AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
XXXXXX'X, INC.,
PANDA MERGER CORP.
AND
XXXXXXXX.XXX, INC.
JULY 12, 2000
TABLE OF CONTENTS
PAGE
ARTICLE I THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 CLOSING; EFFECTIVE TIME. . . . . . . . . . . . . . . . . . . 2
1.3 EFFECT OF THE MERGER . . . . . . . . . . . . . . . . . . . . 2
1.4 CERTIFICATE OF INCORPORATION; BYLAWS.. . . . . . . . . . . . 2
1.5 DIRECTORS AND OFFICERS . . . . . . . . . . . . . . . . . . . 2
1.6 EFFECT ON CAPITAL STOCK. . . . . . . . . . . . . . . . . . . 2
1.7 SURRENDER OF CERTIFICATES. . . . . . . . . . . . . . . . . . 6
1.8 NO FURTHER OWNERSHIP RIGHTS IN TARGET CAPITAL STOCK. . . . . 9
1.9 LOST, STOLEN OR DESTROYED CERTIFICATES . . . . . . . . . . . 9
1.10 TAX CONSEQUENCES . . . . . . . . . . . . . . . . . . . . . . 9
1.11 EXEMPTION FROM REGISTRATION. . . . . . . . . . . . . . . . . 9
1.12 TAKING OF NECESSARY ACTION; FURTHER ACTION . . . . . . . . . 9
1.13 STOCK RESTRICTION AGREEMENT; TRANSFER RESTRICTIONS . . . . . 9
1.14 REGISTRATION RIGHTS AGREEMENT. . . . . . . . . . . . . . . . 11
ARTICLE II REPRESENTATIONS AND WARRANTIES OF TARGET. . . . . . . . . . . 11
2.1 ORGANIZATION, STANDING AND POWER . . . . . . . . . . . . . . 12
2.2 CAPITAL STRUCTURE. . . . . . . . . . . . . . . . . . . . . . 12
2.3 AUTHORITY. . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.4 FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . 13
2.5 ABSENCE OF CERTAIN CHANGES . . . . . . . . . . . . . . . . . 13
2.6 ACCOUNTS RECEIVABLE. . . . . . . . . . . . . . . . . . . . . 14
2.7 LITIGATION . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.8 RESTRICTIONS ON BUSINESS ACTIVITIES. . . . . . . . . . . . . 14
2.9 GOVERNMENTAL AUTHORIZATION . . . . . . . . . . . . . . . . . 14
2.10 TITLE TO PROPERTY. . . . . . . . . . . . . . . . . . . . . . 15
2.11 INTELLECTUAL PROPERTY. . . . . . . . . . . . . . . . . . . . 15
2.12 ENVIRONMENTAL MATTERS. . . . . . . . . . . . . . . . . . . . 17
2.13 TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.14 Employee Benefit Plans.. . . . . . . . . . . . . . . . . . . 19
2.15 EMPLOYEES AND CONSULTANTS. . . . . . . . . . . . . . . . . . 21
2.16 CERTAIN AGREEMENTS AFFECTED BY THE MERGER. . . . . . . . . . 22
2.17 RELATED-PARTY TRANSACTIONS . . . . . . . . . . . . . . . . . 22
2.18 INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . . . 22
2.19 COMPLIANCE WITH LAWS . . . . . . . . . . . . . . . . . . . . 23
2.20 BROKERS' AND FINDERS' FEES . . . . . . . . . . . . . . . . . 23
2.21 [RESERVED] . . . . . . . . . . . . . . . . . . . . . . . . . 23
2.22 TARGET VOTING AGREEMENTS . . . . . . . . . . . . . . . . . . 23
2.23 BOARD APPROVAL; STOCKHOLDER APPROVAL REQUIRED. . . . . . . . 23
2.24 CUSTOMERS AND SUPPLIERS. . . . . . . . . . . . . . . . . . . 23
2.25 MATERIAL CONTRACTS . . . . . . . . . . . . . . . . . . . . . 23
2.26 NO BREACH OF MATERIAL CONTRACTS. . . . . . . . . . . . . . . 25
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2.27 THIRD-PARTY CONSENTS . . . . . . . . . . . . . . . . . . . . 25
2.28 MATERIAL THIRD PARTY CONSENTS. . . . . . . . . . . . . . . . 25
2.29 MINUTE BOOKS . . . . . . . . . . . . . . . . . . . . . . . . 25
2.30 COMPLETE COPIES OF MATERIALS . . . . . . . . . . . . . . . . 25
2.31 YEAR 2000 COMPATIBILITY. . . . . . . . . . . . . . . . . . . 25
2.32 ABSENCE OF UNDISCLOSED LIABILITIES . . . . . . . . . . . . . 26
2.33 TAX MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . 26
