silicon valley law group the art of doing deals merger consideration 1.3 shares of the constituent...

SILICON VALLEY LAW GROUPThe Art of Doing Deals

MERGER CONSIDERATION 1.3 Shares of the Constituent and Surviving Corporations: The manner and basis of converting the shares of HITECH Stock into shares of Supertech Common Stock and HITECH Options into Supertech Options shall be as follows:

(a) Conversion Ratio: (1) Each share of HITECH Stock shall, by virtue of the Merger and without any action on the part of the holder thereof, or any other action whatsoever, be converted into six (6) shares of validly issued, fully paid and nonassessable shares of Supertech Common Stock (sometimes referred to as "Supertech Merger Stock"); (2) Each issued share of Supertech shall remain unchanged,

(3) Each outstanding HITECH Option to acquire one (1) share of HITECH Stock shall, by virtue of the Merger and without any action on the part of the holder thereof, or any other action whatsoever, be converted into a Supertech Option to acquire six (6) shares of validly issued, fully paid and nonassessable shares of Supertech Common Stock. THE CONVERSION RATIO IS THE RESULT OF THE NEGOTIATIONS OVER THE VALUES OF THE RESPECTIVE COMPANIES

PROTECTION FROM MARKET VALUE FLUCTUATIONS

(4) Notwithstanding anything to the contrary herein, Supertech shall issue no more than 80,000,000 shares of Supertech Common Stock, which includes approximately ten million (10,000,000) shares of Supertech Common Stock issuable upon exercise of the options under Section 1.3 (a)(3). THIS PROVISION PROVIDES A CIELING ON THE CONSIDERATION IN THE EVENT OF FLUCTUATIONS IN THE VALUE OF THE ACQUIRORS PARENT.


DISCLOSURE SCHEDULES

1.6 Disclosure Schedules: Simultaneously with the execution of this Agreement, (a) HITECH shall deliver a schedule relating to HITECH (the "HITECH Disclosure Schedule"), and (b) Supertech and AC shall deliver a schedule relating to Supertech and AC (the "Supertech Disclosure Schedule" and collectively with the HITECH Disclosure Schedule, the "Disclosure Schedules") setting forth the matters required to be set forth in the Disclosure Schedules as described elsewhere in this Agreement. The Disclosure Schedules shall be deemed to be part of this Agreement. FOR PURPOSES OF PROTECTION FROM LIABILITY, THE TARGET AND ITS COUNSEL SHOULD SPEND SUBSTANTIAL TIME ON THIS ITEM. THE ACQUIROR'S COUNSEL SHOULD ALSO SPEND SUBSTANTIAL TIME REVIEWING AND UNDERSTANDING WHAT IS DISCLOSED.


DISSENTERS RIGHTS

1.7 Dissenting Shares. Notwithstanding anything to the contrary

contained in this Agreement, any shares of capital stock of HITECH that, as of the Closing Date, are or may become "dissenting shares" within the meaning of Section 1300(b) of the CGCL, if applicable, shall not be converted into or represent the right to receive Supertech Common Stock in accordance with this Agreement, and the holder or holders of such shares shall be entitled only to such rights as may be granted to such holder or holders in the CGCL; provided, however, that if the status of any such shares as "dissenting shares" shall not be perfected, or if any such shares shall lose their status as "dissenting shares," then, as of the later of the Closing Date or the time of the failure to perfect such status or the loss of such status, such shares shall automatically be converted into and shall represent only the right to receive (upon the surrender of the certificate or certificates representing such shares) Supertech Common Stock in accordance with this Agreement. A LOOSE END THAT MUST BE PROVIDED FOR. BECAUSE A MERGER ONLY REQUIRES A MAJORITY VOTE OF THE TARGETS SHAREHOLDERS, IT IS USUALLY SUPERIOR TO A STOCK PURCHASE TRANSACTION IN WHICH 100% APPROVAL MAY BE REQUIRED OR DESIRED.


