SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): March 7, 2003
INTUITIVE SURGICAL, INC.
| Delaware | 000-30713 | 77-0416458 | ||
|
|
||||
| (State or Other
Jurisdiction of Incorporation) |
(Commission File Number) | (I.R.S. Employer Identification No.) |
950 Kifer Road, Sunnyvale, CA 94086
(408) 523-2100
N/A
| ITEM 5. OTHER EVENTS | ||||||||
| ITEM 7. Financial Statements, Pro Forma Financial Information and Exhibits. | ||||||||
| SIGNATURES | ||||||||
| EXHIBIT INDEX | ||||||||
| EXHIBIT 2.1 | ||||||||
| EXHIBIT 4.1 | ||||||||
| EXHIBIT 4.2 | ||||||||
| EXHIBIT 10.1 | ||||||||
| EXHIBIT 99.1 | ||||||||
| EXHIBIT 99.2 | ||||||||
ITEM 5. OTHER EVENTS
On March 7, 2003, Intuitive Surgical, Inc., a Delaware corporation (“Intuitive”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) by and among Intuitive, Iron Acquisition Corporation, a Delaware corporation and a wholly owned subsidiary of Intuitive (“Merger Sub”), and Computer Motion, Inc., a Delaware corporation (“Computer Motion”). Pursuant to the Merger Agreement and subject to the terms and conditions set forth therein, Merger Sub will be merged with and into Computer Motion (the “Merger”), with Computer Motion becoming the surviving corporation and a wholly owned subsidiary of Intuitive. At the Effective Time (as defined in the Merger Agreement) of the Merger, each issued and outstanding share of common stock, par value $0.001 per share, of Computer Motion (“CMI Common Stock”) will be converted into the right to receive that certain number of shares of common stock, par value $0.001 per share, of Intuitive (“Intuitive Common Stock”), as calculated by application of an exchange ratio (the “Exchange Ratio”). A copy of the Merger Agreement is attached hereto as Exhibit 2.1 and the foregoing description is qualified in its entirety by reference to the full text of the Merger Agreement.
Certain stockholders of Computer Motion have entered into a stockholder support agreement (the “CMI Support Agreement”) with Intuitive and Merger Sub pursuant to which, among other things, they have agreed to vote in favor of the Merger all shares of CMI Common Stock which they are entitled to vote. A copy of the form of CMI Support Agreement is attached hereto as Exhibit 4.1 and the foregoing description is qualified in its entirety by reference to the full text of the CMI Support Agreement.
Certain stockholders of Intuitive have entered into a stockholder support agreement (the “Intuitive Support Agreement”) with Intuitive and Merger Sub pursuant to which, among other things, they have agreed to vote in favor of the Share Issuance (as defined in the Merger Agreement) all shares of Intuitive Common Stock to which they are entitled to vote. A copy of the form of Intuitive Support Agreement is attached hereto as Exhibit 4.2 and the foregoing description is qualified in its entirety by reference to the full text of the Intuitive Support Agreement.
In connection with the Merger, Intuitive and Computer Motion have also entered into a Loan and Security Agreement, under which Intuitive will provide a short-term secured bridge loan facility of up to $7.3 million (the “Loan”). The Loan will terminate and all outstanding amounts will become due and payable a year from the date of execution of the Loan Agreement, subject to certain acceleration events described in the Loan Agreement. Interest on the Loan will be payable at the rate equal to 8% per annum, which is not due and payable until the Maturity Date. A copy of the Loan and Security Agreement is attached hereto as Exhibit 10.1 and the foregoing description is qualified in its entirety by reference to the full text of the Loan and Security Agreement.
A copy of the joint press release announcing the execution of the Merger Agreement and related agreements was issued on March 7, 2003 and is attached hereto as Exhibit 99.1.
Finally, a certificate of designation for Computer Motion’s newly issued Series D Preferred Stock is attached as Exhibit 99.2, the provisions of which relate to and affect adjustments to the Exchange Ratio. As of March 7, 2003, all holders of Computer Motion’s Series C Preferred Stock have executed agreements to exchange all of the previously outstanding Series C Preferred Stock for Series D Preferred Stock.
ITEM 7. Financial Statements, Pro Forma Financial Information and Exhibits.
| (c) | Exhibits: |
| 2.1 | Agreement and Plan of Merger by and among Intuitive Surgical, Inc., Iron Acquisition Corporation and Computer Motion, Inc., dated as of March 7, 2003. | |
| 4.1 | Form of Stockholder Support Agreement by and among Intuitive Surgical, Inc., Iron Acquisition Corporation and Certain Stockholders of Computer Motion, Inc. | |
| 4.2 | Form of Stockholder Support Agreement by and among Intuitive Surgical, Inc., Iron Acquisition Corporation and Certain Stockholders of Intuitive Surgical, Inc. | |
| 10.1 | Loan and Security Agreement by and between Computer Motion, Inc., as Borrower, and Intuitive Surgical, Inc. as Lender, dated March 7, 2003. | |
| 99.1 | Press Release dated March 7, 2003. | |
| 99.2 | Certificate of Designation for Series D Preferred Stock of Computer Motion, Inc. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Dated: March 7, 2003
| INTUITIVE SURGICAL, INC. | ||||
| (Registrant) | ||||
| By: | /s/ Lonnie M. Smith
President and Chief Executive Officer |
|||
EXHIBIT INDEX
| Exhibits | ||
| 2.1 | Agreement and Plan of Merger by and among Intuitive Surgical, Inc., Iron Acquisition Corporation and Computer Motion, Inc., dated as of March 7, 2003. | |
| 4.1 | Form of Stockholder Support Agreement by and among Intuitive Surgical, Inc., Iron Acquisition Corporation and Certain Stockholders of Computer Motion, Inc. | |
| 4.2 | Form of Stockholder Support Agreement by and among Intuitive Surgical, Inc., Iron Acquisition Corporation and Certain Stockholders of Intuitive Surgical, Inc. | |
| 10.1 | Loan and Security Agreement by and between Computer Motion, Inc., as Borrower, and Intuitive Surgical, Inc. as Lender, dated March 7, 2003. | |
| 99.1 | Press Release dated March 7, 2003. | |
| 99.2 | Form of Certificate of Designation for Series D Preferred Stock of Computer Motion, Inc. |
Exhibit 2.1
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
INTUITIVE SURGICAL, INC.,
IRON ACQUISITION CORPORATION
AND
COMPUTER MOTION, INC.
DATED AS OF MARCH 7, 2003
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1. THE MERGER........................................................................................ 2
Section 1.1 The Merger................................................................................. 2
Section 1.2 Effective Time............................................................................. 2
Section 1.3 Effect of the Merger....................................................................... 2
Section 1.4 Certificate of Incorporation; By-laws...................................................... 2
Section 1.5 Directors and Officers..................................................................... 2
ARTICLE 2. CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES................................................ 3
Section 2.1 Conversion of Securities................................................................... 3
Section 2.2 Exchange of Certificates................................................................... 5
Section 2.3 Stock Transfer Books....................................................................... 9
Section 2.4 Stock Options.............................................................................. 9
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY..................................................... 10
Section 3.1 Organization and Qualification; Subsidiaries............................................... 10
Section 3.2 Certificate of Incorporation and By-laws; Corporate Books and Records...................... 11
Section 3.3 Capitalization............................................................................. 11
Section 3.4 Authority.................................................................................. 13
Section 3.5 No Conflict; Required Filings and Consents................................................. 14
Section 3.6 Permits; Compliance With Law............................................................... 15
Section 3.7 SEC Filings; Financial Statements.......................................................... 16
Section 3.8 Disclosure Documents....................................................................... 17
Section 3.9 Absence of Certain Changes or Events....................................................... 18
Section 3.10 Employee Benefit Plans..................................................................... 18
Section 3.11 Labor and Other Employment Matters......................................................... 22
Section 3.12 Tax Treatment.............................................................................. 24
Section 3.13 Contracts.................................................................................. 24
Section 3.14 Litigation................................................................................. 26
Section 3.15 Environmental Matters...................................................................... 27
Section 3.16 Intellectual Property...................................................................... 27
Section 3.17 Taxes...................................................................................... 29
Section 3.18 Insurance.................................................................................. 31
Section 3.19 Opinion of Financial Advisors.............................................................. 31
Section 3.20 Vote Required.............................................................................. 31
Section 3.21 Brokers and Other Advisors................................................................. 31
Section 3.22 Product Liability.......................................................................... 32
</TABLE>
i
<TABLE>
<S> <C>
Section 3.23 Transactions with Affiliates............................................................... 32
Section 3.24 Federal Healthcare Matters................................................................. 33
ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB........................................... 33
Section 4.1 Organization and Qualification; Subsidiaries............................................... 33
Section 4.2 Certificate of Incorporation and By-laws; Corporate Books and Records...................... 33
Section 4.3 Capitalization............................................................................. 34
Section 4.4 Authority.................................................................................. 35
Section 4.5 No Conflict; Required Filings and Consents................................................. 36
Section 4.6 Permits; Compliance With Law............................................................... 37
Section 4.7 SEC Filings; Financial Statements.......................................................... 38
Section 4.8 Disclosure Documents....................................................................... 39
Section 4.9 Absence of Certain Changes or Events....................................................... 40
Section 4.10 Employee Benefit Plans..................................................................... 40
Section 4.11 Labor and Other Employment Matters......................................................... 44
Section 4.12 Tax Treatment.............................................................................. 46
Section 4.13 Contracts.................................................................................. 46
Section 4.14 Litigation................................................................................. 48
Section 4.15 Environmental Matters...................................................................... 48
Section 4.16 Intellectual Property...................................................................... 49
Section 4.17 Taxes...................................................................................... 50
Section 4.18 Insurance.................................................................................. 52
Section 4.19 Opinion of Financial Advisors.............................................................. 53
Section 4.20 Vote Required.............................................................................. 53
Section 4.21 Brokers and Other Advisors................................................................. 53
Section 4.22 Product Liability.......................................................................... 53
Section 4.23 Transactions with Affiliates............................................................... 54
Section 4.24 Federal Healthcare Matters................................................................. 54
ARTICLE 5. COVENANTS......................................................................................... 54
Section 5.1 Conduct of Business by the Company Pending the Closing..................................... 54
Section 5.2 Conduct of Business by Parent Pending the Closing.......................................... 59
Section 5.3 Cooperation................................................................................ 60
Section 5.4 Registration Statement; Proxy Statement.................................................... 60
Section 5.5 Stockholders' Meetings..................................................................... 62
Section 5.6 Access to Information; Confidentiality..................................................... 62
Section 5.7 No Solicitation of Transactions............................................................ 63
Section 5.8 Appropriate Action; Consents; Filings...................................................... 65
</TABLE>
ii
<TABLE>
<S> <C>
Section 5.9 Certain Notices............................................................................ 67
Section 5.10 Public Announcements....................................................................... 67
Section 5.11 Stock Exchange Listing..................................................................... 67
Section 5.12 Employee Benefit Matters................................................................... 67
Section 5.13 Indemnification of Directors and Officers.................................................. 68
Section 5.14 Plan of Reorganization..................................................................... 69
Section 5.15 Affiliate Agreements....................................................................... 69
Section 5.16 Company Rights Agreement................................................................... 70
Section 5.17 Patent Litigation and Administrative Proceedings........................................... 70
Section 5.18 Board of Directors......................................................................... 72
Section 5.19 Termination of 401(k) Plan................................................................. 72
Section 5.20 Employee Stock Purchase Plan............................................................... 72
ARTICLE 6. CLOSING CONDITIONS................................................................................ 73
Section 6.1 Conditions to Obligations of Each Party Under This Agreement............................... 73
Section 6.2 Additional Conditions to Obligations of Parent and Merger Sub.............................. 74
Section 6.3 Additional Conditions to Obligations of the Company........................................ 76
ARTICLE 7. TERMINATION, AMENDMENT AND WAIVER................................................................. 76
Section 7.1 Termination................................................................................ 76
Section 7.2 Effect of Termination...................................................................... 79
Section 7.3 Amendment.................................................................................. 80
Section 7.4 Waiver..................................................................................... 81
Section 7.5 Fees and Expenses.......................................................................... 81
ARTICLE 8. GENERAL PROVISIONS................................................................................ 81
Section 8.1 Non-Survival of Representations and Warranties............................................. 81
Section 8.2 Notices.................................................................................... 82
Section 8.3 Certain Definitions........................................................................ 82
Section 8.4 Terms Defined Elsewhere.................................................................... 89
Section 8.5 Headings................................................................................... 92
Section 8.6 Severability............................................................................... 92
Section 8.7 Entire Agreement........................................................................... 93
Section 8.8 Assignment................................................................................. 93
Section 8.9 Parties in Interest........................................................................ 93
Section 8.10 Mutual Drafting............................................................................ 93
Section 8.11 Governing Law; Consent to Jurisdiction; Waiver of Trial by Jury............................ 93
Section 8.12 Disclosure................................................................................. 94
Section 8.13 Counterparts............................................................................... 95
</TABLE>
iii
<TABLE>
<S> <C>
Section 8.14 Specific Performance....................................................................... 95
</TABLE>
EXHIBITS
EXHIBIT A Parent Stockholders Executing Parent Support Agreements
EXHIBIT B Form of Parent Support Agreement
EXHIBIT C Company Stockholders Executing Company Support Agreements
EXHIBIT D Form of Company Support Agreement
iv
AGREEMENT AND PLAN OF MERGER, dated as of March 7, 2003 (this
"Agreement"), by and among Intuitive Surgical, Inc., a Delaware corporation
("Parent"), Iron Acquisition Corporation, a Delaware corporation and a wholly
owned subsidiary of Parent ("Merger Sub"), and Computer Motion, Inc., a Delaware
corporation (the "Company").
WHEREAS, the respective Boards of Directors of Parent, Merger Sub and the
Company have approved and declared advisable the merger of Merger Sub with and
into the Company (the "Merger") upon the terms and subject to the conditions of
this Agreement and in accordance with the General Corporation Law of the State
of Delaware (the "DGCL"); and
WHEREAS, the respective Boards of Directors of Parent and the Company have
determined that the Merger is in furtherance of and consistent with their
respective business strategies and is in the best interest of their respective
stockholders, and Parent has approved this Agreement and the Merger as the sole
stockholder of Merger Sub; and
WHEREAS, as a condition to and inducement to the Company's willingness to
enter into this Agreement, simultaneously with the execution of this Agreement,
each of the stockholders of Parent listed on Exhibit A have entered into support
agreements with the Company in the form attached hereto as Exhibit B (the
"Parent Support Agreements"); and
WHEREAS, as a condition to and inducement to Parent's and the Merger Sub's
willingness to enter into this Agreement, simultaneously with the execution of
this Agreement, each of the stockholders of the Company listed on Exhibit C have
entered into support agreements with Parent and Merger Sub in the form attached
hereto as Exhibit D (the "Company Support Agreements"); and
WHEREAS, simultaneously with the execution and delivery of this Agreement,
Parent and the Company have entered into a loan and security agreement dated the
date hereof; (the "Loan Agreement"); and
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code");
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement and intending to be legally bound hereby, the parties hereto agree as
follows:
ARTICLE 1.
THE MERGER
Section 1.1 The Merger. Upon the terms and subject to satisfaction or
waiver of the conditions set forth in this Agreement, and in accordance with the
DGCL, Merger Sub, at the Effective Time, shall be merged with and into the
Company. As a result of the Merger, the separate corporate existence of Merger
Sub shall cease and the Company shall continue as the surviving corporation of
the Merger (the "Surviving Corporation").
Section 1.2 Effective Time. As soon as practicable after the satisfaction
or, if permissible, waiver of the conditions set forth in Article 6, the parties
hereto shall cause the Merger to be consummated by filing a certificate of
merger (the "Certificate of Merger") with the Secretary of State of the State of
Delaware, in such form as required by, and executed in accordance with the
relevant provisions of, the DGCL (the date and time of such filing, or if
another date and time is specified in such filing, such specified date and time,
being the "Effective Time").
Section 1.3 Effect of the Merger. At the Effective Time, the effect of the
Merger shall be as provided in the applicable provisions of the DGCL. Without
limiting the generality of the foregoing, at the Effective Time, except as
otherwise provided herein, 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.
Section 1.4 Certificate of Incorporation; By-laws. At the Effective Time,
the Certificate of Incorporation and the By-laws of the Surviving Corporation
shall be amended in their entirety to contain the provisions set forth in the
Certificate of Incorporation and the By-laws of Merger Sub, each as in effect
immediately prior to the Effective Time, as the same may be amended in
accordance with Section 5.13.1 hereof.
Section 1.5 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
2
hold office in accordance with the Certificate of Incorporation and By-laws of
the Surviving Corporation. The officers of the Company immediately prior to the
Effective Time shall be the initial officers of the Surviving Corporation, each
to hold office in accordance with the Certificate of Incorporation and By-laws
of the Surviving Corporation.
ARTICLE 2.
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
Section 2.1 Conversion of Securities. At the Effective Time, by virtue of
the Merger and without any action on the part of Merger Sub, the Company or the
holders of any of the following securities:
Section 2.1.1 Conversion Generally.
Section 2.1.1.1 Company Common Stock. Each share of common
stock, par value $0.001 per share, of the Company ("Company Common Stock")
issued and outstanding immediately prior to the Effective Time (other than any
shares of Company Common Stock to be canceled pursuant to Section 2.1.2),
including the associated rights of the Company (the "Company Rights") pursuant
to the Rights Agreement, dated as of June 14, 1999, between the Company and
American Stock Transfer and Trust Company, as Rights Agent (the "Company Rights
Agreement") shall be converted, subject to Section 2.2.5, into the right to
receive a number of shares of common stock, par value $0.001 per share, of
Parent ("Parent Common Stock"), equal to the Exchange Ratio. All such shares of
Company Common Stock shall no longer be outstanding and shall automatically be
canceled and retired and shall cease to exist, and each certificate previously
representing any such shares shall thereafter represent the right to receive a
certificate representing the shares of Parent Common Stock into which such
Company Common Stock was converted in the Merger. Certificates previously
representing shares of Company Common Stock shall be exchanged for certificates
representing whole shares of Parent Common Stock issued in consideration
therefor upon the surrender of such certificates in accordance with the
provisions of Section 2.2, without interest. No fractional share of Parent
Common Stock shall be issued, and in lieu thereof, a cash payment shall be made
pursuant to Section 2.2.5 hereof.
Section 2.1.1.2 Company Preferred Stock. Each share of
preferred stock, par value $0.001 per share, of the Company (the "Company
Preferred Stock" and, together
3
with the Company Common Stock, the "Company Stock") issued and outstanding
immediately prior to the Effective Time (other than any shares of Company
Preferred Stock to be canceled pursuant to Section 2.1.2), shall be converted,
subject to Section 2.2.5, into the right to receive a number of shares of Parent
Common Stock equal to that number of shares of Company Common Stock into which
the Company Preferred Stock would have been convertible multiplied by the
Exchange Ratio. All such shares of Company Preferred Stock shall no longer be
outstanding and shall automatically be canceled and retired and shall cease to
exist, and each certificate previously representing any such shares shall
thereafter represent the right to receive a certificate representing the shares
of Parent Common Stock into which such Company Preferred Stock was converted in
the Merger. Certificates previously representing shares of Company Preferred
Stock shall be exchanged for certificates representing whole shares of Parent
Common Stock issued in consideration therefor upon the surrender of such
certificates in accordance with the provisions of Section 2.2, without interest.
No fractional share of Parent Common Stock shall be issued, and in lieu thereof,
a cash payment shall be made pursuant to Section 2.2.5 hereof.
Section 2.1.1.3 Warrants. At the Effective Time, all
unexercised and unexpired warrants to purchase Company Common Stock ("Company
Warrants") then outstanding will be assumed by Parent. Each Company Warrant so
assumed by Parent under this Agreement will continue to have, and be subject to,
the same terms and conditions as set forth in such Company Warrant and any
agreements executed in connection therewith immediately prior to the Effective
Time, except that (i) each Company Warrant will be exercisable (or will become
exercisable in accordance with its terms) for that number of whole shares of
Parent Common Stock equal to the product of the number of shares of Company
Common Stock that were issuable upon exercise of such Company Warrant
immediately prior to the Effective Time multiplied by the Exchange Ratio,
rounded down to the nearest whole number of shares of Parent Common Stock and
(ii) the per share exercise price for the shares of Parent Common Stock issuable
upon exercise of such Company Warrant assumed, will be equal to the quotient
determined by dividing the exercise price per share of Company Common Stock at
which such Company Warrant was exercisable immediately prior to the Effective
Time by the Exchange Ratio, rounded up to the nearest whole cent.
Section 2.1.2 Cancellation of Certain Shares. Each share of Company
Stock held by Parent, Merger Sub, any wholly-owned subsidiary of Parent or
Merger Sub, in the
4
treasury of the Company or by any wholly-owned subsidiary of the Company
immediately prior to the Effective Time shall be canceled and extinguished
without any conversion thereof and no payment shall be made with respect
thereto.
Section 2.1.3 Merger Sub. Each share of common stock, par value
$0.001 per share, of Merger Sub issued and outstanding immediately prior to the
Effective Time shall be converted into and be exchanged for one newly and
validly issued, fully paid and nonassessable share of common stock of the
Surviving Corporation.
Section 2.1.4 Change in Shares. If between the date of this
Agreement and the Effective Time the outstanding shares of Parent Common Stock
or Company Stock shall have been changed into a different number of shares or a
different class, by reason of any stock dividend, subdivision, reclassification,
recapitalization, split, combination or exchange of shares, the Exchange Ratio
shall be correspondingly adjusted to reflect such stock dividend, subdivision,
reclassification, recapitalization, split, combination or exchange of shares.
Section 2.2 Exchange of Certificates.
Section 2.2.1 Exchange Agent. As of the Effective Time, Parent shall
deposit, or shall cause to be deposited, with Computer Share, Inc. or another
bank or trust company designated by Parent and reasonably satisfactory to the
Company (the "Exchange Agent"), for the benefit of the holders of shares of
Company Stock, for exchange in accordance with this Article 2, through the
Exchange Agent, certificates representing the shares of Parent Common Stock
(such certificates for shares of Parent Common Stock, together with cash in lieu
of fractional shares and any dividends or distributions with respect thereto,
being hereinafter referred to as the "Exchange Fund") issuable pursuant to
Section 2.1 in exchange for outstanding shares of Company Stock. The Exchange
Agent shall, pursuant to irrevocable instructions, deliver the Parent Common
Stock contemplated to be issued pursuant to Section 2.1 out of the Exchange
Fund. Except as contemplated by Section 2.2.5 hereof, the Exchange Fund shall
not be used for any other purpose.
Section 2.2.2 Exchange Procedures. Promptly after the Effective
Time, Parent shall instruct the Exchange Agent to mail to each holder of record
of a certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of Company Stock (the "Certificates") (A) a
letter of transmittal (which shall specify that delivery
5
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon proper delivery of the Certificates to the Exchange Agent and shall be
in customary form) and (B) instructions for use in effecting the surrender of
the Certificates in exchange for certificates representing shares of Parent
Common Stock. Upon surrender of a Certificate for cancellation to the Exchange
Agent together with such letter of transmittal, properly completed and duly
executed, and such other documents as may be required pursuant to such
instructions, the holder of such Certificate shall be entitled to receive in
exchange therefor a certificate representing that number of whole shares of
Parent Common Stock which such holder has the right to receive in respect of the
shares of Company Stock formerly represented by such Certificate (after taking
into account all shares of Company Stock then held by such holder), cash in lieu
of fractional shares of Parent Common Stock to which such holder is entitled
pursuant to Section 2.2.5 and any dividends or other distributions to which such
holder is entitled pursuant to Section 2.2.3, and the Certificate so surrendered
shall forthwith be canceled. No interest will be paid or accrued on any cash in
lieu of fractional shares or on any unpaid dividends and distributions payable
to holders of Certificates. In the event of a transfer of ownership of shares of
Company Stock which is not registered in the transfer records of the Company, a
certificate representing the proper number of shares of Parent Common Stock may
be issued to a transferee if the Certificate representing such shares of Company
Stock is presented to the Exchange Agent, accompanied by all documents required
to evidence and effect such transfer and by evidence that any applicable stock
transfer taxes have been paid. Until surrendered as contemplated by this Section
2.2, each Certificate shall be deemed at any time after the Effective Time to
represent only the right to receive upon such surrender the certificate
representing shares of Parent Common Stock, cash in lieu of any fractional
shares of Parent Common Stock to which such holder is entitled pursuant to
Section 2.2.5 and any dividends or other distributions to which such holder is
entitled pursuant to Section 2.2.3.
Section 2.2.3 Distributions with Respect to Unexchanged Shares of
Parent Common Stock. No dividends or other distributions declared or made after
the Effective Time with respect to Parent Common Stock with a record date after
the Effective Time shall be paid to the holder of any unsurrendered Certificate
with respect to the shares of Parent Common Stock represented thereby, and no
cash payment in lieu of fractional shares shall be paid to any such holder
pursuant to Section 2.2.5, unless and until the holder of such Certificate shall
6
surrender such Certificate. Subject to the effect of escheat, tax or other
applicable Laws, following surrender of any such Certificate, there shall be
paid to the holder of the certificates representing whole shares of Parent
Common Stock issued in exchange therefor, without interest, (A) promptly, the
amount of any cash payable with respect to a fractional share of Parent Common
Stock to which such holder is entitled pursuant to Section 2.2.5 and the amount
of dividends or other distributions with a record date after the Effective Time
theretofore paid with respect to such whole shares of Parent Common Stock and
(B) at the appropriate payment date, the amount of dividends or other
distributions, with a record date after the Effective Time but prior to
surrender and a payment date occurring after surrender, payable with respect to
such whole shares of Parent Common Stock.
Section 2.2.4 Further Rights in Company Stock. All shares of Parent
Common Stock issued upon conversion of the shares of Company Stock in accordance
with the terms hereof (including any cash paid pursuant to Section 2.2.3 or
Section 2.2.5) shall be deemed to have been issued in full satisfaction of all
rights pertaining to such shares of Company Stock.
Section 2.2.5 Fractional Shares. No certificates or scrip
representing fractional shares of Parent Common Stock shall be issued upon the
surrender for exchange of Certificates, no dividend or distribution with respect
to Parent Common Stock shall be payable on or with respect to any fractional
share and such fractional share interests will not entitle the owner thereof to
any rights of a stockholder of Parent.
Section 2.2.5.1 As promptly as practicable following the
Effective Time, the Exchange Agent shall determine the difference between (A)
the number of full shares of Parent Common Stock delivered to the Exchange Agent
by Parent pursuant to Section 2.2.1 and (B) the aggregate number of full shares
of Parent Common Stock to be distributed to holders of Company Stock pursuant to
Section 2.2.2 (such difference being the "Excess Shares"). As soon after the
Effective Time as practicable, the Exchange Agent, as agent for such holders of
Parent Common Stock, shall sell the Excess Shares at then prevailing prices on
Nasdaq, all in the manner provided in this Section 2.2.5.
Section 2.2.5.2 The sale of the Excess Shares by the Exchange
Agent shall be executed on Nasdaq and shall be executed in round lots to the
extent practicable. Until the net proceeds of any such sale or sales have been
distributed to such holders of
7
Company Stock, the Exchange Agent will hold such proceeds in trust for such
holders of Company Stock as part of the Exchange Fund. The Company shall pay all
commissions, transfer taxes and other out-of-pocket transaction costs of the
Exchange Agent incurred in connection with such sale or sales of Excess Shares.
In addition, the Company shall pay the Exchange Agent's compensation and
expenses in connection with such sale or sales. The Exchange Agent shall
determine the portion of such net proceeds to which each holder of Company Stock
shall be entitled, if any, by multiplying the amount of the aggregate net
proceeds by a fraction, the numerator of which is the amount of the fractional
share interest to which such holder of Company Stock is entitled (after taking
into account all shares of Parent Common Stock to be issued to such holder) and
the denominator of which is the aggregate amount of fractional share interests
to which all holders of Company Stock are entitled.
Section 2.2.5.3 As soon as practicable after the determination
of the amount of cash, if any, to be paid to holders of Company Stock with
respect to any fractional share interests, the Exchange Agent shall promptly pay
such amounts to such holders of Company Stock subject to and in accordance with
the terms of Section 2.2.3.
Section 2.2.6 Termination of Exchange Fund. Any portion of the
Exchange Fund which remains undistributed to the holders of Company Stock for
six months after the Effective Time shall be delivered to Parent upon demand,
and any holders of Company Stock who have not theretofore complied with this
Article 2 shall thereafter look only to Parent for the shares of Parent Common
Stock, any cash in lieu of fractional shares of Parent Common Stock to which
they are entitled pursuant to Section 2.2.5 and any dividends or other
distributions with respect to Parent Common Stock to which they are entitled
pursuant to Section 2.2.3, in each case, without any interest thereon.
Section 2.2.7 No Liability. Neither Parent nor the Company shall be
liable to any holder of shares of Company Stock for any such shares of Parent
Common Stock (or dividends or distributions with respect thereto) or cash from
the Exchange Fund delivered to a public official pursuant to any abandoned
property, escheat or similar Law.
Section 2.2.8 Lost Certificates. If any Certificate shall have been
lost, stolen or destroyed, upon the making of an affidavit of that fact by the
person claiming such Certificate to be lost, stolen or destroyed and, if
required by Parent, the posting by such person of
8
a bond, in such reasonable amount as Parent may direct, as indemnity against any
claim that may be made against it with respect to such Certificate, the Exchange
Agent will issue in exchange for such lost, stolen or destroyed Certificate the
shares of Parent Common Stock, any cash in lieu of fractional shares of Parent
Common Stock to which the holders thereof are entitled pursuant to Section 2.2.5
and any dividends or other distributions to which the holders thereof are
entitled pursuant to Section 2.2.3, in each case, without any interest thereon.
Section 2.2.9 Withholding. Parent or the Exchange Agent shall be
entitled to deduct and withhold from the consideration otherwise payable
pursuant to this Agreement to any holder of Company Stock such amounts as Parent
or the Exchange Agent are required to deduct and withhold under the Code, or any
provision of state, local or foreign tax Law, with respect to the making of such
payment. To the extent that amounts are so withheld by Parent or the Exchange
Agent, such withheld amounts shall be treated for all purposes of this Agreement
as having been paid to the holder of Company Stock in respect of whom such
deduction and withholding was made by Parent or the Exchange Agent.
Section 2.3 Stock Transfer Books. At the Effective Time, the stock
transfer books of the Company shall be closed and thereafter, there shall be no
further registration of transfers of shares of Company Stock theretofore
outstanding on the records of the Company. From and after the Effective Time,
the holders of certificates representing shares of Company Stock outstanding
immediately prior to the Effective Time shall cease to have any rights with
respect to such shares of Company Stock except as otherwise provided herein or
by Law. On or after the Effective Time, any Certificates presented to the
Exchange Agent or Parent for any reason shall be converted into the shares of
Parent Common Stock, any cash in lieu of fractional shares of Parent Common
Stock to which the holders thereof are entitled pursuant to Section 2.2.5 and
any dividends or other distributions to which the holders thereof are entitled
pursuant to Section 2.2.3.
Section 2.4 Stock Options. At the Effective Time, all unexercised and
unexpired options to purchase Company Common Stock ("Company Options") then
outstanding, under any stock option plan of the Company, including the Company's
Tandem Stock Option Plan, the Company's 1997 Stock Incentive Plan or any other
plan, agreement or arrangement (the "Company Stock Option Plans"), whether or
not then exercisable, will be assumed by Parent.
9
Each Company Option so assumed by Parent under this Agreement will continue to
have, and be subject to, the same terms and conditions as set forth in the
Company Stock Option Plan and any agreements thereunder immediately prior to the
Effective Time, except that (i) each Company Option will be exercisable (or will
become exercisable in accordance with its terms) for that number of whole shares
of Parent Common Stock equal to the product of the number of shares of Company
Common Stock that were issuable upon exercise of such Company Option immediately
prior to the Effective Time multiplied by the Exchange Ratio, rounded down to
the nearest whole number of shares of Parent Common Stock and (ii) the per share
exercise price for the shares of Parent Common Stock issuable upon exercise of
such Company Option assumed, will be equal to the quotient determined by
dividing the exercise price per share of Company Common Stock at which such
Company Option was exercisable immediately prior to the Effective Time by the
Exchange Ratio, rounded up to the nearest whole cent. The conversion of any
Company Options which are incentive stock options within the meaning of Section
422 of the Code, into options to purchase Parent Common Stock shall be made so
as not to constitute a "modification" of such Company Options within the meaning
of Section 424 of the Code. Continuous employment with the Company or its
subsidiaries shall be credited to the optionee for purposes of determining the
vesting of all assumed Company Options after the Effective Time.
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the Disclosure Schedule delivered by the Company to
Parent prior to the execution of this Agreement (the "Company Disclosure
Schedule"), which identifies exceptions by specific Section references, the
Company hereby represents and warrants to Parent as follows:
Section 3.1 Organization and Qualification; Subsidiaries. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. Each subsidiary of the Company (each a "Company
Subsidiary" and, collectively, the "Company Subsidiaries") has been duly
organized, and is validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization, as the case may be. Each of
the Company and each Company Subsidiary has the requisite power and authority
and all necessary governmental approvals to own, lease and operate its
properties and to carry on its
10
business as it is now being conducted. Each of the Company and each Company
Subsidiary is duly qualified or licensed 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,
licensing or good standing necessary, except for such failures to be so
qualified, licensed or in good standing that would not, individually or in the
aggregate, reasonably be expected to have a Company Material Adverse Effect.
Section 3.1 of the Company Disclosure Schedule sets forth a true and complete
list of all of the Company Subsidiaries. Except as set forth in Section 3.1 of
the Company Disclosure Schedule, none of the Company or any Company Subsidiary
holds an Equity Interest in any other person.
Section 3.2 Certificate of Incorporation and By-laws; Corporate Books and
Records. The copies of the Company's Second Amended and Restated Certificate of
Incorporation (the "Company Certificate") and By-laws (the "Company By-laws")
that are listed as exhibits to the Company's Form 10-K for the year ended
December 31, 2001 are complete and correct copies thereof as in effect on the
date hereof (the "Company Form 10-K"). The Company is not in violation of any of
the provisions of the Company Certificate or the Company By-laws. True and
complete copies of all minute books of the Company have been made available by
the Company to Parent.
Section 3.3 Capitalization. The authorized capital stock of the Company
consists of 50,000,000 shares of Company Common Stock and 5,000,000 shares of
Company Preferred Stock. As of the date hereof, (A)17,842,157 shares of Company
Common Stock (other than treasury shares) were issued and outstanding, all of
which were validly issued and fully paid, nonassessable and free of preemptive
rights, (B) no shares of Company Common Stock were held in the treasury of the
Company or by the Company Subsidiaries, and (C) 5,537,142 shares of Company
Common Stock were issuable (and such number was reserved for issuance) upon
exercise of Company Options outstanding as of such date. As of the date hereof,
of the 5,000,000 shares of authorized Company Preferred Stock, 12,000 shares
have been designated as Series A Junior Participating Preferred Stock; 12,000
shares have been designated as Series B Convertible Preferred Stock; 10,750
shares of Company Preferred Stock have been designated as Series C Convertible
Preferred Stock, 8,965 shares of which have been designated as Series C-1
Convertible Preferred Stock and 1,785 shares of which have been designated as
Series C-2 Convertible Preferred Stock; 10,750 shares of Company Preferred Stock
have been designated as
11
Series D Convertible Preferred Stock ("Series D Convertible Preferred Stock"),
8,965 shares of which have been designated as Series D-1 Convertible Preferred
Stock ("Series D-1 Convertible Preferred Stock") and 1,785 shares of which have
been designated as Series D-2 Convertible Preferred Stock ("Series D-2
Convertible Preferred Stock"). As of the date hereof, 7,726 shares of Series D-1
Convertible Preferred Stock and 1,071 shares of Series D-2 Convertible Preferred
Stock are issued and outstanding, and there are no other shares of Company
Preferred Stock outstanding. Except for Company Options to purchase not more
than 5,537,142 shares of Company Common Stock and Company Warrants to purchase
not more than 7,416,887 shares of Company Common Stock outstanding as of the
date hereof, Company Rights outstanding under the Company Rights Agreement and
arrangements and agreements set forth in Section 3.3 of the Company Disclosure
Schedule, there are no options, warrants or other rights, agreements,
arrangements or commitments of any character to which the Company or any Company
Subsidiary is a party or by which the Company or any Company Subsidiary is bound
relating to the issued or unissued capital stock or other Equity Interests of
the Company or any Company Subsidiary, or securities convertible into or
exchangeable for such capital stock or other Equity Interests, or obligating the
Company or any Company Subsidiary to issue or sell any shares of its capital
stock or other Equity Interests, or securities convertible into or exchangeable
for such capital stock of, or other Equity Interests in, the Company or any
Company Subsidiary. Since December 31, 2001, the Company has not issued any
shares of its capital stock, or securities convertible into or exchangeable for
such capital stock or other Equity Interests, other than those shares of capital
stock reserved for issuance as set forth in this Section 3.3 or Section 3.3 of
the Company Disclosure Schedule. Section 3.3 of the Company Disclosure Schedule
sets forth a true and complete list, as of the date hereof, of the prices at
which outstanding Company Options may be exercised under the applicable Company
Stock Option Plan, the number of Company Options outstanding at each such price
and the vesting schedule of the Company Options for each officer of the Company
and the prices at which outstanding Company Warrants may be exercised, the
number of Company Warrants outstanding at each such price and the number of
shares of Company Common Stock into which each such Company Warrant is
convertible. All shares of Company Common Stock subject to issuance under the
Company Stock Option Plans, upon issuance prior to the Effective Time on the
terms and conditions specified in the instruments pursuant to which they are
issuable, will be duly authorized, validly issued, fully
12
paid, nonassessable and free of preemptive rights. There are no outstanding
contractual obligations of the Company or any Company Subsidiary (A) restricting
the transfer of, (B) affecting the voting rights of, (C) requiring the
repurchase, redemption or disposition of, or containing any right of first
refusal with respect to, (D) requiring the registration for sale of, or (E)
granting any preemptive or antidilutive right with respect to, any shares of
Company Stock or any capital stock of, or other Equity Interests in, the Company
or any Company Subsidiary. Except as set forth in Section 3.3 of the Company
Disclosure Schedule, each outstanding share of capital stock of each Company
Subsidiary is duly authorized, validly issued, fully paid, nonassessable and
free of preemptive rights and is owned, beneficially and of record, by the
Company or another Company Subsidiary free and clear of all security interests,
liens, claims, pledges, options, rights of first refusal, agreements,
limitations on the Company's or such other Company Subsidiary's voting rights,
charges and other encumbrances of any nature whatsoever. There are no
outstanding contractual obligations of the Company or any Company Subsidiary to
provide funds to, or make any investment (in the form of a loan, capital
contribution or otherwise) in, any Company Subsidiary or any other person, other
than guarantees by the Company of any indebtedness or other obligations of any
wholly-owned Company Subsidiary.
Section 3.4 Authority.
Section 3.4.1 The Company has all necessary corporate power and
authority to execute and deliver this Agreement and each Ancillary Agreement, to
perform its obligations hereunder and thereunder and to consummate the
transactions contemplated by this Agreement and each Ancillary Agreement to be
consummated by the Company. The execution and delivery of this Agreement and
each Ancillary Agreement by the Company and the consummation by the Company of
the transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate action and no other corporate proceedings
on the part of the Company and no stockholder votes are necessary to authorize
this Agreement or any Ancillary Agreement or to consummate the transactions
contemplated hereby and thereby other than, with respect to the Merger, as
provided in Section 3.20. The Board of Directors of the Company (the "Company
Board") has approved this Agreement and each Ancillary Agreement, declared
advisable the transactions contemplated hereby and thereby and has directed that
this Agreement and the transactions contemplated hereby be submitted to the
Company's stockholders for approval at a meeting of such stockholders. This
Agreement and
13
each Ancillary Agreement has been duly authorized and validly executed and
delivered by the Company and constitute a legal, valid and binding obligation of
the Company, enforceable against the Company in accordance with their respective
terms.
Section 3.4.2 The Company has taken all appropriate actions so that
the restrictions on business combinations contained in Section 203 of the DGCL
will not apply with respect to or as a result of this Agreement or any Ancillary
Agreement and the transactions contemplated hereby and thereby, including the
Merger, without any further action on the part of the stockholders or the
Company Board. True and complete copies of all Company Board resolutions
reflecting such actions have been previously provided to Parent. No other state
takeover statute or similar statute or regulation is applicable to or purports
to be applicable to the Merger or any other transaction contemplated by this
Agreement or any Ancillary Agreement.
Section 3.4.3 The Company Rights Agreement has been amended so that:
(A) Parent, Merger Sub and each Parent Subsidiary are each exempt from the
definition of "Acquiring Person" contained in the Company Rights Agreement, and
no "Stock Acquisition Date" or "Distribution Date" or "Triggering Event" (as
such terms are defined in the Company Rights Agreement) will occur as a result
of the execution of this Agreement or any Ancillary Agreement or the
consummation of the Merger and the other transactions contemplated by this
Agreement or any Ancillary Agreement and (B) the Company Rights Agreement will
terminate and the Company Rights will expire immediately prior to the Effective
Time. The Company Rights Agreement, as so amended, has not been further amended
or modified. True and complete copies of the Company Rights Agreement and of all
amendments thereto through the date hereof have been previously provided to
Parent.
Section 3.5 No Conflict; Required Filings and Consents.
Section 3.5.1 The execution and delivery of this Agreement and each
Ancillary Agreement by the Company does not, and the performance of this
Agreement and each Ancillary Agreement by the Company will not, (A) (assuming,
the stockholder approval set forth in Section 3.20 is obtained) conflict with or
violate any provision of the Company Certificate or Company By-laws or any
equivalent organizational documents of any Company Subsidiary, (B) assuming that
all consents, approvals, authorizations and permits described in Section 3.5.2
have been obtained and all filings and notifications described in Section 3.5.2
have been made and any
14
waiting periods thereunder have terminated or expired, conflict with or violate
any Law applicable to the Company or any Company Subsidiary or by which any
property or asset of the Company or any Company Subsidiary is bound or affected
or (C) require any consent or approval under, result in any breach of or any
loss of any benefit under, constitute a change of control or 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, vesting, amendment, acceleration or
cancellation of, or result in the creation of a lien or other encumbrance on any
property or asset of the Company or any Company Subsidiary pursuant to, any
note, bond, mortgage, indenture, contract, agreement, lease, license, Company
Permit or other instrument or obligation.
Section 3.5.2 The execution and delivery of this Agreement and each
Ancillary Agreement by the Company does not, and the performance of this
Agreement and each Ancillary Agreement by the Company will not, require any
consent, approval, authorization or permit of, or filing with or notification
to, any Governmental Entity or any other person, except (A) under the Exchange
Act, the Securities Act, any applicable Blue Sky Laws and the rules and
regulations of Nasdaq and the filing and recordation of the Certificate of
Merger as required by the DGCL and (B) where failure to obtain such consents,
approvals, authorizations or permits, or to make such filings or notifications
to a person other than a Governmental Entity, would not, individually or in the
aggregate, reasonably be expected to (x) prevent or materially delay
consummation of the Merger, (y) otherwise prevent or materially delay
performance by the Company of any of its material obligations under this
Agreement or any Ancillary Agreement or (z) have a Company Material Adverse
Effect.
Section 3.6 Permits; Compliance With Law. Each of the Company and each
Company Subsidiary is in possession of all authorizations, licenses, permits,
certificates, approvals and clearances of any Governmental Entity necessary for
the Company and each Company Subsidiary to own, lease and operate its properties
or to carry on its respective businesses substantially in the manner described
in the Company SEC Filings filed prior to the date hereof and substantially as
it is being conducted as of the date hereof (the "Company Permits"), and all
such Company Permits are valid, and in full force and effect, except where the
failure to have, or the suspension or cancellation of, or failure to be valid or
in full force and effect of, any of the Company Permits would not, individually
or in the aggregate, reasonably be expected to (A) prevent or materially delay
consummation of the Merger, (B) otherwise prevent
15
or materially delay performance by the Company of any of its material
obligations under this Agreement or any Ancillary Agreement or (C) have a
Company Material Adverse Effect. None of the Company or any Company Subsidiary
is in conflict with, or in default or violation of, (x) any Law applicable to
the Company or any Company Subsidiary or by which any property or asset of the
Company or any Company Subsidiary is bound or affected or (y) any Company
Permits, except for any such conflicts, defaults or violations that would not,
individually or in the aggregate, reasonably be expected to (A) prevent or
materially delay consummation of the Merger, (B) otherwise prevent or materially
delay performance by the Company of any of its material obligations under this
Agreement or any Ancillary Agreement or (C) have a Company Material Adverse
Effect.
Section 3.7 SEC Filings; Financial Statements.
Section 3.7.1 The Company has timely filed all registration
statements, prospectuses, forms, reports, definitive proxy statements, schedules
and documents required to be filed by it under the Securities Act or the
Exchange Act, as the case may be, since January 1, 2000 (collectively, the
"Company SEC Filings"). Each Company SEC Filing (A) as of its date, complied in
all material respects with the requirements of the Securities Act or the
Exchange Act, as the case may be, and (B) did not, at the time it was filed,
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading. As of the date of this Agreement, no Company Subsidiary is subject
to the periodic reporting requirements of the Exchange Act.
Section 3.7.2 Each of the consolidated financial statements
(including, in each case, any notes thereto) contained in the Company SEC
Filings was prepared in accordance with GAAP applied (except as may be indicated
in the notes thereto and, in the case of unaudited quarterly financial
statements, as permitted by Form 10-Q under the Exchange Act) on a consistent
basis throughout the periods indicated (except as may be indicated in the notes
thereto), and each presented fairly the consolidated financial position, results
of operations and cash flows of the Company and the consolidated Company
Subsidiaries as of the respective dates thereof and for the respective periods
indicated therein (subject, in the case of unaudited statements, to normal
year-end adjustments which did not and would not, individually or in the
16
aggregate, reasonably be expected to have a Company Material Adverse Effect).
The books and records of the Company and each Company Subsidiary have been, and
are being, maintained in accordance with applicable legal and accounting
requirements.
Section 3.7.3 Except as and to the extent set forth on the
consolidated balance sheet of the Company and the consolidated Company
Subsidiaries as of December 31, 2001 included in the Company Form 10-K for the
year ended December 31, 2001, including the notes thereto, none of the Company
or any consolidated Company Subsidiary has any liabilities or obligations of any
nature (whether accrued, absolute, contingent or otherwise) that would be
required to be reflected on a balance sheet or in notes thereto prepared in
accordance with GAAP, except for liabilities or obligations incurred in the
ordinary course of business since December 31, 2001 that would not, individually
or in the aggregate, reasonably be expected to (A) prevent or materially delay
consummation of the Merger, (B) otherwise prevent or materially delay
performance by the Company of any of its material obligations under this
Agreement or any Ancillary Agreement or (C) have a Company Material Adverse
Effect.
Section 3.7.4 The Company has previously provided to Parent a
complete and correct copy of any amendment or modification which has not yet
been filed with the SEC to any agreement, document or other instrument which
previously had been filed by the Company with the SEC pursuant to the Securities
Act or the Exchange Act.
Section 3.8 Disclosure Documents.
Section 3.8.1 The Proxy Statement and any Other Filings, and any
amendments or supplements thereto, at (A) the time the Registration Statement is
declared effective, (B) the time the Proxy Statement (or any amendment thereof
or supplement thereto) is first mailed to the stockholders of the Company, (C)
if applicable, the time the Proxy Statement (or any amendment thereof or
supplement thereto) is first mailed to stockholders of Parent, (D) the time of
the Company Stockholders' Meeting, (E) the time of the Parent Stockholders'
Meeting, and (F) the Effective Time, will comply as to form in all material
respects with the applicable requirements of the Securities Act, the Exchange
Act and other applicable Laws.
Section 3.8.2 The Proxy Statement and any Other Filings, and any
amendments or supplements thereto, do not, and will not, at (A) the time the
Registration Statement is declared effective, (B) the time the Proxy Statement
(or any amendment thereof or
17
supplement thereto) is first mailed to the stockholders of the Company, (C) the
time the Proxy Statement (or any amendment thereof or supplement thereto) is
first mailed to stockholders of Parent, (D) the time of the Company
Stockholders' Meeting, (E) the time of the Parent Stockholders' Meeting, and (F)
the Effective Time, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements made therein, in light of the circumstances under which they
were made, not misleading. The representations and warranties contained in this
Section 3.8.2 will not apply to statements or omissions included in the Proxy
Statement or any Other Filings based upon information furnished in writing to
the Company by Parent or Merger Sub specifically for use therein.
Section 3.9 Absence of Certain Changes or Events. Since September 30,
2002, except as specifically contemplated by, or as disclosed in, this Agreement
or Section 3.9 of the Company Disclosure Schedule, the Company and each Company
Subsidiary has conducted its businesses in the ordinary course consistent with
past practice. During the period from October 1, 2002 through the date of this
Agreement, there has not been any Company Material Adverse Effect or an event or
development that would, individually or in the aggregate, reasonably be expected
to have a Company Material Adverse Effect. Since September 30, 2002, there has
not been any event or development that would, individually or in the aggregate,
reasonably be expected to prevent or materially delay the performance of this
Agreement or any Ancillary Agreement by the Company. Neither the Company nor any
Company Subsidiary has taken any action during the period from October 1, 2002
through the date of this Agreement that, if taken during the period from the
date of this Agreement through the Effective Time, would constitute a breach of
Section 5.1.