2.34 EXPORT CONTROL LAWS. . . . . . . . . . . . . . . . . . . . . 26
2.35 PRODUCT RELEASES . . . . . . . . . . . . . . . . . . . . . . 26
2.36 REPRESENTATIONS COMPLETE . . . . . . . . . . . . . . . . . . 27
2.37 INFORMATION STATEMENT. . . . . . . . . . . . . . . . . . . . 27
2.38 REGISTRATION RIGHTS. . . . . . . . . . . . . . . . . . . . . 27
2.39 STANDSTILL AGREEMENT . . . . . . . . . . . . . . . . . . . . 27
ARTICLE III REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND MERGER SUB. . 27
3.1 ORGANIZATION, STANDING AND POWER . . . . . . . . . . . . . . 28
3.2 CAPITAL STRUCTURE. . . . . . . . . . . . . . . . . . . . . . 28
3.3 AUTHORITY. . . . . . . . . . . . . . . . . . . . . . . . . . 28
3.4 SEC DOCUMENTS; FINANCIAL STATEMENTS. . . . . . . . . . . . . 29
3.5 TAX MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . 29
3.6 ABSENCE OF UNDISCLOSED LIABILITIES . . . . . . . . . . . . . 29
3.7 NO BROKERS . . . . . . . . . . . . . . . . . . . . . . . . . 30
3.8 REPRESENTATIONS COMPLETE . . . . . . . . . . . . . . . . . . 30
3.9 INFORMATION TO BE SUPPLIED BY ACQUIROR . . . . . . . . . . . 30
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME . . . . . . . . . . . . . 30
4.1 CONDUCT OF BUSINESS OF TARGET. . . . . . . . . . . . . . . . 30
4.2 RESTRICTIONS ON CONDUCT OF BUSINESS OF TARGET. . . . . . . . 31
4.3 NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . . 33
ARTICLE V ADDITIONAL AGREEMENTS. . . . . . . . . . . . . . . . . . . . . 33
5.1 NO SOLICITATION. . . . . . . . . . . . . . . . . . . . . . . 33
5.2 PREPARATION OF INFORMATION STATEMENT . . . . . . . . . . . . 34
5.3 STOCKHOLDERS MEETING OR CONSENT SOLICITATION . . . . . . . . 35
5.4 ACCESS TO INFORMATION. . . . . . . . . . . . . . . . . . . . 35
5.5 CONFIDENTIALITY. . . . . . . . . . . . . . . . . . . . . . . 35
5.6 PUBLIC DISCLOSURE. . . . . . . . . . . . . . . . . . . . . . 36
5.7 CONSENTS; COOPERATION. . . . . . . . . . . . . . . . . . . . 36
5.8 UPDATE DISCLOSURE; BREACHES. . . . . . . . . . . . . . . . . 37
5.9 LEGAL REQUIREMENTS . . . . . . . . . . . . . . . . . . . . . 37
5.10 TAX-FREE REORGANIZATION. . . . . . . . . . . . . . . . . . . 37
5.11 BLUE SKY LAWS. . . . . . . . . . . . . . . . . . . . . . . . 37
5.12 STOCK OPTIONS. . . . . . . . . . . . . . . . . . . . . . . . 38
5.13 ESCROW AGREEMENT . . . . . . . . . . . . . . . . . . . . . . 39
5.14 FORM S-8 . . . . . . . . . . . . . . . . . . . . . . . . . . 39
5.15 LISTING OF ADDITIONAL SHARES . . . . . . . . . . . . . . . . 39
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5.16 EMPLOYEES. . . . . . . . . . . . . . . . . . . . . . . . . . 39
5.17 ADDITIONAL AGREEMENTS; BEST EFFORTS. . . . . . . . . . . . . 39
5.18 DIRECTOR AND OFFICER INDEMNIFICATION.. . . . . . . . . . . . 40
ARTICLE VI CONDITIONS TO THE MERGER. . . . . . . . . . . . . . . . . . . 40
6.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE
MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
6.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF TARGET . . . . . . . 41
6.3 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF ACQUIROR AND
MERGER SUB . . . . . . . . . . . . . . . . . . . . . . . . . 42
ARTICLE VII TERMINATION, EXPENSES, AMENDMENT AND WAIVER. . . . . . . . . 44
7.1 TERMINATION. . . . . . . . . . . . . . . . . . . . . . . . . 44
7.2 EFFECT OF TERMINATION. . . . . . . . . . . . . . . . . . . . 44
7.3 EXPENSES.. . . . . . . . . . . . . . . . . . . . . . . . . . 45