DUE DILIGENCE CLAUSE

2.1 Access by Supertech: HITECH shall afford to Supertech and to

Supertech’s counsel, accountants and other representatives full access, during normal business hours, throughout the period prior to the Closing Date, (a) to all of the books, contracts and records of HITECH and shall furnish Supertech during such period with all information concerning HITECH that Supertech may reasonably request and (b) to the properties of HITECH in order to conduct inspections at Supertech’s expense to determine that HITECH is operating in material compliance with all applicable federal, state and local and foreign statutes, rules and regulations, and that HITECH's assets are substantially in the condition and of the capacities represented and warranted in this Agreement. Any such investigation or inspection by Supertech shall not be deemed a waiver of, or otherwise limit, the representations, warranties and covenants contained herein.

2.1 Access: Each party shall afford the other and its representatives full access, during normal business hours, throughout the period prior to the Closing Date, (a) to all of its books, contracts and records and shall furnish the other party during such period with all information concerning it that the other party may reasonably request and (b) to its properties in order to conduct inspections at the requesting party's expense to determine the other party's material compliance with all applicable federal, state and local and foreign statutes, rules and regulations. Any such investigation or inspection by a party shall not be deemed a waiver of, or otherwise limit, the representations, warranties and covenants contained herein made by the other party.

THE LAST SENTENCE IS ONE WHICH IS OFTEN NEGOTIATED AND RAISES THE ISSUE HOW JUSTIFIED IS THE RELIANCE OF A SOPHISTICATED PARTY ON REPRESENTATIONS MADE BY ANOTHER PARTY WHEN IT HAS CONDUCTED ITS OWN DUE DILIGENCE .

ALTERNATIVE 2:


EXCLUSIVITY

ALTERNATIVE 1:

2.3 Exclusivity to Supertech: HITECH and its officers, directors, representatives and agents, from the date hereof until the Closing (unless this Agreement shall be earlier terminated as hereinafter provided), shall not hold discussions with any person or entity, other than Supertech, concerning the Merger, or solicit, negotiate or entertain any inquiries, proposals or offers to purchase the business of HITECH or the shares of capital stock of HITECH from any person other than Supertech, or, except in connection with the normal operation of HITECH's business, disclose any confidential information concerning HITECH to any person other than Supertech and Supertech’s representatives or agents. ALTERNATIVE 2:

2.3 Exclusivity to Supertech: HITECH and its officers, directors, representatives and agents, except as required by law, from the date hereof until the Closing (unless this Agreement shall be earlier terminated as hereinafter provided) or a period of forty-five (45) days whichever occurs first, shall not solicit any inquiries, proposals or offers to purchase the business of HITECH or the shares of capital stock of HITECH from any person other than Supertech, or, except in connection with the normal operation of HITECH's business, disclose any confidential information concerning HITECH to any person other than Supertech and Supertech’s representatives or agents. THIS ALTERNATIVE IS MUCH NARROWER, THERE IS A FIXED DATE, THE PROVISION ONLY RESTRICTS SOLICITATION AND ALLOWS THE TARGET'S BOARD AND OFFICERS TO EVEN SOLICIT OFFERS IF REQUIRED BY THEIR FIDUCIARY DUTIES.


III REPRESENTATIONS AND WARRANTIES Of HITECH

Except as set forth in the HITECH Disclosure Schedule, HITECH

and the Shareholders represent and warrant to SUPERTECH as follows, with the knowledge and understanding that Supertech is relying materially upon such representations and warranties:

The term "Knowledge" as used in this Agreement with respect to a party's awareness of the presence or absence of a fact, event or condition shall mean (a) actual knowledge or, (b) the knowledge that would be obtained if such party conducted itself faithfully and exercised a sound discretion in the management of his own affairs. ANOTHER ALTERNATIVE IS TO RESTRICT "KNOWLEDGE" TO "ACTUAL KNOWLEDGE".