Section 3.10 Employee Benefit Plans
Section 3.10.1 Section 3.10.1 of the Company Disclosure Schedule
sets forth a true and complete list of each "employee benefit plan" as defined
in Section 3(3) of ERISA and any other plan, policy, program, practice,
agreement, understanding or arrangement (whether written or oral) providing
compensation or other benefits to any current or former director, officer,
employee or consultant (or to any dependent or beneficiary thereof of the
Company or any ERISA Affiliate), which are now, or were within the past 6 years,
maintained,
18
sponsored or contributed to by the Company or any ERISA Affiliate, or under
which the Company or any ERISA Affiliate has any obligation or liability,
whether actual or contingent, including, without limitation, all incentive,
bonus, deferred compensation, vacation, holiday, cafeteria, medical, disability,
stock purchase, stock option, stock appreciation, phantom stock, restricted
stock or other stock-based compensation plans, policies, programs, practices or
arrangements (each a "Company Benefit Plan"). Neither the Company, nor to the
knowledge of the Company, or any other person or entity, has any express or
implied commitment, whether legally enforceable or not, to modify, change or
terminate any Company Benefit Plan, other than with respect to a modification,
change or termination required by ERISA or the Code.
With respect to each Company Benefit Plan, the Company has delivered to
Parent true, correct and complete copies of (A) each Company Benefit Plan (or,
if not written a written summary of its material terms), including without
limitation all plan documents, adoption agreements, trust agreements, insurance
contracts or other funding vehicles and all amendments thereto, (B) all
summaries and summary plan descriptions, including any summary of material
modifications, (C) the most recent annual reports (Form 5500 series) filed with
the IRS with respect to such Company Benefit Plan (and, if the most recent
annual report is a Form 5500R, the most recent Form 5500C filed with respect to
such Company Benefit Plan), (D) the most recent actuarial report or other
financial statement relating to such Company Benefit Plan, (E) the most recent
determination or opinion letter, if any, issued by the IRS with respect to any
Company Benefit Plan and any pending request for such a determination letter,
(F) the most recent nondiscrimination tests performed under the Code (including
401(k) and 401(m) tests) for each Company Benefit Plan, and (G) all filings made
with any Governmental Entity, including but not limited any filings under the
Voluntary Compliance Resolution or Closing Agreement Program or the Department
of Labor Delinquent Filer Program.
Section 3.10.2 Each Company Benefit Plan has been administered in
all material respects in accordance with its terms and all applicable Laws,
including ERISA and the Code, and contributions required to be made under the
terms of any of the Company Benefit Plans as of the date of this Agreement have
been timely made or, if not yet due, have been properly reflected on the most
recent consolidated balance sheet filed or incorporated by reference in the
Company SEC Filings prior to the date of this Agreement. With respect to the
Company Benefit Plans, no event has occurred and, to the knowledge of the
Company, there
19
exists no condition or set of circumstances in connection with which the Company
could be subject to any material liability (other than for routine benefit
liabilities) under the terms of, or with respect to, such Company Benefit Plans,
ERISA, the Code or any other applicable Law.
Section 3.10.3 Except as disclosed on Section 3.10.3 of the Company
Disclosure Schedule: (A) each Company Benefit Plan which is intended to qualify
under Section 401(a), Section 401(k), Section 401(m) or Section 4975(e)(6) of
the Code has either received a favorable determination letter from the IRS as to
its qualified status or the remedial amendment period for such Company Benefit
Plan has not yet expired, and each trust established in connection with any
Company Benefit Plan which is intended to be exempt from federal income taxation
under Section 501(a) of the Code is so exempt, and to the Company's knowledge no
fact or event has occurred that could adversely affect the qualified status of
any such Company Benefit Plan or the exempt status of any such trust, (B) to the
Company's knowledge there has been no prohibited transaction (within the meaning
of Section 406 of ERISA or Section 4975 of the Code and other than a transaction
that is exempt under a statutory or administrative exemption) with respect to
any Company Benefit Plan that could result in liability to the Company or an
ERISA Affiliate, (C) each Company Benefit Plan can be amended, terminated or
otherwise discontinued after the Effective Time in accordance with its terms,
without liability (other than (i) liability for ordinary administrative expenses
typically incurred in a termination event or (ii) if the Company Benefit Plan is
a pension benefit plan subject to Part 2 of Title I of ERISA, liability for the
accrued benefits as of the date of such termination (if and to the extent
required by ERISA) to the extent that either there are sufficient assets set
aside in a trust or insurance contract to satisfy such liability or such
liability is reflected on the most recent consolidated balance sheet filed or
incorporated by reference in the Company SEC Filings prior to the date of this
Agreement), (D) no suit, administrative proceeding, action or other litigation
has been brought, or to the knowledge of the Company is threatened, against or
with respect to any such Company Benefit Plan, including any audit or inquiry by
the IRS or United States Department of Labor (other than routine benefits
claims), (E) neither the Company nor any ERISA Affiliate has any liability under
ERISA Section 502, (F) all tax, annual reporting and other governmental filings
required by ERISA and the Code have been timely filed with the appropriate
Governmental Entity and all notices and disclosures have been timely provided to
participants, (G) all contributions and payments to such Company Benefit Plan
are deductible
20
under Code sections 162 or 404, (H) no amount is subject to Tax as unrelated
business taxable income under Section 511 of the Code, and (I) no excise tax
could be imposed upon the Company under Chapter 43 of the Code.
Section 3.10.4 Neither the Company nor any of its ERISA Affiliates
sponsors, maintains, contributes to or has an obligation to contribute to, or
has sponsored, maintained, contributed to or had an obligation to contribute to,
any "employee pension benefit plan" (as defined in Section 3(2) of ERISA) that
is subject to Title IV of ERISA or Section 412 of the Code, or any
"multiemployer plan" as defined in Section 3(37) of ERISA ("Multiemployer
Plan").
Section 3.10.5 Neither the Company nor any of its ERISA Affiliates
sponsors, contributes to or has any liability with respect to any employee
benefit plan, program or arrangement that provides benefits to non-resident
aliens with no United States source income outside of the United States.
Section 3.10.6 Except as set forth on Section 3.10.6 of the Company
Disclosure Schedule, no amount that could be received (whether in cash or
property or the vesting of property), as a result of the consummation of the
transactions contemplated by this Agreement or any Ancillary Agreement, by any
employee, officer or director of the Company or any Company Subsidiary who is a
"disqualified individual" (as such term is defined in proposed Treasury
Regulation Section 1.280G-1) under any Company Benefit Plan could be
characterized as an "excess parachute payment" (as defined in Section 280G(b)(1)
of the Code). Set forth in Section 3.10.6 of the Company Disclosure Schedule is
(A) the estimated maximum amount that could be paid to any disqualified
individual as a result of the transactions contemplated by this Agreement or any
Ancillary Agreement under all employment, severance and termination agreements,
other compensation arrangements and Company Benefit Plans currently in effect,
and (B) the "base amount" (as defined in Section 280G(b)(e) of the Code) for
each such individual as of the date of this Agreement.
Section 3.10.7 Except as required by Law, no Company Benefit Plan
provides any of the following retiree or post-employment benefits to any person:
medical, disability or life insurance benefits. No Company Benefit Plan is a
voluntary employee benefit association under Section 501(a)(9) of the Code. The
Company and each ERISA Affiliate are in
21
material compliance with (i) the requirements of the applicable health care
continuation and notice provisions of the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended, and the regulations (including proposed
regulations) thereunder and any similar state law and (ii) the applicable
requirements of the Health Insurance Portability and Accountability Act of 1996,
as amended, and the regulations (including the proposed regulations) thereunder.
Section 3.11 Labor and Other Employment Matters.
Section 3.11.1 Each of the Company and each Company Subsidiary is in
compliance with all applicable Laws respecting labor, employment, fair
employment practices, terms and conditions of employment, workers' compensation,
occupational safety, plant closings, and wages and hours. None of the Company or
any Company Subsidiary is liable for any payment to any trust or other fund or
to any Governmental Entity, with respect to unemployment compensation benefits,
social security or other benefits or obligations for employees (other than
routine payments to be made in the ordinary course of business and consistent
with past practice). Except as set forth in Section 3.11.1 of the Company
Disclosure Schedule, none of the Company or any Company Subsidiary is a party to
any collective bargaining or other labor union contract applicable to persons
employed by the Company or any Company Subsidiary, and no collective bargaining
agreement or other labor union contract is being negotiated by the Company or
any Company Subsidiary. There is no labor dispute, strike, slowdown or work
stoppage against the Company or any Company Subsidiary pending or, to the
knowledge of the Company, threatened which may interfere in any respect that
would have a Company Material Adverse Effect with the respective business
activities of the Company or any Company Subsidiary. No labor union or similar
organization has otherwise been certified to represent any persons employed by
the Company or any Company Subsidiary or has applied to represent such employees
or, to the knowledge of the Company, is attempting to organize so as to
represent such employees. None of the Company, any Company Subsidiary or their
respective representatives or employees has committed any unfair labor practices
in connection with the operation of the respective businesses of the Company or
any Company Subsidiary, and there is no charge or complaint against the Company
or any Company Subsidiary by the National Labor Relations Board or any
comparable state or foreign agency pending or, to the knowledge of the Company,
threatened, except where such unfair labor practice, charge or complaint would
not, individually or in the aggregate, reasonably be expected to have a Company
Material Adverse
22
Effect. None of the Company or any Company Subsidiary is delinquent in payments
to any of its employees for any wages, salaries, commissions, bonuses or other
direct compensation for any services performed for it or amounts required to be
reimbursed to such employees. Each of the Company and each Company Subsidiary
has withheld all amounts required by Law or by agreement to be withheld from the
wages, salaries, and other payments to employees, and is not liable for any
arrears of wages or any Taxes or any penalty for failure to comply with any of
the foregoing. There are no material pending claims against the Company or any
Company Subsidiary under any workers' compensation plan or policy or for long
term disability. There are no material controversies pending or, to the
knowledge of the Company, threatened, between the Company or any Company
Subsidiary and any of their current or former employees, which controversies
have or could reasonably be expected to result in an action, suit, proceeding,
claim, arbitration or investigation before any Governmental Entity. To the
Company's knowledge, no employee of the Company or any Company Subsidiary is in
any material respect in violation of any term of any employment contract,
non-disclosure agreement, non-competition agreement, or any restrictive covenant
to a former employer relating to the right of any such employee to be employed
by the Company or such Company Subsidiary because of the nature of the business
conducted or presently proposed to be conducted by it or to the use of trade
secrets or proprietary information of others. No employee of the Company or any
Company Subsidiary has given notice, nor is the Company otherwise aware, that
such employee intends to terminate his or her employment with the Company or
such Company Subsidiary.
Section 3.11.2 The Company has identified in Section 3.11.2 of the
Company Disclosure Schedule and has made available to Parent true and complete
copies of (A) all severance and employment agreements with directors, officers
or employees of or consultants to the Company or any Company Subsidiary, (B) all
severance programs and policies of the Company and each Company Subsidiary with
or relating to its employees, and (C) all plans, programs, agreements and other
arrangements of the Company and each Company Subsidiary with or relating to its
directors, officers, employees or consultants which contain change in control
provisions. Except as set forth in Section 3.11.2 of the Company Disclosure
Schedule, none of the execution and delivery of this Agreement or any Ancillary
Agreement or the consummation of the transactions contemplated hereby or thereby
will (either alone or in conjunction with any other event, such as termination
of employment) (A) result in any payment
23
(including, without limitation, severance, unemployment compensation, parachute
or otherwise) becoming due to any director or any employee of the Company or any
Company Subsidiary or affiliate from the Company or any Company Subsidiary or
affiliate under any Company Benefit Plan or otherwise, (B) significantly
increase any benefits otherwise payable under any Company Benefit Plan or (C)
result in any acceleration of the time of payment or vesting of any material
benefits. No individual who is a party to an employment agreement listed in
Section 3.11.2 of the Company Disclosure Schedule or any agreement incorporating
change in control provisions with the Company has terminated employment or been
terminated, nor has any event occurred that could give rise to a termination
event, in either case under circumstances that has given, or could give, rise to
a severance obligation on the part of the Company under such agreement. Section
3.11.2 of the Company Disclosure Schedule sets forth the Company's best
estimates of the amounts payable to the executives listed therein, as a result
of the transactions contemplated by this Agreement, any Ancillary Agreement,
and/or any subsequent employment termination (including any cash-out or
acceleration of options and restricted stock and any "gross-up" payments with
respect to any of the foregoing), based on compensation data applicable as of
the date of the Company Disclosure Schedule and the assumptions stated therein.
Section 3.11.3 There are no pending or threatened claims (other than
claims for benefits in the ordinary course), lawsuits or arbitrations which have
been asserted or instituted against any Company Benefit Plan, any fiduciaries
thereof with respect to their duties to the Company Benefit Plans or the assets
of any of the trusts under any of the Company Benefit Plans which could
reasonably be expected to result in any material liability of the Company or any
Company Subsidiary to the Pension Benefit Guaranty Corporation ("PBGC"), the
Department of Treasury, the Department of Labor or any Multiemployer Plan.
Section 3.12 Tax Treatment. None of the Company, any Company Subsidiary
or, to the knowledge of the Company, any of the Company's affiliates has taken
or agreed to take any action that would prevent the Merger from qualifying as a
reorganization within the meaning of Section 368(a) of the Code. The Company is
not aware of any agreement, plan or other circumstance that would prevent the
Merger from qualifying as a reorganization within the meaning of Section 368(a)
of the Code.
Section 3.13 Contracts
24
Except as filed as exhibits to the Company SEC Filings filed prior to the
date of this Agreement, or as disclosed in Section 3.13 of the Company
Disclosure Schedule, none of the Company or any Company Subsidiary is a party to
or bound by any contract (A) any of the benefits to any party of which will be
increased, or the vesting of the benefits to any party of which will be
accelerated, by the occurrence of any of the transactions contemplated by this
Agreement or any Ancillary Agreement, or the value of any of the benefits to any
party of which will be calculated on the basis of any of the transactions
contemplated by this Agreement or any Ancillary Agreement, or (B) which, as of
the date hereof, (1) is a "material contract" (as such term is defined in Item
601(b)(10) of Regulation S-K of the SEC), (2) involves aggregate expenditures in
excess of $250,000, other than contracts for the purchase of raw materials,
components or manufacturing goods and contracts for the sale of the Company's
products in the ordinary course of business, (3) involves annual expenditures in
excess of $250,000 and is not cancelable within one year, other than contracts
for the purchase of raw materials, components or manufacturing goods and
contracts for the sale of the Company's products in the ordinary course of
business, (4) contains any non-compete or exclusivity provisions with respect to
any line of business or geographic area with respect to the Company, any Company
Subsidiary or any of the Company's current or future affiliates, or which
restricts the conduct of any line of business by the Company, any Company
Subsidiary or any of the Company's current or future affiliates or any
geographic area in which the Company, any Company Subsidiary or any of the
Company's current or future affiliates may conduct business, in each case in any
material respect, (5) involves the sale of a Company Product to a customer or
distributor and provides for a right of refund or return for any reason,
including upon the occurrence of specified events or otherwise or (6) would
prohibit or materially delay the consummation of the Merger or any of the
transactions contemplated by this Agreement or any Ancillary Agreement. Each
Contract of the type described in this Section 3.13, whether or not set forth in
Section 3.13 of the Company Disclosure Schedule, is referred to herein as a
"Company Material Contract." Each Company Material Contract is valid and binding
on the Company and each Company Subsidiary party thereto and, to the Company's
knowledge, each other party thereto, and in full force and effect, and the
Company and each Company Subsidiary has in all material respects performed all
obligations required to be performed by it to the date hereof under each Company
Material Contract and, to the Company's knowledge, each other party to each
Company Material Contract
25
has in all material respects performed all obligations required to be performed
by it under such Company Material Contract, except as would not, individually or
in the aggregate, reasonably be expected to (1) prevent or materially delay
consummation of the Merger, (2) otherwise prevent or materially delay
performance by the Company of any of its material obligations under this
Agreement or any Ancillary Agreement, or (3) result in a Company Material
Adverse Effect. None of the Company or any Company Subsidiary knows of, or has
received notice of, any violation or default under (or any condition which with
the passage of time or the giving of notice would cause such a violation of or
default under) any Company Material Contract or any other contract to which it
is a party or by which it or any of its properties or assets is bound, except
for violations or defaults that would not, individually or in the aggregate,
reasonably be expected to (1) prevent or materially delay consummation of the
Merger, (2) otherwise prevent or materially delay performance by the Company of
any of its material obligations under this Agreement or any Ancillary Agreement
or (3) result in a Company Material Adverse Effect. Section 3.13 of the Company
Disclosure Schedule provides the Company's good faith estimate of the additional
costs which will accrue to the Company under the contracts described in clause
(A) of Section 3.13 as a result of the transactions contemplated by this
Agreement or any Ancillary Agreement.
Section 3.14 Litigation. Except as and to the extent set forth in
Company SEC Filings filed prior to the date of this Agreement or in Section 3.14
of the Company Disclosure Schedule, (A) there is no suit, claim, action,
proceeding or investigation pending or, to the knowledge of the Company,
threatened in writing against the Company or any Company Subsidiary or
reasonably likely to be brought against the Company or any Company Subsidiary or
for which the Company or any Company Subsidiary is obligated to indemnify a
third party that (1) has had or would, individually or in the aggregate,
reasonably be expected to have a Company Material Adverse Effect or (2) as of
the date hereof, challenges the validity or propriety, or seeks to prevent or
materially delay consummation of the Merger or any other transaction
contemplated by this Agreement or any Ancillary Agreement and (B) none of the
Company or any Company Subsidiary is subject to any outstanding order, writ,
injunction, decree or arbitration ruling, award or other finding which has had
or would, individually or in the aggregate, reasonably be expected to (1)
prevent or materially delay consummation of the Merger, (2) otherwise prevent or
materially delay performance by the Company of any of its
26
material obligations under this Agreement or any Ancillary Agreement, or (3)
result in a Company Material Adverse Effect.
Section 3.15 Environmental Matters. Except as would not,
individually or in the aggregate, reasonably be expected to have a Company
Material Adverse Effect:
Section 3.15.1 The Company and each Company Subsidiary (A) is in
compliance with all, and is not subject to any liability, with respect to any,
applicable Environmental Laws, (B) holds or has applied for all Environmental
Permits necessary to conduct their current operations, and (C) is in compliance
with their respective Environmental Permits.
Section 3.15.2 None of the Company or any Company Subsidiary
has received any written notice, demand, letter, claim or request for
information alleging that the Company or any Company Subsidiary may be in
violation of, or liable under, any Environmental Law.
Section 3.15.3 None of the Company or any Company Subsidiary
(A) has entered into or agreed to any consent decree or order or is subject to
any judgment, decree or judicial order relating to compliance with Environmental
Laws, Environmental Permits or the investigation, sampling, monitoring,
treatment, remediation, removal or cleanup of Hazardous Materials and, to the
knowledge of the Company, no investigation, litigation or other proceeding is
pending or threatened in writing with respect thereto, or (B) is an indemnitor
in connection with any claim threatened or asserted in writing by any
third-party indemnitee for any liability under any Environmental Law or relating
to any Hazardous Materials.
Section 3.15.4 None of the real property owned or leased by
the Company or any Company Subsidiary is listed or, to the knowledge of the
Company, proposed for listing on the "National Priorities List" under CERCLA, as
updated through the date hereof, or any similar state or foreign list of sites
requiring investigation or cleanup.
Section 3.16 Intellectual Property. Excepting the Intellectual
Property owned or controlled by Parent and/or Merger Sub, the Company owns or
has the defensible right to use, whether through ownership, licensing or
otherwise, all Intellectual Property significant to the businesses of the
Company and each Company Subsidiary in substantially the same manner as
27
such businesses are conducted on the date hereof ("Material Company Intellectual
Property"). Excepting the Intellectual Property owned or controlled by Parent
and/or Merger Sub, except as set forth in Section 3.16 of the Company Disclosure
Schedule and except as would not, individually or in the aggregate, reasonably
be expected to have a material adverse impact on the validity or value of any
Material Company Intellectual Property and excluding prior communications or
dealings with Parent: (A) no written claim of invalidity or conflicting
ownership rights with respect to any Material Company Intellectual Property has
been made by a third party and no such Material Company Intellectual Property is
the subject of any pending or, to the Company's knowledge, threatened action,
suit, claim, investigation, arbitration or other proceeding; (B) no person or
entity has given notice to the Company or any Company Subsidiary that the use of
any Material Company Intellectual Property by the Company, any Company
Subsidiary or any licensee is infringing or has infringed any domestic or
foreign patent, trademark, service mark, trade name, or copyright or design
right, or that the Company, any Company Subsidiary or any licensee has
misappropriated or improperly used or disclosed any trade secret, confidential
information or know-how; (C) the making, using, selling, manufacturing,
marketing, licensing, reproduction, distribution, or publishing of any process,
machine, manufacture or product related to any Material Company Intellectual
Property, is not presently believed to infringe any domestic or foreign patent,
trademark, service mark, trade name, copyright or other intellectual property
right of any third party, and does not and will not involve the misappropriation
or improper use or disclosure of any trade secrets, confidential information or
know-how of any third party; (D) there is not believed to exist any prior act or
current conduct or use by the Company, any Company Subsidiary or any third party
that would void or invalidate any Material Company Intellectual Property; and
(E) the execution, delivery and performance of this Agreement and each Ancillary
Agreement by the Company and the consummation of the transactions contemplated
hereby and thereby will not breach, violate or conflict with any instrument or
agreement concerning any Material Company Intellectual Property, will not cause
the forfeiture or termination or give rise to a right of forfeiture or
termination of any of the Material Company Intellectual Property or impair the
right of Parent or the Surviving Corporation to make, use, sell, license or
dispose of, or to bring any action for the infringement of any Material Company
Intellectual Property. In addition, the matters disclosed
28
on Section 3.16 of the Company Disclosure Schedule would not, individually or in
the aggregate, reasonably be expected to have a Company Material Adverse Effect.
Section 3.17 Taxes.
Section 3.17.1 The Company and each Company Subsidiary has timely
filed all Tax Returns with the appropriate taxing authorities required to be
filed as of the date hereof, taking into account any extensions of time within
which to file such Tax Returns. The Tax Returns accurately reflected in all
material respects and will accurately reflect in all material respects all
liability for Taxes of the Company and such Company Subsidiaries for the periods
covered thereby. Except as provided in Schedule 3.17.1, all material Taxes owed
by the Company and each Company Subsidiary for all taxable years or other
taxable periods that end on or before the Effective Time, and, with respect to
any taxable year or other taxable period beginning before and ending after the
Effective Time, whether or not shown as being due on any Tax Return, have been
paid and the Company and each Company Subsidiary have provided adequate reserves
in accordance with GAAP in their financial statements for any Taxes that have
not been paid, whether or not shown as being due on any Tax Returns. No claim
has ever been made by an authority in a jurisdiction where the Company or any
Company Subsidiary does not file Tax Returns that the Company or any Company
Subsidiary is or may be subject to taxation by that jurisdiction.
Section 3.17.2 Except as provided in Schedule 3.17.2, no
deficiencies for Taxes with respect to the Company and any Company Subsidiary
have been claimed, proposed or assessed by any taxing authority or other
Governmental Entity. Except as provided in Schedule 3.17.2, there are no audits
or other administrative proceedings or court proceedings presently pending with
regard to any Taxes or Tax Returns of the Company or any Company Subsidiary and
none of the Company or any Company Subsidiary has received a written notice or
announcement of any audits or proceedings. To the Company's knowledge, no such
audits or proceedings are contemplated. No requests for waivers of time to
assess any Taxes are pending and none of the Company or any Company Subsidiary
has waived any statute of limitations with respect to Taxes or agreed to any
extension of time with respect to any Tax assessment or deficiency for any open
tax year.
29
Section 3.17.3 There are no Tax liens upon any property or assets of
the Company or any Company Subsidiary except liens for current Taxes not yet due
and payable and liens for Taxes that are being contested in good faith by
appropriate proceedings.
Section 3.17.4 The Company and each Company Subsidiary has withheld
and paid all material Taxes required to have been withheld and paid in
connection with amounts paid or owing to any employee, independent contractor,
creditor, stockholder, or other third party.
Section 3.17.5 Neither the Company nor any Company Subsidiary has
been included in any "consolidated," "unitary" or combined Tax Return, other
than the consolidated, unified or combined Tax Returns of a Company Subsidiary
filed with other Company Subsidiaries and/or the Company, provided for under the
laws of the United States, any foreign jurisdiction or any state or locality
with respect to Taxes for any taxable period for which the statute of
limitations has not expired. None of the Company or any Company Subsidiary is
responsible for the Taxes of any other person under Treasury Regulation Section
1.1502-6 (or any similar provision of state, local, or foreign law), as a
transferee, by contract, or otherwise.
Section 3.17.6 None of the Company or any Company Subsidiary has (i)
filed a consent pursuant to Section 341(f) of the Code or agreed to have Section
341(f)(2) of the Code apply to any disposition of any asset owned by it; (ii)
agreed, or is required, to make any adjustment under Section 481(a) of the Code
by reason of a change in accounting method or otherwise; (iii) made an election,
or is required to treat any of its assets as owned by another person or as
"tax-exempt use property" or "tax-exempt bond financed property" within the
meaning of Section 168 of the Code; (iv) made a consent dividend election under
Section 565 of the Code; or (v) made any of the foregoing elections or is
required to apply any of the foregoing rules under any comparable state, local
or foreign Tax provision.
Section 3.17.7 The Company has not been a United States real
property holding corporation within the meaning of Section 897(c)(2) of the Code
during the applicable period described in Section 897(c)(1)(A)(ii) of the Code.
30
Section 3.17.8 None of the interest payable by the Company or any
Company Subsidiary under outstanding indebtedness is nondeductible under Code
Section 163 or is treated as interest on corporate acquisition indebtedness
under Code Section 279.
Section 3.17.9 None of the Company or any Company Subsidiary is a
party to, is bound by or has any obligation under any Tax sharing or Tax
indemnity agreement or similar contract or arrangement.
Section 3.17.10 There are no other transactions or facts existing
with respect to the Company and/or its Subsidiaries which by reason of the
consummation of the transactions contemplated by this Agreement will result in
the Company and/or the Company Subsidiaries recognizing income.
Section 3.18 Insurance. The Company maintains insurance coverage with
reputable insurers, or maintains self-insurance practices, 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 (taking into
account the cost and availability of such insurance).
Section 3.19 Opinion of Financial Advisors. H.C. Wainwright & Co. (the
"Company Financial Advisor") has delivered to the Company Board its written
opinion that the Exchange Ratio is fair from a financial point of view to the
holders of Company Stock.
Section 3.20 Vote Required. The affirmative vote of the holders of a
majority of the outstanding shares of Company Common Stock and Series D
Convertible Preferred Stock, voting together as a single class on an
as-converted basis, are the only votes, if any, of the holders of any class or
series of capital stock or other Equity Interests of the Company necessary to
approve the Merger.
Section 3.21 Brokers and Other Advisors. No broker, finder, investment
banker or other person (other than the Company Financial Advisor, the fees and
expenses of which will be paid by the Company) is entitled to any brokerage,
finder's or other fee or commission in connection with the Merger or any other
transaction contemplated by this Agreement or any Ancillary Agreement based upon
arrangements made by or on behalf of the Company or any Company Subsidiary. The
Company has heretofore made available to Parent a true and complete copy of all
agreements between the Company and the Company Financial Advisor
31
pursuant to which such firm would be entitled to any payment or indemnification
in connection with the Merger or any other transaction contemplated by this
Agreement or any Ancillary Agreement.
Section 3.22 Product Liability. As used in this Section 3.22, the term
"Company Product" shall mean any product designed, manufactured, shipped, sold,
marketed, distributed and/or otherwise introduced into the stream of commerce by
or on behalf of the Company or any Company Subsidiary, including, without
limitation, any product sold by the Company or any Company Subsidiary as a
distributor, agent, or pursuant to any other contractual relationship; and the
term "Company Defect" shall mean a defect or impurity of any kind, whether in
design, manufacture, processing or otherwise, including, without limitation, any
dangerous propensity associated with any reasonably foreseeable use of a Company
Product, or the failure to know of the existence of any defect, impurity or
dangerous propensity. Except as set forth in Section 3.22 of the Company
Disclosure Schedule, there is no pending or, to the knowledge of the Company,
threatened, claim, action, suit, inquiry, proceeding or investigation by any
individual or Governmental Entity in which a Company Product is alleged to have
a Company Defect, except any such claim, action, suit, inquiry proceeding or
investigation which would not be reasonably likely to have, individually or in
the aggregate, a Company Material Adverse Effect.
Section 3.23 Transactions with Affiliates. Other than as previously
disclosed by the Company in any filing with the SEC prior to the date of this
Agreement, since January 1, 2000, the Company has not entered into any agreement
or engaged in any transaction with any current or former director, officer or
holder of five percent or more of the outstanding voting securities of the
Company (calculated assuming conversion or exercise of all securities
convertible into or exercisable or exchangeable for voting securities of the
Company). Other than as previously disclosed by the Company in any filing with
the SEC prior to the date of this Agreement, since January 1, 2000, no executive
officer or director of the Company, either in such capacity or in his or her
individual capacity, has entered into any agreement or engaged in any
transaction with any current or former employee, customer, distributor, vendor
or any other person, except for any agreement or transaction pursuant to which
the Company receives no direct or indirect benefit and undertakes no direct or
indirect obligation.
32
Section 3.24 Federal Healthcare Matters. The Company (i) is not currently
excluded, debarred, or otherwise ineligible to participate in the federal health
care programs as defined in 42 U.S.C. Section 1320a-7b(f) (the "Federal
Healthcare Programs"); (ii) has not been charged with or convicted of a criminal
offense related to the provision of health care items or services and (iii) is
not under investigation or otherwise aware of any circumstances which may result
in the Company being excluded from participation in the Federal Healthcare
Programs.
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Except as set forth in the Disclosure Schedule delivered by Parent and
Merger Sub to the Company prior to the execution of this Agreement (the "Parent
Disclosure Schedule"), which identifies exceptions by specific Section
references, Parent and Merger Sub hereby jointly and severally represent and
warrant to the Company as follows:
Section 4.1 Organization and Qualification; Subsidiaries. Each of Parent
and Merger Sub is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. Each of Merger Sub and the
other subsidiaries of Parent (each a "Parent Subsidiary" and, collectively, the
"Parent Subsidiaries") has been duly organized, and is validly existing and in
good standing under the laws of the jurisdiction of its incorporation or
organization, as the case may be. Each of Parent and each Parent Subsidiary has
the 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. Each of Each of Parent and each Parent Subsidiary is duly
qualified or licensed 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, licensing or good
standing necessary, except for such failures to be so qualified, licensed or in
good standing that would not, individually or in the aggregate, reasonably be
expected to have a Parent Material Adverse Effect. Section 4.1 of the Parent
Disclosure Schedule sets forth a true and complete list of all of the Parent
Subsidiaries. Except as set forth in Section 4.1 of the Parent Disclosure
Schedule, none of Parent or any Parent Subsidiary holds an Equity Interest in
any other person.
Section 4.2 Certificate of Incorporation and By-laws; Corporate Books and
Records. The copies of Parent's Amended and Restated Certificate of
Incorporation (the "Parent
33
Certificate") and By-laws (the "Parent By-laws") that are listed as exhibits to
Parent's Form 10-K for the year ended December 31, 2001 are complete and correct
copies thereof as in effect on the date hereof (the "Parent Form 10-K"). Parent
is not in violation of any of the provisions of the Parent Certificate or the
Parent By-laws. True and complete copies of all minute books of Parent have been
made available by Parent to the Company.
Section 4.3 Capitalization. The authorized capital stock of Parent
consists of 200,000,000 shares of Parent Common Stock and 5,000,000 shares of
preferred stock, par value $0.001 per share (the "Parent Preferred Stock"). As
of the date hereof, (A) 36,974,978 shares of Parent Common Stock (other than
treasury shares) were issued and outstanding, all of which were validly issued
and fully paid, nonassessable and free of preemptive rights, (B) no shares of
Parent Common Stock were held in the treasury of Parent or by the Parent
Subsidiaries, and (C) 6,512,652 shares of Parent Common Stock were issuable (and
such number was reserved for issuance) upon exercise of options to purchase
Parent Common Stock ("Parent Options") outstanding as of such date. As of the
date hereof, no shares of Parent Preferred Stock are issued or outstanding.
Except for Parent Options to purchase not more than 6,512,652 shares of Parent
Common Stock, warrants to purchase not more than 5,081 shares of Company Common
Stock outstanding as of the date hereof and arrangements and agreements set
forth in Section 4.3 of the Parent Disclosure Schedule, there are no options,
warrants or other rights, agreements, arrangements or commitments of any
character to which Parent or any Parent Subsidiary is a party or by which Parent
or any Parent Subsidiary is bound relating to the issued or unissued capital
stock or other Equity Interests of Parent or any Parent Subsidiary, or
securities convertible into or exchangeable for such capital stock or other
Equity Interests, or obligating Parent or any Parent Subsidiary to issue or sell
any shares of its capital stock or other Equity Interests, or securities
convertible into or exchangeable for such capital stock of, or other Equity
Interests in, Parent or any Parent Subsidiary. Since December 31, 2002, Parent
has not issued any shares of its capital stock, or securities convertible into
or exchangeable for such capital stock or other Equity Interests, other than
those shares of capital stock reserved for issuance as set forth in this Section
4.3 or Section 4.3 of the Parent Disclosure Schedule. Parent has previously
provided the Company with a true and complete list, as of the date hereof, of
the prices at which outstanding Parent Options may be exercised under the
applicable Parent Stock Option Plan, the number of Parent Options outstanding at
each such price and the vesting
34
schedule of the Parent Options for each officer of Parent. All shares of Parent
Common Stock subject to issuance under the Parent Stock Option Plans, upon
issuance prior to the Effective Time on the terms and conditions specified in
the instruments pursuant to which they are issuable, will be duly authorized,
validly issued, fully paid, nonassessable and free of preemptive rights. There
are no outstanding contractual obligations of Parent or any Parent Subsidiary
(A) restricting the transfer of, (B) affecting the voting rights of, (C)
requiring the repurchase, redemption or disposition of, or containing any right
of first refusal with respect to, (D) requiring the registration for sale of, or
(E) granting any preemptive or antidilutive right with respect to, any shares of
Parent Common Stock or any capital stock of, or other Equity Interests in,
Parent or any Parent Subsidiary. Except as set forth in Section 4.3 of the
Parent Disclosure Schedule, each outstanding share of capital stock of each
Parent Subsidiary is duly authorized, validly issued, fully paid, nonassessable
and free of preemptive rights and is owned, beneficially and of record, by
Parent or another Parent Subsidiary free and clear of all security interests,
liens, claims, pledges, options, rights of first refusal, agreements,
limitations on Parent's or such other Parent Subsidiary's voting rights, charges
and other encumbrances of any nature whatsoever. There are no outstanding
contractual obligations of Parent or any Parent Subsidiary to provide funds to,
or make any investment (in the form of a loan, capital contribution or
otherwise) in, any Parent Subsidiary or any other person, other than guarantees
by Parent of any indebtedness or other obligations of any wholly-owned Parent
Subsidiary.
Section 4.4 Authority.
Section 4.4.1 Each of Parent and Merger Sub has all necessary
corporate power and authority to execute and deliver this Agreement and each
Ancillary Agreement to which it is a party, to perform its obligations hereunder
and thereunder and to consummate the transactions contemplated by this Agreement
and each Ancillary Agreement to be consummated by it. Each of (A) the execution
and delivery of this Agreement and each Ancillary Agreement to which it is a
party by each of Parent and Merger Sub, as applicable, and the consummation by
Parent and Merger Sub of the transactions contemplated hereby and thereby and
(B) the issuance of shares of Parent Common Stock in accordance with the Merger,
have been duly and validly authorized by all necessary corporate action
(including approval by Parent as sole stockholder of Merger Sub), and no other
corporate proceedings on the part of Parent and Merger Sub and no other
stockholder votes are necessary to authorize this Agreement or any such
Ancillary Agreement or to consummate the transactions contemplated hereby and
thereby other than, with respect to the Merger, as provided in Section 4.20.
Each of the Board of Directors of Parent (the "Parent Board") and the Board of
Directors of Merger Sub (the "Merger Sub Board") has approved this Agreement and
each Ancillary Agreement to which Parent or Merger Sub, as applicable, is a
party, declared advisable the transactions contemplated hereby or thereby and
has directed that this Agreement and each such Ancillary
35
Agreement and the transactions contemplated hereby and thereby be submitted to
Parent's stockholders for approval at a meeting of such stockholders and to
Parent, as the sole stockholder of Merger Sub, for approval. This Agreement and
each Ancillary Agreement to which Parent or Merger Sub is a party have been duly
authorized and validly executed and delivered by Parent and Merger Sub, as
applicable, and constitute a legal, valid and binding obligation of Parent and
Merger Sub, enforceable against Parent and Merger Sub in accordance with its
terms.
Section 4.4.2 Each of Parent and Merger Sub has taken all
appropriate actions so that the restrictions on business combinations contained
in Section 203 of the DGCL will not apply with respect to or as a result of this
Agreement or any Ancillary Agreement to which Parent or Merger Sub is a party
and the transactions contemplated hereby and thereby, including the Merger,
without any further action on the part of the stockholders of Parent or Merger
Sub or the Parent Board or the Merger Sub Board. True and complete copies of all
Parent Board resolutions and Merger Sub Board resolutions reflecting such
actions have been previously provided to the Company. No other state takeover
statute or similar statute or regulation is applicable to or purports to be
applicable to the Merger or any other transaction contemplated by this Agreement
or any Ancillary Agreement to which Parent or Merger Sub is a party.
Section 4.5 No Conflict; Required Filings and Consents.
Section 4.5.1 The execution and delivery of this Agreement and each
Ancillary Agreement to which Parent or Merger Sub is a party do not, and the
performance thereof by Parent and Merger Sub will not, (A) (assuming, the
stockholder approval set forth in Section 4.20 is obtained) conflict with or
violate any provision of the Certificate of Incorporation or By-laws of Parent
or Merger Sub, (B) assuming that all consents, approvals, authorizations and
permits described in Section 4.5.2 have been obtained and all filings and
notifications
36
described in Section 4.5.2 have been made, and that the stockholders of Parent
have approved the issuance of the shares of Parent Common Stock to be issued in
connection with the Merger, and any waiting periods thereunder have terminated
or expired, 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 (C) require any consent or approval under, result in any
breach of or any loss of any benefit under, constitute a change of control or
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, vesting, 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,
Parent Permit or other instrument or obligation.
Section 4.5.2 The execution and delivery of this Agreement and each
Ancillary Agreement to which Parent or Merger Sub is a party do not, and the
performance hereof and thereof by Parent and Merger Sub will not, require any
consent, approval, authorization or permit of, or filing with or notification
to, any Governmental Entity or any other person, except (A) under the Exchange
Act, the Securities Act, any applicable Blue Sky Laws and the rules and
regulations of Nasdaq and the filing and recordation of the Certificate of
Merger as required by the DGCL and (B) where failure to obtain such consents,
approvals, authorizations or permits, or to make such filings or notifications
to a person other than a Governmental Entity, would not, individually or in the
aggregate, reasonably be expected to (x) prevent or materially delay
consummation of the Merger, (y) otherwise prevent or materially delay
performance by Parent or Merger Sub of any of their material obligations under
this Agreement or any Ancillary Agreement or (z) have a Parent Material Adverse
Effect.
Section 4.6 Permits; Compliance With Law. Each of Parent and each Parent
Subsidiary is in possession of all authorizations, licenses, permits,
certificates, approvals and clearances of any Governmental Entity necessary for
Parent and each Parent Subsidiary to own, lease and operate its properties or to
carry on its respective businesses substantially in the manner described in the
Parent SEC Filings filed prior to the date hereof and substantially as it is
being conducted as of the date hereof (the "Parent Permits"), and all such
Parent Permits are valid, and in full force and effect, except where the failure
to have, or the suspension or cancellation of, or failure to be valid or in full
force and effect of, any of the Parent Permits
37
would not, individually or in the aggregate, reasonably be expected to (A)
prevent or materially delay consummation of the Merger, (B) otherwise prevent or
materially delay performance by Parent or Merger Sub of any of their material
obligations under this Agreement or any Ancillary Agreement or (C) have a Parent
Material Adverse Effect. None of Parent or any Parent Subsidiary is in conflict
with, or in default or violation of, (x) 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 (y) any Parent Permits, except for any such
conflicts, defaults or violations that would not, individually or in the
aggregate, reasonably be expected to (A) prevent or materially delay
consummation of the Merger, (B) otherwise prevent or materially delay
performance by Parent or Merger Sub of any of their material obligations under
this Agreement or any Ancillary Agreement to which it is a party or (C) have a
Parent Material Adverse Effect.
Section 4.7 SEC Filings; Financial Statements.
Section 4.7.1 Parent has timely filed all registration statements,
prospectuses, forms, reports, definitive proxy statements, schedules and
documents required to be filed by it under the Securities Act or the Exchange
Act, as the case may be, since January 1, 2000 (collectively, the "Parent SEC
Filings"). Each Parent SEC Filing (A) as of its date, complied in all material
respects with the requirements of the Securities Act or the Exchange Act, as the
case may be, and (B) did not, at the time it was filed, contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements made therein, in the
light of the circumstances under which they were made, not misleading. As of the
date of this Agreement, no Parent Subsidiary is subject to the periodic
reporting requirements of the Exchange Act.
Section 4.7.2 Each of the consolidated financial statements
(including, in each case, any notes thereto) contained in the Parent SEC Filings
was prepared in accordance with GAAP applied (except as may be indicated in the
notes thereto and, in the case of unaudited quarterly financial statements, as
permitted by Form 10-Q under the Exchange Act) on a consistent basis throughout
the periods indicated (except as may be indicated in the notes thereto), and
each presented fairly the consolidated financial position, results of operations
and cash flows of Parent and the consolidated Parent Subsidiaries as of the
respective dates thereof and for the respective periods indicated therein
(subject, in the case of unaudited statements, to
38
normal year-end adjustments which did not and would not, individually or in the
aggregate, reasonably be expected to have a Parent Material Adverse Effect). The
books and records of Parent and each Parent Subsidiary have been, and are being,
maintained in accordance with applicable legal and accounting requirements.
Section 4.7.3 Except as and to the extent set forth on the
consolidated balance sheet of Parent and the consolidated Parent Subsidiaries as
of December 31, 2001 included in the Parent Form 10-K for the year ended
December 31, 2001, including the notes thereto, none of Parent or any
consolidated Parent Subsidiary has any liabilities or obligations of any nature
(whether accrued, absolute, contingent or otherwise) that would be required to
be reflected on a balance sheet or in notes thereto prepared in accordance with
GAAP, except for liabilities or obligations incurred in the ordinary course of
business since December 31, 2001 that would not, individually or in the
aggregate, reasonably be expected to (A) prevent or materially delay
consummation of the Merger, (B) otherwise prevent or materially delay
performance by Parent or Merger Sub of any of their material obligations under
this Agreement or any Ancillary Agreement to which it is a party or (C) have a
Parent Material Adverse Effect.
Section 4.7.4 Parent has previously provided to the Company a
complete and correct copy of any amendment or modification which has not yet
been filed with the SEC to any agreement, document or other instrument which
previously had been filed by Parent with the SEC pursuant to the Securities Act
or the Exchange Act.
Section 4.8 Disclosure Documents.
Section 4.8.1 The Registration Statement, the Proxy Statement and
any Other Filings, and any amendments or supplements thereto, at (A) the time
the Registration Statement is declared effective, (B) the time the Proxy
Statement (or any amendment thereof or supplement thereto) is first mailed to
the stockholders of the Company, (C) if applicable, the time the Proxy Statement
(or any amendment thereof or supplement thereto) is first mailed to stockholders
of Parent, (D) the time of the Company Stockholders' Meeting, (E) the time of
the Parent Stockholders' Meeting, and (F) the Effective Time, will comply as to
form in all material respects with the applicable requirements of the Securities
Act, the Exchange Act and other applicable Laws.
39
Section 4.8.2 The Registration Statement, the Proxy Statement and
any Other Filings, and any amendments or supplements thereto, do not, and will
not, at (A) the time the Registration Statement is declared effective, (B) the
time the Proxy Statement (or any amendment thereof or supplement thereto) is
first mailed to the stockholders of the Company, (C) the time the Proxy
Statement (or any amendment thereof or supplement thereto) is first mailed to
stockholders of Parent, (D) the time of the Company Stockholders' Meeting, (E)
the time of the Parent Stockholders' Meeting, and (F) the Effective Time,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
made therein, in light of the circumstances under which they were made, not
misleading. The representations and warranties contained in this Section 4.8.2
will not apply to statements or omissions included in the Registration
Statement, the Proxy Statement or any Other Filings based upon information
furnished in writing to Parent or Merger Sub by the Company specifically for use
therein.
Section 4.9 Absence of Certain Changes or Events. Since September 30,
2002, except as specifically contemplated by, or as disclosed in, this Agreement
or Section 4.9 of the Parent Disclosure Schedule, Parent and each Parent
Subsidiary has conducted its businesses in the ordinary course consistent with
past practice. During the period from October 1, 2002 through the date of this
Agreement, there has not been any Parent Material Adverse Effect or an event or
development that would, individually or in the aggregate, reasonably be expected
to have a Parent Material Adverse Effect. Since September 30, 2002, there has
not been any event or development that would, individually or in the aggregate,
reasonably be expected to prevent or materially delay the performance of this
Agreement or any Ancillary Agreement by Parent or Merger Sub. Neither Parent nor
any Parent Subsidiary has taken any action during the period from October 1,
2002 through the date of this Agreement that, if taken during the period from
the date of this Agreement through the Effective Time, would constitute a breach
of Section 5.2.
Section 4.10 Employee Benefit Plans.
Section 4.10.1 Section 4.10.1 of the Parent Disclosure Schedule sets
forth a true and complete list of each "employee benefit plan" as defined in
Section 3(3) of ERISA and any other plan, policy, program, practice, agreement,
understanding or arrangement (whether written or oral) providing compensation or
other benefits to any current or former director,
40
officer, employee or consultant (or to any dependent or beneficiary thereof of
Parent or any ERISA Affiliate), which are now, or were within the past 6 years,
maintained, sponsored or contributed to by Parent or any ERISA Affiliate, or
under which Parent or any ERISA Affiliate has any obligation or liability,
whether actual or contingent, including, without limitation, all incentive,
bonus, deferred compensation, vacation, holiday, cafeteria, medical, disability,
stock purchase, stock option, stock appreciation, phantom stock, restricted
stock or other stock-based compensation plans, policies, programs, practices or
arrangements (each a "Parent Benefit Plan"). Neither Parent, nor to the
knowledge of Parent, or any other person or entity, has any express or implied
commitment, whether legally enforceable or not, to modify, change or terminate
any Parent Benefit Plan, other than with respect to a modification, change or
termination required by ERISA or the Code.
With respect to each Parent Benefit Plan, Parent has delivered to the
Company true, correct and complete copies of (A) each Parent Benefit Plan (or,
if not written a written summary of its material terms), including without
limitation all plan documents, adoption agreements, trust agreements, insurance
contracts or other funding vehicles and all amendments thereto, (B) all
summaries and summary plan descriptions, including any summary of material
modifications, (C) the most recent annual reports (Form 5500 series) filed with
the IRS with respect to such Parent Benefit Plan (and, if the most recent annual
report is a Form 5500R, the most recent Form 5500C filed with respect to such
Parent Benefit Plan), (D) the most recent actuarial report or other financial
statement relating to such Parent Benefit Plan, (E) the most recent
determination or opinion letter, if any, issued by the IRS with respect to any
Parent Benefit Plan and any pending request for such a determination letter, (F)
the most recent nondiscrimination tests performed under the Code (including
401(k) and 401(m) tests) for each Parent Benefit Plan, and (G) all filings made
with any Governmental Entity, including but not limited any filings under the
Voluntary Compliance Resolution or Closing Agreement Program or the Department
of Labor Delinquent Filer Program.
Section 4.10.2 Each Parent Benefit Plan has been administered in all
material respects in accordance with its terms and all applicable Laws,
including ERISA and the Code, and contributions required to be made under the
terms of any of the Parent Benefit Plans as of the date of this Agreement have
been timely made or, if not yet due, have been properly reflected on the most
recent consolidated balance sheet filed or incorporated by reference in the
41
Parent SEC Filings prior to the date of this Agreement. With respect to the
Parent Benefit Plans, no event has occurred and, to the knowledge of Parent,
there exists no condition or set of circumstances in connection with which
Parent could be subject to any material liability (other than for routine
benefit liabilities) under the terms of, or with respect to, such Parent Benefit
Plans, ERISA, the Code or any other applicable Law.
Section 4.10.3 Except as disclosed on Section 4.10.3 of the Parent
Disclosure Schedule: (A) each Parent Benefit Plan which is intended to qualify
under Section 401(a), Section 401(k), Section 401(m) or Section 4975(e)(6) of
the Code has either received a favorable determination letter from the IRS as to
its qualified status or the remedial amendment period for such Parent Benefit
Plan has not yet expired, and each trust established in connection with any
Parent Benefit Plan which is intended to be exempt from federal income taxation
under Section 501(a) of the Code is so exempt, and to Parent's knowledge no fact
or event has occurred that could adversely affect the qualified status of any
such Parent Benefit Plan or the exempt status of any such trust, (B) to Parent's
knowledge there has been no prohibited transaction (within the meaning of
Section 406 of ERISA or Section 4975 of the Code and other than a transaction
that is exempt under a statutory or administrative exemption) with respect to
any Parent Benefit Plan that could result in liability to Parent or an ERISA
Affiliate, (C) each Parent Benefit Plan can be amended, terminated or otherwise
discontinued after the Effective Time in accordance with its terms, without
liability (other than (i) liability for ordinary administrative expenses
typically incurred in a termination event or (ii) if the Parent Benefit Plan is
a pension benefit plan subject to Part 2 of Title I of ERISA, liability for the
accrued benefits as of the date of such termination (if and to the extent
required by ERISA) to the extent that either there are sufficient assets set
aside in a trust or insurance contract to satisfy such liability or such
liability is reflected on the most recent consolidated balance sheet filed or
incorporated by reference in the Parent SEC Filings prior to the date of this
Agreement), (D) no suit, administrative proceeding, action or other litigation
has been brought, or to the knowledge of Parent is threatened, against or with
respect to any such Parent Benefit Plan, including any audit or inquiry by the
IRS or United States Department of Labor (other than routine benefits claims),
(E) neither Parent nor any ERISA Affiliate has any liability under ERISA Section
502, (F) all tax, annual reporting and other governmental filings required by
ERISA and the Code have been timely filed with the appropriate Governmental
Entity and all notices and disclosures have been timely
42
provided to participants, (G) all contributions and payments to such Parent
Benefit Plan are deductible under Code sections 162 or 404, (H) no amount is
subject to Tax as unrelated business taxable income under Section 511 of the
Code, and (I) no excise tax could be imposed upon Parent under Chapter 43 of the
Code.
