC or other securities regulatory authority
within at least ten calendar (10) days of receipt of such comments, inquiries
or requests for information.
ARTICLE VII
CONDITIONS TO THE MERGER
SECTION 7.01. Conditions to the Obligations of Each Party. The obligations
of the Company, Parent and Merger Sub to consummate the Merger are subject to
the satisfaction or waiver (where permissible) of the following conditions:
(a) No Order. No Governmental Entity or court of competent jurisdiction
shall have enacted, issued, promulgated, enforced or entered any law, rule,
regulation, judgment, decree, injunction, executive order or award (an
"Order") that is then in effect or pending or threatened and has, or would
have, the effect of making the Merger illegal or otherwise prohibiting the
consummation of the Merger.
(b) Effective Securities Registration Statement or Exemption. The offer
and sale of the Parent Common Shares to the Company Shareholders shall
either be registered pursuant to a registration statement declared
effective by the SEC under the Securities Act, or shall be exempt from such
registration pursuant to an available exemption under the Securities Act
and applicable state securities laws.
(c) Opinion of the Company's Counsel. The Company shall have received an
opinion (the "Tax Opinion") from Xxxxxx & Xxxxxxx LLP, Minneapolis,
Minnesota, counsel to the Company, dated as of the Effective Time,
substantially to the effect that, on the basis of the facts,
representations and assumptions set forth in such opinion which are
consistent with the state of facts existing at the Effective Time, the
Merger will be treated for Federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Code, and Parent and the
Company will each be a party to the reorganization within the meaning of
Section 368(b) of the Code, and that accordingly:
(i) No gain or loss will be recognized by the Company or Parent as a
result of the Merger;
(ii) No gain or loss will be recognized by Company Shareholders who
exchange their Company Common Stock or Company Preferred Stock for
Parent Common Stock pursuant to the Merger; provided, however, that
gain will be recognized with respect to any cash and Parent Notes
received pursuant to the Merger;
(iii) The tax basis of the shares of Parent Common Stock received as
Stock Merger Consideration Per Share by Company Shareholders in the
Merger will be the same as the tax basis of the Company Common Stock or
Company Preferred Stock surrendered in exchange therefor, adjusted as a
result of the receipt of cash and Parent Notes pursuant to the Merger;
and
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(iv) The holding period of the Parent Common Stock received by a
Company Shareholder pursuant to the Merger will include the period
during which the Company Common Stock or Company Preferred Stock
surrendered therefor was held, provided the Company Common Stock or
Company Preferred Stock is a capital asset in the hands of the Company
Shareholder at the time of the Merger.
The Tax Opinion shall also support such other material tax matters and
consequences as are described under the caption "Material Federal Income Tax
Consequences" in any Registration Statement filed pursuant to Section 6.13 of
this Agreement. In rendering the Tax Opinion, such counsel may require and rely
upon representations and covenants including those contained in certificates of
officers of the Company, Parent and others.
The requirement that the Tax Opinion described in this Section 7.01(c) be
delivered at the Effective Time shall be a non-waivable condition to the
consummation of the Merger.
SECTION 7.02. Conditions to the Obligations of Parent and Merger Sub. The
obligations of Parent and Merger Sub to consummate the Merger are subject to
the satisfaction or waiver (where permissible) of the following additional
conditions:
(a) Representations, Warranties and Covenants. The representations and
warranties of the Company made in this Agreement (without giving effect to
any materiality qualifications or limitations therein or any references
therein to Material Adverse Effect) shall be true and correct as of the
date hereof and the Effective Time (except for representations and
warranties that speak as of a specific date or time which need only be true
and correct as of such date or time), and the Company shall have performed
or complied with all obligations and covenants required by this Agreement
to be performed or complied with by it prior to the Effective Time, except
for such failures to be true and correct that would not have a Material
Adverse Effect; and Parent shall have received a certificate executed by an
executive officer of the Company to that effect.
(b) Consents. The Company shall have obtained all Company Required
Consents.
(c) Company Shareholders' Vote. The Company Shareholders' Vote shall
have been obtained.
(d) Resignation. All members of the Board of Directors of the Company
shall have resigned effective as of the Effective Time.
(e) Approval 280G Payments. The Company shall have obtained the
requisite approval of the Company Shareholders of the 280G Payments (as
described in Section 6.09(d) of this Agreement).
(f) Escrow Agreement. The Escrow Agent and the Shareholders'
Representative shall have executed and delivered to Parent the Escrow
Agreement.
(g) Shareholders Agreement. The Company Holders (as defined in Section
9.02) entitled to receive at least 90% of the Parent Common Shares pursuant
to this Agreement shall have executed and delivered to Parent the
Shareholders Agreement, in substantially the form attached hereto as
Exhibit B (the "Shareholders Agreement").
(h) Merger Consideration Calculation Schedule. The Company shall have
delivered to Parent a schedule, approved by the Company's Board of
Directors, setting forth the calculation of the Non-Stock Merger
Consideration Per Common Share, the Non-Stock Merger Consideration Per
Preferred Share, the Non-Stock Merger Consideration Per Option Share, the
Stock Merger Consideration Per Common Share, the Stock Merger Consideration
Per Preferred Share and the Stock Merger Consideration Per Option Share.
SECTION 7.03. Conditions to the Obligations of the Company. The obligations
of the Company to consummate the Merger are subject to the satisfaction or
waiver (where permissible) of the following additional conditions:
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(a) Representations, Warranties and Covenants. The representations and
warranties of Parent and Merger Sub made in this Agreement (without giving
effect to any materiality qualifications or limitations therein or any
references therein to Material Adverse Effect) shall be true and correct as
of the date hereof and the Effective Time (except for representations and
warranties that speak as of a specific date or time which need only be true
and correct as of such date or time), and Parent and Merger Sub shall have
performed or complied with all obligations and covenants required by this
Agreement to be performed or complied with by it prior to the Effective
Time, except for such failures to be true and correct that, in the
aggregate, would not have a Material Adverse Effect; and the Company shall
have received a certificate executed by an executive officer of Parent to
that effect.