CAPITALIZATION/SECURITIES LAW COMPLIANCE

(b) All outstanding shares of HITECH Common Stock,

all outstanding HITECH Options, all outstanding HITECH Warrants and all outstanding shares of capital stock of each Subsidiary of the HITECH have been issued and granted in compliance with (i) all applicable securities laws and other applicable Legal Requirements, and (ii) all material requirements set forth in applicable Contracts.


USE OF KNOWLEDGE QUALIFIERS

3.6 Contracts and Other Commitments:

(a) To its knowledge, Schedule A of HITECH Disclosure Schedule consists of a true and complete list of all contracts, agreements, commitments and other instruments (whether oral or written) to which HITECH is a party that (i) involve a receipt or an expenditure by HITECH or a company subsidiary or require the performance of services or delivery of goods to, by, through, on behalf of or for the benefit of HITECH, which in each case, relates to a contract, agreement, commitment or instrument that either (A) requires payments or receipts in excess of $10,000 per year or (B) is not terminable by HITECH on notice of thirty (30) days or less without penalty or HITECH being liable for damages, or (ii) involve an obligation for the performance of services or delivery of goods by HITECH that cannot or in reasonable probability will not, be performed within thirty (30) days from the dates as of which these representations are made.

(b) All of the contracts, agreements, commitments and other

instruments described in Schedule A of HITECH Disclosure Schedule (individually, "Contract and collectively, the "Contracts") are valid and binding upon HITECH, as applicable, and to its knowledge, the other parties thereto and are in full force and effect and enforceable, in accordance with their terms, and neither HITECH, nor to its knowledge, any other party to any Contract has breached any provision of, and no event has occurred which, with the lapse of time or action by a third party, could result in a material default under, the terms thereof. To its knowledge, no stockholder of HITECH has received any payment from any contracting party in connection with or as an inducement for causing HITECH to enter into any Contract.


TAXES

3.8 Taxes: For purposes of this Agreement, (A) "Tax" (and, with

correlative meaning, Taxes") shall mean any federal, state, local or foreign income, alternative or add‑ on minimum, business, employment, franchise, occupancy, payroll, property, sales, transfer, use, value added, withholding or other tax, levy, impost, fee, imposition, assessment or similar charge together with any related addition to tax, interest, penalty or fine thereon; and (B) "Returns" shall mean all returns (including, without limitation, information returns and other material information), reports and forms relating to Taxes. ALTERNATIVE 1:

(a) HITECH has duly filed all Returns required to be filed by it other than Returns (individually and in the aggregate) where the failure to file would have no material adverse effect on the business or prospects of HITECH. All such Returns were, when filed, and are, accurate and complete in all material respects and were prepared in conformity with applicable laws and regulations. HITECH has paid or will pay in full or has adequately reserved against all Taxes otherwise assessed against it or owed through the Closing Date.


ALTERNATIVE 2:

(a) HITECH has duly filed all Returns required to be filed by it other than Returns (individually and in the aggregate) where the failure to file would have no material adverse effect on the business or prospects of HITECH and has paid or reserved for all Taxes required by such returns. ALTERNATIVE 3:

(a) all known business, income, sales, use, withholding, social security, state disability, unemployment insurance or similar tax liabilities of Seller and the business of Seller have been fully satisfied or provided for, and there are no audits pending by, or disputes with, any tax authority with respect to such items.

TAXES


LEGAL COMPLIANCE(the double qualifier)

3.9 Compliance with Laws and Regulations: To its knowledge,,

HITECH has complied and is presently complying, in all material respects, with all laws, rules, regulations, orders and requirements (federal, state and local and foreign) applicable to it in all jurisdictions where the business of HITECH is conducted or to which HITECH is subject, including, without limitation, all applicable federal and state securities laws, civil rights and equal opportunity employment laws and regulations, and all federal, antitrust, antimonopoly and fair trade practice laws. There has been no assertion by any party that HITECH is in violation in any material respect of any such laws, rules, regulations, orders, restrictions or requirements with respect to its operations and no notice in that regard has been received by HITECH.