Section 4.10.4 Neither Parent nor any of its ERISA Affiliates
sponsors, maintains, contributes to or has an obligation to contribute to, or
has sponsored, maintained, contributed to or had an obligation to contribute to,
any "employee pension benefit plan" (as defined in Section 3(2) of ERISA) that
is subject to Title IV of ERISA or Section 412 of the Code, or any Multiemployer
Plan.
Section 4.10.5 Neither Parent nor any of its ERISA Affiliates
sponsors, contributes to or has any liability with respect to any employee
benefit plan, program or arrangement that provides benefits to non-resident
aliens with no United States source income outside of the United States.
Section 4.10.6 Except as set forth on Section 4.10.6 of the Parent
Disclosure Schedule, no amount that could be received (whether in cash or
property or the vesting of property), as a result of the consummation of the
transactions contemplated by this Agreement or any Ancillary Agreement, by any
employee, officer or director of Parent or any Parent Subsidiary who is a
"disqualified individual" (as such term is defined in proposed Treasury
Regulation Section 1.280G-1) under any Parent Benefit Plan could be
characterized as an "excess parachute payment" (as defined in Section 280G(b)(1)
of the Code). Set forth in Section 4.10.6 of the Parent Disclosure Schedule is
(A) the estimated maximum amount that could be paid to any disqualified
individual as a result of the transactions contemplated by this Agreement or any
Ancillary Agreement under all employment, severance and termination agreements,
other compensation arrangements and Parent Benefit Plans currently in effect,
and (B) the "base amount" (as defined in Section 280G(b)(e) of the Code) for
each such individual as of the date of this Agreement.
Section 4.10.7 Except as required by Law, no Parent Benefit Plan
provides any of the following retiree or post-employment benefits to any person:
medical, disability or life insurance benefits. No Parent Benefit Plan is a
voluntary employee benefit association under Section 501(a)(9) of the Code.
Parent and each ERISA Affiliate are in material compliance with
43
(i) the requirements of the applicable health care continuation and notice
provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985, as
amended, and the regulations (including proposed regulations) thereunder and any
similar state law and (ii) the applicable requirements of the Health Insurance
Portability and Accountability Act of 1996, as amended, and the regulations
(including the proposed regulations) thereunder.
Section 4.11 Labor and Other Employment Matters.
Section 4.11.1 Each of Parent and each Parent Subsidiary is in
compliance with all applicable Laws respecting labor, employment, fair
employment practices, terms and conditions of employment, workers' compensation,
occupational safety, plant closings, and wages and hours. None of Parent or any
Parent Subsidiary is liable for any payment to any trust or other fund or to any
Governmental Entity, with respect to unemployment compensation benefits, social
security or other benefits or obligations for employees (other than routine
payments to be made in the ordinary course of business and consistent with past
practice). Except as set forth in Section 4.11.1 of the Parent Disclosure
Schedule, none of Parent or any Parent Subsidiary is a party to any collective
bargaining or other labor union contract applicable to persons employed by
Parent or any Parent Subsidiary, and no collective bargaining agreement or other
labor union contract is being negotiated by Parent or any Parent Subsidiary.
There is no labor dispute, strike, slowdown or work stoppage against Parent or
any Parent Subsidiary pending or, to the knowledge of Parent, threatened which
may interfere in any respect that would have a Parent Material Adverse Effect
with the respective business activities of Parent or any Parent Subsidiary. No
labor union or similar organization has otherwise been certified to represent
any persons employed by Parent or any Parent Subsidiary or has applied to
represent such employees or, to the knowledge of Parent, is attempting to
organize so as to represent such employees. None of Parent, any Parent
Subsidiary or their respective representatives or employees has committed any
unfair labor practices in connection with the operation of the respective
businesses of Parent or any Parent Subsidiary, and there is no charge or
complaint against Parent or any Parent Subsidiary by the National Labor
Relations Board or any comparable state or foreign agency pending or, to the
knowledge of Parent, threatened, except where such unfair labor practice, charge
or complaint would not, individually or in the aggregate, reasonably be expected
to have a Parent Material Adverse Effect. None of Parent or any Parent
Subsidiary is delinquent in payments to any of its employees for any wages,
salaries,
44
commissions, bonuses or other direct compensation for any services performed for
it or amounts required to be reimbursed to such employees. Each of Parent and
each Parent Subsidiary has withheld all amounts required by Law or by agreement
to be withheld from the wages, salaries, and other payments to employees, and is
not liable for any arrears of wages or any Taxes or any penalty for failure to
comply with any of the foregoing. There are no material pending claims against
Parent or any Parent Subsidiary under any workers' compensation plan or policy
or for long term disability. There are no material controversies pending or, to
the knowledge of Parent, threatened, between Parent or any Parent Subsidiary and
any of their current or former employees, which controversies have or could
reasonably be expected to result in an action, suit, proceeding, claim,
arbitration or investigation before any Governmental Entity. To Parent's
knowledge, no employee of Parent or any Parent Subsidiary is in any material
respect in violation of any term of any employment contract, non-disclosure
agreement, non-competition agreement, or any restrictive covenant to a former
employer relating to the right of any such employee to be employed by Parent or
such Parent Subsidiary because of the nature of the business conducted or
presently proposed to be conducted by it or to the use of trade secrets or
proprietary information of others. No employee of Parent or any Parent
Subsidiary has given notice, nor is Parent otherwise aware, that such employee
intends to terminate his or her employment with Parent or such Parent
Subsidiary.
Section 4.11.2 Parent has identified in Section 4.11.2 of the Parent
Disclosure Schedule and has made available to the Company true and complete
copies of (A) all severance and employment agreements with directors, officers
or employees of or consultants to Parent or any Parent Subsidiary, (B) all
severance programs and policies of Parent and each Parent Subsidiary with or
relating to its employees, and (C) all plans, programs, agreements and other
arrangements of Parent and each Parent Subsidiary with or relating to its
directors, officers, employees or consultants which contain change in control
provisions. Except as set forth in Section 4.11.2 of the Parent Disclosure
Schedule, none of the execution and delivery of this Agreement or any Ancillary
Agreement or the consummation of the transactions contemplated hereby or thereby
will (either alone or in conjunction with any other event, such as termination
of employment) (A) result in any payment (including, without limitation,
severance, unemployment compensation, parachute or otherwise) becoming due to
any director or any employee of Parent or any Parent Subsidiary or
45
affiliate from Parent or any Parent Subsidiary or affiliate under any Parent
Benefit Plan or otherwise, (B) significantly increase any benefits otherwise
payable under any Parent Benefit Plan or (C) result in any acceleration of the
time of payment or vesting of any material benefits. No individual who is a
party to an employment agreement listed in Section 4.11.2 of the Parent
Disclosure Schedule or any agreement incorporating change in control provisions
with Parent has terminated employment or been terminated, nor has any event
occurred that could give rise to a termination event, in either case under
circumstances that has given, or could give, rise to a severance obligation on
the part of Parent under such agreement. Section 4.11.2 of the Parent Disclosure
Schedule sets forth Parent's best estimates of the amounts payable to the
executives listed therein, as a result of the transactions contemplated by this
Agreement, any Ancillary Agreement, and/or any subsequent employment termination
(including any cash-out or acceleration of options and restricted stock and any
"gross-up" payments with respect to any of the foregoing), based on compensation
data applicable as of the date of the Parent Disclosure Schedule and the
assumptions stated therein.
Section 4.11.3 There are no pending or threatened claims (other than
claims for benefits in the ordinary course), lawsuits or arbitrations which have
been asserted or instituted against any Parent Benefit Plan, any fiduciaries
thereof with respect to their duties to the Parent Benefit Plans or the assets
of any of the trusts under any of the Parent Benefit Plans which could
reasonably be expected to result in any material liability of Parent or any
Parent Subsidiary to the PBGC, the Department of Treasury, the Department of
Labor or any Multiemployer Plan.
Section 4.12 Tax Treatment. None of Parent, any Parent Subsidiary or, to
the knowledge of Parent, any of Parent's affiliates has taken or agreed to take
any action that would prevent the Merger from qualifying as a reorganization
within the meaning of Section 368(a) of the Code. Parent is not aware of any
agreement, plan or other circumstance that would prevent the Merger from
qualifying as a reorganization within the meaning of Section 368(a) of the Code.
Section 4.13 Contracts.
Except as filed as exhibits to the Parent SEC Filings filed prior to the
date of this Agreement, or as disclosed in Section 4.13 of the Parent Disclosure
Schedule, none of Parent or any Parent Subsidiary is a party to or bound by any
contract (A) any of the benefits to any party of which will be increased, or the
vesting of the benefits to any party
46
of which will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or any Ancillary Agreement, or the value of any
of the benefits to any party of which will be calculated on the basis of any of
the transactions contemplated by this Agreement or any Ancillary Agreement, or
(B) which, as of the date hereof, (1) is a "material contract" (as such term is
defined in Item 601(b)(10) of Regulation S-K of the SEC), (2) involves aggregate
expenditures in excess of $250,000, other than contracts for the purchase of raw
materials, components or manufacturing goods and contracts for the sale of
Parent's products in the ordinary course of business, (3) involves annual
expenditures in excess of $250,000 and is not cancelable within one year, other
than contracts for the purchase of raw materials, components or manufacturing
goods and contracts for the sale of Parent's products in the ordinary course of
business, (4) contains any non-compete or exclusivity provisions with respect to
any line of business or geographic area with respect to Parent, any Parent
Subsidiary or any of Parent's current or future affiliates, or which restricts
the conduct of any line of business by Parent, any Parent Subsidiary or any of
Parent's current or future affiliates or any geographic area in which Parent,
any Parent Subsidiary or any of Parent's current or future affiliates may
conduct business, in each case in any material respect, (5) involves the sale of
a Parent Product to a customer or distributor and provides for a right of refund
or return for any reason, including upon the occurrence of specified events or
otherwise or (6) would prohibit or materially delay the consummation of the
Merger or any of the transactions contemplated by this Agreement or any
Ancillary Agreement. Each Contract of the type described in this Section 4.13,
whether or not set forth in Section 4.13 of the Parent Disclosure Schedule, is
referred to herein as a "Parent Material Contract." Each Parent Material
Contract is valid and binding on Parent and each Parent Subsidiary party thereto
and, to Parent's knowledge, each other party thereto, and in full force and
effect, and Parent and each Parent Subsidiary has in all material respects
performed all obligations required to be performed by it to the date hereof
under each Parent Material Contract and, to Parent's knowledge, each other party
to each Parent Material Contract has in all material respects performed all
obligations required to be performed by it under such Parent Material Contract,
except as would not, individually or in the aggregate, reasonably be expected to
(1) prevent or materially delay consummation of the Merger, (2) otherwise
prevent or materially delay performance by Parent or Merger Sub of any of their
material obligations under this Agreement or any Ancillary Agreement to which it
is a party, or (3) result in a Parent Material Adverse Effect. None of Parent or
any Parent Subsidiary knows of, or has received notice of, any violation or
default under (or any condition which with the passage of time or the giving of
notice would cause such a violation of or default under) any Parent Material
Contract or any other contract to which it is a party or by which it or any of
its properties or assets is bound, except for violations or defaults that would
not, individually or in the aggregate, reasonably be expected to (1) prevent or
materially delay consummation of the Merger, (2) otherwise prevent or materially
delay performance by Parent or Merger Sub of any of their material obligations
under this Agreement or any Ancillary
47
Agreement to which it is a party or (3) result in a Parent Material Adverse
Effect. Section 4.13 of the Parent Disclosure Schedule provides Parent's good
faith estimate of the additional costs which will accrue to Parent under the
contracts described in clause (A) of Section 4.13 as a result of the
transactions contemplated by this Agreement or any Ancillary Agreement.
Section 4.14 Litigation. Except as and to the extent set forth in Parent
SEC Filings filed prior to the date of this Agreement or in Section 4.14 of the
Parent Disclosure Schedule, (A) there is no suit, claim, action, proceeding or
investigation pending or, to the knowledge of Parent, threatened in writing
against Parent or any Parent Subsidiary or reasonably likely to be brought
against Parent or any Parent Subsidiary or for which Parent or any Parent
Subsidiary is obligated to indemnify a third party that (1) has had or would,
individually or in the aggregate, reasonably be expected to have a Parent
Material Adverse Effect or (2) as of the date hereof, challenges the validity or
propriety, or seeks to prevent or materially delay consummation of the Merger or
any other transaction contemplated by this Agreement or any Ancillary Agreement
and (B) none of Parent or any Parent Subsidiary is subject to any outstanding
order, writ, injunction, decree or arbitration ruling, award or other finding
which has had or would, individually or in the aggregate, reasonably be expected
to (1) prevent or materially delay consummation of the Merger, (2) otherwise
prevent or materially delay performance by Parent or Merger Sub of any of their
material obligations under this Agreement or any Ancillary Agreement, or (3)
result in a Parent Material Adverse Effect.
Section 4.15 Environmental Matters. Except as would not, individually or
in the aggregate, reasonably be expected to have a Parent Material Adverse
Effect:
48
Section 4.15.1 Parent and each Parent Subsidiary (A) is in
compliance with all, and is not subject to any liability, with respect to any,
applicable Environmental Laws, (B) holds or has applied for all Environmental
Permits necessary to conduct their current operations, and (C) is in compliance
with their respective Environmental Permits.
Section 4.15.2 None of Parent or any Parent Subsidiary has received
any written notice, demand, letter, claim or request for information alleging
that Parent or any Parent Subsidiary may be in violation of, or liable under,
any Environmental Law.
Section 4.15.3 None of Parent or any Parent Subsidiary (A) has
entered into or agreed to any consent decree or order or is subject to any
judgment, decree or judicial order relating to compliance with Environmental
Laws, Environmental Permits or the investigation, sampling, monitoring,
treatment, remediation, removal or cleanup of Hazardous Materials and, to the
knowledge of Parent, no investigation, litigation or other proceeding is pending
or threatened in writing with respect thereto, or (B) is an indemnitor in
connection with any claim threatened or asserted in writing by any third-party
indemnitee for any liability under any Environmental Law or relating to any
Hazardous Materials.
Section 4.15.4 None of the real property owned or leased by Parent
or any Parent Subsidiary is listed or, to the knowledge of Parent, proposed for
listing on the "National Priorities List" under CERCLA, as updated through the
date hereof, or any similar state or foreign list of sites requiring
investigation or cleanup.
Section 4.16 Intellectual Property. Excepting the Intellectual Property
owned or controlled by the Company, Parent owns or has the defensible right to
use, whether through ownership, licensing or otherwise, all Intellectual
Property significant to the businesses of Parent and each Parent Subsidiary in
substantially the same manner as such businesses are conducted on the date
hereof ("Material Parent Intellectual Property"). Excepting the Intellectual
Property owned or controlled by the Company, except as set forth in Section 4.16
of the Parent Disclosure Schedule and except as would not, individually or in
the aggregate, reasonably be expected to have a material adverse impact on the
validity or value of any Material Parent Intellectual Property and excluding
prior communications or dealings with the Company: (A) no written claim of
invalidity or conflicting ownership rights with respect to any Material Parent
Intellectual Property has been made by a third party and no such Material Parent
Intellectual
49
Property is the subject of any pending or, to Parent's knowledge, threatened
action, suit, claim, investigation, arbitration or other proceeding; (B) no
person or entity has given notice to Parent or any Parent Subsidiary that the
use of any Material Parent Intellectual Property by Parent, any Parent
Subsidiary or any licensee is infringing or has infringed any domestic or
foreign patent, trademark, service mark, trade name, or copyright or design
right, or that Parent, any Parent Subsidiary or any licensee has misappropriated
or improperly used or disclosed any trade secret, confidential information or
know-how; (C) the making, using, selling, manufacturing, marketing, licensing,
reproduction, distribution, or publishing of any process, machine, manufacture
or product related to any Material Parent Intellectual Property, is not
presently believed to infringe any domestic or foreign patent, trademark,
service mark, trade name, copyright or other intellectual property right of any
third party, and does not and will not involve the misappropriation or improper
use or disclosure of any trade secrets, confidential information or know-how of
any third party; (D) there is not believed to exist any prior act or current
conduct or use by Parent, any Parent Subsidiary or any third party that would
void or invalidate any Material Parent Intellectual Property; and (E) the
execution, delivery and performance of this Agreement and each Ancillary
Agreement by Parent and Merger Sub and the consummation of the transactions
contemplated hereby and thereby will not breach, violate or conflict with any
instrument or agreement concerning any Material Parent Intellectual Property,
will not cause the forfeiture or termination or give rise to a right of
forfeiture or termination of any of the Material Parent Intellectual Property or
impair the right of Parent or the Surviving Corporation to make, use, sell,
license or dispose of, or to bring any action for the infringement of any
Material Parent Intellectual Property. In addition, the matters disclosed on
Section 4.16 of the Parent Disclosure Schedule would not, individually or in the
aggregate, reasonably be expected to have a Parent Material Adverse Effect.
Section 4.17 Taxes.
Section 4.17.1 Parent and each Parent Subsidiary has timely filed
all Tax Returns with the appropriate taxing authorities required to be filed as
of the date hereof, taking into account any extensions of time within which to
file such Tax Returns. The Tax Returns have accurately reflected in all material
respects and will accurately reflect in all material respects all liability for
Taxes of Parent and such Parent Subsidiaries for the periods covered thereby.
Except as provided in Schedule 4.17.1, all material Taxes owed by Parent and
each
50
Parent Subsidiary for all taxable years or other taxable periods that end on or
before the Effective Time, and, with respect to any taxable year or other
taxable period beginning before and ending after the Effective Time, whether or
not shown as being due on any Tax Return, have been paid and Parent and each
Parent Subsidiary have provided adequate reserves in accordance with GAAP in
their financial statements for any Taxes that have not been paid, whether or not
shown as being due on any Tax Returns. No claim has ever been made by an
authority in a jurisdiction where Parent or any Parent Subsidiary does not file
Tax Returns that Parent or any Parent Subsidiary is or may be subject to
taxation by that jurisdiction.
Section 4.17.2 Except as provided in Schedule 4.17.2, no
deficiencies for Taxes with respect to Parent and any Parent Subsidiary have
been claimed, proposed or assessed by any taxing authority or other Governmental
Entity. Except as provided in Schedule 4.17.2, there are no audits or other
administrative proceedings or court proceedings presently pending with regard to
any Taxes or Tax Returns of Parent or any Parent Subsidiary and none of Parent
or any Parent Subsidiary has received a written notice or announcement of any
audits or proceedings. To Parent's knowledge, no such audits or proceedings are
contemplated. No requests for waivers of time to assess any Taxes are pending
and none of Parent or any Parent Subsidiary has waived any statute of
limitations with respect to Taxes or agreed to any extension of time with
respect to any Tax assessment or deficiency for any open tax year.
Section 4.17.3 There are no Tax liens upon any property or assets of
Parent or any Parent Subsidiary except liens for current Taxes not yet due and
payable and liens for Taxes that are being contested in good faith by
appropriate proceedings.
Section 4.17.4 Parent and each Parent Subsidiary has withheld and
paid all material Taxes required to have been withheld and paid in connection
with amounts paid or owing to any employee, independent contractor, creditor,
stockholder, or other third party.
Section 4.17.5 Neither Parent nor any Parent Subsidiary has been
included in any "consolidated," "unitary" or combined Tax Return, other than the
consolidated, unified or combined Tax Returns of a Parent Subsidiary filed with
other Parent Subsidiaries and/or the Company, provided for under the laws of the
United States, any foreign jurisdiction or any state or locality with respect to
Taxes for any taxable period for which the statute of limitations has not
expired. None of the Company or any Company Subsidiary is responsible for the
Taxes of
51
any other person under Treasury Regulation Section 1.1502-6 (or any similar
provision of state, local, or foreign law), as a transferee, by contract, or
otherwise.
Section 4.17.6 None of Parent or any Parent Subsidiary has (i) filed
a consent pursuant to Section 341(f) of the Code or agreed to have Section
341(f)(2) of the Code apply to any disposition of any asset owned by it; (ii)
agreed, or is required, to make any adjustment under Section 481(a) of the Code
by reason of a change in accounting method or otherwise; (iii) made an election,
or is required to treat any of its assets as owned by another person or as
"tax-exempt use property" or "tax-exempt bond financed property" within the
meaning of Section 168 of the Code; (iv) made a consent dividend election under
Section 565 of the Code; or (v) made any of the foregoing elections or is
required to apply any of the foregoing rules under any comparable state, local
or foreign Tax provision.
Section 4.17.7 Parent has not been a United States real property
holding corporation within the meaning of Section 897(c)(2) of the Code during
the applicable period described in Section 897(c)(1)(A)(ii) of the Code.
Section 4.17.8 None of the interest payable by Parent or any Parent
Subsidiary under outstanding indebtedness is nondeductible under Code Section
163 or is treated as interest on corporate acquisition indebtedness under Code
Section 279.
Section 4.17.9 None of Parent or any Parent Subsidiary is a party
to, is bound by or has any obligation under any Tax sharing or Tax indemnity
agreement or similar contract or arrangement.
Section 4.17.10 There are no other transactions or facts existing
with respect to Parent and/or its Subsidiaries which by reason of the
consummation of the transactions contemplated by this Agreement will result in
Parent and/or the Parent Subsidiaries recognizing income.
Section 4.18 Insurance. Parent maintains insurance coverage with reputable
insurers, or maintains self-insurance practices, in such amounts and covering
such risks as are in accordance with normal industry practice for companies
engaged in businesses similar to that of Parent (taking into account the cost
and availability of such insurance).
52
Section 4.19 Opinion of Financial Advisors. Bear, Stearns & Co. Inc. (the
"Parent Financial Advisor") has delivered to the Parent Board its written
opinion that the Exchange Ratio is fair from a financial point of view to
Parent.
Section 4.20 Vote Required. The affirmative vote of the holders of a
majority of the outstanding shares of Parent Common Stock is the only vote, if
any, of the holders of any class or series of capital stock or other Equity
Interests of Parent necessary to approve the Share Issuance. The affirmative
vote of Parent, as the sole stockholder of Merger Sub, is the only vote, if any,
of the holders of any class or series of capital stock or other Equity Interests
of Merger Sub necessary to approve the Merger.
Section 4.21 Brokers and Other Advisors. No broker, finder, investment
banker or other person (other than the Parent Financial Advisor, the fees and
expenses of which will be paid by Parent) is entitled to any brokerage, finder's
or other fee or commission in connection with the Merger or any other
transaction contemplated by this Agreement or any Ancillary Agreement based upon
arrangements made by or on behalf of Parent or any Parent Subsidiary. Parent has
heretofore made available to the Company a true and complete copy of all
agreements between Parent and the Parent Financial Advisor pursuant to which
such firm would be entitled to any payment or indemnification in connection with
the Merger or any other transaction contemplated by this Agreement or any
Ancillary Agreement.
Section 4.22 Product Liability. As used in this Section 4.22, the term
"Parent Product" shall mean any product designed, manufactured, shipped, sold,
marketed, distributed and/or otherwise introduced into the stream of commerce by
or on behalf of Parent or any Parent Subsidiary, including, without limitation,
any product sold by Parent or any Parent Subsidiary as a distributor, agent, or
pursuant to any other contractual relationship; and the term "Parent Defect"
shall mean a defect or impurity of any kind, whether in design, manufacture,
processing or otherwise, including, without limitation, any dangerous propensity
associated with any reasonably foreseeable use of a Parent Product, or the
failure to know of the existence of any defect, impurity or dangerous
propensity. Except as set forth in Section 4.22 of the Parent Disclosure
Schedule, there is no pending or, to the knowledge of Parent, threatened, claim,
action, suit, inquiry, proceeding or investigation by any individual or
Governmental Entity in which a Parent Product is alleged to have a Parent
Defect, except any such claim, action, suit,
53
inquiry proceeding or investigation which would not be reasonably likely to
have, individually or in the aggregate, a Parent Material Adverse Effect.
Section 4.23 Transactions with Affiliates. Other than as previously
disclosed by the Company in any filing with the SEC prior to the date of this
Agreement, since January 1, 2000, Parent has not entered into any agreement or
engaged in any transaction with any current or former director, officer or
holder of five percent or more of the outstanding voting securities of Parent
(calculated assuming conversion or exercise of all securities convertible into
or exercisable or exchangeable for voting securities of Parent). Other than as
previously disclosed by the Company in any filing with the SEC prior to the date
of this Agreement, since January 1, 2000, no executive officer or director of
Parent, either in such capacity or in his or her individual capacity, has
entered into any agreement or engaged in any transaction with any current or
former employee, customer, distributor, vendor or any other person, except for
any agreement or transaction pursuant to which Parent receives no direct or
indirect benefit and undertakes no direct or indirect obligation.
Section 4.24 Federal Healthcare Matters. The Company (i) is not currently
excluded, debarred, or otherwise ineligible to participate in the Federal
Healthcare Programs; (ii) has not been charged with or convicted of a criminal
offense related to the provision of health care items or services and (iii) is
not under investigation or otherwise aware of any circumstances which may result
in the Company being excluded from participation in the Federal Healthcare
Programs.
ARTICLE 5.
COVENANTS
Section 5.1 Conduct of Business by the Company Pending the Closing. The
Company agrees that, between the date of this Agreement and the Effective Time,
except as set forth in Section 5.1 of the Company Disclosure Schedule or as
specifically permitted by any other provision of this Agreement, unless Parent
shall otherwise agree in writing, the Company will, and will cause each Company
Subsidiary to, (A) conduct its operations only in the ordinary and usual course
of business consistent with past practice and (B) subject to the prohibitions
contained in Section 5.1.6, use its reasonable efforts to keep available the
services of the current executive officers, key employees and consultants of the
Company and each Company
54
Subsidiary and to preserve the current relationships of the Company and each
Company Subsidiary with such of the customers, suppliers and other persons with
which the Company or any Company Subsidiary has significant business relations
as is reasonably necessary to preserve substantially intact its business
organization. Without limiting the foregoing, and as an extension thereof,
except as set forth in Section 5.1 of the Company Disclosure Schedule or as
specifically permitted by any other provision of this Agreement, the Company
shall not (unless required by applicable Law or the regulations or requirements
of Nasdaq), and shall not permit any Company Subsidiary to, between the date of
this Agreement and the Effective Time, directly or indirectly, do, or agree to
do, any of the following without the prior written consent of Parent:
Section 5.1.1 amend or otherwise change its certificate of
incorporation or by-laws or equivalent organizational documents;
Section 5.1.2 (A) issue, sell, pledge, dispose of, grant, transfer
or encumber, or authorize the issuance, sale, pledge, disposition, grant,
transfer or encumbrance of any shares of capital stock of, or other Equity
Interests in, the Company or any Company Subsidiary of any class, or securities
convertible or exchangeable or exercisable for any shares of such capital stock
or other Equity Interests, or any options (other than options to purchase up to
an aggregate of 50,000 shares of Company Common Stock to be granted pursuant to
the Company's 1997 Stock Incentive Plan, in each case consistent with past
practice), warrants or other rights of any kind to acquire any shares of such
capital stock or other Equity Interests or such convertible or exchangeable
securities, or any other ownership interest (including, without limitation, any
such interest represented by contract right), of the Company or any Company
Subsidiary, other than the issuance of Company Common Stock (and the related
Company Rights) upon the exercise of Company Options or Company Warrants
outstanding as of the date hereof in accordance with their terms as of the date
hereof (or, if a Triggering Event (as defined in the Company Rights Agreement)
by a party other than Parent or Merger Sub shall occur, the Company Rights), (B)
amend, waive or modify any terms of any Company Options or Company Warrants,
including, without limitation, by directly or indirectly increasing or reducing
the exercise price of or the number of shares of Company Common Stock subject to
any Company Option or Company Warrant (provided, however, that, solely with
respect to this Section 5.1.2(B), Parent's prior written consent shall not be
unreasonably withheld) or (C), sell, pledge, dispose of, transfer, lease,
license, guarantee or encumber, or authorize the sale, pledge,
55
disposition, transfer, lease, license, guarantee or encumbrance of, any material
property or assets (including Intellectual Property) of the Company or any
Company Subsidiary, except pursuant to the Loan Agreement, existing contracts or
commitments or the sale or purchase of goods in the ordinary course of business
consistent with past practice, or enter into any commitment or transaction
outside the ordinary course of business consistent with past practice other than
transactions between a wholly-owned Company Subsidiary and the Company or
another wholly-owned Company Subsidiary;
Section 5.1.3 declare, set aside, make or pay any dividend or other
distribution (whether payable in cash, stock, property or a combination thereof)
with respect to any of its capital stock (other than dividends paid by a
wholly-owned Company Subsidiary to the Company or to any other wholly-owned
Company Subsidiary) or enter into any agreement with respect to the voting of
its capital stock; provided, however, that the Company shall be permitted to pay
dividends on the Series D Preferred Stock in accordance with the requirements of
Section 2 of the certificate of designations relating to the Series D Preferred
Stock; and provided further, that any such dividends paid on the Series D-1
Preferred Stock shall be paid in shares of Company Common Stock to the fullest
extent possible;
Section 5.1.4 reclassify, combine, split, subdivide or redeem,
purchase or otherwise acquire, directly or indirectly, any of its capital stock,
other Equity Interests or other securities;
Section 5.1.5 (A) acquire (including, without limitation, by merger,
consolidation, or acquisition of stock or assets) any interest in any person or
any division thereof or any assets, other than acquisitions of assets in the
ordinary course of business consistent with past practice and any other
acquisitions for consideration that do not exceed $100,000 in the aggregate for
the Company and the Company Subsidiaries taken as a whole, (B) incur any
indebtedness for borrowed money or issue any debt securities (other than
pursuant to the Loan Agreement) or assume, guarantee or endorse, or otherwise as
an accommodation become responsible for, the obligations of any person (other
than a wholly-owned Company Subsidiary) for borrowed money, except for
indebtedness for borrowed money incurred in the ordinary course of business or
other indebtedness for borrowed money with a maturity of not more than one year
in a principal amount not, in the aggregate, in excess of $100,000 for the
Company and
56
the Company Subsidiaries taken as a whole, (C) (i) terminate, cancel or request
any material change in, or agree to any material change in, any Company Material
Contract other than in the ordinary course of business consistent with past
practice, (ii) enter into any Company Material Contract or (iii) grant any
product warranty for a period longer than one year from the date of purchase to
any customer of the Company, (D) make or authorize any capital expenditure,
other than capital expenditures that are not, in the aggregate, in excess of
$100,000 for the Company and the Company Subsidiaries taken as a whole or (E)
enter into or amend any contract, agreement, commitment or arrangement that, if
fully performed, would not be permitted under this Section 5.1.5;
Section 5.1.6 Except as may be required by contractual commitments
or corporate policies with respect to severance or termination pay in existence
on the date of this Agreement as disclosed in Section 3.11.2 of the Company
Disclosure Schedule: (A) increase the compensation or benefits payable or to
become payable to its directors, officers or employees (except for increases in
accordance with past practices in salaries or wages of employees of the Company
or any Company Subsidiary which are not across-the-board increases); (B) grant
any rights to severance or termination pay to, or enter into any employment or
severance agreement with, any director, officer or other employee of the Company
or any Company Subsidiary, 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, except to
the extent required by applicable Law or the terms of a collective bargaining
agreement in existence on the date of this Agreement; or (C) take any
affirmative action to amend or waive any performance or vesting criteria or
accelerate vesting, exercisability or funding under any Company Benefit Plan.
Section 5.1.7 (A) pre-pay any long-term debt, except in the ordinary
course of business in an amount not to exceed $25,000 in the aggregate for the
Company and the Company Subsidiaries taken as a whole, or pay, discharge or
satisfy any claims, liabilities or obligations (absolute, accrued, contingent or
otherwise), except in the ordinary course of business consistent with past
practice and in accordance with their terms and except as contemplated by the
Loan Agreement, (B) accelerate or delay collection of notes or accounts
receivable in advance of or beyond their regular due dates or the dates when the
same would
57
have been collected in the ordinary course of business consistent with past
practice, (C) delay or accelerate payment of any account payable in advance of
its due date or the date such liability would have been paid in the ordinary
course of business consistent with past practice or (D) vary the Company's
inventory practices in any material respect from the Company's past practices;
Section 5.1.8 make any change in accounting policies or procedures,
other than in the ordinary course of business consistent with past practice or
except as required by GAAP or by a Governmental Entity;
Section 5.1.9 waive, release, assign, settle or compromise any
material claims, or any material litigation or arbitration, except as expressly
contemplated by Section 5.17;
Section 5.1.10 make any material tax election or settle or
compromise any material liability for Taxes;
Section 5.1.11 take, or agree to take, any action that would prevent
the Merger from qualifying as a reorganization within the meaning of Section
368(a) of the Code;
Section 5.1.12 amend or modify, or propose to amend or modify, or
otherwise take any action under, the Company Rights Agreement;
Section 5.1.13 modify, amend or terminate, or waive, release or
assign any material rights or claims with respect to any confidentiality or
standstill agreement to which the Company is a party;
Section 5.1.14 write up, write down or write off the book value of
any assets, individually or in the aggregate, for the Company and the Company
Subsidiaries taken as a whole, in excess of $200,000, except for depreciation
and amortization in accordance with GAAP consistently applied;
Section 5.1.15 take any action to exempt or make not subject to (A)
the provisions of Section 203 of the DGCL, (B) any other state takeover law or
state law that purports to limit or restrict business combinations or the
ability to acquire or vote shares or (C) the Company Rights Agreement, any
person or entity (other than Parent, Merger Sub or any Parent Subsidiary) or any
action taken thereby, which person, entity or action would have otherwise been
subject to the restrictive provisions thereof and not exempt therefrom;
58
Section 5.1.16 take any action that is intended or would reasonably
be expected to result in any of the conditions to the Merger set forth in
Article 6 not being satisfied; or
Section 5.1.17 authorize or enter into any agreement or otherwise
make any commitment to do any of the foregoing.
Section 5.2 Conduct of Business by Parent Pending the Closing. Except as
set forth in Section 5.2 of the Parent Disclosure Schedule or as specifically
permitted by any other provision of this Agreement, Parent shall not (unless
required by applicable Law or any stock exchange regulations applicable to
Parent), and shall not permit any Parent Subsidiary to, between the date of this
Agreement and the Effective Time, directly or indirectly, do, or agree to do,
any of the following, without the prior written consent of the Company:
Section 5.2.1 amend or otherwise change its certificate of
incorporation or by-laws or equivalent organizational documents;
Section 5.2.2 declare, set aside, make or pay any dividend or other
distribution (whether payable in cash, stock, property or a combination thereof)
with respect to any of its capital stock (other than dividends paid by a
wholly-owned Parent Subsidiary to Parent or to any other wholly-owned Parent
Subsidiary) or enter into any agreement with respect to the voting of its
capital stock;
Section 5.2.3 make any change in accounting policies or procedures,
other than in the ordinary course of business consistent with past practice or
except as required by GAAP or by a Governmental Entity;
Section 5.2.4 waive, release, assign, settle or compromise any
material claims, or any material litigation or arbitration, except as expressly
contemplated by Section 5.17;
Section 5.2.5 take, or agree to take, any action that would prevent
the Merger from qualifying as a reorganization within the meaning of Section
368(a) of the Code;
Section 5.2.6 take any action that is intended or would reasonably
be expected to result in any of the conditions to the Merger set forth in
Article 6 not being satisfied; or
59
Section 5.2.7 authorize or enter into any agreement or otherwise
make any commitment to do any of the foregoing.
Section 5.3 Cooperation. The Company and Parent shall coordinate and
cooperate in connection with (A) the preparation of the Registration Statement,
the Proxy Statement and any Other Filings, (B) determining whether any action by
or in respect of, or filing with, any Governmental Entity is required, or any
actions, consents, approvals or waivers are required to be obtained from parties
to any Company Material Contracts, in connection with the consummation of the
Merger, and (C) seeking any such actions, consents, approvals or waivers or
making any such filings, furnishing information required in connection therewith
or with the Registration Statement, the Proxy Statement or any Other Filings and
timely seeking to obtain any such actions, consents, approvals or waivers.
Section 5.4 Registration Statement; Proxy Statement.
Section 5.4.1 As promptly as practicable after the execution of this
Agreement, Parent and the Company shall prepare and the Company shall file with
the SEC a joint proxy statement relating to the meeting of the Company's
stockholders to be held in connection with the Merger and the meeting of
Parent's stockholders to be held in connection with the issuance of shares of
Parent Common Stock contemplated hereby (together with any amendments thereof or
supplements thereto, the "Proxy Statement") and Parent shall prepare and file
with the SEC a registration statement on Form S-4 (together with all amendments
thereto, the "Registration Statement") in which the Proxy Statement shall be
included as a prospectus, in connection with the registration under the
Securities Act of the shares of Parent Common Stock to be issued to the
stockholders of the Company pursuant to the Merger. Each of Parent and the
Company shall prepare and file with the SEC any Other Filings as and when
required or requested by the SEC. Each of Parent and the Company will use all
reasonable efforts to respond to any comments made by the SEC with respect to
the Proxy Statement and any Other Filings, and to cause the Registration
Statement to become effective as promptly as practicable. Prior to the effective
date of the Registration Statement, Parent shall take all or any action required
under any applicable federal or state securities laws in connection with the
issuance of shares of Parent Common Stock in the Merger. Each of Parent and the
Company shall furnish all information concerning it and the holders of its
capital stock as the other may reasonably request
60
in connection with such actions and the preparation of the Registration
Statement, the Proxy Statement and any Other Filings. As promptly as practicable
after the Registration Statement shall have become effective, each of the
Company and Parent shall mail the Proxy Statement to its stockholders. The Proxy
Statement shall (subject to the last sentence of Section 5.7.3 hereof) include
(i) the recommendation of the Company Board that adoption of the Agreement by
the Company's stockholders is advisable and that the Company Board has
determined that the Merger is fair and in the best interests of the Company's
stockholders and (ii) the recommendation of the Parent Board in favor of the
issuance of shares of Parent Common Stock contemplated hereby.
Subject to the last sentence of Section 5.7.3 hereof, no amendment or
supplement (other than pursuant to Rule 425 of the Securities Act with respect
to releases made in compliance with Section 5.10 of this Agreement) to the Proxy
Statement, the Registration Statement or any Other Filings will be made by
Parent or the Company without the approval of the other party (which approval
shall not be unreasonably withheld or delayed). Parent and the Company each will
advise the other, promptly after it receives notice thereof, of the time when
the Registration Statement has become effective or any supplement or amendment
has been filed, of the issuance of any stop order, the suspension of the
qualification of the Parent Common Stock issuable in connection with the Merger
for offering or sale in any jurisdiction, or any request by the SEC for
amendment of the Proxy Statement, the Registration Statement or any Other
Filings or comments thereon and responses thereto or requests by the SEC for
additional information.
If at any time prior to the Effective Time, any event or circumstance
relating to Parent or any Parent Subsidiary, or their respective officers or
directors, should be discovered by Parent which should be set forth in an
amendment or a supplement to the Registration Statement, the Proxy Statement or
any Other Filing, Parent shall promptly inform the Company. All documents that
Parent is responsible for filing with the SEC in connection with the
transactions contemplated herein will comply as to form and substance in all
material respects with the applicable requirements of the Securities Act and the
rules and regulations thereunder, the Exchange Act and the rules and regulations
thereunder, and other applicable Law.
61
If at any time prior to the Effective Time, any event or circumstance
relating to the Company or any Company Subsidiary, or their respective officers
or directors, should be discovered by the Company which should be set forth in
an amendment or a supplement to the Registration Statement, the Proxy Statement
or any Other Filing, the Company shall promptly inform Parent. All documents
that the Company is responsible for filing with the SEC in connection with the
transactions contemplated herein will comply as to form and substance in all
material respects with the applicable requirements of the Securities Act and the
rules and regulations thereunder, the Exchange Act and the rules and regulations
thereunder and other applicable Law.
Section 5.5 Stockholders' Meetings.
Section 5.5.1 The Company shall call and hold a meeting of its
stockholders (the "Company Stockholders' Meeting") as promptly as practicable
for the purpose of voting upon the approval of the Merger, and the Company shall
use its best efforts to hold the Company Stockholders' Meeting as soon as
practicable after the date on which the Registration Statement becomes
effective. The Company's obligation under this Section 5.5.1 shall not be
affected in any way as a result of any change in the Company Recommendation
permitted by Section 5.7.3.
Section 5.5.2 Parent shall call and hold a meeting of its
stockholders (the "Parent Stockholders' Meeting") as promptly as practicable for
the purpose of voting upon the approval of the Share Issuance, and Parent shall
use its best efforts to hold the Parent Stockholders' Meeting as soon as
practicable after the date on which the Registration Statement becomes
effective.
Section 5.6 Access to Information; Confidentiality.
Section 5.6.1 Except as required pursuant to any confidentiality
agreement or similar agreement or arrangement to which the Company or any
Company Subsidiary is a party (which such person shall use its reasonable best
efforts to cause the counterparty to waive), from the date of this Agreement to
the Effective Time, the Company shall, and shall cause each Company Subsidiary
and each of their respective directors, officers, employees, accountants,
consultants, legal counsel, advisors, and agents and other representatives
(collectively, the "Company Representatives") to (A) provide to Parent and
62
Merger Sub and their respective officers, directors, employees, accountants,
consultants, legal counsel, advisors, agents and other representatives
(collectively, the "Parent Representatives") access at reasonable times upon
prior notice to the officers, employees, agents, properties, offices and other
facilities of such party and its subsidiaries and to the books and records
thereof and (B) furnish promptly such information concerning the business,
properties, contracts, assets, liabilities, personnel and other aspects of such
party and its subsidiaries as the other party or its Representatives may
reasonably request, except in each case for information relating to the
Company's pending patent applications and trade secrets.
Except as required pursuant to any confidentiality agreement or similar
agreement or arrangement to which Parent or any Parent Subsidiary is a party
(which such person shall use its reasonable best efforts to cause the
counterparty to waive), from the date of this Agreement to the Effective Time,
Parent shall, and shall cause each Parent Subsidiary and each Parent
Representative to (A) provide to the Company and the Company Representatives
access at reasonable times upon prior notice to the officers, employees, agents,
properties, offices and other facilities of such party and its subsidiaries and
to the books and records thereof and (B) furnish promptly such information
concerning the business, properties, contracts, assets, liabilities, personnel
and other aspects of such party and its subsidiaries as the other party or its
Representatives may reasonably request, except in each case for information
relating to Parent's pending patent applications and trade secrets.
No investigation conducted pursuant to this Section 5.6.1 shall affect or
be deemed to modify or limit any representation or warranty made in this
Agreement.
Section 5.6.2 With respect to the information disclosed pursuant to
Section 5.6.1, the parties shall comply with, and shall cause their respective
Representatives to comply with, all of their respective obligations under the
Confidentiality Agreement previously executed by the Company and Parent (the
"Confidentiality Agreement").
Section 5.7 No Solicitation of Transactions.
Section 5.7.1 None of the Company or any Company Subsidiary shall,
directly or indirectly, take (and the Company shall not authorize or permit the
Company Representatives or, to the extent within the Company's control, other
affiliates to take) any action to (A) encourage (including by way of furnishing
non-public information), solicit, initiate
63
or facilitate any Acquisition Proposal, (B) enter into any agreement with
respect to any Acquisition Proposal or enter into any agreement, arrangement or
understanding requiring it to abandon, terminate or fail to consummate the
Merger or any other transaction contemplated by this Agreement or (C)
participate in any way in discussions or negotiations with, or furnish any
information to, any person in connection with, or take any other action to
facilitate any inquiries or the making of any proposal that constitutes, or
could reasonably be expected to lead to, any Acquisition Proposal; provided,
however, that if, at any time prior to the obtaining of the Company's
stockholders' approval of the Merger, the Company Board determines in good
faith, after consultation with outside counsel, that it would otherwise
constitute a breach of the directors' fiduciary duties to stockholders, the
Company may, in response to a Superior Proposal and subject to the Company's
compliance with Section 5.5.1 and Section 5.7.2, (x) furnish information with
respect to the Company and the Company Subsidiaries to the person making such
Superior Proposal pursuant to a customary confidentiality agreement the benefits
of the terms of which are no more favorable to the other party to such
confidentiality agreement than those in place with Parent and (y) participate in
discussions with respect to such Superior Proposal. Upon execution of this
Agreement, the Company shall cease immediately and cause to be terminated any
and all existing discussions or negotiations with any parties conducted
heretofore with respect to an Acquisition Proposal and promptly request that all
confidential information with respect thereto furnished on behalf of the Company
be returned.
Section 5.7.2 The Company shall, as promptly as practicable (and in
no event later than 24 hours after receipt thereof), advise Parent of any
inquiry received by it relating to any potential Acquisition Proposal and of the
material terms of any proposal or inquiry, including the identity of the person
and its affiliates making the same, that it may receive in respect of any such
potential Acquisition Proposal, or of any information requested from it or of
any negotiations or discussions being sought to be initiated with it, shall
furnish to Merger Sub a copy of any such proposal or inquiry, if it is in
writing, or a written summary of any such proposal or inquiry, if it is not in
writing and shall keep Parent fully informed on a prompt basis with respect to
any developments with respect to the foregoing.
Section 5.7.3 Neither the Company Board nor any committee thereof
shall (A) withdraw or modify, or propose publicly to withdraw or modify, in a
manner adverse to Parent, the approval or recommendation by the Company Board or
such committee of the
64
adoption and approval of the Merger (the "Company Recommendation") and the
matters to be considered at the Company Stockholders' Meeting, (B) other than
the Merger, approve or recommend, or propose publicly to approve or recommend,
any Acquisition Proposal or (C) other than the Merger, cause the Company to
enter into any letter of intent, agreement in principle, acquisition agreement
or other similar agreement related to any Acquisition Proposal. Nothing
contained in this Section 5.7 shall prohibit the Company (x) from taking and
disclosing to its stockholders a position contemplated by Rule 14d-9 or Rule
14e-2(a) promulgated under the Exchange Act or (y) in the event that a Superior
Proposal is made and the Company Board determines in good faith, after
consultation with outside counsel, that it would otherwise constitute a breach
of its fiduciary duty to stockholders, from withdrawing or modifying its
recommendation of the Merger no earlier than five business days following the
day of delivery of written notice to Parent of its intention to do so, so long
as the Company continues to comply with all other provisions of this Agreement
including, without limitation, Section 5.5.1 hereof.
Section 5.8 Appropriate Action; Consents; Filings.
Section 5.8.1 The Company and Parent shall use their reasonable best
efforts to (A) take, or cause to be taken, all appropriate action, and do, or
cause to be done, all things necessary, proper or advisable under applicable Law
or otherwise to consummate and make effective the transactions contemplated by
this Agreement and each Ancillary Agreement as promptly as practicable, (B)
obtain from any Governmental Entity any consents, licenses, permits, waivers,
approvals, authorizations or orders required to be obtained or made by Parent or
the Company or any of their respective Subsidiaries, or to avoid any action or
proceeding by any Governmental Entity, in connection with the authorization,
execution and delivery of this Agreement and each Ancillary Agreement and the
consummation of the transactions contemplated herein and therein, including,
without limitation, the Merger, and (C) make all necessary filings, and
thereafter make any other required submissions, with respect to this Agreement
and each Ancillary Agreement and the Merger required under (x) the Securities
Act and the Exchange Act, and any other applicable federal or state securities
Laws and (y) any other applicable Law; provided, that Parent and the Company
shall cooperate with each other in connection with the making of all such
filings, including providing copies of all such documents to the non-filing
party and its advisors prior to filing and, if requested, to accept all
reasonable additions, deletions or changes suggested in connection therewith
and, provided, however, that
65
nothing in this Section 5.8.1 shall require Parent to agree to (AA) the
imposition of conditions, (BB) the requirement of divestiture of assets or
property or (CC) the requirement of expenditure of money by Parent or the
Company to a third party in exchange for any such consent. The Company and
Parent shall furnish to each other all information required for any application
or other filing under the rules and regulations of any applicable Law (including
all information required to be included in the Proxy Statement and the
Registration Statement) in connection with the transactions contemplated by this
Agreement and each Ancillary Agreement. Nothing contained in this Agreement
shall give Parent or Merger Sub, directly or indirectly, the right to control or
direct the operations of the Company prior to the consummation of the Merger.
Prior to the consummation of the Merger, the Company shall exercise, consistent
with the terms and conditions of this Agreement, complete control and
supervision over its operations.
Section 5.8.2 The Company and Parent shall give (or shall cause
their respective Subsidiaries to give) any notices to third parties, and use,
and cause their respective Subsidiaries to use, all reasonable efforts to obtain
any third party consents, (A) necessary, proper or advisable to consummate the
transactions contemplated in this Agreement and each Ancillary Agreement, (B)
required to be disclosed in the Company Disclosure Schedule or the Parent
Disclosure Schedule, as applicable, (C) required to prevent a Company Material
Adverse Effect from occurring prior to or after the Effective Time or a Parent
Material Adverse Effect from occurring after the Effective Time or (D) otherwise
referenced in Section 6.1.4 or Section 6.2.3. In the event that either party
shall fail to obtain any third party consent described in the first sentence of
this Section 5.8.2, such party shall use all reasonable efforts, and shall take
any such actions reasonably requested by the other party hereto, to minimize any
adverse effect upon the Company and Parent, their respective Subsidiaries, and
their respective businesses resulting, or which could reasonably be expected to
result after the Effective Time, from the failure to obtain such consent.