(b) Consents. Parent shall have obtained all Parent Required Consents.
(c) Parent Stockholders' Vote. The Parent Stockholders' Vote shall have
been obtained.
(d) Escrow Agreements. Parent and the Escrow Agent shall have executed
and delivered to the Shareholders' Representative the Escrow Agreement and
the Tax Escrow Agreement.
(e) Shareholders Agreement. Parent shall have executed and delivered to
the Shareholder's Representative the Shareholders Agreement.
(f) Indenture. Parent shall have executed and delivered to Shareholders'
Representative the Indenture.
(g) Merger Sub Stockholders' Vote. The Merger Sub Stockholders' Vote
shall have been obtained.
(h) Securities Filing. Parent shall have filed (i) the Registration
Statement with the SEC or (ii) the Exemption Application with the
appropriate securities regulatory authority.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.01. Termination. This Agreement may be terminated and the Merger
and the other transactions contemplated by this Agreement may be abandoned at
any time prior to the Effective Time, notwithstanding any requisite approval
and adoption of this Agreement and the transactions contemplated by this
Agreement, as follows:
(a) by mutual written consent of Parent and the Company duly authorized
by the Boards of Directors of each of Parent and the Company;
(b) by either Parent or the Company, if the Merger shall not have been
consummated on or before the Termination Date; provided, however, that the
right to terminate this Agreement under this Section 8.01(b) shall not be
available to any party whose failure to fulfill its obligations hereunder
shall have been the cause of, or shall have resulted in, the failure of the
Merger to occur on or before such date. For purposes of this Agreement, the
"Termination Date" shall mean (i) forty-five (45) calendar days after the
SEC Effective Date, if the SEC Effective Date is on or before August 23,
2001, or (ii) August 24, 2001, if the SEC Effective Date is on or after
August 24, 2001. For purposes of this Agreement, the "SEC Effective Date"
shall mean the later of the dates on which (i) the Registration Statement
is declared effective by the SEC, or the exemption from such registration
contained in the Exemption Application is confirmed by the appropriate
securities regulatory authority, or (ii) the SEC approves, for distribution
to Parent Stockholders, Parent's definitive proxy materials relating to the
issuance of the Parent Common Shares in connection with the Merger.
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(c) 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; provided, however, that the provisions of this
Section 8.01(c) shall not be available to any party whose failure to
fulfill its obligations hereunder shall have been the cause of, or shall
have resulted in, such Order;
(d) by Parent in the event that the Company has breached any
representation, warranty, covenant or agreement (subject to the materiality
threshold, if any, expressed in such representation, warranty, covenant or
agreement) on the part of the Company set forth in this Agreement, or if
any representation or warranty of the Company shall have become untrue, in
either case such that any condition set forth in Section 7.02 would not be
satisfied, Parent has notified the Company of the breach and the breach has
continued without cure for a period of 30 days after notice of the breach;
or
(e) by the Company in the event that Parent or Merger Sub has breached
any representation, warranty, covenant or agreement (subject to the
materiality threshold, if any, expressed in such representation, warranty,
covenant or agreement) on the part of Parent or Merger Sub set forth in
this Agreement, or if any representation or warranty of the Parent and
Merger Sub shall have become untrue, in either case such that any condition
set forth in Section 7.03 would not be satisfied, the Company has notified
Parent of the breach and the breach has continued without cure for a period
of 30 days after notice of the breach.
SECTION 8.02. Effect of Termination. Except as provided in Section 6.10 and
Section 10.02, in the event of termination of this Agreement pursuant to
Section 8.01, this Agreement shall forthwith become void, there shall be no
liability under this Agreement on the part of Parent, Merger Sub, the Company
or the Shareholders' Representative or any of their respective officers or
directors, and all rights and obligations of each party hereto shall cease.
SECTION 8.03. Amendment. This Agreement may be amended by the parties hereto
by action taken by or on behalf of their respective Boards of Directors at any
time prior to the Effective Time; provided, however, that, after the approval
of the Merger and this Agreement by the shareholders of the Company, no
amendment may be made that would reduce the amount or change the type of
consideration into which each Outstanding Share shall be converted upon
consummation of the Merger. This Agreement may not be amended, except by an
instrument in writing signed by the parties hereto.
SECTION 8.04. Waiver. At any time prior to the Effective Time, any party
hereto may (a) extend the time for the performance of any obligation or other
act of any other party hereto, (b) waive any inaccuracy in the representations
and warranties contained herein or in any document delivered pursuant hereto,
and (c) waive compliance with any agreement or condition contained herein
(except for any agreement or condition which, by its terms, is non-waivable).
Any such extension or waiver shall be valid if set forth in an instrument in
writing signed by the party or parties to be bound thereby.
ARTICLE IX
INDEMNIFICATION
SECTION 9.01. Survival of Representations and Warranties. The
representations and warranties contained in this Agreement shall survive the
Effective Time and shall continue until 5:00 p.m. on the date which is one year
following the date of the Effective Time (the "Expiration Date"); provided,
however that, the representations and warranties set forth in Sections 3.01,
3.03, 3.04, 3.17, 4.01 and 4.03 shall survive for the applicable statutes of
limitations. Neither the period of survival nor the liability of a party hereto
with respect to such party's representations and warranties shall be reduced by
any investigation made at any time by or on behalf of another party hereto. If
written notice of a claim has been given prior to the expiration of the
applicable representations and warranties by a party hereto to another party
hereto, then the relevant representations and warranties shall survive as to
such claim until such claim has been finally resolved.