BOARD AND SHAREHOLDER APPROVALS

ALTERNATIVE 1: BOARD APPROVAL OBTAINED

2.4 Stockholder Approval: The Board of Directors of HITECH has determined that the Merger is fair to and in the best interests of their stockholders and have approved and adopted this Agreement and the Merger. The approval of HITECH’S shareholders shall be sought as soon as possible. This Agreement constitutes, and all other agreements contemplated hereby will constitute, when executed and delivered by HITECH the valid and binding obligations of HITECH, enforceable in accordance with their respective terms. ALTERNATIVE 2: BOARD APPROVAL NOT YET OBTAINED

2.4 Approval: Upon the execution of this Agreement, the Board of Directors of HITECH shall meet to approve this Agreement. The approval of HITECH’S shareholders shall be sought as soon as possible. This Agreement constitutes, and all other agreements contemplated hereby will constitute, when executed and delivered by HITECH the valid and binding obligations of HITECH, enforceable in accordance with their respective terms.


FINANCIAL STATEMENTS

ALTERNATIVE 1:

3.13 Financial Statements: The HITECH Disclosure Schedule contains unaudited balance sheets of HITECH as of June 30, 2000 and related unaudited statements of operations, cash flows and stockholders' equity of HITECH for the periods ended at such date (collectively the "Financial Statements"). The Financial Statements present fairly, in all material respects, the financial position on the dates thereof and results of operations of HITECH for the periods indicated, prepared in accordance with generally accepted accounting principles ("GAAP") consistently applied. HITECH's Financial Statements are capable of being audited in accordance with Regulation S‑X, promulgated by the Securities and Exchange Commission. There are no assets of HITECH, the value of which is materially overstated in said balance sheets. ALTERNATIVE 2:

3.13 Financial Statements: All financial statements are materially accurate and complete and the information therein accurately reflects the operations and results of the business of HITECH for the applicable periods shown.


INTELLECTUAL PROPERTY

3.18

Intellectual Property: Schedule B of the HITECH Disclosure Schedule sets forth a complete and correct list and summary description of all intellectual property , including computer software, trademarks, trade names, service marks, service names, brand names, copyrights and patents, registrations thereof and applications therefore, applicable to or used in the business of HITECH, together with a complete list of all licenses granted by or to HITECH with respect to any of the above. Except as otherwise set forth in Schedule B all such trademarks, trade names, service marks, service names, brand names, copyrights and patents are owned by HITECH, free and clear of all liens, claims, security interests and encumbrances of any nature whatsoever. HITECH is not currently in receipt of any notice of any violation or infringements of, and HITECH is not knowingly violating or infringing, the rights of others in any trademark, trade name, service mark, copyright, patent, trade secret, know-how or other intangible asset. The proprietary assets listed on Schedule B constitute all the proprietary assets necessary to enable HITECH to conduct their business in the manner in which such business has been and is being conducted. HITECH has not (i) licensed any of the material proprietary assets to any person or entity on an exclusive basis, or (ii) entered into any covenant not to compete or agreement limiting its ability to exploit fully any proprietary asset or to transact business in any market or geographical area or with any person or entity.

REQUESTING A DESCRIPTION OF ALL INTELLECTUAL PROPERTY

MAY NOT BE IN THE BEST INTERESTS OF THE ACQUIROR. WHEN FACED WITH SUCH A TASK, THE TARGET IS LIKELY TO OMIT ALL OR SUBSTANTIALLY ALL OF ITS TRADE SECRETS. CONSEQUENTLY, WHEN THE ACQUIROR ATTEMPTS TO ENFORCE THE TRADE SECRETS OF ITS TARGET, THE DISCOVERY PROCESS WILL REVEAL THAT THEY WERE NOT LISTED AS TRADE SECRETS ONT HE DISCLOSURE SCHEDULE.