Section 5.8.3 From the date of this Agreement until the Effective
Time, the Company shall promptly notify Parent in writing of any pending or, to
the knowledge of the Company, threatened action, suit, arbitration or other
proceeding or investigation by any Governmental Entity or any other person (A)
challenging or seeking material damages in connection with the Merger or the
conversion of Company Stock into Parent Common Stock pursuant to the Merger or
(B) seeking to restrain or prohibit the consummation of the Merger or
66
otherwise limit the right of Parent or any Parent Subsidiary to own or operate
all or any portion of the businesses or assets of the Company or any Company
Subsidiary, which in either case would reasonably be expected to have a Company
Material Adverse Effect prior to or after the Effective Time or a Parent
Material Adverse Effect after the Effective Time.
Section 5.9 Certain Notices. From and after the date of this Agreement
until the Effective Time, each party hereto shall promptly notify the other
party hereto of (A) the occurrence, or non-occurrence, of any event that would
be likely to cause any condition to the obligations of any party to effect the
Merger and the other transactions contemplated by this Agreement or any
Ancillary Agreement not to be satisfied or (B) the failure of the Company or
Parent, as the case may be, to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it pursuant to this Agreement or
any Ancillary Agreement which would reasonably be expected to result in any
condition to the obligations of any party to effect the Merger and the other
transactions contemplated by this Agreement or any Ancillary Agreement not to be
satisfied; provided, however, that the delivery of any notice pursuant to this
Section 5.9 shall not cure any breach of any representation or warranty
requiring disclosure of such matter prior to the date of this Agreement or
otherwise limit or affect the remedies available hereunder to the party
receiving such notice.
Section 5.10 Public Announcements. Parent and the Company shall consult
with each other before issuing any press release or otherwise making any public
statements with respect to the Merger and shall not issue any such press release
or make any such public statement prior to such consultation, except as may be
required by applicable Law or any listing agreement with Nasdaq.
Section 5.11 Stock Exchange Listing. Parent shall promptly prepare and
submit to Nasdaq and any other applicable exchange a listing application
covering the shares of Parent Common Stock to be issued in the Merger and shall
use its reasonable best efforts to cause such shares to be approved for listing
on Nasdaq, subject to official notice of issuance, prior to the Effective Time.
Section 5.12 Employee Benefit Matters. With respect to any Parent Benefit
Plan in which any director, officer or employee of the Company or any Company
Subsidiary (the "Company Employees") will participate effective as of the
Effective Time, Parent shall, or shall
67
cause the Surviving Corporation to, recognize all service of the Company
Employees with the Company or a Company Subsidiary, as the case may be, for
purposes of eligibility for participation in, but not for purposes of benefit
accrual, in any such Parent Benefit Plan; provided, however, that with regard
to vacation, on and after the Effective Time, Parent shall provide, or shall
cause to be provided, each Company Employee with credit for service under the
Parent vacation policy pursuant to the terms of such policy as may be amended
from time to time. Prior to the Effective Time, the Company Board, or an
appropriate committee of non-employee directors thereof, shall adopt a
resolution consistent with the interpretive guidance of the SEC so that the
acquisition by any officer or director of the Company who may become a covered
person of Parent for purposes of Section 16 of the Exchange Act and the rules
and regulations thereunder ("Section 16") of shares of Parent Common Stock or
options to acquire Parent Common Stock pursuant to this Agreement and the Merger
shall be an exempt transaction for purposes of Section 16.
Section 5.13 Indemnification of Directors and Officers.
Section 5.13.1 Parent and the Surviving Corporation agree that the
indemnification obligations set forth in the Company Certificate and Company
By-laws shall survive the Merger (and, prior to the Effective Time, Parent shall
cause the Certificate of Incorporation and By-laws of Merger Sub to reflect such
provisions) and shall not be amended, repealed or otherwise modified for a
period of six years after the Effective Time in any manner that would adversely
affect the rights thereunder of any individual who on or prior to the Effective
Time was a director, officer, trustee, fiduciary, employee or agent of the
Company or any Company Subsidiary or who served at the request of the Company or
any Company Subsidiary as a director, officer, trustee, partner, fiduciary,
employee or agent of another corporation, partnership, joint venture, trust,
pension or other employee benefit plan or enterprise, unless such amendment or
modification is required by Law.
Section 5.13.2 For six years from the Effective Time, the Surviving
Corporation shall provide to the Company's current directors and officers an
insurance and indemnification policy that provides coverage for events occurring
prior to the Effective Time (the "D&O Insurance") that is no less favorable than
the Company's existing policy (true and complete copies which have been
previously provided to Parent) or, if substantially equivalent
68
insurance coverage is unavailable, the best available coverage; provided,
however, that the Surviving Corporation shall not be required to pay an annual
premium for the D&O Insurance in excess of 150% of the last annual premium paid
prior to the date of this Agreement, which premium the Company represents and
warrants to be approximately $315,000. The provisions of the immediately
preceding sentence shall be deemed to have been satisfied if prepaid policies
have been obtained prior to the Effective Time for purposes of this Section
5.13, which policies provide such directors and officers with coverage for an
aggregate period of six years with respect to claims arising from facts or
events that occurred on or before the Effective Time, including, without
limitation, in respect of the transactions contemplated by this Agreement. If
such prepaid policies have been obtained prior to the Effective Time, Parent
shall, and shall cause the Surviving Corporation to, maintain such policies in
full force and effect, and continue to honor the obligations thereunder. The
obligations under this Section 5.13 shall not be terminated or modified in such
a manner as to adversely affect any indemnitee to whom this Section 5.13 applies
without the consent of such affected indemnitee (it being expressly agreed that
the indemnitees to whom this Section 5.13 applies shall be third party
beneficiaries of this Section 5.13).
Section 5.13.3 In the event Parent or the Surviving Corporation (A)
consolidates with or merges into any other person and shall not be the
continuing or surviving corporation or entity of such consolidation or merger or
(B) transfers all or substantially all of its properties and assets to any
person, then, and in each such case, proper provisions shall be made so that
such continuing or surviving corporation or entity or transferee of such assets,
as the case may be, shall assume the obligations set forth in this Section 5.13.
Section 5.14 Plan of Reorganization. This Agreement is intended to
constitute a "plan of reorganization" within the meaning of Treasury Regulation
Section 1.368-2(g). Each party hereto shall use its reasonable best efforts to
cause the Merger to qualify, and will not knowingly take any actions or cause
any actions to be taken which could reasonably be expected to prevent the Merger
from qualifying, as a reorganization within the meaning of Section 368(a) of the
Code.
Section 5.15 Affiliate Agreements. The Company shall, within five business
days of the date hereof, deliver to Parent a list (reasonably satisfactory to
counsel for Parent)
69
setting forth the names of all persons who are expected to be, at the time of
the Company Stockholders' Meeting, "affiliates" of the Company for purposes of
Rule 145 under the Securities Act. The Company shall furnish such information
and documents as Parent may reasonably request for the purpose of reviewing the
list. The Company shall use its reasonable best efforts to cause each person who
is identified as an affiliate in the list furnished or supplemented pursuant to
this Section 5.15 to execute a written agreement, as soon as practicable after
the date hereof, as to such person's prospective compliance with the
restrictions imposed by Rule 145 under the Securities Act on transfer of the
shares of Parent Common Stock received by such person in the Merger.
Section 5.16 Company Rights Agreement. The Company covenants and agrees
that it will not (i) redeem the Company Rights, (ii) amend the Company Rights
Agreement or (iii) take any action which would allow any person (as defined in
the Company Rights Agreement) other than Parent, Merger Sub or any Parent
Subsidiary to acquire beneficial ownership (for purposes of this Section 5.16,
as defined in the Company Rights Agreement) of 20% or more of the outstanding
shares of Company Common Stock without causing a Distribution Date or a
Triggering Event (as each such term is defined in the Company Rights Agreement)
to occur.
Section 5.17 Patent Litigation and Administrative Proceedings.
Section 5.17.1 Patent litigation counsel for both parties shall,
within one day of execution of this Agreement or as soon thereafter as possible,
cooperate in good faith to jointly file papers in the U.S. District Courts for
the Central District of California and the District of Delaware, requesting that
an immediate stay of all proceedings be entered in the following civil actions:
C.D. Cal. Case Nos. CV 00-4988-CBM and CV 02-5888-CBM, and D. Del. Case No.
01-203-SLR. The duration of each requested stay shall be through and including
August 31, 2003. Before seeking the stay in Delaware, counsel for Parent shall
exercise all reasonable efforts to acquire IBM Corporation's consent to stay all
further proceedings in Delaware. As part of the requested stays, the parties
shall request that the courts cease all further activity in the cases during the
period of stay, including refraining from issuing any further opinions or orders
on issues already previously submitted for decision. In the event that the
Merger is not consummated within the duration of the first stay to be obtained,
and if both parties believe that
70
an extension of the stays would be justified or desirable, then patent
litigation counsel shall cooperate to request appropriate extensions of the
stays in each forum.
Section 5.17.2 Upon execution of this Agreement, patent prosecution
counsel for both parties shall immediately confer in good faith for the purpose
of seeking to stay opposition proceedings in the European Patent Office, and
will file papers as soon as practicable jointly requesting either that the
opposition proceeding No. IK/I-12053, be stayed through and including August 31,
2003 or until further notice (if possible) or that any impending filing
deadlines be extended by at least six months.
Section 5.17.3 Within three days after consummation of the Merger,
(i) patent litigation counsel for both parties shall cooperate in good faith to
jointly file papers in all of the stayed litigations requesting dismissal with
prejudice of all claims, counterclaims and cross-claims (if any), and before
seeking such dismissal in Delaware, counsel for Parent shall exercise all
reasonable efforts to acquire IBM Corporation's consent to such dismissal; (ii)
patent prosecution counsel for both parties shall seek dismissal with prejudice
(or similar terminating relief) of all opposition proceedings; and (iii) in
accordance with 35 U.S.C. Section 135(c) and 37 C.F.R. Sections 1.661 and
1.666, the parties shall promptly jointly submit a copy of this Agreement to the
United States Patent Office in Interference Nos. 104,643, 104,644, and 104,645.
Section 5.17.4 Subject to Section 5.17.5, if for any reason this
Agreement is terminated by either party prior to consummation of the Merger,
then, upon five days' written notice by the party seeking to lift the stays,
that party may unilaterally request that the stays in each of the litigations be
immediately lifted and may also immediately request a status conference.
Section 5.17.5 As part of the stay requested in C.D. Cal. Case Nos.
CV 00-4988-CBM pursuant to Section 5.17.1, the parties shall jointly request
that the court reserve the earliest available trial date no earlier than
November 30, 2003; provided, however, that if this Agreement is terminated
pursuant to Section 7.1.4, 7.1.5, 7.1.6 or 7.1.7, the Company agrees and hereby
stipulates that it will not thereafter request, suggest or justify a trial date
any earlier than February 29, 2004, and hereby agrees to take all necessary and
reasonable steps to seek from the court an additional three-month extension of
the trial date under these circumstances.
71
Section 5.17.6 Within one day of the execution of this Agreement or
as soon thereafter as practicable, patent litigation counsel for both parties
shall jointly stipulate and request that the Company be immediately relieved
from the Delaware court's requirement that it post a bond as security for the
damage award due Parent, without prejudice to possible future reinstatement;
provided, however, that as part of that stipulation, the Company shall also
stipulate to an immediate reimposition of the previous bond requirement should
the stay in Delaware be lifted prior to consummation of the Merger upon
termination of this Agreement for any reason, without any further obligation or
requirement of Parent to act. Parent's counsel shall promptly exercise all
reasonable efforts to acquire IBM Corporation's consent to effectuate this
relief, if such consent is deemed necessary or desirable to do so.
Section 5.18 Board of Directors. Parent agrees to increase the size of the
Parent Board and shall have validly elected directors such that immediately
following the Effective Time, the Parent Board shall consist of nine directors,
including Robert Duggan and one other individual to be proposed by the Company
as soon as practicable after the date of this Agreement and satisfactory to
Parent.
Section 5.19 Termination of 401(k) Plan. At the request of Parent, the
Company shall, effective not later than the day immediately prior to the day on
which the Effective Time occurs, terminate the Company's 401(k) Plan (the
"401(k) Plan") and no further contributions shall be made to the 401(k) Plan.
The Company shall provide to Parent and Merger Sub (i) executed resolutions by
the Company Board authorizing the termination and (ii) an executed amendment to
the 401(k) Plan sufficient to assure compliance with all applicable requirements
of the Internal Revenue Code and regulations thereunder so that the
tax-qualified status of the 401(k) Plan will be maintained at the time of
termination.
Section 5.20 Employee Stock Purchase Plan. Effective as of the date
hereof, the Company Board, or, if appropriate, any committee of the Company
Board administering the Company's Employee Stock Purchase Plan (the "ESPP")),
shall adopt such resolutions or take such other actions as may be required to
provide that (i) participants may not increase their payroll deductions or
purchase elections from those in effect on the date of this Agreement, (ii) no
offering period shall be commenced after the date of this Agreement, (iii) each
participant's outstanding right to purchase shares of Company Common Stock under
the ESPP shall terminate
72
on the day immediately prior to the day on which the Effective Time occurs,
provided that all amounts allocated to each participant's account under the ESPP
as of such date shall thereupon be used to purchase from the Company whole
shares of Company Common Stock at the applicable price determined under the
terms of the ESPP for then-outstanding offering periods using such date as the
final purchase date for each such offering period, and (iv) the ESPP shall
terminate immediately following the purchases of Company Common Stock on the day
prior to the day on which the Effective Time occurs.
ARTICLE 6.
CLOSING CONDITIONS
Section 6.1 Conditions to Obligations of Each Party Under This Agreement.
The respective obligations of each party to effect the Merger and the other
transactions contemplated herein shall be subject to the satisfaction at or
prior to the Effective Time of the following conditions, any or all of which may
be waived, in whole or in part, to the extent permitted by applicable Law:
Section 6.1.1 Effectiveness of the Registration Statement. The
Registration Statement shall have been declared effective by the SEC under the
Securities Act. No stop order suspending the effectiveness of the Registration
Statement shall have been issued by the SEC and no proceedings for that purpose
shall have been initiated or, to the knowledge of Parent or the Company,
threatened by the SEC.
Section 6.1.2 Stockholder Approval. This Agreement and the Merger
and the other transactions contemplated hereby shall have been approved and
adopted by the requisite vote of the stockholders of the Company and by the
requisite vote of the stockholders of Parent, to the extent, in each case, that
stockholder approval is required under the DGCL or by Nasdaq.
Section 6.1.3 No Order. No Governmental Entity, nor any federal or
state court of competent jurisdiction or arbitrator shall have enacted, issued,
promulgated, enforced or entered any statute, rule, regulation, executive order,
decree, judgment, injunction or arbitration award or finding or other order
(whether temporary, preliminary or permanent), in any case which is in effect
and which prevents or prohibits consummation of the Merger or any other
transactions contemplated in this Agreement or any Ancillary Agreement.
73
Section 6.1.4 Consents and Approvals. All consents, approvals and
authorizations of any Governmental Entity set forth in Section 3.5.2, Section
4.5.2 or otherwise required to be set forth in the related sections of the
Company Disclosure Schedule or the Parent Disclosure Schedule shall have been
obtained, in each case, without (A) the imposition of conditions, (B) the
requirement of divestiture of assets or property or (C) the requirement of
expenditure of money by Parent or the Company to a third party in exchange for
any such consent, except as would not be reasonably likely to have a Company
Material Adverse Effect or Parent Material Adverse Effect, as applicable.
Section 6.1.5 Exchange Listing. The shares of Parent Common Stock
issuable to the Company's stockholders in the Merger shall have been approved
for listing on Nasdaq, subject to official notice of issuance.
Section 6.1.6 Litigation Stays. Each of the patent litigation stays
referred to in Section 5.17.1 shall have been obtained and remain in full force
and effect.
Section 6.2 Additional Conditions to Obligations of Parent and Merger Sub.
The obligations of Parent and Merger Sub to effect the Merger and the other
transactions contemplated herein are also subject to the following conditions:
Section 6.2.1 Representations and Warranties. Each of (i) the
representations and warranties of the Company contained in this Agreement and
each Ancillary Agreement (other than the Loan Agreement) that are qualified by
Company Material Adverse Effect shall be true and correct as of the date hereof
and as of the Effective Time as though made on and as of the Effective Time
(except that those representations and warranties which address matters only as
of a particular date need only be true and correct as of such date), and (ii)
the representations and warranties of the Company contained in this Agreement
and each Ancillary Agreement (other than the Loan Agreement) which are not so
qualified (including, without limitation, those which are qualified by the
phrase "material") shall be true and correct as of the date hereof and as of the
Effective Time as though made on and as of the Effective Time (except that those
representations and warranties which address matters only as of a particular
date need only remain true and correct as of such date), except to the extent
that the failure of any such representation or warranty to be true and correct
has not had and could not reasonably be likely
74
to have a Company Material Adverse Effect. Parent shall have received a
certificate of the Chief Executive Officer or Chief Financial Officer of the
Company to that effect.
Section 6.2.2 Agreements and Covenants. The Company shall have
performed or complied with all agreements and covenants required by this
Agreement and each Ancillary Agreement (other than the Loan Agreement) to be
performed or complied with by it on or prior to the Effective Time, except to
the extent that such nonperformance or noncompliance has not had and could not
reasonably be likely to have a Company Material Adverse Effect. Parent shall
have received a certificate of the Chief Executive Officer or Chief Financial
Officer of the Company to that effect.
Section 6.2.3 Consents and Approvals. All consents, approvals and
authorizations listed on Schedule 6.2.3 or of any person other than a
Governmental Entity required to be set forth in Section 3.5 or Section 4.5 or
the related sections of the Company Disclosure Schedule or the Parent Disclosure
Schedule shall have been obtained in each case, without (A) the imposition of
conditions, (B) the requirement of divestiture of assets or property or (C) the
requirement of expenditure of money by Parent or the Company to a third party in
exchange for any such consent, except as has not had and could not reasonably be
likely to have a Company Material Adverse Effect or Parent Material Adverse
Effect, as applicable.
Section 6.2.4 Material Adverse Change. Since the date of this
Agreement, there shall not have occurred any Company Material Adverse Change.
Section 6.2.5 Court Proceedings. No action or claim shall be pending
or threatened before any court or quasi-judicial or administrative agency of any
federal, state, local or foreign jurisdiction or before any arbitrator wherein
an unfavorable injunction, judgment, order, decree, ruling or charge would (A)
prevent consummation of any of the transactions contemplated by this Agreement
or any Ancillary Agreement, (B) cause any of the transactions contemplated by
this Agreement or any Ancillary Agreement to be rescinded following consummation
thereof or (C) materially adversely affect the right or powers of Parent to own,
operate or control the Company, and no such injunction, judgment, order, decree,
ruling or charge shall be in effect.
75
Section 6.3 Additional Conditions to Obligations of the Company. The
obligation of the Company to effect the Merger and the other transactions
contemplated herein are also subject to the following conditions:
Section 6.3.1 Representations and Warranties. Each of (i) the
representations and warranties of Parent contained in this Agreement and each
Ancillary Agreement (other than the Loan Agreement) that are qualified by Parent
Material Adverse Effect shall be true and correct as of the date hereof and as
of the Effective Time as though made on and as of the Effective Time (except
that those representations and warranties which address matters only as of a
particular date need only be true and correct as of such date), and (ii) the
representations and warranties of Parent contained in this Agreement and each
Ancillary Agreement (other than the Loan Agreement) which are not so qualified
(including, without limitation, those which are qualified by the phrase
"material") shall be true and correct as of the date hereof and as of the
Effective Time as though made on and as of the Effective Time (except that those
representations and warranties which address matters only as of a particular
date need only remain true and correct as of such date), except to the extent
that the failure of any such representation or warranty to be true and correct
has not had and could not reasonably be likely to have a Parent Material Adverse
Effect. The Company shall have received a certificate of the Chief Executive
Officer or Chief Financial Officer of Parent to that effect.
Section 6.3.2 Agreements and Covenants. Parent shall have performed
or complied with all agreements and covenants required by this Agreement and
each Ancillary Agreement (other than the Loan Agreement) to be performed or
complied with by it on or prior to the Effective Time, except to the extent that
such nonperformance or noncompliance has not had and could not reasonably be
likely to have a Parent Material Adverse Effect. The Company shall have received
a certificate of the Chief Executive Officer or Chief Financial Officer of
Parent to that effect.
ARTICLE 7.
TERMINATION, AMENDMENT AND WAIVER
Section 7.1 Termination. This Agreement may be terminated, and the Merger
contemplated hereby may be abandoned, at any time prior to the Effective Time,
by action taken or authorized by the Board of Directors of the terminating party
or parties, whether before or
76
after approval of the matters presented in connection with the Merger by the
stockholders of the Company and Parent:
Section 7.1.1 By mutual written consent of Parent and the Company,
by action of their respective Boards of Directors;
Section 7.1.2 By either the Company or Parent if the Merger shall
not have been consummated prior to August 31, 2003 (the "Termination Date");
provided, however, that the right to terminate this Agreement under this Section
7.1.2 shall not be available to any party whose failure to fulfill any
obligation under this Agreement has been the cause of, or resulted in, the
failure of the Merger to occur on or before such date;
Section 7.1.3 By either the Company or Parent if any Governmental
Entity shall have issued an order, decree or ruling or taken any other action
permanently restraining, enjoining or otherwise prohibiting the transactions
contemplated by this Agreement or any Ancillary Agreement, and such order,
decree, ruling or other action shall have become final and nonappealable (which
order, decree, ruling or other action the parties shall have used their
reasonable best efforts to resist, resolve or lift, as applicable, subject to
the provisions of Section 5.8);
Section 7.1.4 By either Parent or the Company if the approval by the
stockholders of the Company required for the consummation of the Merger or the
other transactions contemplated hereby shall not have been obtained by reason of
the failure to obtain the required vote at a duly held meeting of stockholders
of the Company or at any adjournment thereof; provided, however, that if this
Agreement is then terminable pursuant to Section 7.1.5 by Parent, the Company
shall not have a right to terminate under this Section 7.1.4;
Section 7.1.5 By Parent if (A) the Company Board shall have
withdrawn, or adversely modified, or failed upon Parent's request to reconfirm
its recommendation of the Merger or this Agreement (or determined to do so); (B)
the Company Board shall have determined to recommend to the stockholders of the
Company that they approve an Acquisition Proposal other than that contemplated
by this Agreement or shall have determined to accept a Superior Proposal; (C) a
tender offer or exchange offer that, if successful, would result in any person
or group becoming a beneficial owner of 35% or more of the outstanding shares of
Company Common Stock and/or securities convertible into or exercisable or
exchangeable for
77
35% or more of the outstanding shares of Company Common Stock is commenced
(other than by Parent or an affiliate of Parent) and the Company Board fails to
recommend that the stockholders of the Company not tender their shares in such
tender or exchange offer; (D) any person (other than Parent or an affiliate of
Parent) or group becomes the beneficial owner of 35% or more of the outstanding
shares of Company Common Stock; or (E) for any reason the Company fails to call
or hold the Company Stockholders' Meeting by the Termination Date;
Section 7.1.6 By the Company, if the Company Board determines to
accept a Superior Proposal, but only after the Company (A) holds the Company
Stockholders' Meeting and has failed to obtain the stockholder approval required
for consummation of the Merger and the other transactions contemplated hereby,
and (B) fulfills its obligations under Section 7.2 hereof upon such termination
(provided that the Company's right to terminate this Agreement under this
Section 7.1.6 shall not be available if the Company is then in breach of Section
5.7);
Section 7.1.7 By Parent, if since the date of this Agreement, there
shall have been any event, development or change of circumstance that
constitutes, has had or could reasonably be expected to have, individually or in
the aggregate, a Company Material Adverse Change and such Company Material
Adverse Change is not cured within 10 days after written notice thereof or if
(A)(1) there shall be breached any covenant or agreement on the part of a party
other than Parent or Merger Sub set forth in this Agreement or any Ancillary
Agreement (other than the Loan Agreement) or (2) any representation or warranty
of a party other than Parent or Merger Sub set forth in this Agreement or any
Ancillary Agreement (other than the Loan Agreement) shall have become untrue,
(B) such breach or misrepresentation is not cured within 10 days after written
notice thereof and (C) such breach or misrepresentation would cause the
conditions set forth in Section 6.2.1 or Section 6.2.2 not to be satisfied;
Section 7.1.8 By the Company, if (A)(1) Parent has breached any
covenant or agreement on the part of Parent or Merger Sub set forth in this
Agreement or any Ancillary Agreement or (2) any representation or warranty of
Parent or Merger Sub set forth in this Agreement or any Ancillary Agreement
shall have become untrue, (B) such breach or misrepresentation is not cured
within 10 days after written notice thereof and (C) such breach or
78
misrepresentation would cause the conditions set forth in Section 6.3.1 or
Section 6.3.2 not to be satisfied; or
Section 7.1.9 By either Parent or the Company if the approval by the
stockholders of Parent required for the Share Issuance or the other transactions
contemplated hereby shall not have been obtained by reason of the failure to
obtain the required vote at a duly held meeting of stockholders of Parent or at
any adjournment thereof.
Section 7.2 Effect of Termination.
Section 7.2.1 Limitation on Liability. In the event of termination
of this Agreement by either the Company or Parent as provided in Section 7.1,
this Agreement shall forthwith become void and there shall be no liability or
obligation on the part of Parent or the Company or their respective
Subsidiaries, officers or directors except (x) with respect to Section 5.6.2,
Section 5.10, Section 5.17 this Section 7.2 and Article 8 and (y) with respect
to any liabilities or damages incurred or suffered by a party as a result of the
willful and material breach by the other party of any of its representations,
warranties, covenants or other agreements set forth in this Agreement or any
Ancillary Agreement.
Section 7.2.2 Parent Expenses. Parent and the Company agree that if
this Agreement is terminated pursuant to Section 7.1.4, 7.1.5, 7.1.6 or 7.1.7,
then the Company shall pay Parent an amount equal to the sum of Parent's
Expenses up to an amount equal to $1,250,000.
Section 7.2.3 Company Expenses. Parent and the Company agree that if
this Agreement is terminated pursuant to Section 7.1.8 or Section 7.1.9 then
Parent shall pay to the Company an amount equal to the sum of the Company's
Expenses up to an amount equal to $1,250,000.
Section 7.2.4 Payment of Expenses. Payment of Expenses pursuant to
Section 7.2.2 or Section 7.2.3 shall be made not later than two business days
after delivery to the other party of notice of demand for payment and a
documented itemization setting forth in reasonable detail all Expenses of the
party entitled to receive payment (which itemization may be supplemented and
updated from time to time by such party until the 90th day after such party
delivers such notice of demand for payment).
79
Section 7.2.5 Termination Fee.
Section 7.2.5.1 In addition to any payment required by the
foregoing provisions of this Section 7.2, (A) in the event that this Agreement
is terminated pursuant to Section 7.1.5, Section 7.1.6 or Section 7.1.7, then
the Company shall pay to Parent immediately prior to such termination, in the
case of a termination by the Company, or within two business days thereafter, in
the case of a termination by Parent, a termination fee of $2,500,000 (provided,
however, that this amount shall be reduced by and to the extent of any payment
of Parent expenses pursuant to Section 7.2.2) and (B) in the event that this
Agreement is terminated pursuant to Section 7.1.4, and an Acquisition Proposal
has been publicly announced and not expressly and publicly withdrawn prior to
the Company Stockholders' Meeting, then the Company shall pay Parent, no later
than two days after the earlier to occur of (x) the date the Company or any
Company Subsidiary enter into an agreement concerning a transaction that
constitutes an Acquisition Proposal, provided that such agreement is entered
into within 12 months of the termination of this Agreement or (y) the date any
person or persons (other than Parent) purchases at least a majority of the
consolidated assets or Equity Interests of the Company and the Company
Subsidiaries, provided that any tender, exchange or other offer or arrangement
for the Company's voting securities is first publicly announced within 12 months
of the termination of this Agreement, a termination fee of $2,500,000 (provided,
however, that this amount shall be reduced by and to the extent of any payment
of Parent expenses pursuant to Section 7.2.2).
Section 7.2.5.2 In addition to any payment required by the
foregoing provisions of this Section, in the event that this Agreement is
terminated pursuant to Section 7.1.8, then Parent shall pay to the Company,
within two business days thereafter, a termination fee of $2,500,000 (provided,
however, that this amount shall be reduced by and to the extent of any payment
of Company expenses pursuant to Section 7.2.3).
Section 7.2.6 All Payments. All payments under Section 7.2 shall be
made by wire transfer of immediately available funds to an account designated by
the party entitled to receive payment.
Section 7.3 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
80
Effective Time; provided, however, that, after approval of the Merger by the
stockholders of the Company, no amendment may be made without further
stockholder approval which, by Law or in accordance with the rules of any
relevant stock exchange, requires further approval by such stockholders. This
Agreement may not be amended except by an instrument in writing signed by the
parties hereto.
Section 7.4 Waiver. At any time prior to the Effective Time, any party
hereto may (A) extend the time for the performance of any of the obligations or
other acts of the other party hereto, (B) waive any inaccuracies in the
representations and warranties of the other party contained herein or in any
document delivered pursuant hereto, and (C) waive compliance by the other party
with any of the agreements or conditions contained herein; provided, however,
that after any approval of the transactions contemplated by this Agreement by
the stockholders of the Company, there may not be, without further approval of
such stockholders, any extension or waiver of this Agreement or any portion
thereof which, by Law or in accordance with the rules of any relevant stock
exchange, requires further approval by such stockholders. Any such extension or
waiver shall be valid only if set forth in an instrument in writing signed by
the party or parties to be bound thereby, but such extension or waiver or
failure to insist on strict compliance with an obligation, covenant, agreement
or condition shall not operate as a waiver of, or estoppel with respect to, any
subsequent or other failure.
Section 7.5 Fees and Expenses. Subject to Section 7.2.1, Section 7.2.2 and
Section 7.2.3 hereof, all expenses incurred by the parties hereto shall be borne
solely and entirely by the party which has incurred the same; provided, however,
that each of Parent and the Company shall pay one-half of the expenses related
to printing, filing and mailing the Registration Statement and the Proxy
Statement and all SEC and other regulatory filing fees incurred in connection
with the Registration Statement and the Proxy Statement.
ARTICLE 8.
GENERAL PROVISIONS
Section 8.1 Non-Survival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Effective Time. This Section 8.1
shall not limit any covenant or agreement of the parties which by its terms
contemplates performance after the Effective Time.
81
Section 8.2 Notices. Any notices or other communications required or
permitted under, or otherwise in connection with this Agreement, shall be in
writing and shall be deemed to have been duly given when delivered in person or
upon confirmation of receipt when transmitted by facsimile transmission (but
only if followed by transmittal by national overnight courier or hand for
delivery on the next business day) or on receipt after dispatch by registered or
certified mail, postage prepaid, addressed, or on the next business day if
transmitted by national overnight courier, in each case as follows:
If to Parent or Merger Sub, addressed to it at:
Intuitive Surgical, Inc.
950 Kifer Road
Sunnyvale, California 94086
Facsimile: (408) 523-1390
Attention: Lonnie M. Smith, President and Chief Executive Officer
with a mandated copy (which shall not constitute notice) to:
Latham & Watkins LLP
505 Montgomery Street, Suite 1900
San Francisco, California 94111-2562
Facsimile: (415) 395-8095
Attention: John M. Newell, Esq.
If to the Company, addressed to it at:
Computer Motion, Inc.
130-B Cremona Drive
Santa Barbara, California 93117
Facsimile: (805) 968-4920
Attention: Robert W. Duggan, Chairman of the Board and Chief Executive
Officer
with a mandated copy (which shall not constitute notice) to:
Stradling Yocca Carlson & Rauth
302 Olive Street
Santa Barbara, California 93101
Facsimile: (805) 564-1044
Attention: David E. Lafitte, Esq.
Section 8.3 Certain Definitions. For purposes of this Agreement, the term:
82
"AFFILIATE" means a person that directly or indirectly, through one or
more intermediaries, controls, is controlled by, or is under common control
with, the first-mentioned person;
"ACQUISITION PROPOSAL" means any offer or proposal concerning any (A)
merger, consolidation, business combination, or similar transaction involving
the Company or any Company Subsidiary, (B) sale, lease or other disposition
directly or indirectly by merger, consolidation, business combination, share
exchange, joint venture, or otherwise of assets of the Company or any Company
Subsidiary representing 20% or more of the consolidated assets of the Company
and the Company Subsidiaries, (C) issuance, sale, or other disposition of
(including by way of merger, consolidation, business combination, share
exchange, joint venture, or any similar transaction) securities (or options,
rights or warrants to purchase, or securities convertible into or exchangeable
for such securities) representing 20% or more of the voting power of the Company
or (D) transaction in which any person shall acquire beneficial ownership, or
the right to acquire beneficial ownership or any group shall have been formed
which beneficially owns or has the right to acquire beneficial ownership of 20%
or more of the outstanding voting capital stock of the Company or (E) any
combination of the foregoing (other than the Merger); provided, however, that
for purposes of Section 7.2.5.1(B)(x), the 20% figures stated in this definition
of "Acquisition Proposal" shall instead be 50%.
"ANCILLARY AGREEMENTS" means the Company Support Agreements, the Parent
Support Agreements and the Loan Agreement.
"BENEFICIAL OWNERSHIP" (and related terms such as "beneficially owned" or
"beneficial owner") has the meaning set forth in Rule 13d-3 under the Exchange
Act.
"BLUE SKY LAWS" means state securities or "blue sky" laws.
"BUSINESS DAY" means any day other than a day on which the SEC shall be
closed.
"CERCLA" means the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended as of the date hereof.
"COMPANY ALLOCABLE SHARES" means (x) the Parent Total Fully Diluted Shares
divided by 0.68, minus (y) the Parent Total Fully Diluted Shares.
83
"COMPANY MATERIAL ADVERSE CHANGE" means any event, development or change
affecting, or condition having an effect on, the Company and the Company
Subsidiaries that is material to the assets, liabilities, business, financial
condition or results of operations of the Company and the Company Subsidiaries,
taken as a whole, which arises out of or relates to (i) any forfeiture,
impairment, invalidity or diminution in value of the Material Company
Intellectual Property which is unrelated to any litigation, dispute or
proceeding between Parent and the Company; (ii) any violation of Section
5.1.2(A) or (iii) the incurrence by the Company or any of the Company
Subsidiaries of any liabilities or obligations of any nature (whether accrued,
absolute, contingent or otherwise), other than pursuant to the Loan Agreement,
except in the case of any of the events listed in clauses (i), (ii) or (iii) of
this definition that would not, individually or in the aggregate, reasonably be
likely to result in a Company Material Adverse Effect.
"COMPANY MATERIAL ADVERSE EFFECT" means any change affecting, or condition
having an effect on, the Company and the Company Subsidiaries that is, or would
reasonably be likely to be, materially adverse to the assets, liabilities,
business, financial condition or results of operations of the Company and the
Company Subsidiaries, taken as a whole, other than any change or condition
relating to the economy or securities markets in general, or the industry in
which the Company operates in general, and not specifically relating to the
Company.
"COMPANY TOTAL FULLY DILUTED SHARES" means, as of immediately prior to the
consummation of the Merger, the sum of (x) the number of shares of Company
Common Stock outstanding, (y) the number of shares of Company Common Stock into
which any outstanding convertible or exchangeable securities (including any
outstanding Company Preferred Stock) may be converted or exchanged, and (z) the
number of shares of Company Common Stock issuable upon exercise of all
outstanding Company Options and Company Warrants (whether or not such
convertible or exchangeable securities or Company Options or Company Warrants
are then convertible, exchangeable or exercisable, and regardless of the
conversion, exchange or exercise price of any such securities), but excluding
for purposes of this calculation (if then outstanding) the shares of Company
Common Stock issuable upon exercise of the Company Warrants to acquire 396,578
shares of Company Common Stock at $4.57 per share, and excluding the shares of
Company Common Stock issuable upon exercise of the Company Warrants to acquire
252,836 shares of Company Common Stock at $7.71 per share.
84
"CONTRACTS" means any of the agreements, contracts, leases, powers of
attorney, notes, loans, evidence of indebtedness, purchase orders, letters of
credit, settlement agreements, franchise agreements, undertakings, covenants not
to compete, employment agreements, licenses, instruments, obligations,
commitments, understandings, policies, purchase and sales orders, quotations and
other executory commitments to which any company is a party or to which any of
the assets of the companies are subject, whether oral or written, express or
implied.
"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 or policies of a
person, whether through the ownership of stock or as trustee or executor, by
contract or credit arrangement or otherwise.
"ENVIRONMENTAL LAWS" means any federal, state, local or foreign statute,
law, ordinance, regulation, rule, code, treaty, writ or order and any
enforceable judicial or administrative interpretation thereof, including any
judicial or administrative order, consent decree, judgment, stipulation,
injunction, permit, authorization, policy, opinion, or agency requirement, in
each case having the force and effect of law, relating to the pollution,
protection, investigation or restoration of the environment, health and safety
as affected by the environment or natural resources, including, without
limitation, those relating to the use, handling, presence, transportation,
treatment, storage, disposal, release, threatened release or discharge of
Hazardous Materials or noise, odor, wetlands, pollution or contamination.
"ENVIRONMENTAL PERMITS" means any permit, approval, identification number,
license and other authorization required under any applicable Environmental Law.
"EQUITY INTEREST" means any share, capital stock, partnership, member or
similar interest in any entity, and any option, warrant, right or security
(including debt securities) convertible, exchangeable or exercisable therefor.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the regulations promulgated thereunder.
"ERISA AFFILIATE" shall mean any entity or trade or business (whether or
not incorporated) other than the Company that together with the Company is
considered under
85
common control and treated as a single employer under Section 4.14(b), (c), (m)
or (o) of the Code.
"EXCHANGE ACT" shall mean Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
"EXCHANGE RATIO" means the number obtained by dividing (x) the Company
Allocable Shares by (y) the Company Total Fully Diluted Shares.
"EXPENSES" includes 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 and the
transactions contemplated hereby, including the preparation, printing, filing
and mailing of the Proxy Statement and the solicitation of shareholder approvals
and all other matters related to the transactions contemplated hereto.
"GAAP" means generally accepted accounting principles as applied in the
United States.
"GOVERNMENTAL ENTITY" means domestic or foreign governmental,
administrative, judicial or regulatory authority.
"GROUP" is defined as in the Exchange Act, except where the context
otherwise requires.
"HAZARDOUS MATERIALS" means (A) any petroleum, petroleum products,
byproducts or breakdown products, radioactive materials, asbestos-containing
materials or polychlorinated biphenyls or (B) any chemical, material or other
substance defined or regulated as toxic or hazardous or as a pollutant or
contaminant or waste under any applicable Environmental Law.
"INTELLECTUAL PROPERTY" means all intellectual property or other
proprietary rights of every kind, foreign or domestic, including all patents,
patent applications, inventions (whether or not patentable), processes,
products, technologies, discoveries, copyrightable and copyrighted works,
apparatus, trade secrets, trademarks, trademark registrations and applications,
domain names, service marks, service mark registrations and applications, trade
names, trade secrets,
86
know-how, trade dress, copyright registrations, customer lists, confidential
marketing and customer information, licenses, confidential technical
information, software, and all documentation thereof.
"IRS" means the United States Internal Revenue Service.
"KNOWLEDGE" will be deemed to be present when the matter in question was
brought to the attention of any officer of Parent or the Company, as the case
may be.
"LAW" means foreign or domestic law, statute, code, ordinance, rule,
regulation, order, judgment, writ, stipulation, award, injunction, decree or
arbitration award or finding.
"OTHER FILINGS" means all filings made by or required to be made by, the
Company or Parent, as the case may be, with the SEC other than the Registration
Statement and the Proxy Statement.
"PARENT MATERIAL ADVERSE EFFECT" means any change affecting, or condition
having an effect on, Parent, Merger Sub and the Parent Subsidiaries that is, or
would reasonably be likely to be, materially adverse to the assets, liabilities,
business, financial condition or results of operations of Parent and the Parent
Subsidiaries, taken as a whole, other than any change or condition relating to
the economy or securities markets in general, or the industry in which Parent
operates in general, and not specifically relating to Parent.
"PARENT TOTAL FULLY DILUTED SHARES" means, as of immediately prior to the
consummation of the Merger, the sum of (x) the number of shares of Parent Common
Stock outstanding, (y) the number of shares of Parent Common Stock into which
any outstanding convertible or exchangeable securities (including any
outstanding Parent Preferred Stock) may be converted or exchanged, and (z) the
number of shares of Parent Common Stock issuable upon exercise of all
outstanding Parent Options and warrants to purchase shares of Parent Common
Stock (whether or not such convertible or exchangeable securities or Parent
Options or warrants to purchase shares of Parent Common Stock are then
convertible, exchangeable or exercisable, and regardless of the conversion,
exchange or exercise price of any such securities).
"PERSON" means an individual, corporation, limited liability company,
partnership, association, trust, unincorporated organization, other entity or
group (as defined in Section 13(d) of the Exchange Act).
87
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"SHARE ISSUANCE" means the issuance of Parent Common Stock pursuant to
Section 2.1.1.
"SUBSIDIARY" or "SUBSIDIARIES" of Parent, the Company, the Surviving
Corporation or any other person means any corporation, partnership, joint
venture or other legal entity of which Parent, the Company, the Surviving
Corporation or such other person, as the case may be (either alone or through or
together with any other subsidiary), owns, directly or indirectly, a majority of
the stock or other equity interests the holders of which are generally entitled
to vote for the election of the board of directors or other governing body of
such corporation or other legal entity.
"SUPERIOR PROPOSAL" means a bona fide Acquisition Proposal made by a third
party which was not solicited by the Company, any Company Subsidiary, any
Company Representatives or any other affiliates and which, in the good faith
judgment of the Company Board, taking into account, to the extent deemed
appropriate by the Company Board, the various legal, financial and regulatory
aspects of the proposal and the person making such proposal (A) if accepted, is
reasonably likely to be consummated, and (B) if consummated would, based upon
the written advice of the Company Financial Advisor, result in a transaction
that is more favorable to the Company's stockholders, from a financial point of
view, than the transactions contemplated by this Agreement.
"TAXES" means any and all taxes, fees, levies, duties, tariffs, imposts
and other charges of any kind (together with any and all interest, penalties,
additions to tax and additional amounts imposed with respect thereto) imposed by
any Governmental Entity or domestic or foreign taxing authority, including,
without limitation, income, franchise, windfall or other profits, gross
receipts, property, sales, use, net worth, capital stock, payroll, employment,
social security, workers' compensation, unemployment compensation, excise,
withholding, ad valorem, stamp, transfer, value-added, gains tax and license,
registration and documentation fees.
88
"TAX RETURNS" means any report, return (including information return),
claim for refund, election, estimated tax filing or declaration required to be
supplied to any Governmental Entity or domestic or foreign taxing authority with
respect to Taxes, including any schedule or attachment thereto, and including
any amendments thereof.
Section 8.4 Terms Defined Elsewhere. The following terms are defined
elsewhere in this Agreement, as indicated below:
<TABLE>
<S> <C>
"401(k) PLAN" Section 5.19
"AGREEMENT" Preamble
"CERTIFICATE OF MERGER" Section 1.2
"CERTIFICATES" Section 2.2.2
"CERTIFICATE OF AMENDMENT" Section 5.5.1
"CODE" Recitals
"COMPANY" Preamble
"COMPANY BENEFIT PLAN" Section 3.10.1
"COMPANY BOARD" Section 3.4.1
"COMPANY BY-LAWS" Section 3.2
"COMPANY CERTIFICATE" Section 3.2
"COMPANY COMMON STOCK" Section 2.1.1.1
"COMPANY DEFECT" Section 3.22
"COMPANY DISCLOSURE SCHEDULE" Article 3
"COMPANY EMPLOYEES" Section 5.12
"COMPANY FINANCIAL ADVISOR" Section 3.19
"COMPANY FORM 10-K" Section 3.2
"COMPANY MATERIAL CONTRACT" Section 3.13
"COMPANY OPTIONS" Section 2.4
</TABLE>
89
<TABLE>
<S> <C>
"COMPANY PERMITS" Section 3.6
"COMPANY PREFERRED STOCK" Section 2.1.1.2
"COMPANY PRODUCT" Section 3.22
"COMPANY RECOMMENDATION" Section 5.7.3
"COMPANY REPRESENTATIVES" Section 5.6.1
"COMPANY RIGHTS" Section 2.1.1.1
"COMPANY RIGHTS AGREEMENT" Section 2.1.1.1
"COMPANY SEC FILINGS" Section 3.7.1
"COMPANY PREFERRED STOCK" Section 2.1.1.2
"COMPANY STOCK" Section 2.1.1.2
"COMPANY STOCKHOLDERS' MEETING" Section 5.5.1
"COMPANY SUBSIDIARY" Section 3.1
"COMPANY SUPPORT AGREEMENTS" Recitals
"COMPANY WARRANTS" Section 2.1.1.3
"CONFIDENTIALITY AGREEMENT" Section 5.6.2
"D&O INSURANCE" Section 5.13.2
"DGCL" Recitals
"EFFECTIVE TIME" Section 1.2
"ESPP" Section 5.20
"EXCESS SHARES" Section 2.2.5.1
"EXCHANGE AGENT" Section 2.2.1
"EXCHANGE FUND" Section 2.2.1
"FEDERAL HEALTHCARE PROGRAMS" Section 3.24
"LOAN AGREEMENT" Recitals
</TABLE>
90
<TABLE>
<S> <C>
"MATERIAL COMPANY INTELLECTUAL PROPERTY" Section 3.16
"MATERIAL PARENT INTELLECTUAL PROPERTY" Section 4.16
"MERGER" Recitals
"MERGER SUB" Preamble
"MERGER SUB BOARD" Section 4.4.1
"MULTIEMPLOYER PLAN" Section 3.10.4
"PARENT" Preamble
"PARENT BENEFIT PLAN" Section 4.10.1
"PARENT BOARD" Section 4.4.1
"PARENT BY-LAWS" Section 4.2
"PARENT CERTIFICATE" Section 4.2
"PARENT COMMON STOCK" Section 2.1.1.1
"PARENT DEFECT" Section 4.22
"PARENT DISCLOSURE SCHEDULE" Article 4
"PARENT FINANCIAL ADVISOR" Section 4.19
"PARENT FORM 10-K" Section 4.2
"PARENT MATERIAL CONTRACT" Section 4.13
"PARENT OPTIONS" Section 4.3
"PARENT PERMITS" Section 4.6
"PARENT PREFERRED STOCK" Section 4.3
"PARENT PRODUCT" Section 4.22
"PARENT REPRESENTATIVES" Section 5.6.1
"PARENT SEC FILINGS" Section 4.7.1
</TABLE>
91
<TABLE>
<S> <C>
"PARENT STOCKHOLDERS' MEETING" Section 5.5.2
"PARENT SUBSIDIARY" Section 4.1
"PARENT SUPPORT AGREEMENTS" Recitals
"PBGC" Section 3.11.3
"PROXY STATEMENT" Section 5.4.1
"REGISTRATION STATEMENT" Section 5.4.1
"SECTION 16" Section 5.12
"SERIES D CONVERTIBLE PREFERRED STOCK" Section 3.3
"SERIES D-1 CONVERTIBLE PREFERRED STOCK" Section 3.3
"SERIES D-2 CONVERTIBLE PREFERRED STOCK" Section 3.3
"SURVIVING CORPORATION" Section 1.1
"TERMINATION DATE" Section 7.1.2
</TABLE>
Section 8.5 Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
Section 8.6 Severability. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of Law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that transactions contemplated hereby are fulfilled to the extent possible.
92
Section 8.7 Entire Agreement. This Agreement (together with the Exhibits,
Parent and Company Disclosure Schedules and the other documents delivered
pursuant hereto), each Ancillary Agreement and the Confidentiality Agreement
constitute the entire agreement of the parties and supersede all prior
agreements and undertakings, both written and oral, between the parties, or any
of them, with respect to the subject matter hereof and, except as otherwise
expressly provided herein, are not intended to confer upon any other person any
rights or remedies hereunder.
Section 8.8 Assignment. This Agreement shall not be assigned by operation
of law or otherwise.
Section 8.9 Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto and their respective successors
and assigns, and nothing in this Agreement, express or implied, other than
pursuant to Section 5.13, is intended to or shall confer upon any other person
any right, benefit or remedy of any nature whatsoever under or by reason of this
Agreement.
Section 8.10 Mutual Drafting. Each party hereto has participated in the
drafting of this Agreement, which each party acknowledges is the result of
extensive negotiations between the parties.
Section 8.11 Governing Law; Consent to Jurisdiction; Waiver of Trial by
Jury.
Section 8.11.1 This Agreement shall be governed by, and construed in
accordance with, the Laws of the State of Delaware, without regard to laws that
may be applicable under conflicts of laws principles.
Section 8.11.2 Each of the parties hereto hereby irrevocably and
unconditionally submits, for itself and its property, to the exclusive
jurisdiction of any Delaware State court, or Federal court of the United States
of America, sitting in Delaware, and any appellate court from any thereof, in
any action or proceeding arising out of or relating to this Agreement or the
agreements delivered in connection herewith or the transactions contemplated
hereby or thereby or for recognition or enforcement of any judgment relating
thereto, and each of the parties hereby irrevocably and unconditionally (A)
agrees not to commence any such action or proceeding except in such courts, (B)
agrees that any claim in respect of any such action or
93
proceeding may be heard and determined in such Delaware State court or, to the
extent permitted by law, in such Federal court, (C) waives, to the fullest
extent it may legally and effectively do so, any objection which it may now or
hereafter have to the laying of venue of any such action or proceeding in any
such Delaware State or Federal court, and (D) waives, to the fullest extent
permitted by law, the defense of an inconvenient forum to the maintenance of
such action or proceeding in any such Delaware State or Federal court. Each of
the parties hereto agrees that a final judgment in any such action or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law. Each party to this Agreement
irrevocably consents to service of process in the manner provided for notices in
Section 8.2. Nothing in this Agreement will affect the right of any party to
this Agreement to serve process in any other manner permitted by law.