7.4 AMENDMENT. . . . . . . . . . . . . . . . . . . . . . . . . . 45
7.5 EXTENSION; WAIVER. . . . . . . . . . . . . . . . . . . . . . 46
ARTICLE VIII ESCROW AND INDEMNIFICATION. . . . . . . . . . . . . . . . . 46
8.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. . . . 46
8.2 INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . 46
8.3 ESCROW FUND. . . . . . . . . . . . . . . . . . . . . . . . . 47
8.4 ESCROW PERIOD. . . . . . . . . . . . . . . . . . . . . . . . 47
8.5 CLAIMS UPON ESCROW FUND. . . . . . . . . . . . . . . . . . . 47
8.6 OBJECTIONS TO CLAIMS . . . . . . . . . . . . . . . . . . . . 48
8.7 RESOLUTION OF CONFLICTS; ARBITRATION.. . . . . . . . . . . . 48
8.8 STOCKHOLDERS' AGENT. . . . . . . . . . . . . . . . . . . . . 49
8.9 DISTRIBUTION UPON TERMINATION OF ESCROW PERIOD . . . . . . . 50
8.10 ACTIONS OF THE STOCKHOLDERS' AGENT . . . . . . . . . . . . . 50
8.11 THIRD-PARTY CLAIMS . . . . . . . . . . . . . . . . . . . . . 50
8.12 MAXIMUM LIABILITY AND REMEDIES . . . . . . . . . . . . . . . 51
ARTICLE IX GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . . 51
9.1 NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . . 51
9.2 INTERPRETATION . . . . . . . . . . . . . . . . . . . . . . . 52
9.3 COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . . 52
9.4 ENTIRE AGREEMENT; THIRD PARTY BENEFICIARIES. . . . . . . . . 52
9.5 SEVERABILITY . . . . . . . . . . . . . . . . . . . . . . . . 53
9.6 REMEDIES CUMULATIVE. . . . . . . . . . . . . . . . . . . . . 53
9.7 GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . . . 53
9.8 ASSIGNMENT; AMENDMENT; BINDING EFFECT. . . . . . . . . . . . 53
9.9 RULES OF CONSTRUCTION. . . . . . . . . . . . . . . . . . . . 53
ANNEXES
Annex I - Illustrative Examples of Section 1.6 Calculations
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SCHEDULES
Target Disclosure Schedule
Acquiror Disclosure Schedule
EXHIBITS
Exhibit A Target Voting Agreement
Exhibit B Certificate of Merger
Exhibit C Stock Restriction Agreement
Exhibit D Registration Rights Agreement
Exhibit E Escrow Agreement
Exhibit F-1 Addendum to Employment Agreement for Xxxxx X. Xxxxxxx
Exhibit F-2 Addendum to Employment Agreement for Xxx X. Xxxxxxx
Exhibit F-3 Addendum to Employment Agreement for Xxxx X. Xxxxxxxx
Exhibit G Legal Opinion of Xxxxxxx, Xxxxxxx & Xxxxxxxx LLP
Exhibit H Legal Opinion of Xxxxx Xxxxxxx Xxxxxxx & Xxxxx LLP
Exhibit I FIRPTA Notice
Exhibit J 280G Agreement
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AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (this "AGREEMENT") is
made and entered into as of July 12, 2000 by and among Xxxxxx'x, Inc., a
Delaware corporation ("ACQUIROR"), Panda Merger Corp., a Delaware corporation
("MERGER SUB"), and Xxxxxxxx.xxx, Inc., a Delaware corporation ("TARGET").
RECITALS
The Boards of Directors of Target, Acquiror and Merger Sub believe
it is in the best interests of their respective companies and the stockholders
of their respective companies that Target and Merger Sub combine into a single
company through the statutory merger of Merger Sub with and into Target (the
"MERGER") and, in furtherance thereof, have approved the Merger.
A. Pursuant to the Merger, among other things, each
outstanding share of the capital stock of Target ("TARGET CAPITAL STOCK"), shall
be converted into shares of common stock of Acquiror, $0.01 par value ("ACQUIROR
COMMON STOCK"), at the exchange rates set forth herein.