"CATCH ALL" REPRESENTATION

3.25 No Omissions or Untrue Statements: To the best of its

knowledge no representation or warranty made by HITECH to Supertech or NOL in this Agreement, the HITECH Disclosure Schedule or in any certificate of a HITECH officer required to be delivered to Supertech pursuant to the terms of this Agreement contains or will contain any untrue statement of a material fact, or omits or will omit to state a material fact necessary to make the statements contained herein or therein not misleading as of the date hereof and as of the Closing Date. THIS CATCHALL REPRESENTATION IS USUALLY THE SUBJECT OF NEGOTIATION. IT REQUIRES THE TARGET TO DETERMINE WHAT IS MATERIAL TO THE ACQUIROR.


EXIT STRATEGY

ALTERNATIVE 1: REGISTRATION OF MERGER CONSIDERATION

5.4 Registration Statement on Form S-4.

(a) As promptly as practicable after the date of this Agreement, Supertech and HITECH shall prepare and cause to be filed with the SEC a joint prospectus and proxy statement in accordance with the requirements of the Securities Act and or the Exchange Act (the "Joint Prospectus/Proxy Statement") and Supertech shall prepare and cause to be filed with the SEC a registration statement on Form S-4 in accordance with the Securities Act (the "S-4 Registration Statement"), in which the Joint Prospectus/Proxy Statement will be included as a prospectus. Each of Supertech and HITECH shall use commercially reasonable efforts to cause the Form S-4 Registration Statement and the Joint Prospectus/ Proxy Statement to comply with the rules and regulations promulgated by the SEC, to respond promptly to any comments of the SEC or its staff and to have the Form S-4 Registration Statement declared effective under the Securities Act as promptly as practicable after it is filed with the SEC. HITECH and Supertech will use commercially reasonable efforts to cause the Joint Prospectus/Proxy Statement to be mailed to their respective stockholders as promptly as practicable after the Form S-4 Registration Statement is declared effective under the Securities Act. Supertech and HITECH shall promptly furnish to the other information concerning Supertech or HITECH or their respective stockholders that may be required or reasonably requested in connection with any action contemplated by this Section. If any event relating to any of HITECH or Supertech occurs, or if either party becomes aware of any information that should be disclosed in an amendment or supplement to the Form S-4 Registration Statement or the Joint Prospectus/Proxy Statement, then such party shall promptly inform the other party thereof and shall cooperate in filing such amendment or supplement with the SEC and, if appropriate, in mailing such amendment or supplement to the stockholders of Supertech or HITECH.


EXIT STRATEGY

ALTERNATIVE 2: RESTRICTED SHARES

5.4 Restricted Shares. HITECH and AC understand and acknowledge Each Purchaser understands that the shares transferred from one party to another as part of this transaction are characterized as “restricted securities” under the federal securities laws inasmuch as they are being acquired in a transaction not involving a public offering and that under such laws and applicable regulations such securities may be resold without registration under the Securities Act only in certain limited circumstances.


TAX TREATMENT

6.4 Tax Free Reorganization: The Merger shall qualify as a tax-free reorganization under the Internal Revenue Code. It is also intended, if possible, that the Merger be accounted for as a pooling-of-interest for financial accounting purposes. HITECH and Supertech agree to take such action, as may reasonably be requested, in order to have the Merger qualify for such treatment.


LOCK-UPS

11.2. Lock-Up Agreement. Supertech shall use its best efforts to secure from the present shareholders of Supertech an agreement stipulating that the shares of Supertech Common Stock owned by the present shareholders may not be transferred or sold for a period of nine (9) months following the Closing, as defined herein. These shares will aggregate to not less than _________% of the total outstanding shares of Supertech Common Stock as of the execution date of this Agreement. Conditioned on Supertech receiving the aforementioned agreement, HITECH agrees that 80% of the shares of Supertech Common Stock to be received by HITECH’s shareholders may not be transferred or sold for a period of nine (9) months following the closing, inclusive of the Escrow Shares. Thereafter, shares received in the Merger may be resold in the manner permitted under the applicable rules and regulations of the Securities Act, including Rule 145 as promulgated by the Securities and Exchange Commission (“SEC”). THIS PROVISION IS OFTEN NECESSARY TO PREVENT (i) KEY EMPLOYEES FROM CASHING OUT AND LEAVING OR (ii) DOWNWARD PRESSURE ON THE STOCK PRICE FROM RECIPIENTS DUMPING SHARES ON THE MARKET.