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SECTION 9.02. Indemnification By Shareholders. (a) Subject to the provisions
of Section 9.02(b), after the Effective Time, Parent and its affiliates
(including, after the Effective Time, the Surviving Corporation), officers,
directors, employees, agents, successors and assigns shall be indemnified and
held harmless by the holders of Company Outstanding Shares as of immediately
prior to the Effective Time (collectively, the "Company Holders"), severally
and not jointly, for any and all liabilities, losses, damages, claims, costs
and expenses, interest, awards, judgments and penalties (including, without
limitation, reasonable attorneys' and consultants' fees and expenses and other
costs of defending, investigating or settling claims) actually suffered or
incurred by them (including, without limitation, in connection with any action
brought or otherwise initiated by any of them) (hereinafter, a "Loss"), arising
out of or resulting from;
(i) the breach of any representation or warranty (without giving
effect to any qualification as to materiality or as to material adverse
effect (or similar qualifications) contained therein in determining the
amount of any Loss) made by the Company in this Agreement; and
(ii) the breach of any covenant or agreement made by the Company in
this Agreement.
(b) Notwithstanding anything to the contrary contained in this
Agreement:
(i) except with respect to claims based on fraud, the maximum
aggregate amount of indemnifiable Losses arising out of or resulting
from the causes enumerated in Section 9.02(a) that may be recovered
from any Company Holder (other than Losses arising with respect to a
breach of the representations and warranties set forth in Sections 3.03
and 3.04) shall be the amount equal to 5% of the value of the Total
Merger Consideration to which such Company Holder is entitled pursuant
to Section 2.01 of the Merger Agreement;
(ii) no indemnification payment by the Company Holder with respect
to any indemnifiable Loss otherwise payable and arising out of or
resulting from the causes enumerated in Section 9.02(a)(i) shall be
payable until such time as all such indemnifiable Losses shall
aggregate to more than $500,000 (the "Basket Amount"), after which time
the Company Holder shall be liable only for indemnifiable Losses in
excess of the Basket Amount;
(iii) indemnification claims pursuant to Section 9.02(a) shall be
satisfied, in accordance with the Escrow Agreement, solely out of the
Parent Common Shares and Parent Notes held in the Escrow Account on
behalf of such Company Holder, if any;
(iv) the indemnification obligation of the Company Holders with
respect to a breach of any representation or warranty, and the amount
to be indemnified, shall be determined without regard to any
materiality qualification set forth in such representation or warranty;
(v) the amount of any indemnification to be paid under this Article
IX shall be computed after giving effect to any tax benefits actually
realized by Parent and any insurance proceeds actually received by
Parent, after taking into account the tax consequences of the receipt
of any indemnity payment hereunder; and
(vi) the Company Holders shall have no liability for indemnification
hereunder with respect to any claim arising from a change in Law or
GAAP after the Effective Date having a retroactive effect.
SECTION 9.03. Indemnification By Parent. (a) Subject to the provisions of
Section 9.03(b), after the Effective Time, the Company Holders and their
respective affiliates, officers, directors, employees, agents, successors and
assigns shall be indemnified and held harmless by Parent for any and all
Losses, arising out of or resulting from:
(i) the breach of any representation or warranty (without giving
effect to any qualification as to materiality or as to material adverse
effect (or similar qualifications) contained therein in determining the
amount of any Loss) made by the Parent or Merger Sub in this Agreement;
and
(ii) the breach of any covenant or agreement made by Parent in this
Agreement.
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(b) Notwithstanding anything to the contrary contained in this
Agreement:
(i) except with respect to claims based on fraud and Parent's
obligation to deliver the Total Merger Consideration pursuant to
Section 2.02 of this Agreement, the maximum aggregate amount of
indemnification Losses arising out of or resulting from the causes
enumerated in Section 9.03(a) that may be recovered from Parent shall
be five percent (5%) of the Total Merger Consideration;
(ii) no indemnification payment by Parent with respect to any
indemnifiable Loss otherwise payable and arising out of or resulting
from the causes enumerated in Section 9.03(a)(i) shall be payable until
such time as all such indemnifiable Losses shall aggregate to more than
the Basket Amount, after which time Parent shall be liable only for
indemnifiable Losses in excess of the Basket Amount;
(iii) Parent's indemnification obligation with respect to a breach
of any representation or warranty, and the amount to be indemnified,
and shall be determined without regard to any materiality qualification
set forth in such representation or warranty;
(iv) the amount of any indemnification to be paid under this Article
IX shall be computed after giving effect to any tax benefits actually
realized by the Shareholders and any insurance proceeds actually
received by the Company Holders, after taking into account the tax
consequences of the receipt of any indemnity payment hereunder; and
(v) Parent shall have no liability for indemnification hereunder
with respect to any claim arising from a change in Law or GAAP after
the Effective Date having a retroactive effect.
SECTION 9.04. Indemnification Procedures. For purposes of this Section 9.04,
a party against which indemnification may be sought is referred to as the
"Indemnifying Party" and the party that may be entitled to indemnification is
referred to as the "Indemnified Party".
(a) The obligations and liabilities of Indemnifying Parties under this
Article IX with respect to Losses arising from claims of any third party
which are subject to the indemnification provided for in this Article IX
(the "Third Party Claims") shall be governed by and contingent upon the
following additional terms and conditions: if an Indemnified Party shall
receive notice of any Third Party Claim, the Indemnified Party shall give
all Indemnifying Parties notice of such Third Party Claim within 30 days of
the receipt by the Indemnified Party of such notice; provided, however,
that the failure to provide such notice shall not release an Indemnifying
Party from any of its obligations under this Article IX except to the
extent that such Indemnifying Party is materially prejudiced by such
failure. The notice of claim shall describe in reasonable detail the facts
known to the Indemnified Party giving rise to such indemnification claim,
and the amount or good faith estimate of the amount arising therefrom.