B. Target, Acquiror and Merger Sub desire to make certain
representations and warranties and other agreements in connection with the
Merger.
C. The parties intend, by executing this Agreement, to adopt a
plan of reorganization within the meaning of Section 368 of the Internal Revenue
Code of 1986, as amended (the "CODE"), and to cause the Merger to qualify as a
reorganization under the provisions of Sections 368(a)(1)(A) and 368(a)(2)(E) of
the Code.
D. Concurrent with the execution of this Agreement and as an
inducement to Acquiror to enter into this Agreement, each executive officer,
director and holder of at least five percent of Target's outstanding voting
power (each, a "TARGET AFFILIATE") is entering into an agreement, in the form
attached hereto as EXHIBIT A (the "TARGET VOTING AGREEMENT"), to vote the shares
of Target Capital Stock owned or controlled by such person to approve the Merger
and against any competing proposals.
NOW, THEREFORE, in consideration of the covenants and
representations set forth herein, and for other good and valuable consideration,
the parties agree as follows:
ARTICLE I
THE MERGER
1.1 THE MERGER. At the Effective Time (as hereinafter defined) and
subject to and upon the terms and conditions of this Agreement, the Certificate
of Merger attached hereto as EXHIBIT B (the "CERTIFICATE OF MERGER") and the
applicable provisions of the Delaware General Corporation Law ("DELAWARE LAW"),
Merger Sub shall be merged with and into Target, the separate corporate
existence of Merger Sub shall cease and Target shall continue as the surviving
corporation. Target as the surviving corporation after the Merger is
hereinafter sometimes referred to as the "SURVIVING CORPORATION."
1.2 CLOSING; EFFECTIVE TIME. The closing of the transactions
contemplated hereby (the "CLOSING") shall take place as soon as practicable
after the satisfaction or waiver of each of the conditions set forth in ARTICLE
VI, or at such other time as the parties hereto agree (the date on which the
Closing shall occur being the "CLOSING DATE"). The Closing shall take place at
the offices of Xxxxxxx, Xxxxxxx & Xxxxxxxx LLP at 000 Xxxxxxxx Xxxxxx, Xxxxx
0000, Xxxxxx, Xxxxx, or at such other location as the parties hereto agree. On
the Closing Date, the parties hereto shall cause the Merger to be consummated by
filing the Certificate of Merger with the Secretary of State of the State of
Delaware, in accordance with the relevant provisions of Delaware Law (the time
and date of such filing being the "EFFECTIVE TIME" and the "EFFECTIVE DATE,"
respectively).
1.3 EFFECT OF THE MERGER. At the Effective Time, the effect of the
Merger shall be as provided in this Agreement, the Certificate of Merger and the
applicable provisions of Delaware Law. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time, all the property, rights,
privileges, powers and franchises of Target shall vest in the Surviving
Corporation, and all debts, liabilities and duties of Target shall become the
debts, liabilities and duties of the Surviving Corporation.
1.4 CERTIFICATE OF INCORPORATION; BYLAWS.
(a) At the Effective Time, the Certificate of Incorporation of
Merger Sub, as in effect immediately prior to the Effective Time, shall be the
Certificate of Incorporation of the Surviving Corporation until thereafter
amended as provided by Delaware Law and such Certificate of Incorporation;
PROVIDED, HOWEVER, that Article I of the Certificate of Incorporation shall be
amended to read as follows: "THE NAME OF THE CORPORATION IS POWERIZE, INC."
(b) The Bylaws of Merger Sub, as in effect immediately prior to
the Effective Time, shall be the Bylaws of the Surviving Corporation until
thereafter amended.
1.5 DIRECTORS AND OFFICERS. At the Effective Time, the directors of
Merger Sub immediately prior to the Effective Time shall be the directors of the
Surviving Corporation, to hold office until such time as such directors resign,
are removed or their respective successors are duly elected or appointed and
qualified. The officers of Merger Sub immediately prior to the Effective Time
shall be the officers of the Surviving Corporation, to hold office until such
time as such officers resign, are removed or their respective successors are
duly elected or appointed and qualified.