Section 8.11.3 EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY
CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE
COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE IT HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF
ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS
AGREEMENT AND ANY OF THE AGREEMENTS DELIVERED IN CONNECTION HEREWITH OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. EACH PARTY CERTIFIES AND
ACKNOWLEDGES THAT (A) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE
EVENT OF LITIGATION, SEEK TO ENFORCE EITHER OF SUCH WAIVERS, (B) IT UNDERSTANDS
AND HAS CONSIDERED THE IMPLICATIONS OF SUCH WAIVERS, (C) IT MAKES SUCH WAIVERS
VOLUNTARILY, AND (D) IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG
OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 8.11.3.
Section 8.12 Disclosure. Any matter disclosed in any section of a party's
Disclosure Schedule shall be considered disclosed for other sections of such
Disclosure Schedule, but only to the extent such matter on its face would
reasonably be expected to be pertinent to a particular section of a party's
Disclosure Schedule in light of the disclosure made
94
in such section. The provision of monetary or other quantitative thresholds for
disclosure does not and shall not be deemed to create or imply a standard of
materiality hereunder.
Section 8.13 Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
Section 8.14 Specific Performance. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any court of the United
States or any state having jurisdiction, this being in addition to any other
remedy to which they are entitled at law or in equity.
95
IN WITNESS WHEREOF, Parent, Merger Sub and the Company have caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
INTUITIVE SURGICAL, INC.
By: /s/ Lonnie M. Smith
-------------------------------------
Name: Lonnie M. Smith
Title: President and Chief Executive
Officer
IRON ACQUISITION CORPORATION
By: /s/ Lonnie M. Smith
------------------------------------
Name: Lonnie M. Smith
Title: President, Chief Executive Officer
and Secretary
COMPUTER MOTION, INC.
By: /s/ Robert W. Duggan
-----------------------------------
Name: Robert W. Duggan
Title: Chairman of the Board and Chief
Executive Officer
96
Exhibit 4.1
STOCKHOLDER SUPPORT AGREEMENT
BY AND AMONG
INTUITIVE SURGICAL, INC.,
IRON ACQUISITION CORPORATION
AND
CERTAIN STOCKHOLDERS OF COMPUTER MOTION, INC.
DATED AS OF MARCH 7, 2003
STOCKHOLDER SUPPORT AGREEMENT, dated as of March 7, 2003 (this
"Agreement"), by and among Intuitive Surgical, Inc., a Delaware corporation
("Parent"), Iron Acquisition Corporation, a Delaware corporation and a wholly
owned subsidiary of Parent ("Merger Sub"), and the parties listed on Annex A
hereto (each, a "Stockholder" and, collectively, the "Stockholders").
WHEREAS, simultaneously with the execution of this Agreement,
Parent, Merger Sub and Computer Motion, Inc., a Delaware corporation (the
"Company"), are entering into an Agreement and Plan of Merger (the "Merger
Agreement") (with all capitalized terms used but not defined herein having the
meanings set forth in the Merger Agreement), pursuant to which Merger Sub will
merge with and into the Company, with the Company continuing as the surviving
corporation and a wholly owned subsidiary of Parent (the "Merger"), which Merger
Agreement has been approved by the Boards of Directors of the Company, Merger
Sub and Parent;
WHEREAS, each Stockholder owns the number of shares of Company
Common Stock set forth opposite its name on Annex A hereto (such shares of
Company Common Stock, together with any other shares of capital stock of the
Company acquired by such Stockholder after the date hereof and during the term
of this Agreement, including any shares issued upon the exercise of any warrants
or options, the conversion of any convertible securities or otherwise, being
collectively referred to herein as the "Subject Shares");
WHEREAS, as a condition to the willingness of Parent and Merger Sub
to enter into the Merger Agreement, Parent has required that each Stockholder
agree and, in order to induce Parent and Merger Sub to enter into the Merger
Agreement, each Stockholder has agreed, to enter into this Agreement; and
WHEREAS, this Agreement has been approved by the Board of Directors
of the Company for purposes of Section 203 of the General Corporation Law of the
State of Delaware (the "DGCL").
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement and intending to be legally bound, the parties hereto agree as
follows:
2
ARTICLE 1.
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
Each Stockholder, severally and not jointly, hereby represents and
warrants to Parent and Merger Sub as follows:
Section 1.1 Organization. Such Stockholder is either (a) a
corporation, partnership or limited liability company, duly organized, validly
existing and in good standing under the laws of the jurisdiction of such
Stockholder's organization, or (b) a natural person residing in the United
States.
Section 1.2 Authority. Such Stockholder has all necessary power and
authority to execute and deliver this Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated by this Agreement to
be consummated by such Stockholder. The execution and delivery of this Agreement
by such Stockholder and the consummation by it of the transactions contemplated
hereby have been duly and validly authorized by all necessary action of such
Stockholder and no other proceedings on the part of such Stockholder are
necessary to authorize this Agreement or to consummate the transactions
contemplated hereby. This Agreement has been duly authorized and validly
executed and delivered by such Stockholder and constitutes a legal, valid and
binding obligation of such Stockholder, enforceable against such Stockholder in
accordance with its terms.
Section 1.3 The Subject Shares. Such Stockholder is the record and
beneficial owner of, and has good and marketable title to, the Subject Shares
set forth opposite its name on Annex A hereto. Such Stockholder does not own, of
record or beneficially, any shares of capital stock of the Company (or rights to
acquire any such shares) other than the Subject Shares set forth opposite its
name on Annex A hereto. Such Stockholder has (a) the sole right to vote, (b) the
sole power of disposition, (c) the sole power to issue instructions with respect
to the matters set forth in Articles 3, 4 and 5 hereof, (d) the sole power to
demand appraisal rights, if applicable, and (e) the sole power to agree to all
of the matters set forth in this Agreement, in each case with respect to all of
such Stockholder's Subject Shares, with no limitations, qualifications or
restrictions on such rights, subject to applicable federal securities laws and
the terms of this Agreement. Except for this Agreement, none of such
Stockholder's Subject Shares are subject to any voting trust or other agreement,
arrangement or restriction with respect to the
3
voting or disposition of such Stockholder's Subject Shares. To such
Stockholder's knowledge, all of its Subject Shares are validly issued, fully
paid and non-assessable.
Section 1.4 No Conflicts. The execution and delivery of this
Agreement by such Stockholder do not, and the performance of this Agreement by
such Stockholder will not, (a) conflict with or violate any provision of the
certificate or articles of incorporation or by-laws or any equivalent
organizational documents of such Stockholder, (b) conflict with or violate any
Law applicable to such Stockholder or by which any property or asset of such
Stockholder is bound or affected, (c) require any consent or approval under,
result in any breach of, or loss of any benefit under, or constitute a change of
control or default (or any event which with notice or lapse of time or both
would become a default) under, or give to others any right of termination,
vesting, amendment, acceleration or cancellation of, or result in the creation
of a lien or other encumbrance on any property or asset of such Stockholder
pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit or other instrument or obligation. The execution and delivery of
this Agreement by such Stockholder does not, and the performance of this
Agreement by such Stockholder will not, require any consent, approval,
authorization or permit of, or filing with or notification to, any Governmental
Entity or other person.
Section 1.5 Brokers. No broker, finder or investment banker (other
than the Company Financial Advisor) is entitled to any brokerage, finder's or
other fee or commission in connection with the Merger based upon arrangements
made by or on behalf of such Stockholder.
ARTICLE 2.
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Each of Parent and Merger Sub, jointly and severally, hereby
represents and warrants to each Stockholder as follows:
Section 2.1 Organization. Each of Parent and Merger Sub is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware.
Section 2.2 Authority. Each of Parent and Merger Sub has all
necessary corporate power and authority to execute and deliver this Agreement,
to perform its obligations hereunder and to consummate the transactions
contemplated by this Agreement to be consummated by Parent and Merger Sub,
respectively. The execution and delivery of this
4
Agreement by Parent and Merger Sub and the consummation by Parent and Merger Sub
of the transactions contemplated hereby have been duly and validly authorized by
all necessary corporate action of Parent and Merger Sub and no other corporate
proceedings on the part of Parent or Merger Sub are necessary to authorize this
Agreement or to consummate the transactions contemplated hereby (other than the
approval of Parent, as sole stockholder of Merger Sub, to the Merger and the
approval of the stockholders of Parent to the Share Issuance). This Agreement
has been duly authorized and validly executed and delivered by Parent and Merger
Sub and constitutes a legal, valid and binding obligation of Parent and Merger
Sub, enforceable against Parent and Merger Sub in accordance with its terms.
Section 2.3 No Conflicts. The execution and delivery of this
Agreement by Parent and Merger Sub do not, and the performance of this Agreement
by Parent and Merger Sub will not, (a) conflict with or violate any provision of
the certificate of incorporation or by-laws of Parent or Merger Sub, (b)
conflict with or violate any Law applicable to Parent or Merger Sub or by which
any property or asset of Parent or Merger Sub is bound or affected, (c) require
any consent or approval under, result in any breach of, or loss of any benefit
under, or constitute a change of control or default (or any event which with
notice or lapse of time or both would become a default) under, or give to others
any right of termination, vesting, amendment, acceleration or cancellation of,
or result in the creation of a lien or other encumbrance on any property or
asset of Parent or Merger Sub pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit or other instrument or obligation.
The execution and delivery of this Agreement by Parent and Merger Sub do not,
and the performance of this Agreement by Parent and Merger Sub will not, require
any consent, approval, authorization or permit of, or filing with or
notification to, any Governmental Entity or other person, except as may be
required under the Exchange Act, the Securities Act, any applicable Blue Sky Law
or, the rules and regulations of Nasdaq.
ARTICLE 3.
AGREEMENT TO VOTE
Each Stockholder, severally and not jointly, agrees that:
Section 3.1 Agreement to Vote in Favor of the Adoption of the Merger
Agreement. At any Company Stockholders' Meeting called to vote upon the Merger
Agreement and the transactions contemplated thereby, however called, or at any
adjournment thereof or in
5
connection with any written consent of the holders of Company Common Stock or in
any other circumstances upon which a vote, consent or other approval with
respect to the Merger Agreement and the transactions contemplated thereby is
sought, such Stockholder shall be present (in person or by proxy) and shall vote
(or cause to be voted) all Subject Shares then beneficially owned by such
Stockholder in favor of (a) the Merger and adoption of the Merger Agreement and
the transactions contemplated thereby and (b) any other matter necessary for the
consummation of the transactions contemplated by the Merger Agreement. In
addition, each Stockholder agrees that it will, upon request by Parent, furnish
written confirmation, in form and substance reasonably satisfactory to Parent,
of such Stockholder's support for the Merger Agreement and the Merger. Each
Stockholder acknowledges receipt and review of a copy of the Merger Agreement.
Section 3.2 Agreement to Vote Against Acquisition Proposals. At any
Company Stockholders' Meeting, however called, or at any adjournment thereof or
in connection with any written consent of the holders of Company Common Stock or
in any other circumstances upon which a vote, consent or other approval is
sought, such Stockholder shall be present (in person or by proxy) and shall vote
(or cause to be voted) all Subject Shares then beneficially owned by such
Stockholder against any action or agreement that would impede, interfere with,
delay, postpone or attempt to discourage the Merger or the other transactions
contemplated by this Agreement and the Merger Agreement, including, but not
limited to the following: (a) any Acquisition Proposal or extraordinary
corporate transaction, such as a merger, consolidation or other business
combination involving the Company or any of its subsidiaries (other than the
Merger); (b) a sale, lease, license or transfer of a material amount of assets
of the Company or any of its subsidiaries or a reorganization, recapitalization,
dissolution, winding up or liquidation of the Company or any of its
subsidiaries; (c) any change in the management or board of directors of the
Company, except as contemplated by the Merger Agreement or otherwise agreed to
in writing by Parent; (d) any material change in the present capitalization or
dividend policy of the Company; (e) any material change in the Company's
corporate structure, business, the Company Certificate or the Company By-laws;
or (f) any action or agreement that would result in a breach of any
representation, warranty, covenant, agreement or other obligation of the Company
under the Merger Agreement or which could result in any of the conditions to the
Company's obligations under the Merger Agreement not being fulfilled.
6
ARTICLE 4.
GRANT OF IRREVOCABLE PROXY; APPOINTMENT OF PROXY
Section 4.1 Grant of Proxy. Each Stockholder hereby irrevocably
grants to and appoints Lonnie M. Smith and Susan K. Barnes, in their respective
capacities as officers of Parent, and any individual who shall hereafter succeed
to their respective offices of Parent, and each of them individually, such
Stockholder's proxy and attorney-in-fact (with full power of substitution), for
and in the name, place and stead of such Stockholder, to vote such Stockholder's
Subject Shares, or grant a consent or approval in respect of such Subject
Shares, (a) in favor of the Merger and adoption of the Merger Agreement and the
transactions contemplated thereby and any other matter necessary for the
consummation of the transactions contemplated by the Merger Agreement and (b)
against any action or agreement that would impede, interfere with, delay,
postpone or attempt to discourage the Merger or the other transactions
contemplated by this Agreement and the Merger Agreement, including, but not
limited to: (i) any Acquisition Proposal or extraordinary corporate transaction,
such as a merger, consolidation or other business combination involving the
Company or any of its subsidiaries (other than the Merger); (ii) a sale, lease,
license or transfer of a material amount of assets of the Company or any of its
subsidiaries or a reorganization, recapitalization, dissolution, winding up or
liquidation of the Company or any of its subsidiaries; (iii) any change in the
management or board of directors of the Company, except as contemplated by the
Merger Agreement or otherwise agreed to in writing by Parent; (iv) any material
change in the present capitalization or dividend policy of the Company; (v) any
material change in the Company's corporate structure, business, the Company
Certificate or the Company By-laws or (vi) any action or agreement that would
result in a breach of any representation, warranty, covenant, agreement or other
obligation of the Company under the Merger Agreement or which could result in
any of the conditions to the Company's obligations under the Merger Agreement
not being fulfilled.
Section 4.2 Revocation of Prior Proxies. Such Stockholder represents
that any proxies heretofore given in respect of such Stockholder's Subject
Shares are revocable, and that all such proxies are hereby revoked.
Section 4.3 Irrevocable Proxy Coupled With an Interest. Such
Stockholder hereby affirms that the irrevocable proxy set forth in this Article
4 is coupled with an interest, and may under no circumstances be revoked. Such
Stockholder hereby ratifies and confirms all
7
that such irrevocable proxy may lawfully do or cause to be done by virtue
hereof. Such irrevocable proxy is executed and intended to be irrevocable in
accordance with the provisions of Section 212(e) of the DGCL.
ARTICLE 5.
COVENANTS AND AGREEMENTS
Section 5.1 Restriction on Transfer. Each Stockholder agrees not (a)
to sell, transfer, pledge, encumber, assign or otherwise dispose of
(collectively, "Transfer"), or enter into any contract, option or other
arrangement or understanding with respect to the Transfer by such Stockholder
of, any of the Subject Shares or offer any interest in any thereof to any Person
other than pursuant to the terms of the Merger or this Agreement, (b) to enter
into any voting arrangement or understanding, whether by proxy, power of
attorney, voting agreement, voting trust or otherwise with respect to the
Subject Shares in connection with, directly or indirectly, any Acquisition
Proposal or otherwise and agrees not to commit or agree to take any of the
foregoing actions or (c) take any action that would make any representation or
warranty of such Stockholder contained herein untrue or incorrect or have the
effect of preventing or disabling such Stockholder from performing its
obligations under this Agreement. Notwithstanding the foregoing, each
Stockholder shall have the right to Transfer Subject Shares to an Affiliate upon
the due execution and delivery to Parent by such transferee of a legal, valid
and binding counterpart to this Agreement so long as any such Transfer is not
intended to circumvent the provisions of this Agreement.
Section 5.2 No Solicitation of Alternative Transactions. No
Stockholder shall, directly or indirectly, take any action to, and each
Stockholder shall use its reasonable best efforts to cause its agents and
representatives (including investment bankers, attorneys or accountants) not to,
(a) encourage (including by way of furnishing non-public information), solicit,
initiate or facilitate any Acquisition Proposal, (b) enter into any agreement
with respect to any Acquisition Proposal or enter into any agreement,
arrangement or understanding requiring the Company to abandon, terminate or fail
to consummate the Merger or any other transaction contemplated by this Agreement
or the Merger Agreement or (c) participate in any way in discussions or
negotiations with, or furnish any information to, any person in connection with,
or take any other action to facilitate any inquiries or the making of any
proposal that constitutes, or could reasonably be expected to lead to, any
Acquisition Proposal. Upon the execution of this
8
Agreement, each Stockholder shall cease immediately and cause to be terminated
any and all existing discussions or negotiations with any parties conducted
heretofore with respect to any Acquisition Proposal and promptly request that
all confidential information with respect thereto furnished by such Stockholder
be returned. Each Stockholder shall, as promptly as practicable (and in no event
later than 24 hours after receipt thereof), advise Parent of any inquiry
received by it relating to any potential Acquisition Proposal and of the
material terms of any proposal or inquiry, including the identity of the person
and its affiliates making the same, that it may receive in respect of any such
potential Acquisition Proposal, or of any information requested from it or of
any negotiations or discussions being sought to be initiated with it, and shall
furnish to Parent a copy of any such proposal or inquiry, if it is in writing,
or a written summary of any such proposal or inquiry, if it is not in writing,
and shall keep Parent fully informed on a prompt basis with respect to any
developments with respect to the foregoing.
Section 5.3 Further Assurances. From time to time and without
additional consideration, each Stockholder shall use its reasonable best efforts
to assist and cooperate with Parent and to take, or cause to be taken, all
appropriate action, and to do, or cause to be done, all things necessary, proper
or advisable under any applicable Law or otherwise to consummate and make
effective, in the most expeditious manner practicable, the transactions
contemplated by this Agreement and the Merger Agreement. Without limiting the
generality of the foregoing, each Stockholder shall, from time to time, execute
and deliver, or cause to be executed and delivered, such additional or further
consents, documents and other instruments and shall take all such other action
as Parent may reasonably request for the purpose of effectively carrying out the
transactions contemplated by this Agreement and the Merger Agreement, including
promptly making all regulatory filings and applications, and to obtain all
licenses, permits, consents, approvals, authorizations, qualification and orders
of governmental authorities and parties to contracts as are necessary for the
consummation of the transactions contemplated by this Agreement and the Merger
Agreement.
Section 5.4 Waiver of Dissenter's and Appraisal Rights. Each
Stockholder agrees that it will not exercise any rights to dissent from the
Merger or request appraisal of its respective Subject Shares pursuant to Section
262 of the DGCL or any other similar provisions of law in connection with the
Merger.
9
Section 5.5 Lock-Up Agreement. Each Stockholder agrees that, in
connection with any public offering of Parent Common Stock or securities
convertible into Parent Common Stock conducted by Parent after the Effective
Time (a "Financing") and at the request of any managing underwriter of such
Financing, it will enter into a customary "lock-up" agreement pursuant to which
it will agree beginning on the date of the final prospectus delivered in
connection with such Financing and ending on a date no later than ninety (90)
days thereafter, to not, directly or indirectly, without the prior written
consent of such managing underwriter, issue, sell, offer or agree to sell, grant
any option for the sale of, pledge, make any short sale or maintain any short
position, establish or maintain any "put equivalent position" (within the
meaning of Rule 16-a-1(h) under the Exchange Act), enter into any swap,
derivative or other arrangement that transfers to another, in whole or in part,
any of the economic consequences of ownership of Parent Common Stock (whether
any such transaction is to be settled by delivery of Parent Common Stock, other
securities, cash or other consideration) or otherwise dispose of, any Parent
Common Stock (or any securities convertible into, exercisable for or
exchangeable for Parent Common Stock) or interest therein of Parent or any
Parent Subsidiary.
ARTICLE 6.
GENERAL PROVISIONS
Section 6.1 Termination. Except with respect to Sections 5.5 and
6.3, which shall survive termination, this Agreement, and all obligations,
agreements and waivers hereunder, will terminate and be of no further force and
effect on the earliest of (a) 5:00 p.m., Pacific Standard Time, on the second
anniversary of the date hereof, (b) the Effective Time and (c) 120 days after
payment of any termination fee set forth in Section 7.2.5 of the Merger
Agreement; provided, however, that nothing herein shall relieve any party from
liability for any breach hereof.
Section 6.2 Board of Directors Action. No action taken by the Board
of Directors of the Company (including, without limitation, the withdrawal,
modification or amendment of the recommendation of the Board of Directors of the
Company that the stockholders of the Company vote in favor of the adoption of
the Merger Agreement) shall modify, alter, change or otherwise affect the
obligations of any Stockholder hereunder.
Section 6.3 Stockholder Capacity. No person executing this Agreement
who is or becomes during the term hereof a director or officer of the Company
makes any agreement or
10
understanding herein in his or her capacity as such director or officer. Each
Stockholder signs solely in its capacity as the record holder and beneficial
owner of such Stockholder's Subject Shares and nothing herein shall limit or
affect any actions taken by any Stockholder in his or her capacity as an officer
or director of the Company to the extent specifically permitted by the Merger
Agreement. This Section 6.3 shall survive termination of this Agreement.
Section 6.4 Parent Guarantee. Parent hereby guarantees the due
performance of any and all obligations and liabilities of Merger Sub under or
arising out of this Agreement and the transactions contemplated hereby.
Section 6.5 Enforcement. The parties agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to the remedy of
specific performance of such provisions and to an injunction or injunctions
and/or such other equitable relief as may be necessary to prevent breaches of
this Agreement and to enforce specifically the terms and provisions of this
Agreement in any court of competent jurisdiction, this being in addition to any
other remedy to which they are entitled at law or in equity.
Section 6.6 Stop Transfer Order. In furtherance of this Agreement,
concurrently herewith, each Stockholder shall, and hereby does authorize the
Company's counsel to, notify the Company's transfer agent that there is a stop
transfer order with respect to all of the Subject Shares (and that this
Agreement places limits on the voting and transfer of such shares).
Section 6.7 Adjustments to Prevent Dilution, Etc. In the event of a
stock dividend or distribution, or any change in the Company's capital stock by
reason of any stock dividend, split-up, reclassification, recapitalization,
combination or the exchange of shares, the term "Subject Shares" shall be deemed
to refer to and include the Subject Shares as well as all such stock dividends
and distributions and any shares into which or for which any or all of the
Subject Shares may be changed or exchanged. In such event, the amount to be paid
per share by Parent in the Merger shall be proportionately adjusted.
Section 6.8 Amendments. This Agreement may not be modified, altered,
supplemented or amended except by an instrument in writing signed by each of the
parties hereto.
11
Section 6.9 Notice. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered in person or upon
confirmation or receipt when transmitted by facsimile transmission (but only if
followed by transmittal by national overnight courier or hand for delivery on
the next business day) or on receipt after dispatch by registered or certified
mail, postage prepaid, addressed, or on the next business day if transmitted by
national overnight courier to Parent or Merger Sub in accordance with Section
8.2 of the Merger Agreement and to the Stockholders at their respective
addresses set forth in Annex A hereto (or to such other address as any party may
have furnished to the other parties in writing).
Section 6.10 Interpretation. When a reference is made in this
Agreement to Sections, such reference shall be to a Section to this Agreement
unless otherwise indicated. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
Section 6.11 Counterparts. This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same agreement,
and shall become effective when one or more of the counterparts have been signed
by each of the parties and delivered to the other party, it being understood
that each party need not sign the same counterpart.
Section 6.12 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of Law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner to
the end that the transactions contemplated hereby are fulfilled to the extent
possible.
Section 6.13 Entire Agreement; No Third-Party Beneficiaries. This
Agreement (including, without limitation, the documents and instruments referred
to herein) (a) constitutes the entire agreement and supersedes all prior
agreements and understandings, both written and
12
oral, among the parties with respect to the subject matter hereof and (b) is not
intended to confer upon any Person other than the parties hereto any rights or
remedies hereunder.
Section 6.14 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, without regard
to laws that may be applicable under conflicts of laws principals.
Section 6.15 Costs and Expenses. All costs and expenses incurred in
connection with this Agreement and the consummation of the transactions
contemplated hereby shall be paid by the party incurring such expenses.
Section 6.16 Multiple Stockholders. All representations, warranties,
covenants and agreements of the Stockholders in this Agreement are several and
not joint, and solely relate to matters involving the subject Stockholder and
not any of the other Stockholders.
(Signature Pages Follow)
13
IN WITNESS WHEREOF, Parent, Merger Sub and each Stockholder have
caused this Agreement to be signed by their respective officer thereunto duly
authorized as of the date first written above.
INTUITIVE SURGICAL, INC.
By:
-----------------------------
Name:
Title:
IRON ACQUISITION CORPORATION
By:
-----------------------------
Name:
Title:
STOCKHOLDER
By:
-----------------------------
Name:
Title:
S-1
ANNEX A
<TABLE>
<CAPTION>
NAME ADDRESS NUMBER OF SUBJECT SHARES
---- ------- ------------------------
<S> <C> <C>
</TABLE>
A-1
Exhibit 4.2
STOCKHOLDER SUPPORT AGREEMENT
BY AND AMONG
INTUITIVE SURGICAL, INC.,
IRON ACQUISITION CORPORATION
AND
CERTAIN STOCKHOLDERS OF INTUITIVE SURGICAL, INC.
DATED AS OF MARCH 7, 2003
STOCKHOLDER SUPPORT AGREEMENT, dated as of March 7, 2003 (this
"Agreement"), by and among Intuitive Surgical, Inc., a Delaware corporation
("Parent"), Iron Acquisition Corporation, a Delaware corporation and a wholly
owned subsidiary of Parent ("Merger Sub"), and the parties listed on Annex A
hereto (each, a "Stockholder" and, collectively, the "Stockholders").
WHEREAS, simultaneously with the execution of this Agreement,
Parent, Merger Sub and Computer Motion, Inc., a Delaware corporation (the
"Company"), are entering into an Agreement and Plan of Merger (the "Merger
Agreement") (with all capitalized terms used but not defined herein having the
meanings set forth in the Merger Agreement), pursuant to which Merger Sub will
merge with and into the Company, with the Company continuing as the surviving
corporation and a wholly owned subsidiary of Parent (the "Merger"), which Merger
Agreement has been approved by the Boards of Directors of the Company, Merger
Sub and Parent;
WHEREAS, in accordance with the Merger Agreement, Parent will issue
shares (the "Share Issuance") of common stock, par value $0.001 per share
("Parent Common Stock"), as consideration for the acquisition by Parent of all
outstanding equity interests of the Company (the "Merger Consideration");
WHEREAS, each Stockholder owns the number of shares of Parent Common
Stock set forth opposite its name on Annex A hereto (such shares of Parent
Common Stock, together with any other shares of capital stock of Parent acquired
by such Stockholder after the date hereof and during the term of this Agreement,
including any shares issued upon the exercise of any warrants or options, the
conversion of any convertible securities or otherwise, being collectively
referred to herein as the "Subject Shares");
WHEREAS, as a condition to the willingness of the Company to enter
into the Merger Agreement, the Company has required that each Stockholder agree
and, in order to induce the Company to enter into the Merger Agreement, each
Stockholder has agreed, to enter into this Agreement; and
WHEREAS, this Agreement has been approved by the Board of Directors
of the Company for purposes of Section 203 of the General Corporation Law of the
State of Delaware (the "DGCL").
2
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement and intending to be legally bound, the parties hereto agree as
follows:
ARTICLE 1.
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
Each Stockholder, severally and not jointly, hereby represents and
warrants to Parent and Merger Sub as follows:
Section 1.1 Organization. Such Stockholder is either (a) a
corporation, partnership or limited liability company, duly organized, validly
existing and in good standing under the laws of the jurisdiction of such
Stockholder's organization, or (b) a natural person residing in the United
States.
Section 1.2 Authority. Such Stockholder has all necessary power and
authority to execute and deliver this Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated by this Agreement to
be consummated by such Stockholder. The execution and delivery of this Agreement
by such Stockholder and the consummation by it of the transactions contemplated
hereby have been duly and validly authorized by all necessary action of such
Stockholder and no other proceedings on the part of such Stockholder are
necessary to authorize this Agreement or to consummate the transactions
contemplated hereby. This Agreement has been duly authorized and validly
executed and delivered by such Stockholder and constitutes a legal, valid and
binding obligation of such Stockholder, enforceable against such Stockholder in
accordance with its terms.
Section 1.3 The Subject Shares. Such Stockholder is the record and
beneficial owner of, and has good and marketable title to, the Subject Shares
set forth opposite its name on Annex A hereto. Such Stockholder does not own, of
record or beneficially, any shares of capital stock of Parent (or rights to
acquire any such shares) other than the Subject Shares set forth opposite its
name on Annex A hereto. Such Stockholder has (a) the sole right to vote, (b) the
sole power of disposition, (c) the sole power to issue instructions with respect
to the matters set forth in Articles 3, 4 and 5 hereof, (d) the sole power to
demand appraisal rights, if applicable, and (e) the sole power to agree to all
of the matters set forth in this Agreement, in each case with respect to all of
such Stockholder's Subject Shares, with no limitations, qualifications or
3
restrictions on such rights, subject to applicable federal securities laws and
the terms of this Agreement. Except for this Agreement, none of such
Stockholder's Subject Shares are subject to any voting trust or other agreement,
arrangement or restriction with respect to the voting or disposition of such
Stockholder's Subject Shares. To such Stockholder's knowledge, all of its
Subject Shares are validly issued, fully paid and non-assessable.
Section 1.4 No Conflicts. The execution and delivery of this
Agreement by such Stockholder do not, and the performance of this Agreement by
such Stockholder will not, (a) conflict with or violate any provision of the
certificate or articles of incorporation or by-laws or any equivalent
organizational documents of such Stockholder, (b) conflict with or violate any
Law applicable to such Stockholder or by which any property or asset of such
Stockholder is bound or affected, (c) require any consent or approval under,
result in any breach of, or loss of any benefit under, or constitute a change of
control or default (or any event which with notice or lapse of time or both
would become a default) under, or give to others any right of termination,
vesting, amendment, acceleration or cancellation of, or result in the creation
of a lien or other encumbrance on any property or asset of such Stockholder
pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit or other instrument or obligation. The execution and delivery of
this Agreement by such Stockholder does not, and the performance of this
Agreement by such Stockholder will not, require any consent, approval,
authorization or permit of, or filing with or notification to, any Governmental
Entity or other person.
Section 1.5 Brokers. No broker, finder or investment banker (other
than the Company Financial Advisor) is entitled to any brokerage, finder's or
other fee or commission in connection with the Merger based upon arrangements
made by or on behalf of such Stockholder.
ARTICLE 2.
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Each of Parent and Merger Sub, jointly and severally, hereby
represents and warrants to each Stockholder as follows:
Section 2.1 Organization. Each of Parent and Merger Sub is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware.
4
Section 2.2 Authority. Each of Parent and Merger Sub has all
necessary corporate power and authority to execute and deliver this Agreement,
to perform its obligations hereunder and to consummate the transactions
contemplated by this Agreement to be consummated by Parent and Merger Sub,
respectively. The execution and delivery of this Agreement by Parent and Merger
Sub and the consummation by Parent and Merger Sub of the transactions
contemplated hereby have been duly and validly authorized by all necessary
corporate action of Parent and Merger Sub and no other corporate proceedings on
the part of Parent or Merger Sub are necessary to authorize this Agreement or to
consummate the transactions contemplated hereby (other than the approval of
Parent, as sole stockholder of Merger Sub, to the Merger and the approval of the
stockholders of Parent to the Share Issuance). This Agreement has been duly
authorized and validly executed and delivered by Parent and Merger Sub and
constitutes a legal, valid and binding obligation of Parent and Merger Sub,
enforceable against Parent and Merger Sub in accordance with its terms.
Section 2.3 No Conflicts. The execution and delivery of this
Agreement by Parent and Merger Sub do not, and the performance of this Agreement
by Parent and Merger Sub will not, (a) conflict with or violate any provision of
the certificate of incorporation or by-laws of Parent or Merger Sub, (b)
conflict with or violate any Law applicable to Parent or Merger Sub or by which
any property or asset of Parent or Merger Sub is bound or affected, (c) require
any consent or approval under, result in any breach of, or loss of any benefit
under, or constitute a change of control or default (or any event which with
notice or lapse of time or both would become a default) under, or give to others
any right of termination, vesting, amendment, acceleration or cancellation of,
or result in the creation of a lien or other encumbrance on any property or
asset of Parent or Merger Sub pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit or other instrument or obligation.
The execution and delivery of this Agreement by Parent and Merger Sub do not,
and the performance of this Agreement by Parent and Merger Sub will not, require
any consent, approval, authorization or permit of, or filing with or
notification to, any Governmental Entity or other person, except as may be
required under the Exchange Act, the Securities Act, any applicable Blue Sky Law
or, the rules and regulations of Nasdaq.
5
ARTICLE 3.
AGREEMENT TO VOTE
Each Stockholder, severally and not jointly, agrees that:
Section 3.1 Agreement to Vote in Favor of the Approval of the Share
Issuance. At any Parent Stockholders' Meeting called to vote upon the Share
Issuance, however called, or at any adjournment thereof or in connection with
any written consent of the holders of Parent Common Stock or in any other
circumstances upon which a vote, consent or other approval with respect to the
Share Issuance is sought, such Stockholder shall be present (in person or by
proxy) and shall vote (or cause to be voted) all Subject Shares then
beneficially owned by such Stockholder in favor of (a) the Share Issuance and
(b) any other matter necessary for the consummation of the transactions
contemplated by the Share Issuance, the Merger or the Merger Agreement. In
addition, each Stockholder agrees that it will, upon request by Parent, furnish
written confirmation, in form and substance reasonably satisfactory to Parent,
of such Stockholder's support for the Share Issuance. Each Stockholder
acknowledges receipt and review of a copy of the Merger Agreement.
Section 3.2 Agreement to Vote Against Acquisition Proposals. At any
Parent Stockholders' Meeting, however called, or at any adjournment thereof or
in connection with any written consent of the holders of Parent Common Stock or
in any other circumstances upon which a vote, consent or other approval is
sought, such Stockholder shall be present (in person or by proxy) and shall vote
(or cause to be voted) all Subject Shares then beneficially owned by such
Stockholder against any action or agreement that would impede, interfere with,
delay, postpone or attempt to discourage the Share Issuance, the Merger or the
other transactions contemplated by this Agreement and the Merger Agreement,
including, but not limited to the following: (a) any Acquisition Proposal or
extraordinary corporate transaction, such as a merger, consolidation or other
business combination involving the Company or any of its subsidiaries (other
than the Merger); (b) a sale, lease, license or transfer of a material amount of
assets of the Company or any of its subsidiaries or a reorganization,
recapitalization, dissolution, winding up or liquidation of the Company or any
of its subsidiaries; (c) any change in the management or board of directors of
the Company, except as contemplated by the Merger Agreement or otherwise agreed
to in writing by Parent; (d) any material change in the present capitalization
or dividend policy of the Company; (e) any material change in the Company's
corporate structure,
6
business, the Company Certificate or the Company By-laws; or (f) any action or
agreement that would result in a breach of any representation, warranty,
covenant, agreement or other obligation of the Company under the Merger
Agreement or which could result in any of the conditions to the Company's
obligations under the Merger Agreement not being fulfilled.
ARTICLE 4.
GRANT OF IRREVOCABLE PROXY; APPOINTMENT OF PROXY
Section 4.1 Grant of Proxy. Each Stockholder hereby irrevocably
grants to and appoints Lonnie M. Smith and Susan K. Barnes, in their respective
capacities as officers of Parent, and any individual who shall hereafter succeed
to their respective offices of Parent, and each of them individually, such
Stockholder's proxy and attorney-in-fact (with full power of substitution), for
and in the name, place and stead of such Stockholder, to vote such Stockholder's
Subject Shares, or grant a consent or approval in respect of such Subject
Shares, (a) in favor of the Share Issuance and any other matter necessary for
the consummation of the transactions contemplated by the Merger Agreement and
(b) against any action or agreement that would impede, interfere with, delay,
postpone or attempt to discourage the Share Issuance, the Merger or the other
transactions contemplated by this Agreement and the Merger Agreement, including,
but not limited to: (i) any Acquisition Proposal or extraordinary corporate
transaction, such as a merger, consolidation or other business combination
involving the Company or any of its subsidiaries (other than the Merger); (ii) a
sale, lease, license or transfer of a material amount of assets of the Company
or any of its subsidiaries or a reorganization, recapitalization, dissolution,
winding up or liquidation of the Company or any of its subsidiaries; (iii) any
change in the management or board of directors of the Company, except as
contemplated by the Merger Agreement or otherwise agreed to in writing by
Parent; (iv) any material change in the present capitalization or dividend
policy of the Company; (v) any material change in the Company's corporate
structure, business, the Company Certificate or the Company By-laws or (vi) any
action or agreement that would result in a breach of any representation,
warranty, covenant, agreement or other obligation of the Company under the
Merger Agreement or which could result in any of the conditions to the Company's
obligations under the Merger Agreement not being fulfilled.
7
Section 4.2 Revocation of Prior Proxies. Such Stockholder represents
that any proxies heretofore given in respect of such Stockholder's Subject
Shares are revocable, and that all such proxies are hereby revoked.
Section 4.3 Irrevocable Proxy Coupled With an Interest. Such
Stockholder hereby affirms that the irrevocable proxy set forth in this Article
4 is coupled with an interest, and may under no circumstances be revoked. Such
Stockholder hereby ratifies and confirms all that such irrevocable proxy may
lawfully do or cause to be done by virtue hereof. Such irrevocable proxy is
executed and intended to be irrevocable in accordance with the provisions of
Section 212(e) of the DGCL.
ARTICLE 5.
COVENANTS AND AGREEMENTS
Section 5.1 Restriction on Transfer. Each Stockholder agrees not (a)
to sell, transfer, pledge, encumber, assign or otherwise dispose of
(collectively, "Transfer"), or enter into any contract, option or other
arrangement or understanding with respect to the Transfer by such Stockholder
of, any of the Subject Shares or offer any interest in any thereof to any Person
other than pursuant to the terms of the Merger or this Agreement, (b) to enter
into any voting arrangement or understanding, whether by proxy, power of
attorney, voting agreement, voting trust or otherwise with respect to the
Subject Shares in connection with, directly or indirectly, any Acquisition
Proposal or otherwise and agrees not to commit or agree to take any of the
foregoing actions or (c) take any action that would make any representation or
warranty of such Stockholder contained herein untrue or incorrect or have the
effect of preventing or disabling such Stockholder from performing its
obligations under this Agreement. Notwithstanding the foregoing, each
Stockholder shall have the right to Transfer Subject Shares to an Affiliate upon
the due execution and delivery to Parent by such transferee of a legal, valid
and binding counterpart to this Agreement so long as any such Transfer is not
intended to circumvent the provisions of this Agreement.
Section 5.2 No Solicitation of Alternative Transactions. No
Stockholder shall, directly or indirectly, take any action to, and each
Stockholder shall use its reasonable best efforts to cause its agents and
representatives (including investment bankers, attorneys or accountants) not to,
(a) encourage (including by way of furnishing non-public information), solicit,
initiate or facilitate any Acquisition Proposal, (b) enter into any agreement
with respect to
8
any Acquisition Proposal or enter into any agreement, arrangement or
understanding requiring the Company to abandon, terminate or fail to consummate
the Merger or any other transaction contemplated by this Agreement or the Merger
Agreement or (c) participate in any way in discussions or negotiations with, or
furnish any information to, any person in connection with, or take any other
action to facilitate any inquiries or the making of any proposal that
constitutes, or could reasonably be expected to lead to, any Acquisition
Proposal. Upon the execution of this Agreement, each Stockholder shall cease
immediately and cause to be terminated any and all existing discussions or
negotiations with any parties conducted heretofore with respect to any
Acquisition Proposal and promptly request that all confidential information with
respect thereto furnished by such Stockholder be returned. Each Stockholder
shall, as promptly as practicable (and in no event later than 24 hours after
receipt thereof), advise Parent of any inquiry received by it relating to any
potential Acquisition Proposal and of the material terms of any proposal or
inquiry, including the identity of the person and its affiliates making the
same, that it may receive in respect of any such potential Acquisition Proposal,
or of any information requested from it or of any negotiations or discussions
being sought to be initiated with it, and shall furnish to Parent a copy of any
such proposal or inquiry, if it is in writing, or a written summary of any such
proposal or inquiry, if it is not in writing, and shall keep Parent fully
informed on a prompt basis with respect to any developments with respect to the
foregoing.
Section 5.3 Further Assurances. From time to time and without
additional consideration, each Stockholder shall use its reasonable best efforts
to assist and cooperate with Parent and to take, or cause to be taken, all
appropriate action, and to do, or cause to be done, all things necessary, proper
or advisable under any applicable Law or otherwise to consummate and make
effective, in the most expeditious manner practicable, the Share Issuance, the
transactions contemplated by this Agreement and the Merger Agreement. Without
limiting the generality of the foregoing, each Stockholder shall, from time to
time, execute and deliver, or cause to be executed and delivered, such
additional or further consents, documents and other instruments and shall take
all such other action as Parent may reasonably request for the purpose of
effectively carrying out the Share Issuance, the transactions contemplated by
this Agreement and the Merger Agreement, including promptly making all
regulatory filings and applications, and to obtain all licenses, permits,
consents, approvals, authorizations, qualification and orders of governmental
authorities and parties to contracts as are necessary for the consummation of
the Share Issuance,
9
the transactions contemplated by this Agreement and the Merger Agreement.
ARTICLE 6.
GENERAL PROVISIONS
Section 6.1 Termination. Except with respect to Section 6.3, which
shall survive termination, this Agreement, and all obligations, agreements and
waivers hereunder, will terminate and be of no further force and effect on the
earliest of (a) 5:00 p.m., Pacific Standard Time, on the second anniversary of
the date hereof, (b) the Effective Time and (c) 120 days after payment of any
termination fee set forth in Section 7.2.5 of the Merger Agreement; provided,
however, that nothing herein shall relieve any party from liability for any
breach hereof.
Section 6.2 Board of Directors Action. No action taken by the Board
of Directors of Parent (including, without limitation, the withdrawal,
modification or amendment of the recommendation of the Board of Directors of
Parent that the stockholders of the Parent vote in favor of the adoption of the
Share Issuance) shall modify, alter, change or otherwise affect the obligations
of any Stockholder hereunder.
Section 6.3 Stockholder Capacity. No person executing this Agreement
who is or becomes during the term hereof a director or officer of Parent makes
any agreement or understanding herein in his or her capacity as such director or
officer. Each Stockholder signs solely in its capacity as the record holder and
beneficial owner of such Stockholder's Subject Shares and nothing herein shall
limit or affect any actions taken by any Stockholder in his or her capacity as
an officer or director of the Company to the extent specifically permitted by
the Merger Agreement. This Section 6.3 shall survive termination of this
Agreement.
Section 6.4 Parent Guarantee. Parent hereby guarantees the due
performance of any and all obligations and liabilities of Merger Sub under or
arising out of this Agreement and the transactions contemplated hereby.
Section 6.5 Enforcement. The parties agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to the remedy of
specific performance of such provisions and to an injunction or injunctions
and/or such other equitable relief as may be necessary to prevent breaches of
this Agreement and to enforce specifically the terms and provisions of this
Agreement in any court of
10
competent jurisdiction, this being in addition to any other remedy to which they
are entitled at law or in equity.
Section 6.6 Stop Transfer Order. In furtherance of this Agreement,
concurrently herewith, each Stockholder shall, and hereby does authorize
Parent's counsel to, notify Parent's transfer agent that there is a stop
transfer order with respect to all of the Subject Shares (and that this
Agreement places limits on the voting and transfer of such shares).
Section 6.7 Adjustments to Prevent Dilution, Etc. In the event of a
stock dividend or distribution, or any change in Parent's capital stock by
reason of any stock dividend, split-up, reclassification, recapitalization,
combination or the exchange of shares, the term "Subject Shares" shall be deemed
to refer to and include the Subject Shares as well as all such stock dividends
and distributions and any shares into which or for which any or all of the
Subject Shares may be changed or exchanged. In such event, the amount to be paid
per share by Parent in the Merger shall be proportionately adjusted.
Section 6.8 Amendments. This Agreement may not be modified, altered,
supplemented or amended except by an instrument in writing signed by each of the
parties hereto.
Section 6.9 Notice. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered in person or upon
confirmation or receipt when transmitted by facsimile transmission (but only if
followed by transmittal by national overnight courier or hand for delivery on
the next business day) or on receipt after dispatch by registered or certified
mail, postage prepaid, addressed, or on the next business day if transmitted by
national overnight courier to Parent or Merger Sub in accordance with Section
8.2 of the Merger Agreement and to the Stockholders at their respective
addresses set forth in Annex A hereto (or to such other address as any party may
have furnished to the other parties in writing).
Section 6.10 Interpretation. When a reference is made in this
Agreement to Sections, such reference shall be to a Section to this Agreement
unless otherwise indicated. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
Section 6.11 Counterparts. This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same agreement,
and shall become
11
effective when one or more of the counterparts have been signed by each of the
parties and delivered to the other party, it being understood that each party
need not sign the same counterpart.
Section 6.12 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of Law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner to
the end that the transactions contemplated hereby are fulfilled to the extent
possible.
Section 6.13 Entire Agreement; No Third-Party Beneficiaries. This
Agreement (including, without limitation, the documents and instruments referred
to herein) (a) constitutes the entire agreement and supersedes all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof and (b) is not intended to confer upon any
Person other than the parties hereto any rights or remedies hereunder.
Section 6.14 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, without regard
to laws that may be applicable under conflicts of laws principals.
Section 6.15 Costs and Expenses. All costs and expenses incurred in
connection with this Agreement and the consummation of the transactions
contemplated hereby shall be paid by the party incurring such expenses.
Section 6.16 Multiple Stockholders. All representations, warranties,
covenants and agreements of the Stockholders in this Agreement are several and
not joint, and solely relate to matters involving the subject Stockholder and
not any of the other Stockholders.
(Signature Pages Follow)
12
IN WITNESS WHEREOF, Parent, Merger Sub and each Stockholder have
caused this Agreement to be signed by their respective officer thereunto duly
authorized as of the date first written above.
INTUITIVE SURGICAL, INC.