(b) The Indemnifying Party shall be entitled to assume and control the
defense of such Third Party Claim at its expense and through counsel of its
choice if it gives notice of its intention to do so to the Indemnified
Party within 15 days of the receipt of such notice from the Indemnified
Party; provided, however, that, if there exists or is reasonably likely to
exist a conflict of interest that would make it inappropriate in the
judgment of the Indemnified Party, in its reasonable discretion, for the
same counsel to represent both the Indemnified Party and the Indemnifying
Party, then the Indemnified Party shall be entitled to retain its own
counsel, in each jurisdiction for which the Indemnified Party determines
counsel is required, at the expense of the Indemnifying Party. In the event
that the Indemnifying Party exercises the right to undertake any such
defense against any such Third Party Claim as provided above, the
Indemnified Party shall cooperate with the Indemnifying Party in such
defense and make available to the Indemnifying Party, at the Indemnifying
Party's expense, all witnesses, pertinent records, materials and
information in the Indemnified Party's possession or under the Indemnified
Party's control relating thereto as is reasonably required by the
Indemnifying Party. Similarly, in the event the Indemnified Party is,
directly or indirectly, conducting the defense against any such Third Party
Claim, the Indemnifying Party shall cooperate with the Indemnified Party in
such defense and make available to the Indemnified Party, at
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the Indemnifying Party's expense, all such witnesses, records, materials
and information in the Indemnifying Party's possession or under the
Indemnifying Party's control relating thereto as are reasonably required by
the Indemnified Party. No such Third Party Claim may be settled by any
party conducting the defense against such claim without the prior written
consent of the other party unless the other party and its affiliates is
released in full in connection with such settlement.
SECTION 9.05. Sole Remedy. After the Effective Time, the rights set forth in
this Article IX and the Escrow Agreement shall be each party's sole and
exclusive remedies against the other party hereto for misrepresentations or
breaches of covenants contained in this Agreement, in any schedule hereto, in
any document or agreement to be executed and delivered pursuant to this
Agreement or in any document or agreement executed and delivered in connection
with the completion of the transaction contemplated hereby. Notwithstanding the
foregoing, nothing herein shall prevent a party from bringing an action based
upon allegations of fraud in connection with this agreement, any schedule
hereto, any document or agreement to be executed and delivered pursuant to this
agreement or any documents or agreement executed and delivered in connection
with the completion of the transaction contemplated hereby. In the event such
action is brought, the prevailing party's attorneys' fees and costs shall be
paid by the nonprevailing party.
SECTION 9.06. Shareholders' Representative. A committee consisting of a
representative of U.S. Trust, a representative of Fidelity Investments, and
Xxxx Xxxxxx (the "Shareholders' Representative"), shall act as the
representative of the Company Holders, and shall be authorized to act on behalf
of the Company Holders and to take any and all actions required or permitted to
be taken by the Shareholders' Representative under this Agreement or the Escrow
Agreement, with respect to any claims (including the settlement thereof) made
by Parent or the Company Holders for indemnification pursuant to this Article
IX of the Agreement and with respect to any actions to be taken by the
Shareholders' Representative pursuant to the terms of the Escrow Agreement. Any
notice of any Third Party Claim for which Parent is an Indemnified Party shall
be deemed to have been delivered by Parent to the Company Holders pursuant to
Section 9.04(b) if validly delivered to the Shareholders' Representative. The
Company Holders shall be bound by all actions taken by the Shareholders'
Representative in its capacity thereof, except for any action that conflicts
with the limitation set forth in the final sentence of this Section 9.06. The
Shareholders' Representative shall promptly, and in any event within ten
business days, provide written notice to the Company Holders of any action
taken on their behalf by the Shareholders' Representative pursuant to the
authority delegated to the Shareholders' Representative under this Section
9.06. The Shareholders' Representative shall at all times act in his or her
capacity as Shareholders' Representative in a manner that the Shareholders'
Representative believes in good faith to be in the best interest of the Company
Holders. Neither the Shareholders' Representative nor any of its directors,
officers, agents or employees shall be liable to any person for any error of
judgment, or any action taken, suffered or omitted to be taken, under this
Agreement or the Escrow Agreement, except in the case of its gross negligence,
bad faith or willful misconduct. The Shareholders' Representative may consult
with legal counsel, independent public accountants and other experts selected
by it and shall not be liable for any action taken or omitted to be taken in
good faith by it in accordance with the advice of such counsel, accountants or
experts. The Shareholders' Representative shall not have any duty to ascertain
or to inquire as to the performance or observance of any of the terms,
covenants or conditions of this Agreement or the Escrow Agreement. As to any
matters not expressly provided for in this Agreement or the Escrow Agreement,
the Shareholders' Representative shall not be required to exercise any
discretion or take any action. Each Company Holder severally shall indemnify
and hold harmless and shall reimburse the Shareholders' Representative from and
against such Company Holder's ratable share of any and all liabilities, losses,
damages, claims, costs or expenses suffered or incurred by the Shareholders'
Representative arising out of or resulting from any action taken or omitted to
be taken by the Shareholders' Representative under this Agreement or the Escrow
Agreement, other than such liabilities, losses, damages, claims, costs or
expenses arising out of or resulting from the Shareholders' Representative's
gross negligence, bad faith or willful misconduct (the "Shareholders'
Representative Expenses"). Notwithstanding the foregoing, the Shareholders'
Representative shall be entitled to reimbursement of the Shareholders'
Representative Expenses from the Escrow Amount pursuant to the terms of the
Escrow Agreement. In all matters relating to this Article IX, the Shareholders'
Representative shall be the
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only party entitled to assert the rights of the Company Holders, and the
Shareholders' Representative shall perform all of the obligations of the
Company Holders hereunder. Parent shall be entitled to rely on all statements,
representations and decisions of the Shareholders' Representative.