1.6 EFFECT ON CAPITAL STOCK. By virtue of the Merger and without any
action on the part of Acquiror, Merger Sub, Target or the holders of any of
Target's securities:
(a) CONVERSION OF TARGET CAPITAL STOCK. The maximum
consideration to be issued (including Acquiror Common Stock to be reserved for
issuance upon exercise of options to purchase shares of Target Common Stock (as
hereinafter defined) ("TARGET OPTIONS") assumed by Acquiror pursuant to SECTION
5.12 and warrants to purchase shares of Target Common Stock ("TARGET WARRANTS")
assumed by Acquiror pursuant to SECTION 1.6(d)) in exchange for the acquisition
by Acquiror of all Target Capital Stock outstanding immediately
2
prior to the Effective Time and the assumption by Acquiror of all unexpired and
unexercised Target Options and Target Warrants outstanding immediately prior to
the Effective Time shall be (i) up to $2,646,314 in cash (the "CASH
CONSIDERATION") and (ii) up to 1,877,327 shares (except as such number of shares
may be adjusted as provided in SECTION 1.6(i)) of Acquiror Common Stock (the
"TOTAL ACQUIROR CAPITAL SHARES"), reduced (x) by the Cash Consideration and
shares of Acquiror Common Stock otherwise issuable with respect to any
Dissenting Shares (as hereinafter defined) and (y) as provided in the following
sentence. In the event that the average closing "sale" price of a share of
Acquiror Common Stock for the 10 consecutive days that Acquiror Common Stock has
traded (each a "TRADING DAY") ending on the fifth Trading Day after the day the
Merger is officially announced to the general public, as reported on the Nasdaq
National Market (such average price being the "ACTUAL CLOSING STOCK PRICE"), is
greater than $8.50 per share, the Total Acquiror Capital Shares issuable in the
Merger shall be reduced to the number derived by dividing $15,676,779 by the
Actual Closing Stock Price (the "ADJUSTED ACQUIROR CAPITAL SHARES").
Certain of such shares of Acquiror Common Stock and a certain
portion of the Cash Consideration shall be deposited in the Escrow Fund (as
hereinafter defined) in accordance with ARTICLE VIII. No other adjustment shall
be made in the number of shares of Acquiror Common Stock issued in the Merger as
a result of any cash proceeds received by Target from the date hereof to the
Closing Date pursuant to the exercise of Target Options or Target Warrants.
Except for the Target Options and Target Warrants, there are no other options,
warrants or other securities or rights, whether contingent or otherwise, to
purchase, or exercisable or exchangeable for or convertible into, Target Capital
Stock.
As used in this Agreement, the following defined terms shall have
the meanings indicated below:
"ACQUIROR COMMON STOCK CONSIDERATION" means the lesser of the
Total Acquiror Capital Shares and the Adjusted Acquiror Capital Shares.
"ACQUIROR COMMON STOCK CONSIDERATION VALUE" means the product
obtained by multiplying the Acquiror Common Stock Consideration by the Adjusted
Closing Stock Price.
"ADJUSTED CLOSING STOCK PRICE" means the lesser of the Actual
Closing Stock Price and $8.50.
"TARGET OPTION CONSIDERATION VALUE" means the product obtained by
multiplying (a) the number of shares of Target Common Stock underlying all
unexpired and unexercised Target Options outstanding immediately prior to the
Effective Time by (b) the Target Common Stock Per Share Value.
"TARGET COMMON STOCK PER SHARE CASH CONSIDERATION" means, for each
share of Target Common Stock, the product obtained by multiplying (a) the Target
Common Stock Per Share Value by (b) the quotient obtained by dividing (i) the
Cash Consideration by (ii) the sum of the Cash Consideration plus the Acquiror
Common Stock Consideration Value less the Target Option Consideration Value.
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"TARGET COMMON STOCK EXCHANGE RATIO" means the quotient obtained
by dividing (a) the Target Common Stock Per Share Value less the Target Common
Stock Per Share Cash Consideration, by (b) the Adjusted Closing Stock Price.
"TARGET COMMON STOCK PER SHARE VALUE" means the quotient obtained
by dividing (a) the Total Merger Consideration Value by (b) the Total
Outstanding Target Common Stock.
"TOTAL MERGER CONSIDERATION VALUE" means the sum of (a) the
Acquiror Common Stock Consideration Value plus (b) the Cash Consideration.
"TOTAL OUTSTANDING TARGET COMMON STOCK" means the sum of (a) the
total number of shares of Target Common Stock issued and outstanding immediately
prior to the Effective Time plus (b) the total number of shares of Target Common
Stock underlying all unexpired and unexercised Target Options and Target
Warrants outstanding immediately prior to the Effective Time.