By:
-----------------------------
Name:
Title:
IRON ACQUISITION CORPORATION
By:
-----------------------------
Name:
Title:
STOCKHOLDER
By:
-----------------------------
Name:
Title:
S-1
ANNEX A
<TABLE>
<CAPTION>
NAME ADDRESS NUMBER OF SUBJECT SHARES
---- ------- ------------------------
<S> <C> <C>
</TABLE>
A-1
Exhibit 10.1
LOAN AND SECURITY AGREEMENT
BY
AND BETWEEN
COMPUTER MOTION, INC.,
as Borrower
AND
INTUITIVE SURGICAL, INC.,
as Lender
DATED AS OF MARCH 7, 2003
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
SECTION 1. DEFINITIONS.................................................................................... 1
1.1 DEFINED TERMS.................................................................................. 1
1.2 OTHER DEFINITIONAL PROVISIONS.................................................................. 6
SECTION 2. AMOUNT OF LOAN................................................................................. 7
2.1 LOAN .......................................................................................... 7
2.2 NOTES ......................................................................................... 7
2.3 MAKING OF LOAN................................................................................. 7
2.4 REPAYMENT OF LOAN.............................................................................. 7
2.5 COLLATERAL..................................................................................... 8
SECTION 3. GENERAL PROVISIONS APPLICABLE TO LOAN.......................................................... 8
3.1 INTEREST RATE AND PAYMENTS..................................................................... 8
3.2 PREPAYMENT..................................................................................... 9
SECTION 4. COMPANY REPRESENTATIONS, WARRANTIES AND COVENANTS.............................................. 9
4.1 EXISTENCE...................................................................................... 9
4.2 POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS.................................................. 9
4.3 NO LEGAL BAR................................................................................... 9
4.4 SUBSIDIARIES................................................................................... 10
4.5 CAPITALIZATION................................................................................. 10
4.6 MATERIAL ADVERSE FACTS......................................................................... 10
4.7 PURPOSE OF LOAN................................................................................ 10
4.8 LIABILITIES.................................................................................... 10
4.9 TITLE TO PROPERTY AND ASSETS................................................................... 10
4.10 INTELLECTUAL PROPERTY.......................................................................... 11
4.11 ERISA ......................................................................................... 11
4.12 BROKERS........................................................................................ 11
4.13 USE OF CREDIT.................................................................................. 11
4.14 INDEBTEDNESS................................................................................... 11
4.15 LITIGATION..................................................................................... 11
4.16 FINANCIAL CONDITION; UNKNOWN LIABILITIES; WEEKLY PROJECTIONS................................... 12
4.17 TAXES ......................................................................................... 12
4.18 CERTAIN REGULATIONS............................................................................ 12
4.19 ENVIRONMENTAL MATTERS.......................................................................... 12
4.20 ACCOUNTS RECEIVABLE............................................................................ 12
4.21 SEC DOCUMENTS; FINANCIAL STATEMENTS AND NO MATERIAL CHANGES.................................... 13
4.22 LOCATIONS OF COLLATERAL........................................................................ 13
4.23 DISCLOSURE..................................................................................... 14
4.24 CAPACITY TO PROTECT INTERESTS.................................................................. 14
</TABLE>
i
<TABLE>
<S> <C> <C>
SECTION 5. CONDITIONS OF LENDING.......................................................................... 14
5.1 LOAN DOCUMENTS................................................................................. 14
5.2 PROCEEDINGS.................................................................................... 14
5.3 INCUMBENCY CERTIFICATES........................................................................ 14
5.4 ORGANIZATIONAL DOCUMENTS....................................................................... 14
5.5 REPRESENTATIONS AND WARRANTIES; NO DEFAULT..................................................... 15
5.6 SECURITY INTEREST.............................................................................. 15
5.7 INTELLECTUAL PROPERTY SECURITY INTEREST........................................................ 15
5.8 LOCK BOX AGREEMENT............................................................................. 15
5.9 DEPOSIT ACCOUNT CONTROL AGREEMENTS............................................................. 15
5.10 MERGER AGREEMENT............................................................................... 15
5.11 EVIDENCE OF INSURANCE.......................................................................... 15
5.12 EXISTING INDEBTEDNESS.......................................................................... 15
5.13 OTHER DOCUMENTS................................................................................ 15
SECTION 6. AFFIRMATIVE COVENANTS.......................................................................... 15
6.1 PAYMENT OF OBLIGATIONS......................................................................... 16
6.2 MAINTENANCE OF BOOKS AND RECORDS............................................................... 16
6.3 CONDUCT OF BUSINESS; MAINTENANCE OF EXISTENCE; AND COMPLIANCE WITH LAWS........................ 16
6.4 MAINTENANCE OF INSURANCE....................................................................... 16
6.5 TAXES ......................................................................................... 16
6.6 MAINTENANCE OF PROPERTIES...................................................................... 16
6.7 INFORMATION RIGHTS............................................................................. 16
6.8 BOARD OBSERVATION RIGHTS....................................................................... 17
6.9 ACCESS TO PREMISES............................................................................. 17
6.10 LOCK BOX INSTRUCTIONS.......................................................................... 17
6.11 UPDATES TO WEEKLY PROJECTIONS.................................................................. 17
SECTION 7. NEGATIVE COVENANTS............................................................................. 18
7.1 LIMITATION ON INDEBTEDNESS..................................................................... 18
7.2 LIMITATION ON LIENS............................................................................ 18
7.3 LIMITATIONS ON TRANSACTIONS WITH AFFILIATES.................................................... 19
7.4 RESTRICTIONS ON TRANSACTIONS AND FUNDAMENTAL CHANGES........................................... 19
7.5 SALE OF ASSETS; TRANSFER TO SUBSIDIARY......................................................... 19
7.6 REPURCHASE OF SECURITIES....................................................................... 19
7.7 CORPORATE GOVERNANCE........................................................................... 20
7.8 BANK ACCOUNTS.................................................................................. 20
7.9 LIMITATION ON LIABILITIES...................................................................... 20
SECTION 8. EVENTS OF DEFAULT.............................................................................. 20
8.1 EVENT OF DEFAULT............................................................................... 20
8.2 USE OF COLLATERAL.............................................................................. 22
8.3 CREDIT PARTIES TO HOLD IN TRUST................................................................ 22
8.4 COLLECTIONS, ETC............................................................................... 22
8.5 POSSESSION, SALE OF COLLATERAL, ETC............................................................ 22
8.6 APPLICATION OF PROCEEDS ON DEFAULT............................................................. 24
</TABLE>
ii
<TABLE>
<S> <C> <C>
8.7 POWER OF ATTORNEY.............................................................................. 24
8.8 TERMINATION AND RELEASE........................................................................ 24
8.9 REMEDIES NOT EXCLUSIVE......................................................................... 25
SECTION 9. MISCELLANEOUS.................................................................................. 25
9.1 [INTENTIONALLY DELETED]........................................................................ 25
9.2 INDEMNIFICATION................................................................................ 25
9.3 ENTIRE AGREEMENT; AMENDMENTS................................................................... 25
9.4 WAIVERS........................................................................................ 25
9.5 NOTICES........................................................................................ 26
9.6 SUCCESSORS AND ASSIGNS......................................................................... 26
9.7 INTEREST DEFICIT............................................................................... 26
9.8 CONFIDENTIALITY................................................................................ 27
9.9 PAYMENT OF EXPENSES............................................................................ 27
9.10 CAPTIONS....................................................................................... 28
9.11 COUNTERPARTS................................................................................... 28
9.12 SEVERABILITY; REFORMATION...................................................................... 28
9.13 WAIVER OF JURY TRIAL........................................................................... 28
9.14 GOVERNING LAW.................................................................................. 28
9.15 CONSENT TO JURISDICTION/SERVICE OF PROCESS..................................................... 28
</TABLE>
SCHEDULES
<TABLE>
<S> <C>
Schedule 4.1 State of Incorporation; Principal Place of Business/Chief Executive Office
Schedule 4.4 Subsidiaries
Schedule 4.5 Capitalization
Schedule 4.10 Intellectual Property
Schedule 4.15 Litigation
Schedule 4.16(a) Financial Statements
Schedule 4.16(b) Liabilities
Schedule 4.16(c) Weekly Projections
Schedule 4.22 Locations of Collateral
Schedule 7.1(b) Limitation on Indebtedness
Schedule 7.2(f) Limitation on Liens
Schedule 7.8 Bank Accounts
</TABLE>
EXHIBITS
Exhibit A Description of Collateral
Exhibit B Form of Intellectual Property Security Agreement
Exhibit C Form of Note
Exhibit D Form of Notice of Borrowing
iii
EXECUTION VERSION
LOAN AND SECURITY AGREEMENT, dated as of March 7, 2003, by and between
Computer Motion, Inc., a Delaware corporation (the "Borrower") and Intuitive
Surgical, Inc., a Delaware corporation (the "Lender").
WHEREAS, the Borrower has requested a short-term secured bridge loan
from the Lender in an aggregate principal amount not to exceed $7,300,000; and
WHEREAS, the Lender is willing to make such loan to the Borrower upon
the terms and subject to the conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements contained herein and for other good and valuable consideration the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
SECTION 1. DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the following terms shall
have the following meanings:
"Affiliate" shall mean any other Person controlling or
controlled by or under common control with such specified Person.
"Agreement" shall mean this Loan and Security Agreement, as
amended, supplemented, waived or otherwise modified from time to time
pursuant to the terms hereof.
"Borrower" shall have the meaning set forth in the preamble
hereto.
"Business Day" shall mean a day other than a Saturday, Sunday
or other day on which commercial banks in California are authorized or
required by law to close.
"Closing Date" shall mean the date on which all the conditions
precedent set forth in Section 5 shall be satisfied or waived pursuant
to the terms hereof. The original Closing Date shall occur on such date
prior to termination of the Merger Agreement as the Borrower and the
Lender agree, failing which this Agreement shall be of no further force
or effect.
"Collateral" shall have the meaning set forth in Exhibit A
hereto.
"Contractual Obligation" shall mean, as to any Person, any
provision of any security issued by such Person or of any agreement,
instrument, document or other undertaking to which such Person is a
party or by which it or any of its property is bound.
"Control" (including, with correlative meaning, the terms
"controlling", "controlled by," "under common control with" and similar
phrases) shall mean with respect to any Person, the possession,
directly or indirectly, of the power to direct, or cause the direction
of, the management or policies of a Person, whether through the
ownership of voting securities, by contract or otherwise.
"Default" shall mean any event, act or condition which with or
without notice or lapse of time, or both, could constitute an Event of
Default.
"Default Interest" shall have the meaning set forth in Section
3.1.
"Deposit Account Control Agreements" shall mean deposit
account control agreements on commercially reasonable terms and
conditions in which all of the Borrower's accounts with any financial
institution shall be subject to Lender's right upon the occurrence and
during the continuance of an Event of Default to restrict the use of
such accounts and to turn over the proceeds from such accounts to
Lender, in form and substance reasonably satisfactory to the Lender;
provided that the Borrower shall be required to enter into a Deposit
Account Control Agreement with respect to accounts maintained at
Salomon Smith Barney but such agreement shall not be implemented unless
and until there has occurred an Event of Default.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, or any successor or similar statute and the rules and
regulations of the SEC promulgated thereunder as in effect from time to
time.
"Event of Default" shall mean the occurrence of any of the
events specified in Section 8.
"Existing Indebtedness" shall mean that Indebtedness owing by
the Borrower to Agility Capital, LLC, pursuant to that certain Loan and
Security Agreement dated as of February 13, 2003 (as amended, restated
or modified from time to time).
"GAAP" shall mean the generally accepted accounting principles
in the United States of America in effect from time to time.
"Governmental Authority" shall mean any nation or government,
any state or other political subdivision thereof and any Person
exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.
"Indebtedness" shall mean (without double counting), at any
time and with respect to any Person, (i) indebtedness of such Person
for borrowed money (whether by loan or the issuance and sale of debt
securities) or for the deferred purchase price of property or services
purchased (other than amounts constituting trade payables arising in
the ordinary course of business); (ii) obligations of such Person in
respect of letters of credit, acceptance facilities, or drafts or
similar
2
instruments issued or accepted by banks and other financial
institutions for the account of such Person; (iii) obligations of such
Person under capital leases and any financing lease involving
substantially the same economic effect; (iv) deferred payment
obligations of such Person resulting from the adjudication or
settlement of any litigation or claim to the extent not already
reflected as a current liability on the balance sheet of such Person;
(v) trade debt not incurred in the ordinary course of business or trade
debt in excess of $250,000 as to any single creditor or in excess of
$250,000 in the aggregate; or (vi) indebtedness of others of the type
described in clauses (i) through (v) which such Person has (a) directly
or indirectly assumed or guaranteed in connection with a guaranty, or
(b) secured by a Lien on any of the assets of such Person whether or
not such Person has assumed or guaranteed such indebtedness.
"Intellectual Property" shall have the meaning set forth in
Section 4.10.
"Intellectual Property Security Agreement" shall mean the
Intellectual Property Security Agreement by and between the Lender and
the Borrower, in substantially the form attached hereto as Exhibit B.
"Interest Rate" shall have the meaning set forth in Section
3.1.
"Interest Deficit" shall have the meaning set forth in Section
9.7.
"Lender" shall have the meaning set forth in the preamble
hereto.
"Lien" shall mean any mortgage, deed of trust, pledge,
security interest, hypothecation, assignment, encroachment, lien
(statutory or otherwise), claim, option, reservation, priority,
preferential arrangement, easement or other encumbrance of any kind.
"Loan" or "Loans" shall have the meaning set forth in Section
2.1.
"Loan Availability" shall mean $7,300,000.
"Loan Documents" shall mean this Agreement, the Note, the
Intellectual Property Security Agreement, the Deposit Account Control
Agreement and any and all other agreements, certificates, instruments
or documents made, given or delivered in connection with the
consummation of any transaction contemplated by a Loan Document (other
than the Merger Documents).
"Lock Box Account" shall mean any checking or other demand
depository account maintained by the Borrower into which the contents
of any other checking, demand or other depository account of the
Borrower is transferred pursuant to the applicable Lock Box Agreement.
"Lock Box Agreements" shall mean each of the Lock Box
Agreements on commercially reasonable terms and conditions, by and
among the Lender, the Borrower and the applicable financial institution
that recognizes the Lender's
3
security interest in the contents of the checking, demand or other
depository account which is the subject of such agreement and provides
that such contents shall be transferred only to the applicable Lock Box
Account or as otherwise instructed by Lender.
"Material Adverse Change" shall mean an event, act, condition
or change which had, has or could reasonably be expected to have a
material adverse effect on (a) the business, operations, results of
operations, properties, assets, condition (financial or otherwise) of
the Borrower, (b) the Borrower's ability to perform the Secured
Obligations or (c) any right or remedy of the Lender under any Loan
Document.
"Maturity Date" shall mean the earlier of (i) 120 days
following termination of the Merger Agreement and (ii) the occurrence
of a Prohibited Transaction.
"Merger Agreement" shall mean that certain Agreement and Plan
of Merger by and among Intuitive Surgical, Inc., Iron Acquisition
Corporation and Computer Motion, Inc., dated as of March 7, 2003.
"Merger Default" shall mean a default under Section 7.1.7 of
the Merger Agreement.
"Merger Documents" shall mean the Merger Agreement and all
agreements, certificates, instruments or documents made, given or
delivered specifically in connection with the Merger Agreement.
"Note" shall have the meaning set forth in Section 2.2.
"Notice of Borrowing" shall have the meaning given in Section
2.1.
"Person" shall mean an individual, partnership, corporation,
limited liability company, business trust, joint stock company, trust,
unincorporated association, joint venture, Governmental Authority or
other entity of whatever nature.
"Proceeds" shall mean whatever is received when Collateral or
Proceeds are sold, exchanged, collected or otherwise disposed of, both
cash and non-cash, including the proceeds of insurance payable by
reason of loss of or damage to Collateral or Proceeds and any license
fees, royalties and other similar items received in connection with
Collateral.
"Prohibited Transaction" shall mean (i) the sale, lease,
license, exchange, transfer or similar transaction involving all or
substantially all of the assets of the Borrower (other than pursuant to
the Merger Agreement), other than inventory in the ordinary course of
business, in one or more transactions after the Closing Date; (ii) the
closing date of a recapitalization, reorganization, merger,
consolidation or other transaction or transactions (whether by sale,
gift or other
4
transfer or disposition) other than pursuant to the Merger Agreement,
which transaction or transactions result in the transfer of control of
the Borrower excluding any securities under any option plan of the
Borrower (which plan, type of securities and amount of securities are
approved by Lender in writing) which have not been granted, or which
have been granted but have not yet vested, in each case on or prior to
the date in question) on a fully-diluted basis; or (iii) any action
(voluntary or involuntary) to liquidate, dissolve and/or wind down the
business of the Borrower.
"Requirement of Law" shall mean as to any Person, the articles
or certificate of incorporation and by-laws or other organizational or
governing documents of such Person, and any law, statute, treaty,
ordinance, rule or regulation or determination of an arbitrator or a
court or other Governmental Authority, in each case applicable to or
binding upon such Person or any of its property or to which such Person
or any of its property is subject.
"SEC" shall mean the Securities and Exchange Commission or any
successor thereto.
"Secured Obligations" shall mean all money, debts, obligations
and liabilities which now are or have been or at any time hereafter may
be or become due, owing or incurred by the Borrower to the Lender,
whether direct or indirect, absolute or contingent, due or to become
due, or now existing or hereafter incurred, which may arise under, out
of, or in connection with any Loan Document or any transaction
contemplated by any Loan Document, whether on account of principal,
interest (including, without limitation, interest accruing after the
Maturity Date on the Note and interest accruing after the filing of any
petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding, relating to the Borrower, whether or
not a claim for post-filing or post-petition interest is allowed in
such proceeding), royalties, reimbursement obligations, fees,
indemnities, costs, expenses or otherwise, excluding, however, any
obligations or liability arising under the Merger Documents.
"Securities Act" shall mean the Securities Act of 1933, as
amended, or any successor or similar statute and the rules and
regulations of the SEC promulgated thereunder as in effect from time to
time.
"Subordinated Debt" shall mean unsecured Indebtedness
subordinated to the Loan on terms and conditions satisfactory to
lender, evidenced by a subordination agreement in form and substance
satisfactory to lender which by its terms does not permit the payment
of all or any portion of any principal, interest or any other amounts
until the indefeasible payment in full of all Secured Obligations.
"Subsidiary" shall have the meaning set forth in Section 4.4.
5
"Tax Return" shall mean any return, declaration, report, claim
for refund, information return or statement, estimated return or
statement or other document (including, without limitation, any related
or supporting estimates, elections, schedules, statements or
information) filed or required to be filed in connection with the
determination, assessment or collection of any Tax or the
administration of any laws, statutes, treaties, regulations or
administrative requirements relating to any Tax.
"Tax" or "Taxes" shall mean (i) any and all taxes (whether
federal, state and local, domestic or foreign) including, without
limitation, income, gross receipts, profits, property, sales, use,
capital stock, net worth, occupation, value added, ad valorem,
transfer, franchise, recapture, excise, windfall, withholding, payroll,
social security, workers' compensation, unemployment compensation or
employment taxes, tariffs, imposts, duties, levies, fees or
governmental charges of any nature whatsoever, together with any
interest, penalties or additions to tax imposed with respect to any of
the foregoing, and (ii) any obligations under any agreements or
arrangements with respect to any tax or taxes described in clause (i)
above.
"UCC" shall mean the Uniform Commercial Code of the State of
California as in effect on the date hereof and as amended from time to
time hereafter or, when used in relation to a specific filing or
termination, the Uniform Commercial Code of the State wherein such
filing or termination statement is made.
"Weekly Projections" shall have the meaning set forth in
Section 4.16.
1.2 Other Definitional Provisions.
(a) Unless otherwise specified therein, all terms defined in
this Agreement shall have the defined meanings when used in the Note or any
agreement, instrument, certificate or other document made, given or delivered
pursuant hereto.
(b) Unless the context of this Agreement clearly requires
otherwise, references to the plural include the singular, references to the
singular include the plural, the part includes the whole, the terms "include"
and "including" are not limiting, and the term "or" has the inclusive meaning
represented by the phrase "and/or."
(c) The words "hereof," "herein" and "hereunder" and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement, and Section,
subsection, Exhibit and Schedule references are to this Agreement unless
otherwise specified.
(d) The meanings given to terms defined herein shall be
equally applicable to both the singular and plural forms of such terms.
6
(e) Any reference in this Agreement to any of the Loan
Documents includes any and all alterations, amendments, extensions,
modifications, renewals, restatements, or supplements thereto or thereof, as
applicable.
(f) Neither this Agreement nor any uncertainty or ambiguity
herein shall be construed or resolved against the Lender or the Borrower,
whether under any rule of construction or otherwise. On the contrary, this
Agreement has been reviewed by the Borrower, the Lender, and their respective
counsel, and shall be construed and interpreted according to the ordinary
meaning of the words used so as to fairly accomplish the purposes and intentions
of the Lender and the Borrower.
SECTION 2. AMOUNT OF LOAN
2.1 Loan. Subject to the terms and conditions hereof, the Lender agrees
to make Loans to the Borrower in an aggregate principal amount which shall not
exceed the Loan Availability. Such Loans shall be made as follows: (i) upon
delivery to the Lender of a Notice of Borrowing/Letter of Direction in
substantially the form attached hereto as Exhibit D (a "Notice of Borrowing") no
less than three (3) Business Days prior thereto, on the Closing Date in an
aggregate amount of up to $2,300,000, the proceeds of which will be used
exclusively to pay off the Existing Indebtedness, and (ii) in an aggregate
amount of up to $5,000,000 as such Loans may be required in accordance with the
Weekly Projections, as the same may be amended in accordance with Section 6.11
hereof, the proceeds of which Loans will be used exclusively for working capital
and other general corporate purposes of the Borrower. Amounts borrowed and
repaid hereunder may not be re-borrowed. As used herein, the term "Loan" and
"Loans" shall mean the advances made by the Lender in accordance with this
Section 2.1.
2.2 Notes. In order to evidence the Loan, the Borrower will execute and
deliver to the Lender on the initial Closing Date a secured promissory note
substantially in the form of Exhibit C attached hereto, payable to the order of
the Lender and in a principal amount equal to $7,300,000. The Note: (a) shall be
dated the Closing Date; (b) shall be payable as provided in Section 2.4; (c)
shall provide for the payment of interest in accordance with Section 3.1; and
(d) shall be subject to mandatory prepayment in accordance with Section 3.2(b).
2.3 Making of Loan. The Lender shall have no obligation to make the
Loans hereunder unless the Lender, in its sole discretion, determines that the
Loan Documents are in full force and effect, and the Borrower is in full
compliance with all the terms of this Agreement, the Note, the Intellectual
Property Security Agreement and the other Loan Documents, and that no Default or
Event of Default not waived in writing by the Lender exists or will result from
the making of any such Loan..
2.4 Repayment of Loan.
(a) Except as set forth below, the aggregate amount of the
Loan shall be payable, together with all accrued and unpaid interest thereon and
all other Secured Obligations, on the Maturity Date.
7
(b) The Borrower shall not be obligated to make any principal
or interest payments on the Loan other than upon the Maturity Date or as
otherwise required pursuant to the provisions of Section 3.1 or 3.2(b).
2.5 Collateral.
(a) Security Interest. This Agreement constitutes a "security
agreement" within the meaning of the UCC. In order to secure payment and
performance of all present and future Secured Obligations, the Borrower hereby
grants, assigns, transfers, pledges, and sets over to the Lender a
first-priority security interest in and Lien on all of the Collateral (subject
to Liens expressly permitted under Section 7.2(a) hereof and those other Liens
set forth in Section 7.2 required as a matter of law to have priority over the
Secured Obligations; provided that, with respect to such other security
interests and other Liens, such security interests and Liens shall not be with
respect to claimed amounts in excess of $100,000 in the aggregate.
(b) Further Assurances. The Borrower agrees that at any time
and from time to time, at its expense, the Borrower will promptly execute and
deliver all further agreements, certificates, instruments and documents
(including, without limitation, financing statements and continuation
statements), and take all further action that the Lender may reasonably request
(including obtaining any control agreements or bailee acknowledgments required
by Lender), in order to perfect and protect the security interests granted or
purported to be granted hereby and to enable the Lender to exercise and enforce
its rights and remedies hereunder with respect to any Collateral. The Borrower
agrees that it will not take any action intended or reasonably likely to
negatively impact or question the security interest granted herein. Without
limiting any rights of the Lender under the UCC, the Borrower authorizes the
Lender to file, without the Borrower's signature, UCC financing statements
disclosing the Lender's Liens hereunder with any filing office deemed
appropriate by the Lender, including without limitation designating the
Collateral as "all present and future assets" of the Borrower.
SECTION 3. GENERAL PROVISIONS APPLICABLE TO LOAN
3.1 Interest Rate and Payments. The outstanding principal of
the Loan shall accrue interest from the date such Loan is disbursed pursuant to
the terms hereunder until and including the date paid in full at a rate per
annum (computed on the basis of a 360-day year of twelve 30-day months,
provided, however, that per diem interest shall be calculated on the basis of
the actual number of days elapsed over a year of 365 days) of eight percent (8%)
per annum (the "Interest Rate"). Except as provided in the following sentence,
interest on the Loan shall not be due and payable until the Maturity Date or
such earlier date upon which the Loan shall be due and payable in accordance
with the terms hereof, in each case with interest to accrue and be due and
payable through and including the applicable date of payment. Without
duplication of any interest payable under this Section 3.1, the Borrower hereby
unconditionally promises to pay to the Lender interest on any Secured
Obligations payable by the Borrower under any Loan Document that shall not be
paid in full when due (whether at stated maturity, by acceleration or
otherwise), for the period from and including the due date of such payment to
and including the date the same is paid in full, at a rate per annum equal to
the Interest Rate plus 400 basis points (the "Default Interest"), which Default
Interest shall be payable from time to time on demand of the Lender.
8
3.2 Prepayment.
(a) Optional. The Borrower shall be permitted to prepay the
Loan, or any portion thereof, at any time without penalty or premium; in each
case all payments shall be applied first against any Secured Obligation (other
than interest and principal), then against accrued and unpaid interest through
and including the date of payment and then against principal.
(b) Mandatory. Upon the Maturity Date all Secured Obligations
shall immediately become due and payable.
SECTION 4. COMPANY REPRESENTATIONS, WARRANTIES AND COVENANTS
The Borrower represents, warrants and covenants, as of the Closing
Date, that:
4.1 Existence. The Borrower (a) is duly organized and validly existing
under the laws of the State of Delaware, (b) is duly qualified to do business
and is in good standing in all other jurisdictions in which the nature of its
business or the ownership or leasing of its properties makes such authorization
or qualification necessary except for such jurisdictions where the failure to be
so authorized or qualified could not result in a Material Adverse Change and (c)
has the power and authority, and the legal right, to own and operate its
property, to lease the property it operates as lessee or lessor and to conduct
the business in which it is presently engaged and presently proposes to engage.
The Borrower's place of incorporation and principal place of business/chief
executive office are set forth on Schedule 4.1.
4.2 Power; Authorization; Enforceable Obligations. The Borrower has the
power and authority, and the legal right, to make, execute, deliver and perform
the Loan Documents, borrow the Loan hereunder, and to consummate the
transactions contemplated hereby and thereby and the Borrower has taken all
necessary action to authorize the execution, delivery and performance of the
Loan Documents, the borrowing of the Loan on the terms and conditions of this
Agreement, and the consummation of the transactions contemplated hereby and
thereby. No consent or authorization of, filing with, notice to or other similar
act by or in respect of, any Governmental Authority or any other Person is
required to be obtained or made by or on behalf of the Borrower in connection
with the execution, delivery, performance, validity or enforceability of the
Loan Documents to which it is a party, the borrowing of the Loan hereunder, or
the consummation of the transactions contemplated hereby and thereby. Each of
the Loan Documents has been duly executed and delivered by the Borrower. Each of
the Loan Documents constitutes a legal, valid and binding obligation of the
Borrower enforceable against the Borrower in accordance with its respective
terms.
4.3 No Legal Bar. The execution, delivery and performance of the Loan
Documents by the Borrower, the borrowing of the Loan hereunder, and the use of
the proceeds thereof (a) will not violate any Requirement of Law, which
violation could result in a Material Adverse Change, or Contractual Obligation
of the Borrower and (b) will not result in, or require, the creation or
imposition of any Lien (other than Liens in favor of the Lender) on any of its
properties, assets or revenues pursuant to any such Requirement of Law, which
violation could result in a Material Adverse Change or the default or breach of
any Contractual Obligation.
9
4.4 Subsidiaries. Except as set forth on Schedule 4.4 hereto, the
Borrower has no, and never has had any, Subsidiaries. For purposes hereof,
"Subsidiary" shall mean, for any Person, any corporation, partnership, limited
liability company or other entity of which at least a majority of the securities
or other ownership interests having by their terms ordinary voting power (or
otherwise) to elect a majority of the board of directors or other Persons
performing similar functions of such corporation, partnership, limited liability
company or other entity (irrespective of whether or not at the time securities
or other ownership interests of any other class or classes of such corporation,
partnership, limited liability company or other entity shall have or might have
voting power by reason of the happening of any contingency) are at the time
directly or indirectly owned or controlled by such Person or one or more
Subsidiaries of such Person.
4.5 Capitalization. The authorized capital stock of the Borrower is as
set forth on Schedule 4.5 hereto: All such issued and outstanding shares and
warrants have been duly authorized and validly issued, are fully paid and
nonassessable and were issued in compliance with all applicable state and
federal laws concerning issuance of securities. Other than as set forth on
Schedule 4.5(a) hereto, there are no other rights, plans, options, warrants,
agreements or other rights of any Person to purchase or acquire from the
Borrower or any owner of any such item any shares of its capital stock. The
Borrower has no obligation to repurchase, redeem or otherwise acquire any
security or other right of the Borrower.
4.6 Material Adverse Facts. The Borrower has no knowledge of any fact
that could materially adversely affect the ability of the Borrower to perform
its obligations under this Agreement, the Note or the other Loan Documents or
which could result in a Material Adverse Change.
4.7 Purpose of Loan. The proceeds of the Loans shall be used by the
Borrower to refinance the Existing Indebtedness and for working capital and
other general corporate purposes.
4.8 Liabilities. Other than with respect to the Loan and Indebtedness
expressly permitted under Section 7.1 and described in Schedule 7.1(b) hereto,
the Borrower does not have any Indebtedness in excess of $250,000 in the
aggregate that the Borrower has directly or indirectly created, incurred,
assumed, or guaranteed, or with respect to which the Borrower has otherwise
become directly or indirectly liable. Schedule 7.1(b) sets forth a true,
complete and correct description of all Indebtedness of the Borrower on the
Closing Date.
4.9 Title to Property and Assets. The Borrower has good and marketable
title to, or a valid leasehold in, all of the Borrower's tangible and intangible
properties and assets (including, without limitation, Intellectual Property), in
each case free and clear of all Liens other than (a) Liens for taxes not yet due
or other statutory liens relating to obligations to any Governmental Authority
which are not yet due, (b) statutory Liens arising in the ordinary course of
business, in each case, which do not interfere with the use of the properties
and assets to which they relate for the purposes for which those properties and
assets were acquired and (c) Liens in favor of the Lender and other Liens
expressly permitted under Section 7.2 hereof. Schedule 7.2(f) sets forth a true,
complete and correct description of all Liens on the Borrower or its properties
or assets on the Closing Date.
10
4.10 Intellectual Property. The Borrower possesses all licenses,
permits, franchises, authorizations, patents, copyrights, trademarks, trade
secrets and trade names and any other tangible, intangible or intellectual
property rights, or rights thereto, required to conduct its business as
presently conducted and as presently proposed to be conducted, without any known
conflict with the rights of others, excluding any and all patent and other
Intellectual Property rights owned or controlled by the Lender. A true, correct
and complete list of the Borrower's licenses, permits, franchises,
authorizations, patents, copyrights, trademarks, trade secrets, trade names,
inventions, discoveries, designs, patentable technology and art, methodologies,
trade secrets, know how, service marks, Internet domain names and any other
tangible, intangible or intellectual property rights (the "Intellectual
Property") is attached as Schedule 4.10 hereto. No claim of infringement has
been made or threatened in writing or otherwise with respect to any such
Intellectual Property, excluding current discussions and pending lawsuits as to
such matters with the Lender. Except as set forth on Schedule 4.15, the Borrower
has not directly or indirectly created, incurred, assumed or permitted to exist
any Lien on any such Intellectual Property, other than Liens granted to the
Lender to secure the Secured Obligations and liens expressly permitted under
Section 7.2 hereof.
4.11 ERISA. No employee benefit plan established or maintained by the
Borrower or its Subsidiaries or to which the Borrower or any Subsidiary has made
contributions or is liable is subject to Part 3 of Subtitle B of Title 1 of the
Employee Retirement Income Security Act of 1974, as amended, or Section 412 of
the Internal Revenue Code of 1954, as amended.
4.12 Brokers. No broker or finder has acted for the Borrower in
connection with the Loan Documents or the transactions contemplated hereby or
thereby, and no broker finder or other Person is entitled to any brokerage or
finder's fees or other commission or payment in respect of such transaction
based in any way on agreements, arrangements or understandings made by or on
behalf of the Borrower.
4.13 Use of Credit. No part of the proceeds from the Loan extended
hereunder will be used, directly or indirectly, for the purpose of buying or
carrying any "margin stock" within the meaning of Regulation G of the Board of
Governors of the Federal Reserve System (12 CFR 207), or for the purpose of
buying or carrying or trading in any securities under such circumstances as to
involve the Borrower in a violation of Regulation X of said Board (12 CFR 224)
or to involve any broker or dealer in a violation of Regulation T of said Board
(12 CFR 220). The assets of the Borrower do not include any margin stock, and
the Borrower does not have any present intention of acquiring any margin stock.
4.14 Indebtedness. The Note will be the senior obligation of the
Borrower, and will be secured by first priority liens on all of the Collateral
subject to Liens expressly permitted under Section 7.2(a) hereof and those other
Liens set forth in Section 7.2 required as a matter of law to have priority over
the Secured Obligations; provided that, with respect to such other security
interests and other Liens, such security interests and Liens shall not be with
respect to claimed amounts in excess of $250,000 in the aggregate.
4.15 Litigation. Except as set forth on Schedule 4.15 hereto, there are
no (i) actions, suits or legal, equitable, arbitrative or administrative
proceedings pending, or, to the best knowledge of the Borrower after reasonable
review and due inquiry, threatened against the
11
Borrower or any of its properties or assets or (ii) judgments, injunctions,
writs, rulings or orders by any Governmental Authority against the Borrower or
applicable to any of its properties or assets.
4.16 Financial Condition; Unknown Liabilities; Weekly Projections. The
Borrower has previously furnished to the Lender the unaudited income statement,
balance sheet and cash flow statements of the Borrower as of December 31, 2002,
and the unaudited income statement and balance sheet of the Borrower as of
January 31, 2003, each of which are attached hereto as Schedule 4.16(a). There
are no liabilities, obligations or commitments of any nature (whether accrued,
absolute, contingent or otherwise) matured or unmatured of the Borrower, except
as provided for in the unaudited balance sheets referred to above or as set
forth on Schedule 4.16(b), as of the Closing Date. Since January 1, 2003, there
has been no Material Adverse Change as to the Borrower. The Borrower has
previously furnished to the Lender the projected cash flow for the Borrower, set
forth on a weekly basis, for the period through August 23, 2003 (the "Weekly
Projections"), which Weekly Projections are in form and substance satisfactory
to the Lender and are attached hereto as Schedule 4.16(c).
4.17 Taxes. The Borrower has filed all federal, state and local,
domestic or foreign Tax Returns and all other Tax Returns that are required to
be filed by it and it has paid all Taxes due pursuant to such returns or
pursuant to any deficiency, notice of proposed assessment, audit, assessment or
other similar notice received by it in writing other than those being contested
in good faith in appropriate proceedings and for which reserves have been
established in the financial statements described in Section 4.16. There are no
audits, assessments or claim for assessments, and no basis upon which such a
claim can be made to the best knowledge of the Borrower after reasonable review
and due inquiry. The charges, accrual and reserves on its books and records in
respect of Taxes are adequate. The Borrower has not given or been requested to
give a waiver of the statute of limitations relating to the payment of Federal
or other taxes or the audit of any tax period.
4.18 Certain Regulations. The Borrower is not (a) an "investment
company," or a company "controlled" by an "investment company," within the
meaning of the Investment Company Act of 1940; (b) a "holding company," or an
"affiliate" of a "holding company" or a "Subsidiary company" of a "holding
company," within the meaning of the Public Utility Holding Company Act of 1935;
or (c) to the knowledge of the Borrower, subject to any other Requirement of Law
restricting its ability to incur debt or to grant Liens.
4.19 Environmental Matters. The Borrower has obtained all approvals
required by any Governmental Authority to carry on its business as presently
being conducted or as presently proposed to be conducted. Each of such approvals
is in full force and effect and the Borrower is in compliance in all respects
with the terms and conditions of such approvals, and is also in compliance in
all respects with all other provisions of any applicable environmental law, rule
or regulation.
4.20 Accounts Receivable. The accounts receivable set forth in the
unaudited balance sheet delivered to the Lender pursuant to Section 4.16(a), net
of applicable reserves set forth in such unaudited balance sheet, are
collectible in the amounts shown therein. All such accounts receivable represent
legal, valid and binding obligations arising from bona fide business
12
transactions in the ordinary course of business consistent with past practices
of the Borrower. There is no contest, claim, counterclaim, defense, contra
account or other right of set-off with respect to such accounts receivable,
other than returns in the ordinary course consistent with the past practices of
the Borrower.
4.21 SEC Documents; Financial Statements and No Material Changes.
Borrower has made available to Lender through the SEC's EDGAR database ("EDGAR")
a true, complete and correct copy of each publicly available statement, report,
registration statement (with the prospectus in the form filed pursuant to Rule
424(b) of the Securities Act), definitive proxy statement, and other filing
filed with the SEC by Borrower since December 31, 2001, and, prior to the
Closing Date, Borrower will have made available to Lender true, complete and
correct copies of any additional publicly available documents filed with the SEC
by Borrower after the date hereof but prior to the Closing Date (collectively,
the "Borrower SEC Documents"). All documents required to be filed as exhibits to
the Borrower SEC Documents have been so filed, and all Borrower Material
Contracts (as defined below) so filed as exhibits are in full force and effect
as of the date hereof, except those that have expired in accordance with their
terms and those that failure to be in full force and effect would not have a
Material Adverse Change. As used in this Agreement, "Borrower Material
Contracts" means all contracts required to be filed as exhibits to the Borrower
SEC Documents pursuant to Item 601 of Regulation S-K. As of their respective
filing dates, the Borrower SEC Documents complied in all material respects with
the applicable requirements of the Exchange Act and the Securities Act, and none
of the Borrower SEC Documents contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein, in light of
the circumstance under which they were made or necessary to make the statements
made therein not misleading, except to the extent corrected by a subsequently
filed Borrower SEC Document. The consolidated financial statements of Borrower,
including the notes thereto, included in the Borrower SEC Documents (the
"Borrower SEC Financial Statements") fairly present (or will fairly present) the
consolidated financial condition and the related consolidated statements of
operations, of stockholder's equity, and of cash flows of Borrower at the dates
and during the periods indicated therein in accordance with GAAP (subject, in
the case of unaudited statements, to normal, recurring year-end adjustments),
complied (or will comply) as to form in all material respects with applicable
accounting requirements and with the published rules and regulations of the SEC
with respect thereto as of their respective dates, and have been prepared (or
will be prepared) in accordance with generally accepted accounting principles
applied on a basis consistent throughout the periods indicated and consistent
with each other (except as may be expressly indicated in the notes thereto or,
in the case of unaudited statements included in Quarterly Reports on Forms 10-Q,
as permitted by Form 10-Q of the SEC).
4.22 Locations of Collateral. The only locations of Collateral are set
forth on Schedule 4.22, attached hereto, and such schedule correctly identifies
any of such locations which are not owned by the Borrower and sets forth the
owners and/or operators thereof. The Borrower shall not move the Collateral to
any other location (other than to transfer such Collateral in the ordinary
course of business); provided that the Borrower may open a new location at which
Collateral will be located within the continental United States so long as the
Borrower (i) gives the Lender thirty (30) days prior written notice of the
intended opening of any such new location and (ii) executes and delivers, or
causes to be executed and delivered, to the Lender such
13
agreements, documents, and instruments as the Lender may deem reasonably
necessary or desirable to protect its interests in the Collateral at such new
location.
4.23 Disclosure. No representation or warranty by the Borrower in this
Agreement or any of the other Loan Documents contains or will contain any untrue
statement of a material fact or omits or will 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 in which they are made, not misleading.
If, prior to the Closing Date, the Borrower becomes aware of any fact or
circumstance that could change a representation or warranty of the Borrower in
this Agreement, then the Borrower shall immediately give notice of such fact or
circumstance to the Lender.
4.24 Capacity to Protect Interests. The Borrower has been represented
by outside counsel in connection with the transactions contemplated under the
Loan Documents and the negotiation of the same, and each of the Borrower and
such counsel has the "capacity to protect [the Borrower's] own interests in
connection" herewith within the meaning of California Corporations Code Section
25118.
SECTION 5. CONDITIONS OF LENDING
The obligation of the Lender to make the Loan hereunder is subject to
the following conditions precedent:
5.1 Loan Documents. Lender shall have received (a) this Agreement, (b)
the Note, (c) the Intellectual Property Security Agreement, (d) the Lock Box
Agreement, (e) the Deposit Account Control Agreements and (f) each of the other
Loan Documents to which the Borrower is a party, in each case executed and
delivered by duly authorized officers of the Borrower, together with completed
schedules thereto as of the Closing Date, all in form and substance satisfactory
to the Lender.
5.2 Proceedings. The Lender shall have received a copy of the
resolutions, in form and substance reasonably satisfactory to it, of the board
of directors of the Borrower authorizing (i) the execution, delivery and
performance of this Agreement and the other Loan Documents, (ii) the Loan
contemplated hereunder, (iii) the execution, delivery and performance of the
Merger Agreement and the transactions contemplated thereunder and (iv) the other
transactions contemplated hereby and thereby, certified by the Secretary or an
Assistant Secretary of the Borrower as of the Closing Date, which certificate
shall be in form and substance reasonably satisfactory to the Lender and shall
state that the resolutions thereby certified have not been amended, modified,
revoked or rescinded and are in full force and effect.
5.3 Incumbency Certificates. The Lender shall have received a
certificate of the Borrower, dated the Closing Date, as to the incumbency and
signature of the officers of the Borrower executing any Loan Document,
reasonably satisfactory in form and substance to the Lender, executed by the
Secretary or any Assistant Secretary of the Borrower.
5.4 Organizational Documents. The Lender shall have received copies of
the articles of incorporation and bylaws of the Borrower, certified as of the
Closing Date as true, complete and correct copies thereof by the Secretary or an
Assistant Secretary of the Borrower.
14
5.5 Representations and Warranties; No Default. Each of the
representations and warranties made by the Borrower pursuant to this Agreement
or any other Loan Document (or in any amendment, modification or supplement
hereto or thereto) and each of the representations and warranties contained in
any certificate or statement furnished at any time by or on behalf of the
Borrower pursuant to this Agreement or any other Loan Document or certificate or
other document delivered herewith or therewith, shall, except to the extent that
they relate to a particular date, be true, complete and correct in all respects
on and as of the date it was made and on and as of such date as if made on and
as of such date. The Borrower shall have complied with each and every covenant
and agreement contained herein, no Default or Event of Default shall have
occurred and be continuing on such date or after giving effect to the Loan, and
no Material Adverse Change shall have occurred. The Borrower shall have
delivered a certificate of the Chief Executive Officer or President of the
Borrower, dated as of the applicable Closing Date hereunder, to the foregoing
effect.
5.6 Security Interest. The Lender shall have received evidence
satisfactory to it of a valid and perfected first priority Lien and security
interest in the Collateral and no other Liens on the Collateral exist, except as
expressly permitted hereunder.
5.7 Intellectual Property Security Interest. The Lender shall have
received evidence satisfactory to it of a valid and perfected first priority
Lien and security interest in the Intellectual Property.
5.8 Lock Box Agreement. The Lender shall have received satisfactory
evidence that the Lock Box Agreement is in full force and effect.
5.9 Deposit Account Control Agreements. The Lender shall have received
satisfactory evidence that each Deposit Account Control Agreement is in full
force and effect.
5.10 Merger Agreement. The Lender shall have received satisfactory
evidence that the Merger Agreement is in full force and effect.
5.11 Evidence of Insurance. The Lender shall have received evidence of
insurance and loss payee/additional insured endorsements required hereunder and
under the other Loan Documents, in form and substance satisfactory to the
Lender, and certificates of insurance policies and/or endorsements naming the
Lender as loss payee/additional insured.
5.12 Existing Indebtedness. After giving effect to the Loans on the
Closing Date, the Existing Indebtedness shall have been paid in full and the
Liens securing the same released of record (or the Lender shall have received
such releases of such Liens or assurances with respect thereto, all in form and
substance satisfactory to the Lender).
5.13 Other Documents. The Lender shall have received, in form and
substance satisfactory to Lender, such releases, terminations and other
documents as the Lender may reasonably request.
SECTION 6. AFFIRMATIVE COVENANTS
The Borrower hereby agrees that, from and after the original Closing
Date and through the indefeasible payment in full of the Loan and the Secured
Obligations then due and owing to the Lender hereunder, the Borrower shall:
15
6.1 Payment of Obligations. Pay, discharge or otherwise satisfy at or
before maturity or before they become delinquent, as the case may be, all its
obligations of whatever nature, except where the amount or validity thereof is
currently being contested in good faith by appropriate proceedings diligently
conducted and which are reserved against on the Borrower's books and records.
6.2 Maintenance of Books and Records. The Borrower shall keep proper
books and records in which true and complete entries shall be made of all
dealings or transactions of or in relation to the Collateral and the business of
Borrower and its Subsidiaries in accordance with GAAP, which books and records
shall be maintained at the address set forth on Schedule 4.1 hereto.
6.3 Conduct of Business; Maintenance of Existence; and Compliance with
Laws. Continue to engage in business of the same general type as conducted by
the Borrower on the Closing Date, and preserve, renew and keep in full force and
effect its corporate existence and take all reasonable action to maintain all
rights, privileges and franchises necessary or desirable in the normal conduct
of the business of the Borrower. The Borrower shall do or cause to be done all
things necessary to ensure compliance by the Borrower in all material respects
with all Requirements of Law and all applicable restrictions imposed by any
Governmental Authority.
6.4 Maintenance of Insurance. Maintain insurance with responsible and
reputable insurance companies or associations in such amounts and covering such
risks as is usually carried by companies of similar size engaged in similar
businesses and owning similar properties and assets in the same general areas in
which the Borrower operates and reasonably acceptable to the Lender, including,
without limitation, primary, all risk, physical damage, property damage, and
bodily injury with appropriate loss payee and additional insured endorsements in
favor of the Lender.
6.5 Taxes. Timely pay all Taxes except Taxes being contested in good
faith by appropriate proceedings (which shall be reserved against on the
Borrower's books and records); provided that it shall pay any contested Taxes
upon commencement of proceedings to foreclose upon any property or assets of the
Borrower to pay such Taxes.
6.6 Maintenance of Properties. Maintain, preserve, protect and keep its
properties in good repair, working order and condition (ordinary wear and tear
excepted), and make reasonable, necessary and proper repairs, renewals and
replacements so that its business carried on in connection therewith may be
properly conducted at all times consistent with past practices of the Borrower.
6.7 Information Rights. The Borrower shall deliver the following to the
Lender:
(a) as soon as practicable, but in any event within ninety
(90) days after the end of each calendar year, (i) consolidated income statement
and statement of cash flows for such year and a balance sheet as of the end of
such year, prepared in accordance with GAAP, and audited and certified by
independent public accountants of nationally recognized standing selected by the
Borrower and reasonably acceptable to the Lender and (ii) annual sales forecasts
16
and budgets for the then next two years, in each case in form and substance
reasonably satisfactory to the Lender;
(b) as soon as practicable, (i) but in any event within thirty
(30) days after the end of each calendar month an unaudited income statement and
statement of cash flows for such month and an unaudited balance sheet as of the
end of such month, (ii) but in any event within thirty (30) days after the end
of each calendar month, monthly sales forecasts, and (iii) but in any event
within thirty (30) days, monthly, quarterly and annual budgets (including
variance reports) in form and substance reasonably satisfactory to the Lender;
and
(c) as soon as reasonably practicable after requested by
Lender, such other reports as Lender may reasonably request in connection with
the Borrower, including without limitation the information referenced at Section
6.11.
6.8 Board Observation Rights. Following termination of the Merger
Agreement and until such time as all Secured Obligations are indefeasibly repaid
in full, the Lender shall have the right to have a representative attend all
meetings of the Borrower's Board of Directors or any such committee thereof, in
a nonvoting, observer capacity, the cost of which attendance shall be paid by
the Borrower, including travel and related costs and expenses. The Borrower
shall provide the Lender notice of such meetings at the same time and in the
same manner as such notice is provided to the Board of Directors and the
Borrower shall provide the Lender copies of all minutes, consents, and other
materials the Borrower provides to its directors in conjunction with said
meetings.
6.9 Access to Premises. Subject to the provisions of the
Confidentiality Agreement between the Borrower and the Lender dated February 27,
2003, and Section 5.6 of the Merger Agreement, from time to time as requested by
the Lender, (a) the Lender or its designee shall have complete access to all of
the Borrower's premises and personnel during normal business hours and after
reasonable prior notice to, or at any time and without notice to the Borrower if
an Event of Default exists or has occurred and is continuing, for the purposes
of inspecting, verifying and auditing the Collateral and all of Borrower's books
and records, and (b) the Borrower shall promptly furnish to the Lender such
copies of such books and records or extracts therefrom as the Lender may
request, and (c) the Lender or the Lender's designee may use during normal
business hours such of the Borrower's equipment, supplies and premises as may be
reasonably necessary for the foregoing and, if an Event of Default exists or has
occurred and is continuing, for the collection of accounts receivable and
realization of other Collateral.
6.10 Lock Box Instructions. Upon the occurrence of an Event of Default,
permit Lender, in Lender's sole discretion, to instruct each of the Borrower's
customers and any other Persons with amounts owing to the Borrower to send all
future payments to a designated Lock Box Account pursuant to instructions
determined by the Lender in its sole discretion.
6.11 Updates to Weekly Projections. The Borrower shall consult with the
Lender on a weekly basis with respect to the reconciliation of actual cash flow
to that set forth in the Weekly Projections for the applicable period(s), and
the Borrower shall provide the Lender with the updated Weekly Projections, which
updates shall be consistent with the categories and details set forth in the
Weekly Projections attached at Schedule 4.16(b) hereto, and which updates, for
17
purposes of making Loans pursuant to Section 2.1 hereof, shall in each instance
be acceptable to the Lender in its sole and absolute discretion.
SECTION 7. NEGATIVE COVENANTS
The Borrower hereby agrees that, from and after the original Closing
Date and thereafter until payment in full of all Secured Obligations, the
Borrower shall not, without the Lender's prior written consent:
7.1 Limitation on Indebtedness. Create, incur, assume or suffer to
exist any Indebtedness, except:
(a) Indebtedness of the Borrower under this Agreement; and
(b) other Indebtedness (including accrued interest thereon)
outstanding on the original Closing Date and listed on Schedule 7.1(b) (none of
which is secured).
7.2 Limitation on Liens. Create, incur, assume or suffer to exist any
Liens on any properties or assets of the Borrower other than:
(a) Liens incurred in connection with Indebtedness permitted
to be incurred or permitted to exist pursuant to Section 7.1(a);
(b) deposits under worker's compensation, unemployment
insurance and Social Security laws or to secure statutory obligations or surety
or appeal bonds or performance or other similar bonds in the ordinary course of
business consistent with past practice;
(c) Liens for taxes, assessments or other governmental charges
or levies due and payable, the validity or amount of which is currently being
contested in good faith by appropriate proceedings and which have been reserved
for on the Borrower's books and records;
(d) Except as set forth on Schedule 4.15, Liens arising out of
attachments, judgments or awards as to which an appeal or other appropriate
proceedings for contest or review are promptly commenced (and as to which
foreclosure and other enforcement proceedings shall not have been commenced
(unless fully bonded or otherwise effectively stayed)) and as to which reserves
have been established, provided that the assets or property subject to such lien
do not have a value in the aggregate greater than $50,000;
(e) [intentionally deleted];
(f) Liens existing on the Closing Date and described on
Schedule 7.2(f); or
(g) Easements, reservations, rights-of-way, restrictions,
minor defects or irregularities in title and other similar charges or
encumbrances affecting real property not constituting, or not possible of
resulting in, a Material Adverse Change.