ARTICLE X
GENERAL PROVISIONS
SECTION 10.01. Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by
facsimile or email (upon written confirmation of receipt) or by registered or
certified mail (postage prepaid, return receipt requested) to the respective
parties at the following addresses (or at such other address for a party as
shall be specified in a notice given in accordance with this Section 10.01):
if to Parent or Merger Sub:
Cardiac Science, Inc.
00000 Xxxxxxxx Xxxxxx
Xxxxxx, Xxxxxxxxxx 00000
Facsimile No.: (000) 000-0000
Attention: Xxxxxxx Xxxxx, President
with a copy to:
Stradling, Yocca, Xxxxxxx & Xxxxx
000 Xxxxxxx Xxxxxx Xxxxx, Xxxxx 0000
Xxxxxxx Xxxxx, Xxxxxxxxxx 00000
Facsimile No.: (000) 000-0000
Attention: Xxxxxxx X. Xxxxxx, Esq.
if to the Company:
Survivalink Corporation
0000 Xxxxx Xxxx
Xxxxxxxxxx, Xxxxxxxxx 00000
Facsimile No.: (000) 000-0000
Attention: Xxxx X. Xxxxxxxxx, Chief Operating Officer
with a copy to:
Xxxxxx & Whitney, LLP
000 Xxxxx Xxxxx Xxxxxx
Xxxxxxxxxxx, Xxxxxxxxx 00000
Facsimile No.: (000) 000-0000
Attention: Xxxxxxx X. XxXxxxxxx, Esq.
if to the Shareholders Representative:
U.S. Trust
000 Xxxx 00xx Xxxxxx
Xxx Xxxx, XX 00000
Facsimile No.: (000) 000-0000
Attention: Xxxxx X. Xxxx
A-31
with a copy to:
Xxxxxx & Xxxxxxx, LLP
000 Xxxxx Xxxxx Xxxxxx
Xxxxxxxxxxx, Xxxxxxxxx 00000
Facsimile No.: (000) 000-0000
Attention: Xxxxxxx X. XxXxxxxxx, Esq.
SECTION 10.02. Expenses. Except as otherwise expressly provided herein, each
party shall bear its respective Expenses (as defined below) in connection with
the negotiation and preparation of this Agreement and the documents related
thereto and the consummation of the transaction contemplated by this Agreement.
"Expenses" as used in this Agreement shall include all reasonable out-of-pocket
expenses (including, without limitation, all fees and expenses of counsel,
accountants, investment bankers, experts and consultants to a party hereto and
its affiliates) incurred by a party or on its behalf in connection with or
related to the authorization, preparation, negotiation, execution and
performance of this Agreement, filing of any required notices under the HSR Act
or other similar regulations and all other matters related to the closing of
the Merger and the other transactions contemplated by this Agreement.
SECTION 10.03. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of Law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect as long as the economic or legal
substance of the Merger and the transactions contemplated by this Agreement is
not affected in any manner materially adverse to any party. Upon such
determination that any term or other provision are invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith
to modify this Agreement so as to effect the original intent of the parties as
closely as possible in a mutually acceptable manner in order that the Merger
and the transactions contemplated by this Agreement be consummated as
originally contemplated to the fullest extent possible.
SECTION 10.04. Assignment; Binding Effect; Benefit. Neither this Agreement
nor any of the rights, interests or obligations hereunder shall be assigned by
any of the parties hereto (whether by merger, operation of law or otherwise)
without the prior written consent of the other parties. Subject to the
preceding sentence, this Agreement shall be binding upon and shall inure solely
to the benefit of the parties hereto and their respective successors and
assigns. Notwithstanding anything contained in this Agreement to the contrary,
nothing in this Agreement, expressed or implied, is intended to confer on any
person other than the parties hereto or their respective successors and assigns
any rights, remedies, obligations or liabilities under or by reason of this
Agreement.
SECTION 10.05. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or in equity.
SECTION 10.06. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware applicable to
contracts executed in and to be performed in that state and without regard to
any applicable conflicts of law principles.
SECTION 10.07. Headings. The descriptive headings contained in this
Agreement are included for convenience of reference only and shall not affect
in any way the meaning or interpretation of this Agreement.
SECTION 10.08. Counterparts. This Agreement may be executed and delivered
(including by facsimile transmission) in one or more counterparts, and by the
different parties hereto in separate counterparts, each of which when executed
and delivered shall be deemed to be an original but all of which taken together
shall constitute one and the same agreement.
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SECTION 10.09. Entire Agreement. This Agreement, including the schedules and
other agreements and documents delivered pursuant hereto, constitute the entire
agreement among the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings among the parties with
respect thereto, including, without limitation, the Original Agreement. No
addition to or modification of any provision of this Agreement shall be binding
upon any party hereto unless made in writing and signed by all parties hereto.
ARTICLE XI
DEFINITIONS
SECTION 11.01. Certain Definitions. For purposes of this Agreement, the
term:
(a) "Affiliate" of a specified person means a person who directly or
indirectly through one or more intermediaries controls, is controlled by,
or is under common control with such specified person.
(b) "business day" means any day (other than a Saturday or a Sunday) on
which banks are not required or authorized to close in Minneapolis,
Minnesota.