INDEMNIFICATION

11.6 Indemnification by HITECH: HITECH and the Shareholders shall indemnify Supertech and AC in respect of, and hold Supertech and AC harmless against, any and all debts, obligations and other liabilities (whether absolute, accrued, contingent, fixed or otherwise, or whether known or unknown, or due or to become due or otherwise), monetary damages, fines fees, penalties, interest obligations, deficiencies, losses and expenses (including without limitation attorneys fees and litigation costs) incurred or suffered by Supertech and AC:

(a) resulting from any misrepresentation, breach of warranty or failure to perform any covenant or agreement of HITECH contained in this Agreement;

(b) resulting from any employment, excess or property taxes owing or arising on account of or in connection with the operation of HITECH prior to the Closing; and

(c) resulting from any liability of HITECH incurred or resulting from activities that took place prior to the Closing not disclosed on the ________Balance Sheet and not incurred in the ordinary course of business between _________ and the Closing. NOTWITHSTANDING ANYTHING TO THE CONTRARY HEREIN, NO INDEMNIFICATION SHALL BE REQUIRED TO THE EXTENT THAT DAMAGES SUFFERED BY SUPERTECH AND/OR AC ARE LESS THAN $50,000.00 AND THE AGGREGATE LIABILITY OF THE SHAREHOLDER SHALL NOT EXCEED (I) IN YEAR 1, $1,000,000; (II) IN YEAR 2, $500,000; AND (III) IN YEAR 3, $250,000. BASKETS AND CAPS ON INDEMNITY ARE CRITICAL FOR THE TARGET'S SHAREHOLDERS.


ESCROW OF SHARES

11.8 Escrow: Ten percent (10%) of the Shares of Supertech Common Stock to be issued to the Shareholders of HITECH in the Merger will be held in escrow to fund HITECH’s indemnity obligations owed to Supertech as security against the possibility of misrepresentations, breaches of covenants, conditions, and warranties, and undisclosed liabilities. The escrow arrangement will continue until ___________, at which time all remaining shares will be released other than shares that may be required as security for claims pending as of such date. Such escrow arrangement shall be set forth in a separate Escrow Agreement in form and substance satisfactory to the parties. THIS PROVISION SERVES AS SECURITY FOR THE INDEMNITY OBLIGATIONS OF THE TARGET.


SURVIVAL OF REPRESENTATIONS

ALTERNATIVE 1:

12.2 Survival of Representations, Warranties and Covenants: All

statements contained in this Agreement or in any certificate delivered by or on behalf of HITECH or Supertech pursuant hereto, or in connection with the actions contemplated hereby shall be deemed representations, warranties and covenants by Supertech or HITECH, as the case may be, hereunder. All representations, warranties, and covenants made by HITECH or Supertech in this Agreement, or pursuant hereto, shall survive the Closing. ALTERNATIVE 2:

12.2 Survival of Representations, Warranties and Covenants: All statements contained in this Agreement or in any certificate delivered by or on behalf of HITECH or Supertech pursuant hereto, or in connection with the actions contemplated hereby shall be deemed representations, warranties and covenants by Supertech or HITECH, as the case may be, hereunder. All representations, warranties, and covenants made by HITECH or Supertech in this Agreement, or pursuant hereto, shall survive the Closing for a period of two (2) years except for the representations regarding Taxes (Section ___) and Hazardous Materials (Section ___) which shall continue for a period of seven years from the Closing.


silicon valley law group the art of doing deals merger consideration 1.3 shares of the constituent...

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shares of hitech stock

dissenting shares

supertech merger stock

supertech disclosure

supertech options

share of supertech

share of hitech stock

b supertech