18
7.3 Limitations on Transactions with Affiliates. Make any payment to or
investment in, or enter into any transaction with, any Affiliate, including,
without limitation, the purchase, sale or exchange of property or assets or the
rendering of any service, except transactions entered into with Affiliates (a)
in the ordinary course of business consistent with past practice, (b) on terms
and conditions substantially similar to those that the Borrower would have
received in an "arm's length" transaction with an independent third party and
(c) related to the Borrower's principal activities; provided, however, that no
payments shall be made (i) to pay any deferred compensation to any officer,
director, employee, insider or Affiliate, or (ii) to reduce, retire or otherwise
repay any note, Indebtedness or other debt or obligation of any officer,
director, employee, insider or Affiliate (including, without limitation, any
Subordinated Debt), or (iii) to reduce any single account payable of the
Borrower by more than $50,000 or more than $150,000 in the aggregate without, in
each case, the prior written approval of the Lender.
7.4 Restrictions on Transactions and Fundamental Changes. Alter the
Borrower's capital or legal structure, or change its name, jurisdiction of
formation or principal place of business/chief executive office, or enter into
any transaction of merger, recapitalization, restructuring, consolidation or
similar transaction, or liquidate, wind-up or dissolve the Borrower (or suffer
any liquidation or dissolution), or convey, sell, lease, sub-lease, license,
transfer or otherwise dispose of, in one transaction or a series of
transactions, all or any part of the Borrower's business, property or assets,
whether now owned or hereafter acquired, or enter into any management contract
permitting third-party management rights with respect to the Borrower's
business, or declare or pay any dividends or make any other distribution to its
shareholders, or make any investments, or make any loans, advances or other
extensions of credit to any Person; provided, that (i) the Borrower may declare
and make any dividend payment or other distribution payable in its equity
securities; (ii) the Borrower may make travel advances in the ordinary course of
business consistent with past practice in an aggregate amount of up to $25,000
per month, with an aggregate amount per employee of up to $5,000 per month and
(iii) the Borrower may consummate the transactions contemplated under the Merger
Agreement in accordance with the terms thereof.
7.5 Sale of Assets; Transfer to Subsidiary. Sell, lease, sub-lease,
license, transfer or otherwise dispose of any of the Borrower's interest in its
respective properties or assets, whether real, personal or mixed, or tangible or
intangible, other than inventory in the ordinary course of business consistent
with past practice. Borrower shall not sell, lease, sublease, license, transfer
or otherwise dispose of any properties or assets to any subsidiary.
7.6 Repurchase of Securities. Repurchase, redeem or otherwise acquire
or retire any of the Borrower's securities or obligation evidencing the right of
any holder thereof to purchase any of the Borrower's securities without the
prior written consent of the Lender, other than (a) under the terms and
conditions of stock option, stock purchase, profit sharing or similar plans
approved by the Borrower's Board of Directors or (b) pursuant to the Merger
Agreement in accordance with the terms thereof; provided that with respect to
transactions under (a) only: (i) the shares of common stock or other securities
of the Borrower issued or issuable pursuant thereto do not constitute in the
aggregate more than ten percent (10%) of the Borrower's total outstanding
capital stock on a fully diluted basis; (ii) in no event shall the Borrower
repurchase, redeem or otherwise acquire or retire shares that constitute in the
aggregate more than (A) ten percent (10%) of the Borrower's total outstanding
capital stock on a fully diluted basis or (B) more than
19
two percent (2%) of the Borrower's total outstanding capital stock on a fully
diluted basis from any Person or their respective Affiliates (the securities of
which Affiliates shall be deemed aggregated with such Person for such purpose);
and (iii) any repurchase, redemption or other acquisition or retirement by the
Borrower of securities acquired by an employee pursuant to any such plan shall
be at a price not greater than the actual, cash price that such employee paid to
acquire such securities.
7.7 Corporate Governance. Enter into one or more mortgage, indenture,
agreement, contract, commitment, lease, plan, or other instrument, document or
understanding, oral or written, with any Person in which (i) the Borrower is
obligated to pay in excess of $100,000 in the aggregate within 12 months of the
date hereof without obtaining the approval of the Board of Directors of the
Borrower, and (ii) the Lender does not have a first-priority security interest
as to payment or liquidation or otherwise.
7.8 Bank Accounts. Attached hereto as Schedule 7.8 is a list of all of
the Borrower's present accounts at any bank or other financial institution,
which list includes (i) the name and address of the applicable bank or financial
institution, (ii) the account number and (iii) a contact person at such bank or
financial institution responsible for the operation of such account
(collectively, the "Bank Accounts"). The Borrower shall not establish any
accounts other than the Bank Accounts, except upon not less than fifteen (15)
days' prior written notice to Lender and delivery to Lender of an appropriate
deposit account control agreement in form and substance satisfactory to the
Lender. The Borrower shall not maintain or permit to exist any deposits or other
funds of whatever nature outside of Montecito Bank & Trust in excess of the
amounts and in the Bank Accounts set forth on Schedule 7.8.
7.9 Limitation on Liabilities. The Borrower shall not incur liabilities
owing to any Person (other than in the ordinary course of business) and its
Affiliates in excess of $100,000 in the aggregate without the prior approval of
the Lender, which approval may be given or withheld in the Lender's sole
discretion.
SECTION 8. EVENTS OF DEFAULT
8.1 Event of Default. If any of the following events shall occur and be
continuing:
(a) the Borrower shall fail to pay any principal of or any
interest on the Loan or any other amount payable hereunder when due in
accordance with the terms hereof, or shall fail to make a mandatory prepayment
as and when required under Section 3.2(b) hereof; or
(b) the Borrower shall default in the observance or
performance of any covenant, agreement or other obligation contained in this
Agreement or any other Loan Document, and such default continues for five (5)
Business Days from the Borrower's knowledge thereof; or
(c) default shall be made with respect to any payment of any
Indebtedness of the Borrower in excess of $250,000 when due or the performance
of any covenant, agreement or other obligation incurred in connection with any
such Indebtedness, if the effect of such default is to permit the acceleration
of the maturity of such Indebtedness and such default shall not be remedied,
cured, waived or consented to by the holder of such Indebtedness within the
applicable
20
grace period, or any other circumstance arise (other than the mere passage of
time) by reason of which the Borrower is required to repurchase or offer to
holders of Indebtedness of any such Person, the opportunity to have purchased,
any such Indebtedness; or
(d) (i) the Borrower shall commence any case, proceeding or
other action (A) under any existing or future law or statute of any
jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking to have an order for relief entered
with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or
seeking reorganization, arrangement, adjustment, winding-up, liquidation,
dissolution, composition or other relief with respect to it or its debts, or (B)
seeking appointment of a receiver, trustee, custodian, conservator or other
similar official for it or for all or any substantial part of its assets, or the
Borrower shall make a general assignment for the benefit of its creditors; (ii)
there shall be commenced against the Borrower any case, proceeding or other
action of a nature referred to in clause (i) above which (A) results in the
entry of an order for relief or any such adjudication or appointment or (B)
remains undismissed, undischarged, unstayed or unbonded for a period of 30 days;
(iii) there shall be commenced against the Borrower any case, proceeding or
other action seeking issuance of a warrant or writ of attachment, execution,
distraint or similar process against all or any substantial part of its assets
which results in the entry of an order for such relief which shall not have been
vacated, discharged, stayed or bonded pending appeal within 30 days from the
entry thereof; (iv) the Borrower shall take any corporate action in furtherance
of, or indicating its consent to, approval of or acquiescence in, any of the
acts set forth in clause (i), (ii), or (iii) above; or (v) the Borrower shall be
generally unable to, or shall admit its general inability to, pay its debts as
they become due; or
(e) final judgment for the payment of money shall be rendered
by a court of competent jurisdiction against the Borrower and the Borrower shall
not discharge the same or provide for its discharge in accordance with its
terms, or procure a stay of execution thereof within ten (10) calendar days from
the date of entry thereof and within a period of thirty (30) days, or such
longer period during which execution of such judgment shall have been stayed,
appeal therefrom and cause the execution thereof to be stayed during such
appeal, and such judgment together with all other such judgments of the Borrower
shall exceed in the aggregate $250,000; or
(f) any representation or warranty made by the Borrower in
this Agreement, or any other Loan Document shall be false or incorrect in any
material respect on any date on which such representation or warranty was made;
or
(g) any Loan Document shall cease for any reason to be in full
force and effect (other than pursuant to the express terms hereof or thereof),
the Loan Documents shall, for any reason, not give or shall cease to give the
Lender a perfected Lien in all of the Collateral with the priority contemplated
by such Loan Documents and subject to no other Liens (except to the extent
expressly permitted herein or therein) other than by actions of the Lender, or
the Borrower shall so assert; or
(h) any Material Adverse Change shall have occurred; or
(i) a Prohibited Transaction shall have occurred.
21
then, and in each such event, (A) if such event is an Event of Default specified
in clauses (i) or (ii) of paragraph (d) above with respect to the Borrower
automatically the Loan hereunder (with accrued interest thereon) and all other
Secured Obligations shall immediately become due and payable, and (B) if such
event is any other Event of Default (except as otherwise provided in the
definition of "Maturity Date," in which case no notice of acceleration shall be
required), the Lender may, by notice to the Borrower, declare the Loan hereunder
(with accrued but unpaid interest thereon including such interest accruing at
the Default Rate) and all other Secured Obligations to be due and payable
forthwith, whereupon the same shall immediately become due and payable.
8.2 Use of Collateral. So long as no Event of Default shall have
occurred and be continuing, and subject to the various provisions of this
Agreement and the other Loan Documents, the Borrower may use the Collateral in
any lawful manner except as otherwise prohibited hereunder or thereunder.
8.3 Credit Parties to Hold in Trust. Upon the occurrence and during the
continuance of an Event of Default, the Borrower will, upon receipt by it of any
revenue, income, profits or other sums in which a security interest is granted
hereunder, payable pursuant to any agreement or otherwise, or of any check,
draft, note, trade acceptance or other instrument evidencing an obligation to
pay any such sum, hold the sum or instrument in trust for the Lender, segregate
such sum or instrument from their own assets and forthwith, without any notice,
demand or other action whatsoever (all notices, demands, or other actions on the
part of the Lender being expressly waived), endorse, transfer and deliver any
such sums or instruments or both, to the Lender to be applied to the repayment
of the Loan in accordance with the provisions of this Agreement.
8.4 Collections, etc. Upon the occurrence and during the continuance of
an Event of Default, the Lender may, in its sole discretion, sue for, collect or
receive any money or property at any time payable or receivable on account of or
in exchange for, or make any commercially reasonable compromise or settlement
deemed desirable with respect to, any of the Collateral, but shall be under no
obligation so to do, or the Lender may extend the time of payment, arrange for
payment in installments, or otherwise modify the terms of, or release, any of
the Collateral, without thereby incurring responsibility to, or discharging or
otherwise affecting any liability of the Borrower. The Lender will not be
required to take any steps to preserve any rights against prior parties to the
Collateral. If the Borrower fails to make any payment or take any action
required hereunder, the Lender may make such payments and take all such actions
as the Lender reasonably deems necessary to protect the Lender's security
interests in the Collateral and/or the value thereof, and the Lender is hereby
authorized (without limiting the general nature of the authority hereinabove
conferred) to pay, purchase, contest and/or compromise any Liens that in the
judgment of the Lender appear to be equal to, prior to or superior to the
security interests of the Lender in the Collateral (other than those permitted
hereunder) and any Liens not expressly permitted by this Agreement.
8.5 Possession, Sale of Collateral, etc. Upon the occurrence and during
the continuance of an Event of Default, the Lender may enter upon the premises
of the Borrower or wherever the Collateral may be, and take possession of the
Collateral, and may demand and receive such possession from any Person who has
possession thereof, and the Lender may take such measures
22
as it deems necessary or proper for the care or protection thereof, including
the right to remove all or any portion of the Collateral, and with or without
taking such possession may sell or cause to be sold, whenever the Lender shall
decide, in one or more sales or parcels, at such prices as the Lender may deem
appropriate, and for cash or on credit or for future delivery, without
assumption of any credit risk, all or any portion of the Collateral, at any
broker's board or at public or private sale, without demand of performance but
within 10 days' written notice to the Borrower of the time and place of any such
public sale or sales (which notice the Borrower hereby agrees is reasonable) and
with such other notices as may be required by applicable law and cannot be
waived, and the Lender shall have no liability should the proceeds resulting
from a private sale be less than the proceeds realizable from a public sale, and
the Lender or any other Person may be the purchaser of all or any portion of the
Collateral so sold and thereafter hold the same absolutely, free (to the fullest
extent permitted by applicable law) from any claim or right of whatever kind,
including any equity of redemption, of the Borrower, any such demand, notice,
claim, right or equity being hereby expressly waived and released by the
Borrower. At any sale or sales made pursuant to this Section 8, the Lender may
bid for or purchase, free (to the fullest extent permitted by applicable law)
from any claim or right of whatever kind, including any equity of redemption,
without demand therefore or notice to the Borrower, any such demand, notice,
claim, right or equity being hereby expressly waived and released, any part of
or all of the Collateral offered for sale, and may make any payment on account
thereof by using any claim for moneys then due and payable to the Lender by the
Borrower hereunder as a credit against the purchase price. The Lender shall in
any such sale make no representations or warranties with respect to the
Collateral or any part thereof, and the Lender shall not be chargeable with any
of the obligations or liabilities of the Borrower. The Borrower hereby agrees
(i) that it will indemnify and hold the Lender harmless from and against any and
all claims with respect to the Collateral asserted before the taking of actual
possession or control of the relevant Collateral by the Lender pursuant to this
Section 8, or arising out of any act of, or omission to act on the part of, any
Person prior to such taking of actual possession or control by the Lender
(whether asserted before or after such taking of possession or control), or
arising out of any act on the part of the Borrower or its Affiliates or agents
before or after the commencement of such actual possession or control by the
Lender, but excluding therefrom all claims with respect to the Collateral
resulting from the gross negligence or willful misconduct of the Lender; and
(ii) the Lender shall not have liability or obligation to the Borrower arising
out of any such claim except for acts of gross negligence or willful misconduct
of the Lender. Subject only to the lawful rights of third parties, any Person
that has possession of any of the Collateral is hereby constituted and appointed
by the Borrower as pledgeholder for the Lender and, upon the occurrence of an
Event of Default, each such pledgeholder is hereby authorized (to the fullest
extent permitted by applicable law) to sell all or any portion of the Collateral
upon the order and direction of the Lender, and the Borrower hereby waives any
and all claims, for damages or otherwise, for any action taken by such
pledgeholder in accordance with the terms of the UCC not otherwise waived
hereunder. In any action hereunder, the Lender shall be entitled, if permitted
by applicable law, to the appointment of a receiver without notice, to take
possession of all or any portion of the Collateral and to exercise such powers
as the court shall confer upon the receiver. Notwithstanding the foregoing, upon
the occurrence of an Event of Default, and during the continuation of such Event
of Default, the Lender shall be entitled to apply, without prior notice to the
Borrower, any cash or cash items constituting Collateral in the possession of
the Lender to payment of the Secured Obligations.
23
8.6 Application of Proceeds on Default. Upon the occurrence and during
the continuance of an Event of Default, the balances in any account of the
Borrower which constitutes part of the Collateral, all other income on the
Collateral, and all proceeds from any sale of the Collateral pursuant hereto
shall be applied first toward payment of the costs and expenses paid or incurred
by the Lender in enforcing this Agreement, in realizing on or protecting any
Collateral and in enforcing or collecting any Secured Obligations, including,
without limitation, court costs and the attorney's fees and expenses incurred by
the Lender, then to satisfy or provide cash Collateral for all obligations
relating to Secured Obligations, and then the indefeasible payment in full of
the Secured Obligations in accordance with this Agreement. Any amounts remaining
after such indefeasible payment in full shall be remitted to the Borrower or as
a court of competent jurisdiction may otherwise direct.
8.7 Power of Attorney. Upon the occurrence and during the continuance
of an Event of Default which is not waived in writing by the Lender, (a) the
Borrower does hereby irrevocably make, constitute and appoint the Lender or any
of its officers or designees the Borrower's true and lawful attorney-in-fact
with full power in the name of the Lender or such other Person to receive, open
and dispose of all mail addressed to the Borrower, and to endorse any notes,
checks, drafts, money orders or other evidences of payment relating to the
Collateral that may come into the possession of the Lender with full power and
right to cause the mail of such Persons to be transferred to the Lender's own
offices or otherwise, and to do any and all other acts necessary or proper to
carry out the intent of this Agreement and the grant of the security interests
hereunder and under the Loan Documents, and the Borrower hereby ratifies and
confirms all that the Lender or its substitutes shall properly do by virtue
hereof; (b) the Borrower does hereby further irrevocably make, constitute and
appoint the Lender or any of its officers or designees its true and lawful
attorney-in-fact in the name of the Lender or the Borrower (i) to enforce all of
the Borrower's rights under and pursuant to all agreements with respect to the
Collateral, all for the sole benefit of the Lender and to enter into such other
agreements (as may be lawful and without breach of contract) as may be
necessary, desirable or appropriate in the judgment of the Lender to complete
the production, distribution or exploitation of any Collateral, (ii) to enter
into and perform such agreements as may be necessary, desirable or appropriate
in the judgment of the Lender in order to carry out the terms, covenants and
conditions of the Loan Documents that are required to be observed or performed
by the Borrower, (iii) to execute such other and further mortgages, pledges and
assignments of the Collateral, and related instruments or agreements, as the
Lender may reasonably require for the purpose of perfecting, protecting,
maintaining or enforcing the security interests granted to the Lender hereunder,
and under the other Loan Documents, and (iv) to do any and all other things
necessary, desirable or appropriate in the judgment of the Lender to carry out
the intention of this Agreement and the grant of the security interests
hereunder and under the other Loan Documents. The Borrower hereby ratifies and
confirms in advance all that the Lender as such attorney-in-fact or its
substitutes shall properly do by virtue of this power of attorney.
8.8 Termination and Release. The security interests granted under this
Agreement shall terminate when all the Secured Obligations have been
indefeasibly paid in full and performed and the commitments pursuant to this
Agreement shall have terminated. Upon request by the Borrower (and at the sole
expense of the Borrower) after such termination, the Lender will take all
reasonable action and do all things reasonably necessary, including executing
UCC
24
termination statements, termination letters to account debtors and copyright and
trademark releases, to terminate the security interest granted to it hereunder.
8.9 Remedies Not Exclusive. The remedies conferred upon or reserved to
the Lender in this Section 8 are intended to be in addition to, and not in
limitation of, any other remedy or remedies available to the Lender. Without
limiting the generality of the foregoing, the Lender shall have all rights and
remedies of a secured creditor under Article 9 of the UCC and other applicable
law.
SECTION 9. MISCELLANEOUS
9.1 [intentionally deleted]
9.2 Indemnification. The Borrower agrees to indemnify, defend and hold
harmless the Lender and each of its successors, assigns, heirs, Subsidiaries,
Affiliates and all of the officers, directors, employees, partners, members,
representatives, advisors and agents (including, without limitation, attorneys
and accountants) of each of the aforementioned Persons, and each of them, from
and against any and all losses, claims, damages, liabilities, expenses, demands,
causes of action, suits, debts, obligations, rights, promises, acts, agreements
and damages of any kind or nature whatsoever, whether at law or in equity,
whether known or unknown, foreseen or unforeseen, heretofore or hereafter
arising out of, relating to, connected with or incidental to the failure of any
representation or warranty made by the Borrower in this Agreement, the other
Loan Documents or in any other documents or agreements contemplated hereby or
thereby or the failure of the Borrower to comply with the covenants, agreements
or other obligations contained in this Agreement or the other Loan Documents
(but excluding (i) any such losses, claims, damages, liabilities, expenses,
demands, causes of action, suits, debts, obligations, rights, promises, acts,
agreements and damages of the Lender to the extent incurred solely by reason of
the gross negligence or willful misconduct of the Lender or (ii) litigation
solely between the Borrower, on the one hand, and the Lender, on the other hand,
in connection with this Agreement or the other Loan Documents or relating to the
transactions contemplated hereby or thereby if, after final non-appealable
judgment, the Lender is not the prevailing party in such litigation). The
agreements in this Section 9.2 shall survive the execution and delivery of this
Agreement and the other Loan Documents and the consummation of the transactions
contemplated hereby or thereby.
9.3 Entire Agreement; Amendments. This Agreement and the other Loan
Documents constitute the entire agreement between the Lender and the Borrower
pertaining to the subject matter contained herein and therein. Neither this
Agreement nor any other Loan Document, nor any terms hereof or thereof, may be
amended, supplemented or modified, nor may the obligations of the parties hereto
or thereto be waived, except pursuant to a writing signed by both the Lender and
the Borrower.
9.4 Waivers. The Lender shall not be deemed, by any act or omission, to
have waived any of its rights or remedies hereunder unless such waiver is in
writing and signed by the Lender and then only to the extent specifically set
forth in such writing. A waiver with reference to one event shall not be
construed as continuing or as a bar to or waiver of any right or remedy as to a
subsequent event. No delay or omission of the Lender to exercise any right,
whether before or
25
after a default hereunder, shall impair any such right or shall be construed to
be a waiver of any right or default, and the acceptance at any time by the
Lender of any past-due amount shall not be deemed to be a waiver of the right to
require prompt payment when due of any other amounts then or thereafter due and
payable.
9.5 Notices. All notices, requests and demands to or upon the
respective parties hereto to be effective shall be in writing (including by
telecopy), and, unless otherwise expressly provided herein, shall be deemed to
have been duly given or made when delivered by hand, or three days after being
deposited in the mail, postage prepaid, or, in the case of a telecopy notice,
when received (provided an original copy of such notice is mailed, postage
pre-paid within the next business day after such notice is sent by telecopy),
or, in the case of delivery by a nationally recognized overnight courier, when
received, addressed as follows, or to such other address as may be hereafter
notified by the respective parties hereto:
The Borrower: Computer Motion, Inc.
130-B Cremona Drive
Santa Barbara, California 93117
Attn: Robert W. Duggan, Chief Executive Officer
Fax: 805-968-4920
with a copy to: Stradling, Yocca, Carlson & Rauth
302 Olive Street
Santa Barbara, California 93101
Attn: David Lafitte, Esq.
Fax: 805-564-1044
The Lender: Intuitive Surgical, Inc.
950 Kifer Road
Sunnyvale, California 94086
Attn: Lonnie M. Smith, Chief Executive Officer
Fax: 408-523-2372
with a copy to: Latham & Watkins LLP
505 Montgomery Street
San Francisco, California 94111-2562
Attn: John M. Newell, Esq.
Fax: 415-395-8095
9.6 Successors and Assigns. The Borrower may not assign its rights or
obligations under this Agreement or the Note without the written consent of the
Lender. This Agreement shall be binding upon and inure to the benefit of the
Borrower and the Lender and their respective successors and permitted assigns.
9.7 Interest Deficit. If the provisions of this Agreement or the Note
would at any time require payment by the Borrower to the Lender of any amount of
interest in excess of the maximum amount then permitted by applicable law, the
interest payments to the Lender shall be
26
reduced but only to the extent necessary so that the Lender shall not receive
interest in excess of such maximum amount. If, as a result of the foregoing, the
Lender shall receive interest payments under the Note in an amount less than the
amount otherwise provided hereunder, such deficit (hereinafter called the
"Interest Deficit") will, to the fullest extent permitted by applicable law,
cumulate and will be carried forward (without interest) until the payment in
full of the Note or such earlier time as it may be paid. Interest otherwise
payable to the Lender for any subsequent period shall be increased by the
maximum amount of the Interest Deficit that may be so added without causing the
Lender to receive interest in excess of the maximum amount then permitted by the
law applicable thereto. The amount of any Interest Deficit shall be treated as a
prepayment penalty and shall, to the fullest extent permitted by applicable law,
be paid in full at the time of any prepayment by the Borrower to the Lender. The
amount of any Interest Deficit at the time of any complete payment of the Loan
(if any) (other than an optional prepayment thereof) shall, except to the full
extent then permitted to be paid under applicable law, be canceled and not paid.
9.8 Confidentiality. In handling any confidential information of the
Borrower, the Lender shall exercise the same degree of care that it exercises
with respect to its own proprietary information of the same types to maintain
the confidentiality of any non-public information thereby received or received
pursuant to this Agreement, except that disclosure of such information may be
made (i) to the Subsidiaries or Affiliates of the Lender in connection with
their present or prospective business relations with the Borrower, (ii) to
prospective transferees or purchasers of any interest in the Loan, provided that
they have entered into a comparable confidentiality agreement in favor of the
Borrower and have delivered a copy to the Borrower, (iii) under any Requirement
of Law, (iv) as may be required in connection with the examination, audit or
similar investigation of the Lender, (v) in connection with the Merger Agreement
and (vi) as the Lender may deem appropriate in connection with the exercise of
any remedies hereunder. Confidential information hereunder shall not include
information that either (a) is in the public domain or in the knowledge or
possession of the Lender when disclosed to the Lender by the Borrower, or
becomes part of the public domain after disclosure to the Lender through no
fault of the Lender; or (b) is disclosed to the Lender by a third party,
provided the Lender does not have actual knowledge that such third party is
prohibited from disclosing such information.
9.9 Payment of Expenses. Without duplication of amounts payable under
Section 7.2.2 of the Merger Agreement, the Borrower agrees to pay or reimburse
the Lender upon the termination of the Merger Agreement for all of the Lender's
out-of-pocket costs and expenses incurred in connection with its due diligence
with respect to the Loan, the preparation, execution, delivery and performance
of this Agreement and the other Loan Documents, the consummation of the
transactions contemplated hereby and thereby and the enforcement of its rights
hereunder or thereunder, including, without limitation, the reasonable fees and
disbursements of the Lender's outside counsel; provided that notwithstanding
Section 7.2.2. of the Merger Agreement, the Borrower agrees to reimburse the
Lender for all such costs and expenses (including without limitation the
reasonable fees and disbursements of the Lender's outside counsel) incurred by
the Lender in connection with the Loan Documents following termination of the
Merger Agreement, including without limitation in connection with the
enforcement of the Lender's rights hereunder and under the other Loan Documents.
27
9.10 Captions. The captions of the Sections of this Agreement have been
inserted for convenience only and shall have no substantive effect.
9.11 Counterparts. This Agreement may be executed in any number of
counterparts (including by telecopy), each of which when so executed shall be
deemed to be an original and all of which counterparts together shall constitute
one and the same instrument.
9.12 Severability; Reformation. In case any provision of this Agreement
shall be held to be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement and the future application of such provision shall
not in any way be affected or impaired thereby.
9.13 WAIVER OF JURY TRIAL. TO THE EXTENT NOT PROHIBITED BY APPLICABLE
LAW WHICH CANNOT BE WAIVED, EACH OF THE BORROWER AND THE LENDER HEREBY WAIVES,
AND COVENANTS THAT IT WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR
OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY FORUM IN RESPECT OF ANY ISSUE,
CLAIM, DEMAND, ACTION, OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS
AGREEMENT, THE SUBJECT MATTER HEREOF, ANY OTHER LOAN DOCUMENT OR THE SUBJECT
MATTER THEREOF, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING AND
WHETHER IN CONTRACT OR TORT OR OTHERWISE. EACH OF THE BORROWER AND THE LENDER
ACKNOWLEDGES THAT IT HAS BEEN INFORMED BY THE OTHER PARTY HERETO THAT THE
PROVISIONS OF THIS SECTION CONSTITUTE A MATERIAL INDUCEMENT UPON WHICH SUCH
OTHER PARTY HAS RELIED, IS RELYING AND WILL RELY IN ENTERING INTO THIS AGREEMENT
AND THE OTHER LOAN DOCUMENTS. ANY PARTY MAY FILE AN ORIGINAL COUNTERPART OR A
COPY OF THIS SECTION 9.13 WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF
THE COMPANY AND THE LENDER TO THE WAIVER OF ITS RIGHTS TO TRIAL BY JURY.
9.14 GOVERNING LAW. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS AND THE
RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE
WITH, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA WITHOUT GIVING EFFECT TO ANY
CONFLICT OF LAW PROVISIONS.
9.15 CONSENT TO JURISDICTION/SERVICE OF PROCESS. EACH OF THE BORROWER
AND THE LENDER IRREVOCABLY CONSENT AND SUBMIT TO THE NON-EXCLUSIVE JURISDICTION
OF THE COURTS OF SANTA CLARA COUNTY, CALIFORNIA, AND THE UNITED STATES DISTRICT
COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA, WHICHEVER THE LENDER MAY ELECT,
AND WAIVE ANY OBJECTION BASED ON VENUE OR FORUM NON CONVENIENS WITH RESPECT TO
ANY ACTION INSTITUTED THEREIN ARISING UNDER THIS AGREEMENT OR ANY OF THE OTHER
LOAN DOCUMENTS WHETHER IN CONTRACT, TORT, EQUITY
28
OR OTHERWISE, AND AGREE THAT ANY DISPUTE WITH RESPECT TO ANY SUCH MATTERS SHALL
BE HEARD ONLY IN THE COURTS DESCRIBED ABOVE (EXCEPT THAT THE LENDER SHALL HAVE
THE RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST THE BORROWER OR ITS PROPERTY
IN THE COURTS OF ANY OTHER JURISDICTION WHICH THE LENDER DEEMS NECESSARY OR
APPROPRIATE IN ORDER TO REALIZE ON THE COLLATERAL OR TO OTHERWISE ENFORCE ITS
RIGHTS AGAINST THE BORROWER OR ITS PROPERTY). THE BORROWER HEREBY WAIVES
PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT AND CONSENTS THAT ALL SUCH
SERVICE OF PROCESS MAY BE MADE BY CERTIFIED MAIL (RETURN RECEIPT REQUESTED)
DIRECTED TO ITS ADDRESS SET FORTH HEREIN AND SERVICE SO MADE SHALL BE DEEMED TO
BE COMPLETED FIVE (5) DAYS AFTER THE SAME SHALL HAVE BEEN SO DEPOSITED IN THE
U.S. MAILS, OR, AT THE LENDER'S OPTION, BY SERVICE UPON THE BORROWER IN ANY
OTHER MANNER PROVIDED UNDER THE RULES OF ANY SUCH COURTS.
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
29
IN WITNESS WHEREOF, the parties hereto have caused this Loan and
Security Agreement to be duly executed and delivered on their behalf as of the
date first above written.
COMPUTER MOTION, INC.
By: /s/ Robert W. Duggan
--------------------
Name: Robert W. Duggan
Title: Chief Executive Officer
INTUITIVE SURGICAL, INC.
By: /s/ Lonnie M. Smith
-------------------
Name: Lonnie M. Smith
Title: President & Chief Executive
Officer
EXHIBIT A
COLLATERAL OF BORROWER
The Collateral shall consist of all right, title and interest of Borrower in and
to the following, in each case whether now owned or hereafter arising or
acquired by Borrower:
(a) All present and future accounts, general intangibles and other
rights of Borrower to the payment of money no matter how evidenced, all
chattel paper, instruments and other writings evidencing any such
right, and all goods repossessed or returned in connection therewith;
(b) All inventory of Borrower, now owned or hereafter acquired, and all
raw materials, work in process, materials used or consumed in
Borrower's business and finished goods, together with all additions and
accessions thereto and replacements therefor, and products thereof;
(c) All equipment of Borrower, now owned or hereafter acquired,
including, without limitation, all vehicles (including motor vehicles
and trailers) machinery, tools, dies, blueprints, catalogues, computer
hardware and software, furniture, furnishings and fixtures and all
attachments, accessories, replacements, substitutions, additions, and
improvements to any of the foregoing;
(d) All documents, letters of credit and rights to proceeds of letters
of credit, instruments and investment property of Borrower, now owned
or hereafter acquired, and all new, substituted and additional
documents, securities and instruments issued with respect thereto, all
voting or other rights now or hereafter exercisable and all cash and
noncash dividends, interest and other property now or hereafter
receivable with respect to any of the foregoing, whether such
certificates, documents and instruments are in the possession of
Borrower or a financial intermediary on behalf of Borrower;
(e) All patents and patent applications of Borrower and all rights
corresponding thereto throughout the world, and all unpatented or
unpatentable developments and inventions and all license fees,
royalties and other similar items received in connection therewith;
(f) All trademarks, service marks and logos of Borrower, and all United
States, state and/or foreign applications for registration thereof, all
trade names, trade styles, designs, and the like, all elements of
package or trade dress of goods, the goodwill of Borrower's business
connected with the use of, and symbolized by any of the above, and all
property of Borrower necessary to produce any products sold under any
of the above;
(g) All copyrights and copyrighted works in which Borrower has any
right, title, or interest throughout the world, all derivative works
thereof, all copyright registrations and all applications therefor, and
United States and/or foreign applications for registration and
registrations thereof, and all accounts, accounts receivable and
contracts receivable generated by such copyrights;
A-1
(h) All computer software programs developed or to be developed by
Borrower or in which Borrower asserts or could assert a proprietary
interest; all personal property, including but not limited to source
codes, object codes or similar information, which is necessary to the
practical utilization of such programs; and all tangible property of
Borrower embodying or incorporating any such programs;
(i) All trade secrets, proprietary information, customer lists,
instructional materials, working drawings, manufacturing techniques,
process technology documentation, and product formulations of Borrower
and all property and assets of Borrower, whether tangible or
intangible, which are or a person may deem to be intellectual property
of Borrower;
(j) All rights under any agreement granting any right to use any
patent, trademark, copyright, computer software program or any other
property or right to property specified in paragraphs (e), (f), (g),
(h) or (i) above, whether Borrower is the grantor or the grantee under
such agreement;
(k) All commercial tort claims, including without limitation those
identified at Schedule I hereto;
(l) All rights to damages or profits due or accrued arising out of
past, present or future infringement of the Collateral or injury to
Borrower's good will connected with the use of the Collateral and the
right to sue therefor;
(m) All renewals, modifications, amendments, re-issues, divisions,
continuations in whole or part, and extensions of any Collateral;
(n) All right, title and interest of Borrower in, to and under each
contract entered into or to be entered into by Borrower, together with
any purchase orders or other supplements thereto, as any such contract
may be modified, amended or restated from time to time, and all right,
title and interest of Borrower in and to all moneys and claims for
moneys due or to become due to Borrower under or arising out of any
such contract;
(o) All now existing and hereafter acquired books and records relating
to the foregoing Collateral and all equipment containing such books and
records; and
(p) All Proceeds of the foregoing Collateral; and
(q) Any and all claims, rights and interests in any of the foregoing of
the above and all substitutions for, additions and accessions to and
proceeds thereof.
A-2
EXHIBIT B
FORM OF INTELLECTUAL PROPERTY SECURITY AGREEMENT
INTELLECTUAL PROPERTY SECURITY AGREEMENT
INTELLECTUAL PROPERTY SECURITY AGREEMENT (this "Agreement") is entered
into as of _________, 2003 by and between INTUITIVE SURGICAL, INC. ("Lender")
and COMPUTER MOTION, INC., a Delaware corporation ("Grantor").
RECITALS
A. Lender has agreed to make certain advances of money and to extend
certain financial accommodations to Grantor (the "Loans") in the amounts and
manner set forth in that certain Loan and Security Agreement dated as of March
7, 2003, by and between Lender and Grantor (as the same may be amended, modified
or supplemented from time to time, the "Loan Agreement"; capitalized terms used
herein are used as defined in the Loan Agreement). Lender is willing to make the
Loans to Grantor, but only upon the condition, among others, that Grantor shall
grant to Lender a security interest in all of its Copyrights, Trademarks and
Patents to secure the obligations of Grantor under the Loan Agreement.
B. Pursuant to the terms of the Loan Agreement, Grantor has granted to
Lender a security interest in all of Grantor's right, title and interest,
whether presently existing or hereafter acquired, in, to and under all of the
Collateral, including, without limitation, all of its Copyrights, Trademarks and
Patents.
NOW, THEREFORE, for good and valuable consideration, receipt of which
is hereby acknowledged, and intending to be legally bound, as collateral
security for the prompt and complete payment when due of its obligations under
the Loan Agreement and the other Loan Documents, Grantor hereby represents,
warrants, covenants and agrees as follows:
AGREEMENT
To secure its obligations under the Loan Documents and under all other
agreements now existing or hereafter arising between Grantor and Lender, Grantor
assigns to Lender for security purposes, and grants and pledges to Lender, a
security interest in all of Grantor's right, title and interest in, to and under
its Intellectual Property Collateral (including, without limitation, those
Copyrights, Patents and Trademarks listed on Schedules A, B and C hereto),
together with the goodwill of the businesses associated with the Trademarks, and
including, without limitation, all proceeds thereof (such as, by way of example
but not by way of limitation, license royalties and proceeds of infringement
suits), the right to sue for past, present and future infringements, all rights
corresponding thereto throughout the world and all re-issues, re-examinations,
divisions continuations, renewals, termination rights, extensions and
continuations-in-part thereof.
This security interest is granted in conjunction with the security
interest granted to Lender under the Loan Agreement. The rights and remedies of
Lender with respect to the security interest granted hereby are in addition to
those set forth in the Loan Agreement and the
B-1
other Loan Documents, and those which are now or hereafter available to Lender
as a matter of law or equity. Each right, power and remedy of Lender provided
for herein or in the Loan Agreement or any of the Loan Documents, or now or
hereafter existing at law or in equity shall be cumulative and concurrent and
shall be in a addition to every right, power or remedy provided for herein and
the exercise by Lender of any one or more of the rights, powers or remedies
provided for in this Agreement, the Loan Agreement or any of the other Loan
Documents, or now or hereafter existing at law or in equity, shall not preclude
the simultaneous or later exercise by any person or entity, including Lender, of
any or all other rights, powers or remedies.
Grantor represents and warrants that Exhibits A, B, and C attached
hereto set forth any and all intellectual property rights in connection to which
Grantor has registered or filed an application with either the United States
Patent and Trademark Office or the United States Copyright Office, as
applicable.
This Agreement may be executed in any number of counterparts, each of
which when so executed shall be deemed to be an original and all of which
counterparts together shall constitute one and the same instrument.
THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS
AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE
WITH, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA WITHOUT GIVING EFFECT TO ANY
CONFLICT OF LAW PROVISIONS, EXCEPT TO THE EXTENT GOVERNED BY FEDERAL LAW, IN
WHICH CASE FEDERAL LAW SHALL APPLY.
This Agreement may not be amended, supplemented or modified, nor may
the obligations of the parties hereto be waived, except pursuant to a writing
signed by both Lender and Grantor.
Grantor may not assign its rights or obligations under this Agreement
or otherwise encumber or hypothecate its Intellectual Property Collateral
without the consent of Lender. This Agreement shall be binding upon and inure to
the benefit of Lender and Grantor and their respective successors and permitted
assigns.
[Signatures on Next Page]
B-2
IN WITNESS WHEREOF, the parties have cause this Intellectual Property
Security Agreement to be duly executed by its officers thereunto duly authorized
as of the first date written above.
GRANTOR:
COMPUTER MOTION, INC.
Address of Grantor:
130-B Cremona Drive By:
------------------------
Santa Barbara, California 93117 Name:
Attn: Robert W. Duggan, Title:
Chief Executive Officer
LENDER:
INTUITIVE SURGICAL, INC.
Address of Lender:
By:
------------------------
950 Kifer Road Name:
Sunnyvale, California 94086 Title:
Attn: Lonnie M. Smith, Chief Executive
Officer
B-3
STATE OF [_______________]. )
) SS
COUNTY OF _____________________ )
On the ____ day of _____________ , 2003, before me, ____________________ , a
notary public, personally appeared __________________________________________,
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person(s) whose name(s) is/are subscribed to the within instrument and
acknowledged to me that he/she/they executed the same in his/her/their
authorized capacity(ies), and that by his/her/their signature(s) on the
instrument the person(s), or the entity upon which the person(s) acted, executed
this instrument.
WITNESS my hand and official seal.
________________________________
Notary Public
My commission expires:
B-4
STATE OF [_______________] )
) SS
COUNTY OF _____________________ )
On the ____ day of _____________ , 2003, before me, ____________________ , a
notary public, personally appeared __________________________________________,
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person(s) whose name(s) is/are subscribed to the within instrument and
acknowledged to me that he/she/they executed the same in his/her/their
authorized capacity(ies), and that by his/her/their signature(s) on the
instrument the person(s), or the entity upon which the person(s) acted, executed
this instrument.
WITNESS my hand and official seal.
_______________________________
Notary Public
My commission expires:
B-5
EXHIBIT A
Registered Copyrights
[Grantor to provide]
B-6
EXHIBIT B
Patents
[Grantor to provide]
B-7
EXHIBIT C
Trademarks
[Grantor to provide]
B-8
EXHIBIT C
FORM OF NOTE
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR WITH THE SECURITIES COMMISSION OF ANY APPLICABLE STATE UNDER SUCH STATE'S
SECURITIES OR BLUE SKY LAWS, AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS
PERMITTED UNDER SUCH SECURITIES ACT AND THE APPLICABLE STATE SECURITIES OR BLUE
SKY LAWS, PURSUANT TO REGISTRATION OR AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THOSE LAWS.
$7,300,000 __________, 2003
Computer Motion, Inc., a Delaware corporation ("Borrower"),
for value received, hereby promises to pay to the order of Intuitive
Surgical, Inc. (the "Lender"), the aggregate principal amount of Seven
Million Three Hundred Thousand Dollars ($7,300,000), or the aggregate
outstanding principal amount of all Loans made by the Lender to
Borrower pursuant to the Loan and Security Agreement (as defined
below), whichever is less (the "Principal Amount"), together with
accrued and unpaid interest on the Principal Amount, on Maturity Date,
in such coin or currency of the United States of America as at the time
of payment shall be legal tender therein for the payment of public and
private debts. Capitalized terms used herein and not otherwise defined
shall have the meanings given to such terms in that certain Loan and
Security Agreement dated as of March 7, 2003, between Borrower and the
Lender (as amended from time to time, the "Loan Agreement").
This Note shall accrue interest at a fixed rate per annum of
eight percent (8%) (the "Interest Rate") with respect to the
outstanding unpaid Principal Amount plus any accrued but unpaid
interest thereon and on any other Secured Obligations compounding
annually (the "Interest") until and including the date the Principal
Amount, such interest and the other Secured Obligations are paid in
full. Such Interest shall, except as provided in the last sentence of
this paragraph, be due and payable, together with all outstanding
Principal Amount, on the Maturity Date (or such earlier date as
required under the Loan Agreement), in each case with interest to
accrue and be due and payable through and including the applicable
payment date. Interest shall be calculated on the basis of a 360-day
year of twelve 30-day months, provided, however, that per diem interest
shall be calculated on the basis of the actual number of days elapsed
over a year of 365 days. The Secured Obligations under this Note are
secured by the Collateral of Borrower pursuant to the Loan and Security
Agreement. Without duplication of any interest payable hereunder,
Borrower hereby unconditionally promises to pay to the Lender interest
on any principal, interest and any other Secured Obligations payable by
Borrower under this Loan that shall not be paid in full when due
(whether at the Maturity Date, by acceleration or otherwise), for the
period from and including the due date of such payment to and including
the date the same is paid in full, at a rate per annum equal to the
Interest Rate plus 400 basis points, which interest shall be payable
from time to time on demand of the Lender.
C-1
Borrower hereby waives presentment, demand, protest, notice of
dishonor, diligence and all other notices, any release or discharge
arising from any extension of time, discharge of a prior party, release
of any or all of any security given from time to time for this Note, or
other cause of release or discharge other than actual payment in full
hereof.
The Lender may, but is not obligated to, enter the amount of
each Loan and the amount of each payment or prepayment of principal or
interest thereon on the appropriate spaces on the last page of this
Note; provided, however, that the failure of the Lender to set forth
such Loan, principal payments, interest payments or other information
shall not in any manner affect the obligations of Borrower to repay
such Loan or any Secured Obligations.
The Lender shall not be deemed, by any act or omission, to
have waived any of its rights or remedies hereunder unless such waiver
is in writing and signed by the Lender and then only to the extent
specifically set forth in such writing. A waiver with reference to one
event shall not be construed as continuing or as a bar to or waiver of
any right or remedy as to a subsequent event. No delay or omission of
the Lender to exercise any right, whether before or after a default
hereunder, shall impair any such right or shall be construed to be a
waiver of any right or default, and the acceptance at any time by the
Lender of any past-due amount shall not be deemed to be a waiver of the
right to require prompt payment when due of any other amounts then or
thereafter due and payable.
Time is of the essence hereof. Upon any default hereunder, the
Lender may exercise all rights and remedies provided for herein and by
law or equity, including, without limitation, the right to immediate
payment in full of this Note.
The remedies of the Lender as provided herein or in law or in
equity, or any one or more of them, shall be cumulative and concurrent,
and may be pursued singularly, successively or together at Lender's
sole discretion, and may be exercised as often as occasion therefor
shall occur.
It is expressly agreed that if this Note is referred to an
attorney or if suit is brought to collect or interpret this Note or any
part hereof or to enforce or protect any rights conferred upon the
Lender by this Note or any other Document, then Borrower promises and
agrees to pay all costs, including, without limitation, attorneys'
fees, incurred by the Lender.
This Note and the rights and obligations of the parties
hereunder shall be governed by, and construed and interpreted in
accordance with, the internal laws of the State of California without
giving effect to any conflict of law provisions.
This is the Note referred to in the Loan Agreement and is
subject to and entitled to the benefits of said agreement, including,
without limitation, acceleration and the right in certain circumstances
to require that this Note be prepaid prior to the Maturity Date.
C-2
IN WITNESS WHEREOF, Borrower has duly executed and delivered this Note
as of the date first written above.
COMPUTER MOTION, INC.
By: ______________________________
Name:
Title:
C-3
LAST PAGE OF NOTE
Payments
<TABLE>
<CAPTION>
Amount Unpaid Principal Name of Person Making
Date of Loan Principal Interest Balance of Note Notation
---- ------- --------- -------- --------------- --------
<S> <C> <C> <C> <C> <C>
</TABLE>
C-4
EXHIBIT D
FORM OF NOTICE OF BORROWING
[Date]
Intuitive Surgical, Inc.
950 Kifer Road
Sunnyvale, California 94086
Attn: Lonnie M. Smith, Chief Executive Officer
Ladies and Gentlemen:
The undersigned, Computer Motion, Inc., refers to that certain Loan and Security
Agreement dated as of March 7, 2003 (as amended, supplemented or otherwise
modified from time to time, the "Loan Agreement"; capitalized terms used and not
otherwise defined herein shall have the meanings given in the Loan Agreement),
between the undersigned, as Borrower, and Intuitive Surgical, Inc., as Lender,
and hereby gives you notice, irrevocably, pursuant to Section 2.1(i) of the Loan
Agreement that the undersigned hereby requests that the Lender make a Loan in
the amount of [up to $2,300,000] (the "Proposed Borrowing"), on _________, 2003,
which is a Business Day.
The undersigned hereby certifies that the following statements are true on the
date hereof, and will be true on the date of the Proposed Borrowing:
(a) the representations and warranties contained in each Loan
Document are correct on and as of the date of the Proposed Borrowing, before and
after giving effect to the Proposed Borrowing and to the application of the
proceeds therefrom, as though made on and as of such date; and
(b) no event has occurred and is continuing, or would result
from such Proposed Borrowing or from the application of the proceeds therefrom,
that constitutes a Default.
The undersigned hereby directs and authorizes you to disburse the entire
proceeds of the Proposed Borrowing as follows:
[Payment information for Agility Capital, LLC]
COMPUTER MOTION, INC.
By ________________________________
Name:
Title:
D-1
Exhibit 99.1
INTUITIVE SURGICAL AND COMPUTER MOTION
ANNOUNCE MERGER AGREEMENT
SUNNYVALE, CALIF., MARCH 7, 2003 - Intuitive Surgical (NASDAQ: ISRG) and
Computer Motion (NASDAQ: RBOT) today announced they are merging into one company
that combines their strengths in operative surgical robotics, telesurgery, and
operating room integration, to better serve hospitals, doctors and patients.
Under the terms of the definitive merger agreement, Computer Motion's
equity holders would receive 32 percent of the combined company on a fully
diluted basis (including out-of-the-money options and warrants), and Intuitive's
equity holders would receive 68 percent. The merger agreement exchange ratio
formula anticipates that each outstanding share of Computer Motion common stock
would be converted into approximately 0.52 shares of Intuitive common stock. In
the event that Computer Motion's common stock trades at an average of less than
$1.86 per share before the merger, the exchange ratio will be reduced, but shall
in no event be less than approximately 0.48. (See attached table). Under the
merger agreement, it is anticipated that Intuitive will issue an aggregate of
approximately 15.39 million shares, on a net fully diluted basis, in exchange
for all of Computer Motion's outstanding common stock, preferred stock, options
and warrants. The merger is subject to the approval of a majority of the
shareholders of each company and is intended to be a tax-free reorganization. In
addition, Intuitive may provide a bridge loan to Computer Motion to provide
working capital for its operations through the closure period if necessary.
"Both of our companies have made tremendous contributions to medicine by
delivering less-invasive surgery with surgical robotics," said Intuitive
Surgical President
and CEO Lonnie Smith. "By combining our highly complementary technology and
talents, we believe we will be able to provide surgeons and hospitals with the
best possible products and support to serve their patients' needs in minimally
invasive surgery. We believe both the da Vinci(TM) and ZEUS(R) surgical system
platforms will play an important and complementary role in the future of our new
company with each delivering unique benefits to our customers."
"Surgical robotics has delivered on its promise of making surgery less
invasive, shortening recovery times and lessening the trauma for patients, while
providing economic value for our hospital customers," said Robert Duggan,
Chairman and CEO of Computer Motion. "Separately, our companies wouldn't be able
to accomplish for patients and our shareholders what we will be able to
accomplish together. By sharing our complementary technologies in networking,
articulation, control and visualization, we believe we will significantly
strengthen the surgical capabilities of both the da Vinci and ZEUS product
platforms. We look forward to working as one team to enhance the care received
by patients through less-invasive surgery."