(c) "Company Common Stock" means the Common Stock, $.01 par value per
share, of the Company.
(d) "Company Option(s)" means an option or warrant to purchase shares of
Company Common Stock.
(e) "Company Option Share(s)" means the share(s) of Company Common Stock
issuable upon exercise of a Company Option.
(f) "Company Outstanding Shares" means, collectively, as of the
Effective Time, the outstanding shares of Company Common Stock, the
outstanding shares of Company Preferred Stock and the Company Option
Shares.
(g) "Company Preferred Stock" means the Company Series A Stock and the
Company Series B Stock.
(h) "Company Series A Stock" means the Series A Convertible Preferred
Stock, $.01 par value per share, of the Company.
(i) "Company Series B Stock" means the Series B Convertible Preferred
Stock, $.01 par value per share, of the Company.
(j) "Company Shareholders" means the holders of Company Common Stock and
Company Preferred Stock.
(k) "control" (including the terms "controlled by" and "under common
control with") means the possession, directly or indirectly or as trustee
or executor, of the power to direct or cause the direction of the
management and policies of a person, whether through the ownership of
voting securities, as trustee or executor, by contract or credit
arrangement or otherwise.
(l) "Environmental Laws" means any federal, state, local or foreign laws
relating to (i) releases or threatened releases of Hazardous Substances or
materials containing Hazardous Substances; (ii) the manufacture, handling,
transport, use, treatment, storage or disposal of Hazardous Substances or
materials containing Hazardous Substances; or (iii) otherwise relating to
pollution or protection of the environment, health, safety or natural
resources, all as in effect as of the date hereof.
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(m) "GAAP" means United States generally accepted accounting principles
as in effect from time to time.
(n) "Hazardous Substances" means (i) those substances defined in or
regulated under the following federal statutes and their state counterparts
and all regulations thereunder: the Hazardous Materials Transportation Act,
the Resource Conservation and Recovery Act, the Comprehensive Environmental
Response, Compensation and Liability Act, the Clean Water Act, the Safe
Drinking Water Act, the Atomic Energy Act, the Federal Insecticide,
Fungicide, and Rodenticide Act and the Clean Air Act; (ii) petroleum and
petroleum products, including crude oil and any fractions thereof; (iii)
natural gas, synthetic gas, and any mixtures thereof; (iv) polychlorinated
biphenyls, asbestos and radon; (v) any other contaminant; and (vi) any
substance, material or waste regulated by any federal, state, local or
foreign Governmental Entity pursuant to any Environmental Law.
(o) "Intellectual Property" means (i) United States, non-United States,
and international patents, patent applications and statutory invention
registrations, (ii) trademarks, service marks, trade dress, logos, trade
names, corporate names and other source identifiers, and registrations and
applications for registration thereof, (iii) copyrightable works,
copyrights, and registrations and applications for registration thereof,
and (iv) confidential and proprietary information, including trade secrets
and know-how.
(p) "knowledge" means, with respect to the Company, the actual knowledge
of any executive officer of the Company after reasonable investigation and
with respect to Parent or Merger Sub, the actual knowledge of any executive
officer of Parent or Merger Sub after reasonable investigation, as the case
may be.
(q) "Material Adverse Effect" means, with respect to a party to this
Agreement, any circumstance, event, occurrence, change or effect that is or
is reasonably likely to be materially adverse to the business, operations,
financial condition, assets or results of operations of such party taken as
a whole; provided, however, that none of the following shall be deemed in
themselves, either alone or in combination, to constitute, and none of the
following shall be taken into account in determining whether there has been
or will be a Material Adverse Effect: (i) adverse changes arising from the
announcement or pendency of the Merger (including any cancellations of or
delays in customer orders, any reduction in sales, any disruption in
supplier, distributor, partner or similar relationships or any loss of
employees or any loss due to potential relocation of the Surviving
Corporation); (ii) adverse changes generally affecting the industries in
which such party participates, the economy of the United States as a whole
or foreign economies in any locations where such party has material
operations or sales, (iii) adverse changes arising from or relating to any
change in accounting requirements or principles or any change in applicable
laws, rules or regulations or the interpretation thereof, or (iv) adverse
changes arising from or relating to the payment of amounts due to any
officer or employee under employment agreements, employee benefit plans or
other severance arrangements.
(r) "Merger Consideration Per Common Share" means the amount equal to
(i) the Total Merger Consideration plus the aggregate amount of the
exercise price of the unexercised Company Options outstanding immediately
prior to the Effective Time (excluding any Out-of-the-Money Company
Options) less the Preferred Liquidation Amount, if any, divided by (ii) the
total number of Company Outstanding Shares (including Dissenting Shares and
excluding any outstanding shares of Company Preferred Stock and Out-of-the-
Money Company Options), calculated on a fully-diluted basis, immediately
prior to the Effective Time.
(s) "Merger Consideration Per Option Share" means the Non-Stock Merger
Consideration Per Option Share plus the Stock Merger Consideration Per
Option Share.
(t) "Merger Consideration Per Preferred Share" refers collectively to
the Merger Consideration Per Series A Preferred Share and the Merger
Consideration Per Series B Preferred Share.
A-34
(u) "Merger Consideration Per Series A Preferred Share" means the amount
equal to the greater of (i) $6.70, or (ii) the Merger Consideration Per
Common Share multiplied by the number of Company Common Shares that such
share of Series A Stock would be entitled to if such share of Series A
Stock were converted into Company Common Shares immediately prior to the
Effective Time.
(v) "Merger Consideration Per Series B Preferred Share" means the amount
equal to the greater of (i) $26.80, or (ii) the Merger Consideration Per
Common Share multiplied by the number of Company Common Shares that such
share of Series B Stock would be entitled to if such share of Series B
Stock were converted into Company Common Shares immediately prior to the
Effective Time.
(w) "Merger Consideration Per Share" means, collectively, the Merger
Consideration Per Common Share, the Merger Consideration Per Preferred
Share and the Merger Consideration Per Option Share.
(x) "Non-Stock Merger Consideration Per Common Share" means an amount
equal to one-half the Merger Consideration Per Common Share, in cash and
Parent Notes, allocated by percentage of dollar value as 28.926% to cash
and 71.074% to Parent Notes. The Non-Stock Merger Consideration Per Common
Share shall be subject to adjustment in the event of a Tax Free
Reorganization Adjustment.
(y) "Non-Stock Merger Consideration Per Option Share" means an amount
equal to the Non-Stock Merger Consideration Per Common Share less (ii) one-
half of the applicable exercise price per Company Option Share.
(z) "Non-Stock Merger Consideration Per Preferred Share" means an amount
equal to one-half of the Merger Consideration Per Preferred Share.
(aa) "Non-Stock Merger Consideration Per Share" means, collectively, the
Non-Stock Merger Consideration Per Common Share, the Non-Stock Merger
Consideration Per Preferred Share and the Non-Stock Merger Consideration
Per Option Share.
(bb) "Out-of-the-Money Company Option(s)" means Company Option(s) that,
because the exercise price of such Company Option is greater than the
Merger Consideration Per Common Share, will not receive any portion of the
Total Merger Consideration.
(cc) "Parent Common Shares" means 18,150,000 of Parent Common Stock to
be issued by Parent pursuant to this Agreement, which number shall be
subject to adjustment in the event of a Tax Free Reorganization Adjustment.
(dd) "Parent Common Stock" means the Parent's Common Stock, $0.001 par
value per share.
(B) "Parent Common Stock Price" means $2.00; provided however that,
in the event that the average of the highest and lowest quoted trading
price of Parent Common Stock on the Nasdaq National Market, as reported
in the Wall Street Journal, on the date of the Effective Time is less
than $2.00, the definitions for each of Non-Stock Merger Consideration,
Stock Merger Consideration, Non-Stock Merger Consideration Per Common
Share, Non-Stock Merger Consideration Per Option Share, Non-Stock
Merger Consideration Per Preferred Share, Stock Merger Consideration
Per Common Share, Stock Merger Consideration Per Option Share and Stock
Merger Consideration Per Preferred Share shall be as set forth on
Schedule 11.01 attached hereto (such an event is referred to herein as
a "Tax Free Reorganization Adjustment.").
(ff) "Parent Notes" shall mean senior secured promissory notes issued by
Parent to the Company Shareholders (excluding holders of Dissenting Shares)
as part of the Non-Stock Merger Consideration Per Share, each of which
shall be in substantially the form attached hereto as Exhibit C.
A-35
(gg) "person" means an individual, corporation, partnership, limited
partnership, syndicate, person (including, without limitation, a "person"
as defined in section 13(d)(3) of the Exchange Act), trust, association or
entity or government, political subdivision, agency or instrumentality of a
government.
(hh) "Preferred Liquidation Amount" means the (i) the Merger
Consideration Per Series A Preferred Share, multiplied by the number of
shares of Series A Stock outstanding immediately prior to the Effective
Time (specifically excluding any shares of Series A Stock converted into
Company Common Stock in connection with the Merger), plus (ii) the Merger
Consideration Per Series B Preferred Share, multiplied by the number of
shares of Series B Stock outstanding immediately prior to the Effective
Time (specifically excluding any shares of Series B Stock converted into
Company Common Stock in connection with the Merger).
(ii) "Stock Merger Consideration Per Common Share" means the number of
shares of Parent Common Stock equal to (i) one-half of the Merger
Consideration Per Common Share, divided by (ii) the Parent Common Stock
Price.
(jj) "Stock Merger Consideration Per Option Share" means [(i) the number
of shares of Parent Common Stock equal to the Stock Merger Consideration
Per Common Share less (ii) a number of shares of Parent Common Stock equal
to one-half of the applicable exercise price per option share.]
(kk) "Stock Merger Consideration Per Preferred Share" means the number
of shares of Parent Common Stock equal to (i) one-half of the Merger
Consideration Per Preferred Share, divided by (ii) the Parent Common Stock
Price.
(ll) "Total Merger Consideration" means $72,600,000.
IN WITNESS WHEREOF, Parent, Merger Sub and the Company have caused this
Second Amended and Restated Agreement and Plan of Merger to be executed as of
the date first written above by their respective officers thereunto duly
authorized.
CARDIAC SCIENCE, INC.
By: /s/ Xxxxxxxx Xx Xxxxx
-----------------------------------
Name: Xxxxxxxx Xx Xxxxx
Title: President
CARDIAC SCIENCE ACQUISITION CORP.