The merger will also end a series of long-term patent disputes. "With
these disputes behind us, we can focus the talent and energy of the combined
organization on developing and growing the application of robotics to minimally
invasive surgery; the significant benefits we bring to patients, surgeons, and
medical centers throughout the world; and the operating efficiencies that the
combination will deliver to the bottom line," Mr. Smith concluded.
"This is an important merger for Computer Motion. Eliminating intellectual
property litigation and initiating technology sharing should have a positive
impact on
market value. In addition, this merger strengthens our organization's financial
and operational capabilities," Mr. Duggan added.
Intuitive's da Vinci Surgical System is used by surgeons in more than 100
hospitals around the world and provides all the advantages of open surgery while
simultaneously allowing the surgeon to work through small ports of minimally
invasive surgery. Intuitive shipped 60 da Vinci Surgical Systems in 2002 and had
total sales of $72 million.
Computer Motion is a high-tech medical device company evolving surgical
practices to enhance patient lives. Computer Motion plays a significant role in
transitioning the surgical community from current open procedures to endoscopic
procedures that are less painful and traumatic to the patient. Computer Motion's
products include the ZEUS(R) MicroWrist(TM) Robotic Surgical System for
minimally invasive surgical procedures, and the HERMES(R) Control Center, a
centralized system that enables the surgeon to voice control a network of
"smart" medical devices. The AESOP(R) Robotic Endoscope Positioner is the first
surgical robot to be made commercially available in the U.S. The company's
newest product, the SOCRATES(TM) Telecollaboration System, facilitates surgeon
collaboration using video and audio conferencing, shared control of the
endoscopic camera, and video annotation on the surgical image in the operating
room.
The merged company will be traded on NASDAQ under a symbol to be
determined. Mr. Smith will serve as President and CEO and Mr. Duggan will serve
as member of the Board of Directors. Mr. Darrin Uecker will join the new
executive team as Vice President and Chief Technical Officer and will report to
Dr. Gary Guthart, Senior
Vice President of Operations. The company will be headquartered in Sunnyvale,
Calif., with operations in both Sunnyvale and Goleta, Calif.
Intuitive Surgical and Computer Motion will host a joint conference call
to discuss this merger today at 10:00 AM PST. The dial-in numbers for this call
are 877-909-3508 for U.S. calls and 484-630-4228 for International calls. The
passcode is ISRG and the leader is Lonnie Smith.
About Intuitive Surgical
The DA VINCI(TM) Surgical System consists of a surgeon's viewing and control
console having an integrated, high-performance INSITE(TM) 3-D vision system, a
patient-side cart consisting of three robotic arms that position and precisely
maneuver endoscopic instruments and an endoscope, and a variety of articulating
ENDOWRIST(TM) Instruments. By integrating computer-enhanced technology with
surgeons' technical skills, Intuitive believes that its System enables surgeons
to perform better surgery in a manner never before experienced. The DA VINCI
Surgical System seamlessly and directly translates the surgeon's natural hand,
wrist and finger movements on instrument controls at the surgeon's console
outside the patient's body into corresponding micro-movements of the instrument
tips positioned inside the patient through small puncture incisions, or ports.
The company's web site is www.intuitivesurgical.com
About Computer Motion
Computer Motion's products include the ZEUS(R) Surgical System for minimally
invasive surgical procedures, and the HERMES(R) Control Center, a centralized
system that enables the surgeon to voice control a network of "smart" medical
devices. The AESOP(R) Robotic Endoscope Positioner is the first surgical robot
to be made commercially available in the U.S. The company's newest product, the
SOCRATES(TM) Telecollaboration System, facilitates surgeon collaboration using
video and audio conferencing, shared control of the endoscopic camera, and video
annotation on the surgical image in the operating room. The company's products
are CE-Marked for commercial sale in the European Community. The company's Web
site is www.ComputerMotion.com.
# # #
This news release contains forward-looking statements within the meaning of the
"safe harbor" provisions of the Private Securities Litigation Reform Act of
1995, including statements about future financial and operating results and
Intuitive's anticipated merger with Computer Motion. You can identify these
forward-looking statements when you see us using words such as "intends,"
"expects," "anticipates," "estimates" and other similar expressions. These
statements are based on current expectations and beliefs and are subject to a
number of risks, uncertainties and assumptions that could cause actual results
to differ materially from those described in the forward-looking statements.
Actual results could differ materially from those expressed or implied in any
forward-looking statements as a result of the certain risks and uncertainties,
including, without limitation, competition and market acceptance of products;
ability to obtain regulatory approvals and third-party reimbursements; ability
to raise additional capital; non-
consummation of the proposed merger; prior to the closing of the proposed
merger, the businesses of Intuitive or Computer Motion suffer due to
uncertainty; that the parties are unable to successfully execute their
integration strategies, or achieve planned synergies; and other factors
described in the Securities and Exchange Commission reports filed by Intuitive
and Computer Motion, including their most recent filings on Form 10-Q. Intuitive
and Computer Motion undertake no obligation to publicly update any
forward-looking statements for any reason, even if new information becomes
available or other events occur in the future.
Additional Information About the Merger and Where to Find It
In connection with Intuitive Surgical's proposed merger with Computer Motion,
Intuitive and Computer Motion intend to file with the SEC a joint proxy
statement/prospectus and other relevant materials.
INVESTORS AND SECURITY HOLDERS OF INTUITIVE AND COMPUTER MOTION ARE URGED TO
READ THE JOINT PROXY STATEMENT/PROSPECTUS AND THE OTHER RELEVANT MATERIALS WHEN
THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT
INTUITIVE, COMPUTER MOTION AND THE MERGER.
The joint proxy statement/prospectus and other relevant materials (when they
become available), and any other documents filed by Intuitive or Computer Motion
with the SEC, may be obtained free of charge at the SEC's web site at
www.sec.gov. In addition, investors and security holders may obtain free copies
of the documents (when they are available) filed with the SEC by Intuitive by
directing a request to: Intuitive Surgical, Inc., 950 Kifer Road, Sunnyvale, CA
94086, Attn: Sarah Norton. Investors and security holders may obtain free copies
of the documents filed with the SEC by Computer Motion by contacting Computer
Motion, Inc., 130-B Cremona Drive, Goleta, CA 93117, Attn: Dan Tamkin.
Investors and security holders are urged to read the joint proxy
statement/prospectus and the other relevant materials when they become available
before making any voting or investment decision with respect to the merger.
Intuitive, Computer Motion and their respective executive officers and directors
may be deemed to be participants in the solicitation of proxies from the
stockholders of Intuitive and Computer Motion in favor of the merger.
Information about the executive officers and directors of Intuitive and their
ownership of Intuitive common stock is set forth in the proxy statement for
Intuitive's 2002 Annual Meeting of Shareholders, which was filed with the SEC on
April 17, 2002. Information about the executive officers and directors of
Computer Motion and their ownership of Computer Motion common stock is set forth
in the proxy statement for Computer Motion's 2002 Annual Meeting of
Shareholders, which was filed with the SEC on June 19, 2002. Investors and
security holders may obtain more detailed information regarding the direct and
indirect interests of Intuitive, Computer Motion and their respective executive
officers and directors in the merger by reading the joint proxy
statement/prospectus regarding the merger when it becomes available.
ANTICIPATED EXCHANGE RATIO
The number of shares of Intuitive common stock that each share of Computer
Motion common stock will be converted into (the "Exchange Ratio") will be
determined based on the total number of fully diluted shares outstanding for
Intuitive Surgical and Computer Motion immediately prior to consummation of the
merger. Computer Motion's fully diluted share count may vary based upon the
number of shares of common stock into which Computer Motion's preferred stock
will be convertible. This preferred stock conversion ratio will, in turn, vary
inversely based upon the average Computer Motion stock price (the "Average
Computer Motion Stock Price") which will be determined based on closing bid
prices for Computer Motion during a defined pricing period occurring prior to
consummation of the merger.
The table below reflects the anticipated Exchange Ratio based on the number of
fully diluted shares (excluding certain Computer Motion warrants expiring in
2003) currently outstanding for each of Intuitive Surgical and Computer Motion
and a range of assumed Average Computer Motion Stock Prices.
<TABLE>
<CAPTION>
AVERAGE
COMPUTER MOTION ANTICIPATED
STOCK PRICE EXCHANGE RATIO
--------------- --------------
<S> <C>
$1.86 and Higher 0.5214
1.85 0.5205
1.80 0.5171
1.75 0.5136
1.70 0.5100
1.65 0.5061
1.60 0.5022
1.55 0.4980
1.50 0.4936
1.45 0.4890
1.40 0.4842
$1.38 and Lower 0.4822
--------------- ------
</TABLE>
Exhibit 99.2
CERTIFICATE OF DESIGNATIONS
SETTING FORTH THE PREFERENCES, RIGHTS
AND LIMITATIONS OF THE SERIES D CONVERTIBLE
PREFERRED STOCK OF COMPUTER MOTION, INC.
The undersigned officers of COMPUTER MOTION, INC. (the "Corporation"), a
Delaware corporation, DO HEREBY CERTIFY that, pursuant to the provisions of
Sections 151 of the General Corporation Law of the State of Delaware:
1. The name of the Corporation is Computer Motion, Inc. and the
Corporation is validly existing and incorporated.
2. On March 5, 2003, pursuant to authority vested in the Board of
Directors by Article IV of the Corporation's Second Amended and Restated
Certificate of Incorporation, the Board of Directors established a series of up
to an aggregate of 8,965 shares of Series D-1 Convertible Preferred Stock of the
Corporation, par value $0.001 per share (the "Series D-1 Convertible Preferred
Stock"), and up to an aggregate of 1,785 shares of Series D-2 Convertible
Preferred Stock of the Corporation, par value $0.001 per share (the "Series D-2
Convertible Preferred Stock" and together with the Series D-1 Convertible
Preferred Stock, the "Series D Convertible Preferred Stock") and adopted the
following with respect to the Certificate of Designations of the Series D
Convertible Preferred Stock:
WHEREAS, the Corporation desires to create a new series of its
Preferred Stock to be designated as "Series D Convertible Preferred
Stock";
NOW, THEREFORE, it is hereby
RESOLVED, that a new series of the class of authorized preferred
stock of the Corporation, designated "Series D-1 Convertible Preferred
Stock" and "Series D-2 Convertible Preferred Stock" be hereby created, and
that the designation and amount thereof and the voting powers, preferences
and relative, participating, optional and other special rights of the
shares of such series, and the qualifications, limitations and
restrictions thereof shall be as set forth below:
SECTION 1. DESIGNATION AND AMOUNT; PAR VALUE.
The shares of Series D Convertible Preferred Stock shall be designated as
"Series D-1 Convertible Preferred Stock" and "Series D-2 Convertible Preferred
Stock" and the number of shares constituting the Series D-1 Convertible
Preferred Stock shall be 8,965 and the number of shares constituting the Series
D-2 Convertible Preferred Stock shall be 1,785. The par value of each share of
the series shall be $0.001. Each share of the Series D Convertible Preferred
Stock shall have a stated value of $1,400 (the "Stated Value"). As used herein,
the "Initial Issuance
Date" shall mean the date upon which the Corporation first issues shares of
Series D Convertible Preferred Stock.
SECTION 2. DIVIDENDS ON SERIES D CONVERTIBLE PREFERRED STOCK.
The Corporation shall pay dividends on the Stated Value of each share of
the Series D Convertible Preferred Stock at the initial rate of 8.0% per annum
and increasing to 12% per annum on the second anniversary of the Initial
Issuance Date. Dividends shall be computed based on a 360-day year consisting of
twelve 30-day months. Dividends shall be cumulative with respect to each share
of the Series D Convertible Preferred Stock while such share is outstanding.
Dividends shall be payable in arrears semi-annually to the holder of shares of
Series D Convertible Preferred Stock registered on the books of the Corporation
(the "Holder").
(a) Dividends on Series D-1 Convertible Preferred Stock. At the option
of the Corporation, dividends may be payable to the Holders of Series D-1
Convertible Preferred Stock in the form of either (i) such coin or currency of
the United States of America as at the time of payment is legal tender for
payment of public and private debts or (ii) the number of full shares of Common
Stock that the amount of accrued dividends payable would entitle such Holder to
acquire based upon a price per share equal to 90% of the average of the VWAP (as
defined below) for the twenty (20) Trading Day period immediately prior to the
date such dividend becomes due and payable; provided, however, that if the
Corporation elects to pay a Holder in shares of Common Stock, the Corporation
shall issue to the Holder freely tradeable shares of Common Stock; provided
further, that the Corporation may elect to pay a Holder in shares of Common
Stock only if the Registration Statement (the "Registration Statement") filed by
the Corporation pursuant to the Registration Rights Agreement, dated as of
October 31, 2002, among the Corporation and the holders of the Series D
Convertible Preferred Stock (the "Registration Rights Agreement") remains
effective. The Corporation shall notify the Holder in writing not less than
twenty-two (22) Trading Days of the date such dividends are due and payable of
the form in which the Corporation elects to pay accumulated dividends. In the
event the Corporation fails to timely provide such notice, payments of dividends
shall be in cash.
As used herein, "VWAP" shall mean the Volume Weighted Average Price of the
Corporation's Common Stock as reported by Bloomberg, L.P. on such day on the
NASDAQ National Market (or the NASDAQ Small Cap Market, the New York Stock
Exchange or American Stock Exchange in the event any such market or exchange
constitutes the principal market on which the Common Stock is quoted or listed
or admitted to trading) (such four markets and exchanges, the "Approved
Markets") or, if not quoted or listed or admitted to trading on any such
Approved Market, the closing bid price in the over-the-counter market as
furnished by any New York Stock Exchange member firm that is selected from time
to time by the Corporation for that purpose. In lieu of any fractional share of
Common Stock to which the Holder would otherwise be entitled upon payment of a
dividend, the number of shares of Common Stock issuable upon payment thereof
shall be rounded up to the nearest whole number.
(b) Dividends on Series D-2 Convertible Preferred Stock. Dividends shall
be payable quarterly to the Holders of Series D-2 Convertible Preferred Stock in
such coin or currency of the United States of America as at the time of payment
is legal tender for payment of public and private debts.
2
(c) Failure to Timely Pay Dividends. If the Corporation fails to pay any
dividend payment to the Holders on the date such dividend payment is due, the
dividend rate then in effect shall increase by a rate per annum equal to three
percent (3%). During any period that such dividend payments are in arrears, the
Corporation shall not incur any indebtedness.
SECTION 3. REDEMPTION.
(a) Redemption Date. The "Redemption Date" shall mean October 29, 2004.
(b) Corporation's Election to Redeem. At any time following the
Redemption Date, the Corporation may elect to redeem on a pro rata basis no less
than $2,000,000 of the outstanding Series D Convertible Preferred Stock, by
delivering at least 15 days' notice of such election (the "Redemption Election
Notice") to the Holders of the Series D Convertible Preferred Stock. Upon
receipt of the Redemption Election Notice, the Holder shall surrender to the
Corporation its stock certificate representing such Holder's pro rata portion of
shares of the Series D Convertible Preferred Stock being redeemed (the "Series D
Convertible Stock Certificates") and, upon such surrender, the Corporation shall
deliver to the Holder with respect to each share of Series D Convertible
Preferred Stock so redeemed, an amount of cash equal to the Stated Value plus
any accrued and unpaid dividends (the "Redemption Price"). In the event that
less than all of the outstanding shares of Series D Convertible Preferred Stock
are redeemed, the Corporation shall promptly return to the Holder its stock
certificate representing the balance of such shares of Series D Convertible
Preferred Stock not redeemed. Notwithstanding the foregoing, the Holder shall
have the right to convert any shares of Series D Convertible Preferred Stock in
accordance with Section 4(a) below until the close of business on the date fixed
for redemption in such Redemption Election Notice. The Series D Convertible
Preferred Stock shall not be redeemable at the election of the Holder.
(c) Effect of Redemption. At any time following delivery of the
Redemption Election Notice, unless there shall have been a default in payment of
the Redemption Price, all rights of the holders of the shares of Series D
Convertible Preferred Stock designated for redemption in the Redemption Election
Notice as holders of Series D Convertible Preferred Stock (except the right to
receive the Redemption Price without interest upon surrender of their
certificate or certificates) shall cease with respect to such shares, and such
shares shall not thereafter be transferred on the books of the Corporation or
deemed to be outstanding for any purpose whatsoever.
SECTION 4. CONVERSION.
(a) Right to Convert. Subject to Section 3 and this Section 4, a
Holder has the right to convert shares of the Series D Convertible Preferred
Stock, in whole or from time to time in part, into such number of shares of
common stock, par value $.001 per share, of the Corporation (the "Common Stock")
equal to the aggregate Stated Value of the shares of Series D Convertible
Preferred Stock divided by the then effective Conversion Price (as defined
below) and any accrued and unpaid dividends shall then be payable in accordance
with Section 2 above.
(b) Automatic Conversion. At any time following 180 days after the
effectiveness of the Registration Statement, each share of Series D Convertible
Preferred Stock shall
3
automatically be converted into shares of Common Stock equal to the Stated Value
divided by the then effective Conversion Price on the sixth (6th) Trading Day
following the date that the Corporation provides written notice to each Holder
that immediately following any ten (10) consecutive Trading Days during which
the VWAP is greater than $3.00 (the "Threshold Appreciation Price"); provided,
however, that the Registration Statement remains effective on the sixth (6th)
Trading Day referred to above. In the event of an automatic conversion as
described above, any accrued and unpaid dividends shall be due and payable on
the date of such automatic conversion in accordance with Section 2 above.
(c) Conversion Price; Amount. The price at which the Holder may convert
shares of the Series D Convertible Preferred Stock (or any portion thereof) into
shares of Common Stock shall be $1.38, subject to adjustment as provided in
Section 4(f) (the "Conversion Price"). In lieu of any fractional share of Common
Stock to which the Holder would otherwise be entitled upon conversion of shares
of the Series D Convertible Preferred Stock, the number of shares of Common
Stock issuable upon conversion thereof shall be rounded up to the nearest whole
number.
(d) Mechanics of Conversion.
(i) To convert shares of the Series D Convertible Preferred Stock
in accordance with Section 4(a), the Holder must (i) complete and sign a Notice
of Conversion in form acceptable to the Corporation (the "Notice of Conversion")
and deliver the Notice of Conversion to the Corporation as herein provided and
(ii) prior to the date on which delivery of Common Stock is required to be made
hereunder, (x) duly endorse and deliver to the Corporation the Series D
Convertible Stock Certificate(s) representing the shares of the Series D
Convertible Preferred Stock being converted and (y) pay any transfer or similar
tax with respect to the delivery of such Series D Convertible Stock
Certificate(s) if required. The Holder shall surrender such Series D Convertible
Stock Certificate(s) and the Notice of Conversion to the Corporation (with an
advance copy by facsimile of the Notice of Conversion). The date on which Notice
of Conversion is given (the "Date of Conversion") shall be deemed to be the date
of receipt by the Corporation of the facsimile of the Notice of Conversion,
provided that such Series D Convertible Stock Certificate(s) are received by the
Corporation within five (5) business days thereafter. The Corporation shall not
be obligated to cause the transfer agent for the Common Stock (the "Transfer
Agent") to issue certificates evidencing the shares of Common Stock issuable
upon such conversion unless either such Series D Convertible Stock Certificate
has been received by the Corporation or, if such Series D Convertible Stock
Certificate(s) have been lost, stolen or destroyed, the Holder has executed and
delivered to the Corporation an agreement satisfactory to the Corporation to
indemnify the Corporation from any loss incurred by it in connection with the
shares of the Series D Convertible Preferred Stock represented by such Series D
Convertible Stock Certificate(s).
If the Transfer Agent is participating in the Depository Trust Company
("DTC") Fast Automated Securities Transfer ("FAST") program, the Holder shall
deliver to the Corporation valid broker information, including DTC number, and
verification that such broker has been instructed to initiate the DWAC transfer
(as defined below) (collectively, the "Broker Information") and, thereafter, the
Corporation shall cause the Transfer Agent to transmit electronically the shares
of Common Stock issuable to the Holder upon conversion of shares of
4
the Series D Convertible Preferred Stock by crediting the account of the
Holder's prime broker with DTC through DTC's Deposit Withdrawal Agent Commission
("DWAC") system, within three (3) business days after delivery to the
Corporation of the Broker Information and the Holder's Series D Convertible
Stock Certificate(s). In the event the Holder otherwise elects in writing,
however, the Corporation shall cause the Transfer Agent to issue and deliver
(within such three (3) business day period) to the address of the Holder on the
books of the Corporation or as otherwise directed pursuant to the Notice of
Conversion, a certificate or certificates for the number of shares of Common
Stock to which such Holder shall be entitled as aforesaid. In the event the
Corporation fails to complete such delivery as aforesaid, it shall be
responsible for actual damages incurred by the Holder as a result thereof. The
person or persons entitled to receive the shares of Common Stock issuable upon
such conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock on such date. Notwithstanding that the
Holder is required to deliver the Series D Convertible Stock Certificate(s),
duly endorsed, within five (5) business days after the Date of Conversion, if
such Series D Convertible Certificate(s) are not received by the Corporation
within ten (10) business days after the Date of Conversion, the Corporation may
at its option elect, by written notice given to the Holder within fifteen (15)
business days after the Date of Conversion, elect (A) to treat Notice of
Conversion as null and void or (B) to treat the Notice of Conversion as binding
and require the Holder to deliver the applicable Series D Convertible Stock
Certificate(s). In the event the Corporation elects to treat the Notice of
Conversion as binding, the shares of Series D Convertible Preferred Stock with
respect to which such Notice of Conversion was given shall thereafter no longer
be deemed outstanding and the Holder thereof shall not be entitled to any voting
or other rights attendant thereto, excepting only the right to receive, upon the
delivery to the Corporation of the applicable Series D Convertible Stock
Certificate(s), the shares of Common Stock upon the conversion thereof as
contemplated above.
Following conversion of a share of the Series D Convertible Preferred
Stock, such share will no longer be outstanding and may not be reissued. In the
event of the conversion of less than all of the shares of the Series D
Convertible Preferred Stock represented by a Series D Convertible Stock
Certificate, the Corporation or its Transfer Agent will issue to the Holder a
new stock certificate representing the number of shares of the Series D
Convertible Preferred Stock not converted or shall endorse the Series D
Convertible Stock Certificate to reflect such conversion.
If, within three (3) business days of the Corporation's receipt of the
Conversion Notice and the Series D Convertible Stock Certificate(s) to be
converted, the Corporation shall fail to issue and deliver to a Holder the
number of shares of Common Stock to which such Holder is entitled upon such
Holder's conversion of the Series D Convertible Preferred Stock or to issue a
new Series D Convertible Stock Certificate representing the number of shares of
Series D Convertible Preferred Stock to which such Holder is entitled pursuant
to this Section 4(d)(i), in addition to all other available remedies which such
Holder may pursue hereunder and under the Purchase Agreement, the Corporation
shall pay additional damages to such Holder on each business day after such
third (3rd) business day that such conversion is not timely effected in an
amount equal to 0.5% of the product of (A) the sum of the number of shares of
Common Stock not issued to the Holder on a timely basis pursuant to this Section
4(b)(i) and to which such Holder is entitled, and, in the event the Corporation
has failed to deliver a Series D Convertible Stock Certificate to the Holder on
a timely basis pursuant to this Section 4(b)(i), the number of
5
shares of Common Stock issuable upon conversion of the shares of Series D
Convertible Preferred Stock represented by such Series D Convertible Stock
Certificate, as of the last possible date which the Corporation could have
issued such Series D Convertible Stock Certificate to such Holder without
violating Section 4(b)(i) and (B) the VWAP of the Common Stock on the last
possible date which the Corporation could have issued such Common Stock and such
Series D Convertible Stock Certificate, as the case may be, to such Holder
without violating this Section 4(b)(i). If the Corporation fails to pay the
additional damages set forth in this Section 4(b)(i) within five (5) business
days of the date incurred, then such payment shall bear interest at the rate of
2% per month (pro rated for partial months) until such payments are made.
(ii) Upon conversion due to the event specified in Section 4(b)
above, the holders of Series D Convertible Preferred Stock shall surrender the
Series D Preferred Stock Certificate(s) representing such shares at the office
of the Corporation or the Transfer Agent. Thereupon, there shall be issued and
delivered to such holder in the manner described in Section 4(d)(i) the number
of shares of Common Stock into which the shares of Series D Convertible
Preferred Stock surrendered were convertible on the date on which such automatic
conversion occurred. Upon such automatic conversion, the outstanding shares of
Series D Convertible Preferred Stock shall be converted automatically into
shares of Common Stock without any further action on the part of the holders of
such shares whether or not the certificates representing such shares are
surrendered to the Corporation or its Transfer Agent; provided, however, that
the Corporation shall not be obligated to issue certificates evidencing the
shares of Common Stock issuable upon such conversion unless the certificates
evidencing such shares of Series D Convertible Preferred Stock are either
delivered to the Corporation or its Transfer Agent or, if such Series D
Convertible Stock Certificate(s) have been lost, stolen or destroyed, the Holder
has executed and delivered to the Corporation an agreement satisfactory to the
Corporation to indemnify the Corporation from any loss incurred by it in
connection with the shares of the Series D Convertible Preferred Stock
represented by such Series D Convertible Stock Certificate(s).
(e) Reservation of Stock Issuable Upon Conversion. The Corporation shall
at all times reserve and keep available out of its authorized but unissued
shares of Common Stock or shares of Common Stock held in treasury, or both,
solely for the purpose of effecting the conversion of the Series D Convertible
Preferred Stock, such number of shares of Common Stock as shall from time to
time be sufficient to effect the conversion of the Series D Convertible
Preferred Stock and all other securities of the Corporation convertible or
exchangeable into Common Stock.
(f) Adjustment to Conversion Price; Maximum Share Issuance.
(i) If, prior to the conversion of all shares of the Series D
Convertible Preferred Stock, the number of outstanding shares of Common Stock is
increased by a stock split, stock dividend of shares of Common Stock or other
shares of capital stock, reclassification or other similar event, the Conversion
Price shall be proportionately reduced, or if the number of outstanding shares
of Common Stock is decreased by a combination or reclassification of shares or
other similar event, the Conversion Price shall be proportionately increased, in
each case, such that a Holder will have the right to receive upon conversion of
shares of the Series D Convertible Preferred Stock the number of shares of
Common Stock (or other shares of capital stock) of the
6
Corporation that such Holder would have been entitled to receive had the Holder
converted such shares of the Series D Convertible Preferred Stock immediately
prior to such action. The Threshold Appreciation Price (as defined in Section
4(c) above) shall likewise be proportionately adjusted upon any increase in the
number of outstanding shares of Common Stock on account of any stock split,
stock dividend of shares of Common Stock or other shares of capital stock,
reclassification or other similar event or upon any decrease in number of
outstanding shares of Common Stock on account of any combination or
reclassification of shares or other similar event.
(ii) In addition to the adjustments set forth above, if the
Corporation distributes to all holders of its Common Stock any of its assets or
debt securities or any rights or warrants to purchase securities other than
Common Stock, then the Conversion Price shall be adjusted in such a manner as
shall be agreed to by the Corporation and the Holders of at least ninety percent
(90%) of the outstanding shares of Series D Convertible Preferred Stock
(excluding the shares of Series D Preferred Stock beneficially owned by Robert
W. Duggan (the "Duggan Shares")) as shall fairly preserve the economic rights
and benefits of each Holder as contemplated by this Certificate of Designations.
In the event that within 15 days of any such event, the Corporation and such
Holders do not reach an agreement as to the appropriate adjustment, the
Corporation shall retain, and pay for, a nationally recognized investment bank
or accounting firm to determine the appropriate adjustment as soon as possible,
but in any event not later than 45 days, after the date of such event; provided
that such investment bank or accounting firm is mutually agreeable to the
Corporation and at least ninety percent (90%) of the Holders of the outstanding
shares of Series D Convertible Preferred Stock (excluding the Duggan Shares).
(iii) In the event that, after the Initial Issuance Date, the
Corporation shall (other than (A) upon the exercise, exchange or conversion of
any securities of the Corporation that are exercisable or exchangeable for, or
convertible into, shares of Common Stock and that are outstanding as of the
Initial Issuance Date, (B) upon the issuance of shares of Common Stock to
strategic partners and/or in connection with a strategic merger or acquisition,
(C) upon the issuance of shares of Common Stock or options to purchase shares of
Common Stock to employees, officers, directors, consultants and vendors in
accordance with the Issuer's equity incentive plans in effect on the Initial
Issuance Date, (D) upon the issuance of securities pursuant to a shareholder
rights plan in effect on the Initial Issuance Date, (E) upon the conversion of
any shares of Series C Convertible Preferred Stock or Series D Convertible
Preferred Stock or (F) upon the issuance of shares of Common Stock to pay
dividends) at any time while any shares of Series C Convertible Preferred Stock
or Series D Convertible Preferred Stock are outstanding (x) issue shares of
Common Stock without consideration or at a price per share less than the then
effective Conversion Price (such Conversion Price, the "Minimum Trigger Price"),
(y) issue options, rights or warrants to subscribe for or purchase Common Stock
that provide for (upon the exercise thereof) the issuance of shares of Common
Stock without consideration or at a price per share, which when added to the
price or other consideration received for such options, rights or warrants, is
less than the Minimum Trigger Price or (z) issue securities convertible into
Common Stock having a conversion price less than the Minimum Trigger Price, the
Conversion Price to be in effect after the date of such issuance shall be
adjusted by multiplying the Conversion Price in effect immediately prior to the
date of any such issuances referenced above by a fraction, of which the
numerator shall be the number of shares of Common Stock outstanding on the date
of such issuance plus the number of shares of Common Stock that the aggregate
offering price of
7
the total number of shares of Common Stock so to be issued (or the aggregate
issue price of the convertible securities so to be issued) would purchase at the
Minimum Trigger Price and of which the denominator shall be the number of shares
of Common Stock outstanding on the date of such issuance plus the number of
additional shares of Common Stock to be issued (or into which the convertible
securities so to be issued are initially convertible). In case the price for
such securities may be paid in a consideration part or all of which shall be in
a form other than cash, the value of such consideration shall be as determined
in good faith by the Board of Directors of the Corporation, whose determination
shall be conclusive. Such adjustment shall be made successively whenever the
date of such issuance is fixed and, in the event that such options, rights,
warrants or convertible securities (or portions thereof) expire or are otherwise
discharged or redeemed without being exercised or converted, any adjustment in
the Conversion Price on account of the issuance of the same shall be reversed.
(iv) Adjustments pursuant to this Section 4(f) shall be permanent
unless further adjustments are required pursuant to the terms of this Section
4(f). No adjustment to the Conversion Price pursuant to any of the events or
circumstances set forth herein shall be made unless such adjustment shall be in
an amount of at least one cent ($0.01); provided, however, that any adjustment
that would otherwise be required to be made hereunder but for the fact that it
is less than one cent ($0.01) shall be carried forward and made part of any
subsequent adjustment that (a) when aggregated with prior adjustment(s) that
have not been made because it was (or each of them was) less than one cent
($0.01) or (b) is in excess of one cent ($0.01).
(v) If any adjustment under this Section 4(f) would create a
fractional share of Common Stock or a right to acquire a fractional share of
Common Stock, such fractional share shall be disregarded and the number of
shares of Common Stock issuable upon conversion shall be the next higher number
of shares.
(g) Restrictions on Conversion.
(i) Notwithstanding anything to the contrary set forth in Section
4 of this Certificate of Designations, at no time may a Holder convert shares of
the Series D Convertible Preferred Stock if the number of shares of Common Stock
to be issued pursuant to such conversion would exceed, when aggregated with all
other shares of Common Stock owned by such holder at such time, the number of
shares of Common Stock which would result in such holder owning more than 4.99%
of all of the Common Stock outstanding at such time; provided, however, that
upon a Holder providing the Corporation with sixty-one (61) days notice (the
"Waiver Notice") that such Holder would like to waive Section 4(g) of this
Certificate of Designations with regard to any or all shares of Common Stock
issuable upon conversion of the Series D Convertible Preferred Stock, this
Section 4(g) shall be of no force or effect with regard to those shares of
Series D Convertible Preferred Stock reference in the Waiver Notice.
(ii) Notwithstanding anything to the contrary set forth in Section
4 of this Certificate of Designations, at no time may a Holder convert shares of
the Series D Convertible Preferred Stock if the number of shares of Common Stock
to be issued pursuant to such conversion would exceed, when aggregated with all
other shares of Common Stock owned by such holder at such time, would result in
such Holder beneficially owning (as determined in accordance with Section 13(d)
of the Securities Exchange Act of 1934, as amended , and the
8
rules thereunder) in excess of 9.999% of the then issued and outstanding shares
of Common Stock outstanding at such time; provided, however, that upon a Holder
providing the Corporation with a Waiver Notice that such Holder would like to
waive Section 4(g) of this Certificate of Designations with regard to any or all
shares of Common Stock issuable upon conversion of the Series D Convertible
Preferred Stock, this Section 4(g) shall be of no force or effect with regard to
those shares of Series D Convertible Preferred Stock reference in the Waiver
Notice.
SECTION 5. REORGANIZATIONS, MERGERS, CONSOLIDATIONS OR SALE OF ASSETS.
If at any time or from time to time after the Initial Issuance Date, there
is a capital reorganization of the Common Stock (other than a recapitalization,
subdivision, combination, reclassification, exchange or substitution of shares
provided for elsewhere in Section 4(f)), then, as part of such capital
reorganization, provisions shall be made so that the holders of Series D
Convertible Preferred Stock shall thereafter have the right to receive upon
conversion of shares of the Series D Convertible Preferred Stock, upon the basis
and the terms and conditions specified herein, such shares of stock and/or
securities as may be issued or payable with respect to or in exchange for the
number of shares of Common Stock immediately theretofore receivable upon the
conversion of such shares of the Series D Convertible Preferred Stock, and in
any such case appropriate provisions shall be made with respect to the rights
and interests of the holders of Series D Convertible Preferred Stock such that
the provisions hereof shall thereafter be applicable in relation to any shares
of stock or securities thereafter deliverable upon the conversion of shares of
the Series D Convertible Preferred Stock; provided, however, that this Section 5
shall not apply to any Change of Control Transaction (as defined in Section 6)
in respect of which the Holders exercise their rights under Section 6. The
Corporation shall not effect any such capital reorganization unless the
resulting successor or acquiring entity (if not the Corporation) assumes by
written instrument the obligation to deliver to the holders of Series D
Convertible Preferred Stock such shares of stock and/or securities as such
holder is entitled to receive upon conversion in accordance with the foregoing.
SECTION 6. CHANGE OF CONTROL.
(a) A "Change of Control Transaction" shall mean, (i) the sale,
conveyance or disposition of all or substantially all of the assets of the
Corporation, (ii) a consolidation or merger of the Corporation with or into any
other "Person" (as defined in the Exchange Act) (whether or not the Corporation
is the surviving Person) or (iii) (other than a consolidation or merger provided
for in clause (ii)) any Person or any "group" (as such term is used in Section
13(d) of the Exchange Act), becomes the beneficial owner or is deemed to
beneficially own (as described in Rule 13d-3 under the Exchange Act without
regard to the 60-day exercise period) in excess of 50% of the Corporation's
voting power of the capital stock of the Corporation normally entitled to vote
in the election of directors of the Corporation (other than (A) any Person or
any such group that held such voting power as of the Initial Issuance Date or
(B) any group that holds such voting power subsequent to the Initial Issuance
Date, provided that the Persons that constitute such group include the Person or
a majority of the members of, and at least 50% of the voting power held by, a
group referenced in the foregoing clause (A)).
(b) Upon the notice or occurrence of, or announcement of the
Corporation's intent (or a third party's or parties' intent in the case of a
Change of Control Transaction of the type set
9
forth in clause (iii) of the definition of a Change of Control Transaction) to
engage in a Change of Control Transaction, the Series D Convertible Preferred
Stock shall, at the option of the Holder thereof, be convertible in full upon
the terms set forth in this Section 6(b); provided, however, that the Holder's
ability to convert the Series D Convertible Preferred Stock pursuant to this
Section 6(b) shall be effective only if the Holder has delivered a Notice of
Conversion in accordance with Section 4(d) no later than twelve (12) Trading
Days prior to the date of the meeting of the Corporation's stockholders to
approve such Change of Control Transaction. In the event that the Holder elects
to convert pursuant to this Section 6(b), each share of Series D Convertible
Preferred Stock shall be convertible into that number of shares of Common Stock
equal to the quotient obtained by dividing (x) $1,890 plus the amount of any
accrued and unpaid dividends (the "Conversion Amount"), by (y) the average
closing bid prices for the twenty (20) consecutive Trading Days ending on the
date immediately preceding fifteen (15) Trading Days immediately preceding the
date of the meeting of the Corporation's stockholders to approve such Change of
Control Transaction but in no event less than $1.38. The conversion set forth in
this Section 6(b) related to a Change of Control Transaction shall be
conditioned upon and shall be effective immediately prior to consummation of
such Change of Control Transaction and all such shares of Series D Convertible
Preferred Stock shall no longer be outstanding and shall be automatically
cancelled and retired and shall cease to exist, and each certificate previously
representing any such shares shall thereafter represent the right to receive a
certificate representing the shares of Common Stock into which the Series D
Convertible Preferred Stock was converted.
(c) Unless otherwise converted pursuant to Section 6(b), conditioned
upon and effective immediately prior to the consummation of a Change of Control
Transaction, each share of Series D Convertible Preferred Stock shall
automatically be converted into that number of shares of Common Stock for each
share of Series D Convertible Preferred Stock owned by such Holder on the
Trading Day immediately preceding any such Change of Control Transaction as set
forth in Section 4(a) of the Series C Certificate of Designations. All such
shares of Series D Convertible Preferred Stock shall no longer be outstanding
and shall be automatically cancelled and retired and shall cease to exist, and
each certificate previously representing any such shares shall thereafter
represent the right to receive a certificate representing the shares of Common
Stock into which the Series D Convertible Preferred Stock was converted.
(d) The Corporation shall promptly mail written notice to the Holder of
either the occurrence of, or the announcement of the Corporation's intent to
engage in, a Change of Control Transaction (with a copy sent by facsimile), but
in any event such notice (other than, if applicable, in the case of a Change of
Control Transaction of the type set forth in clause (iii) of the definition of a
Change of Control Transaction) shall not be given less than twenty (20) days
prior to the effective date of such Change of Control Transaction."
SECTION 7. REACQUIRED SHARES.
Any shares of the Series D Convertible Preferred Stock redeemed,
purchased, converted or otherwise acquired by the Corporation in any manner
whatsoever shall not be reissued as part of the Series D Convertible Preferred
Stock and shall be retired promptly after the acquisition thereof. All such
shares of the Series D Convertible Preferred Stock upon their retirement and
10
the filing of any certificate required in connection therewith pursuant to the
Delaware General Corporation Law shall become authorized but unissued shares of
Preferred Stock.
SECTION 8. EQUALITY.
All Holders of Series D Convertible Preferred Stock shall be subject to
the same terms and conditions as set forth herein. No Holders of Series D
Convertible Preferred Stock shall be entitled to or receive terms that are more
favorable than those given to any other Holder of Series D Convertible Preferred
Stock. In the event a Holder of Series D Convertible Preferred Stock is given by
the Corporation or receives from the Corporation terms more favorable than those
given by the Corporation or received from the Corporation by any other Holder of
Series D Convertible Preferred Stock, then in such event all Holders of Series D
Convertible Preferred Stock shall be given and entitled to those more favorable
terms.
SECTION 9. REGISTERED HOLDER.
The Corporation may for all purposes treat the holder of shares of the
Series D Convertible Preferred Stock registered on the books of the Corporation
as the Holder, notwithstanding any notice or claim by any other Person with
respect to any interest in such shares.
SECTION 10. VOTING RIGHTS.
(a) Prior to conversion thereof, Holders of the Series D Convertible
Preferred Stock shall be voted together with the shares of Common Stock of the
Company and not as a separate class, at any annual or special meeting of
stockholders of the Company upon the following basis: each share of Series D
Convertible Preferred Stock shall be entitled to one thousand (1,000) votes.
(b) So long as any shares of Series D Convertible Preferred Stock are
outstanding, the Corporation shall not, without first obtaining the approval of
the Holders of at least ninety percent (90%) of the outstanding shares of Series
D Convertible Preferred Stock (excluding the Duggan Shares), authorize, create
or issue any class or series of stock ranking prior to the Series D Convertible
Preferred Stock with respect to the distribution of assets on liquidation,
dissolution or winding up as provided in Section 12 below.
SECTION 11. RANK.
All shares of the Series D Convertible Preferred Stock shall rank (i)
prior to the Common Stock, the Corporation's Series A Junior Participating
Convertible Preferred Stock, the Corporation's Series B Convertible Preferred
Stock and prior to any class or series of capital stock of the Corporation
hereafter created other than any series or class of capital stock of the
Corporation (A) that has been consented to by the Holders of at least ninety
percent (90%) of the outstanding shares of Series D Convertible Preferred Stock
(excluding the Duggan Shares), and (B) that specially, by its terms, ranks
senior to or pari passu with the Series D Convertible Preferred Stock (the
Common Stock, the Corporation's Series A Junior Participating Convertible
Preferred Stock, the Corporation's Series B Convertible Preferred Stock and any
class or series of capital stock of the Corporation hereafter created that does
not specifically, by its terms, and
11
in accordance with the terms of this Section 11, rank senior to or pari passu
with the Series D Convertible Preferred Stock being hereinafter referred to
collectively as "Junior Securities"); (ii) pari passu with the Corporation's
Series D Convertible Preferred Stock and any class or series of capital stock of
the Corporation hereafter created (A) that has been consented to by the Holders
of at least ninety percent (90%) of the outstanding shares of Series D
Convertible Preferred Stock (excluding the Duggan Shares) and (B) that,
specifically by its terms and in accordance with the terms of this Section 11,
ranks on a parity with the Series D Convertible Preferred Stock (the "Pari Passu
Securities"); and (iii) junior to any class or series of capital stock of the
Corporation hereafter created (A) that has been consented to by the Holders of
at least ninety percent (90%) of the outstanding shares of Series D Convertible
Preferred Stock (excluding the Duggan Shares) and (B) that specifically, by its
terms, ranks senior to the Series D Convertible Preferred Stock (all of the
foregoing, collectively, the "Senior Securities"), in each case as to
distribution of assets upon liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary.
SECTION 12. LIQUIDATION PREFERENCE.
(a) If the Corporation shall commence a voluntary case under the U.S.
Federal bankruptcy laws or any other applicable bankruptcy, insolvency or
similar law, or consent to the entry of an order for relief in an involuntary
case under any law or to the appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or other similar official) of the Corporation
or of any substantial part of its property, or make an assignment for the
benefit of its creditors, or admit in writing its inability to pay its debts
generally as they become due, or if a decree or order for relief in respect of
the Corporation shall be entered by a court having jurisdiction in the premises
in an involuntary case under the U.S. Federal bankruptcy laws or any other
applicable bankruptcy, insolvency or similar law resulting in the appointment of
a receiver, liquidator, assignee, custodian, trustee, sequestrator (or other
similar official) of the Corporation or of any substantial part of its property,
or ordering the winding up or liquidation of its affairs, and any such decree or
order shall be unstayed and in effect for a period of sixty (60) consecutive
days and, on account of any such event, the Corporation shall liquidate,
dissolve or wind up, or if the Corporation shall otherwise liquidate, dissolve
or wind up (a "Liquidation Event"), no distribution shall be made to the holders
of any shares of capital stock of the Corporation (other than Senior Securities
and, together with the Holders of Series D Convertible Preferred Stock, the Pari
Passu Securities) upon liquidation, dissolution or winding up unless prior
thereto the Holders shall have received the Liquidation Preference (as
hereinafter defined) with respect to each share of Series D Convertible
Preferred Stock. If, upon the occurrence of a Liquidation Event, the assets and
funds available for distribution among the Holders and holders of Pari Passu
Securities shall be insufficient to permit the payment to such Holders of the
preferential amounts payable thereon, then the entire assets and funds of the
Corporation legally available for distribution to the Series D Convertible
Preferred Stock and the Pari Passu Securities shall be distributed ratably among
such shares in proportion to the ratio that the Liquidation Preference payable
on each such share bears to the aggregate Liquidation Preference payable on all
such shares.
(b) The purchase or redemption by the Corporation of stock of any class
or series, in any manner permitted by law, shall not, for the purposes hereof,
be regarded as a liquidation, dissolution or winding up of the Corporation.
Neither the consolidation or merger of the
12
Corporation with or into any other entity nor the sale or transfer by the
Corporation of all or substantially all of its assets shall, for the purposes
hereof, be deemed to be a liquidation, dissolution or winding up of the
Corporation.
(c) The "Liquidation Preference" with respect to a share of Series D
Convertible Preferred Stock means an amount equal to the Stated Value thereof
plus a premium equal to thirty five percent (35%) of the Stated Value thereof,
and any other amounts that may be due from the Corporation with respect thereto
pursuant to this Certificate of Designations (including, without limitation,
accrued and unpaid dividends), the Purchase Agreement or the Registration Rights
Agreement. The Liquidation Preference with respect to any Pari Passu Securities
shall be as set forth in the Certificate of Designations filed in respect
thereof and, as applicable, any other agreements related thereto.
SECTION 13. LOST OR DESTROYED CERTIFICATES.
If a Series D Convertible Stock Certificate shall be mutilated, lost,
stolen or destroyed, the Corporation shall execute and deliver, in exchange and
substitution for and upon cancellation of such mutilated Series D Convertible
Stock Certificate, or in lieu of or in substitution for a lost, stolen or
destroyed Series D Convertible Stock Certificate, a new Series D Convertible
Stock Certificate for the Series D Convertible Stock Certificate so mutilated,
lost, stolen or destroyed, but only upon receipt of evidence of such loss, theft
or destruction of such Series D Convertible Stock Certificate, and of the
ownership thereof, and indemnity, if requested, all reasonably satisfactory to
the Corporation.
SECTION 14. CERTAIN DEFINITIONS.
(a) Business Day. For purposes hereof, the term "business day" shall
mean any day on which banks are generally open for business in the City of New
York.
(b) Trading Day. For purposes hereof, the term "trading day" shall mean
any day on which the principal market on which the Common Stock is traded is
open for business.
(c) Person. For purposes hereof, the term "Person" means an individual
or a corporation, partnership, trust, incorporated or unincorporated
association, joint venture, joint stock company, governmental authority or other
entity of any kind.
SECTION 15. WAIVER AND AMENDMENTS.
Any waiver by the Corporation or a Holder of a breach of any provision of
this Certificate of Designations shall not operate as or be construed to be a
waiver of any other breach of such provision or of any breach of any other
provision of the Series D Convertible Preferred Stock. The failure of the
Corporation or the Holder to insist upon strict adherence to any term of this
Certificate of Designations on one or more occasions shall not be considered a
waiver or deprive that party of the right thereafter to insist upon strict
adherence to that term or any other term of this Certificate of Designations of
the Series D Convertible Preferred Stock. Any waiver must be in writing. The
provisions of this Certificate of Designations may not be amended, modified or
supplemented unless the same shall be in writing and signed by the Company and
the Holders of at least ninety percent (90%) of the outstanding shares of Series
D
13
Convertible Preferred Stock (excluding the Duggan Shares); provided, however,
any amendment or modification of Section 2 of this Certificate of Designations
shall require the written consent of the Company and at least ninety percent
(90%) of the outstanding shares of Series D-1 Convertible Preferred Stock
(excluding the Duggan Shares) and all of the outstanding shares of Series D-2
Convertible Preferred Stock.
SECTION 16. UNENFORCEABLE PROVISIONS.
If any provision of this Certificate of Designations is invalid, illegal
or unenforceable, the remaining provisions of thereof shall remain in effect,
and if any provision is inapplicable to any Person or circumstance, it shall
nevertheless remain applicable to all other Persons and circumstances.
SECTION 17. COPIES OF AGREEMENTS, INSTRUMENTS, DOCUMENTS.
Copies of any of the agreements, instruments or other documents referred
to in this Certificate of Designations shall be furnished to any Holder of
Series D Convertible Preferred Stock upon written request to the Corporation at
its principal place of business.
SECTION 18. NOTICES.
All notices, demands, requests, consents, approvals or other
communications required or permitted to be given hereunder or that are given
with respect to the Series D Convertible Preferred Stock shall be in writing and
shall be personally served or deposited in the mail, registered or certified,
return receipt requested, postage prepaid, or delivered by reputable air courier
service with charges prepaid, or transmitted by hand delivery, telegram, telex
or facsimile, addressed as set forth below: (i) if to the Corporation, to:
Computer Motion, Inc., 130 Cremona Drive, Goleta, California 93117, Attention:
Larry Redfern, Facsimile No.: (805) 685-9277 (or to such other address of which
notice has been given as herein provided, with copies (which shall not
constitute notice) to: Stradling, Yocca, Carlson & Rauth, 302 Olive Street Santa
Barbara, CA 93101, Attention: David Lafitte, Facsimile No.: (805) 564-1044; and
(ii) if to the Holder, to the address of the registered holder according to the
books and records of the Corporation or its transfer agent. Notice shall be
deemed given on the date so served, deposited for mailing, transmitted by hand
delivery, telegram, telex or facsimile or delivered to a reputable air courier
for delivery as contemplated above and shall be deemed received on the date so
served, if served or transmitted by hand delivery, telegram, telex or facsimile,
one business day after being so delivered to a reputable air courier for
delivery as contemplated above or three business days after being so mailed as
contemplated above.
14
IN WITNESS WHEREOF, COMPUTER MOTION, INC. has caused this Certificate of
Designations to be executed by its Chief Executive Officer and attested to by
its Secretary this 6th day of March, 2003.
COMPUTER MOTION, INC.
/s/ Robert W. Duggan
-----------------------------------------
Robert W. Duggan, Chief Executive Officer
ATTEST:
/s/ Larry Redfern
---------------------------------
Larry Redfern, Secretary
15