By: /s/ Xxxxxxxx Xx Xxxxx
-----------------------------------
Name: Xxxxxxxx Xx Xxxxx
Title: President
SURVIVALINK CORPORATION
By: /s/ Xxxx Xxxxxx
-----------------------------------
Name: Xxxx Xxxxxx
Title: Chief Executive Officer
A-36
SCHEDULE 11.01
TAX FREE REORGANIZATION ADJUSTMENT
1. In accordance with Section 11.01(dd), in the event that the average of the
highest and lowest quoted trading price of Parent Common Stock on the Nasdaq
National Market, as reported in the Wall Street Journal, on the date of the
Effective Time (the "Closing Date Stock Price") is less than $2.00, the
definitions for each of the Non-Stock Merger Consideration, the Stock Merger
Consideration, the Non-Stock Merger Consideration Per Common Share, the Non-
Stock Merger Consideration Per Option Share, the Non-Stock Merger
Consideration Per Preferred Share, the Stock Merger Consideration Per Common
Share, the Stock Merger Consideration Per Option Share and the Stock Merger
Consideration Per Preferred Share shall be as set forth below and the
definitions for the Cash Merger Consideration Per Common Share, the Notes
Merger Consideration Per Common Share, the Cash Merger Consideration Per
Option Share, the Notes Merger Consideration Per Option Share, the Cash
Merger Consideration Per Preferred Share, the Notes Merger Consideration Per
Preferred Share, the Applicable Cash Percentage and the Applicable Stock
Percentage, as set forth below, shall be added to Section 11.01 of the
Agreement.
(a) "Non-Stock Merger Consideration" means the number equal to: (i) a
fraction the numerator of which is: (A) Total Merger Consideration, and
the denominator of which is: (B) one plus the ratio of $2.00 divided by
the Closing Date Stock Price, less (ii) $2.00.
(b) "Stock Merger Consideration" means the Total Merger Consideration less
the Non-Stock Merger Consideration.
(c) "Applicable Non-Stock Percentage" means the Non-Stock Merger
Consideration divided by the Total Merger Consideration.
(d) "Applicable Stock Percentage" means the Stock Merger Consideration
divided by the Total Merger Consideration.
(e) "Non-Stock Merger Consideration Per Common Share" means an amount equal
to the Non-Stock Merger Consideration Per Common Share multiplied by
the Applicable Non-Stock Percentage.
(f) "Cash Merger Consideration Per Common Share" means an amount in cash
equal to the Non-Stock Merger Consideration Per Common Share (as
defined in the original agreement without the adjustment contained in
this Schedule 11.01) multiplied by 0.28926.
(g) "Notes Merger Consideration Per Common Share" means Non-Stock Merger
Consideration Per Common Share (as adjusted herein) less the Cash
Merger Consideration Per Common Share.
(h) "Non-Stock Merger Consideration Per Option Share" means an amount equal
to the Non-Stock Merger Consideration Per Common Share (as adjusted
herein) less one-half of the applicable exercise price per share for
such Company Option.
(i) "Cash Merger Consideration Per Option Share" means an amount in cash
equal to (i) the Cash Merger Consideration Per Common Share (as defined
herein) less (ii) the applicable exercise price per share for such
Company Option multiplied by 0.28926.
(j) "Notes Merger Consideration Per Option Share" means Parent Notes with a
principal amount equal to the Non-Stock Merger Consideration Per Option
Share (as adjusted herein) less the Cash Merger Consideration Per
Option Share.
(k) "Non-Stock Merger Consideration Per Preferred Share" means an amount
equal to the Non-Stock Merger Consideration Per Preferred Share
multiplied by the Applicable Non-Stock Percentage.
(l) "Cash Merger Consideration Per Preferred Share" means an amount in cash
equal to the Non-Stock Merger Consideration Per Preferred Share (as
defined in the original agreement without the adjustment contained in
this Schedule 11.01) multiplied by 0.28926.
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(m) "Notes Merger Consideration Per Preferred Share" means Parent Notes
with a principal amount equal to the Non-Stock Merger Consideration Per
Preferred Share (as adjusted herein) less the Cash Merger Consideration
Per Preferred Share.
(n) "Stock Merger Consideration Per Common Share" means the number of
Parent Common Shares equal to (i) the Merger Consideration Per Common
Share multiplied by the Applicable Stock Percentage, divided by (ii)
$2.00.
(o) "Stock Merger Consideration Per Option Share" means the number of
Parent Common Shares equal to (i) the Stock Merger Consideration Per
Common Share less (ii) a number of Parent Common Shares equal to one-
half of the applicable exercise price per share for such Company Option
divided by $2.00.
(p) "Stock Merger Consideration Per Preferred Share" means the number of
Parent Common Shares equal to (i) the Merger Consideration Per
Preferred Share multiplied by the Applicable Stock Percentage, divided
by (ii) $2.00.
2. Notwithstanding the foregoing or anything to the contrary contained herein,
in the event that the Closing Date Stock Price is less than $2.00:
(a) the total cash to be delivered by Parent under this Agreement shall
equal $10,500,000;
(b) the aggregate principal amount of the Parent Notes to be delivered by
Parent under this Agreement shall equal the Non-Stock Merger
Consideration less $10,500,000; and
(c) the total number of Parent Common Shares to be delivered by Parent
under this Agreement shall equal (i) the Stock Merger Consideration,
divided by (ii) $2.00.
3. Example:
Assumptions:
Closing Date Stock Price = $1.75
Calculations:
Non-Stock Merger Consideration = (72,600,000/(1+(2.00/1.75))-2.00) =
$33,879,998.00
Applicable Non-Stock Percentage = (33,879,998.00/72,600,000) = .4666667
Stock Merger Consideration = $72,600,000-$33,879,998.00 = $38,720,002.00
Applicable Stock Percentage = (38,720,002.00/72,600,000) = .5333333
Total Parent Common Shares Issued = (38,720,002.00/2) = 19,360,001
4. Allocation at Certain Closing Date Stock Prices
Stock Price at No. of Total
Effective Time Shares Notes Cash Consideration
-------------- ---------- ----------- ----------- -------------
$1.75 19,360,001 $23,379,998 $10,500,000 $67,760,000
$1.50 20,742,858 $20,614,284 $10,500,000 $62,228,571
$1.25 22,338,463 $17,423,075 $10,500,000 $55,846,153
$1.00 24,200,001 $13,699,998 $10,500,000 $48,399,999
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