Subject to the terms and conditions of this Agreement and the
Certificate of Merger, as of the Effective Time, by virtue of the Merger and
without any action on the part of the holder of any shares of Target Capital
Stock, each share of Target common stock, par value $0.0001 per share (the
"TARGET COMMON STOCK"), issued and outstanding immediately prior to the
Effective Time (other than (x) shares to be cancelled pursuant to SECTION 1.6(b)
and (y) shares, if any, held by persons who have not voted such shares for
approval of the Merger and with respect to which such persons shall become
entitled to exercise dissenters' rights in accordance with Delaware Law (the
shares referred to in clause (y) being the "DISSENTING SHARES")) shall be
cancelled and extinguished, and converted automatically into the right to
receive (i) that number of shares of Acquiror Common Stock equal to the Target
Common Stock Exchange Ratio and (ii) an amount of cash equal to the Target
Common Stock Per Share Cash Consideration (the amounts referred to in (i) and
(ii), collectively, being the "TARGET COMMON STOCK PER SHARE CONSIDERATION").
All calculations made pursuant to this SECTION 1.6 shall be made using the most
accurate figures possible and such figures shall not be rounded up or down until
at least the sixth digit after the decimal point.
(b) CANCELLATION OF TARGET CAPITAL STOCK OWNED BY ACQUIROR OR
TARGET. At the Effective Time, each share of Target Capital Stock owned by
Acquiror or Target or any direct or indirect wholly owned subsidiary of Acquiror
or of Target immediately prior to the Effective Time shall be cancelled and
extinguished without any conversion thereof.
(c) TARGET STOCK OPTION PLAN AND NON-PLAN OPTIONS. At the
Effective Time, the Target 1998 Stock Incentive Plan, as amended (the "TARGET
STOCK OPTION PLAN"), and all options to purchase Target Common Stock then
outstanding under the Target Stock Option Plan as well as any options issued by
Target outside of the Target Stock Option Plan shall be assumed by Acquiror in
accordance with SECTION 5.12.
(d) TARGET WARRANTS. Each unexpired and unexercised Target
Warrant outstanding immediately prior to the Effective Time shall be assumed by
Acquiror. Each such warrant so assumed by Acquiror under this Agreement shall
continue to have, and be subject to,
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the same terms and conditions as those that existed immediately prior to the
Effective Time, except that (i) such warrant shall be exercisable for that
number of whole shares of Acquiror Common Stock equal to the product of the
number of shares of Target Common Stock that were issuable upon exercise of such
warrant immediately prior to the Effective Time multiplied by the Target Common
Stock Exchange Ratio and rounded down to the nearest whole number of shares of
Acquiror Common Stock and (ii) the per share exercise price for the shares of
Acquiror Common Stock issuable upon exercise of such assumed warrant shall be
equal to the quotient determined by dividing the exercise price per share of
Target Common Stock at which such warrant was exercisable immediately prior to
the Effective Time by the Target Common Stock Exchange Ratio, rounded up to the
nearest whole cent. In addition, upon exercise of such warrant, the holder
thereof will be entitled to receive, for each share of underlying Acquiror
Common Stock for which the warrant is so exercised, an amount in cash equal to
(i) the Target Common Stock Per Share Cash Consideration divided by (ii) the
Target Common Stock Exchange Ratio. Acquiror shall take all corporate action
necessary to reserve and make available for issuance a sufficient number of
shares of Acquiror Common Stock for delivery under the Target Warrants assumed
in connection with this SECTION 1.6(d). After the Effective Time, Acquiror will
issue to each person who, immediately prior to the Effective Time was a holder
of an outstanding Target Warrant, a document in form and substance satisfactory
to the Stockholders' Agent (as defined in SECTION 8.8) evidencing the foregoing
assumption of such Target Warrant by Acquiror.
(e) CAPITAL STOCK OF MERGER SUB. At the Effective Time, each
share of Merger Sub common stock, par value $0.01 per share, issued and
outstanding immediately prior to the Effective Time shall be converted into and
exchanged for one validly issued, fully paid and nonassessable share of common
stock, $0.01 par value, of the Surviving Corporation. Each stock certificate of
Merger Sub evidencing ownership of any such shares shall continue to evidence
ownership of such shares of capital stock of the Surviving Corporation.
(f) ADJUSTMENTS TO EXCHANGE RATIOS. The Exchange Ratios shall
be adjusted to reflect fully the effect of any stock split, reverse split, stock
dividend (including any dividend or distribution of securities convertible into
Acquiror Common Stock or Target Capital Stock, reorganization, recapitalization
or other like change with respect to Acquiror Common Stock or Target Capital
Stock) occurring after the date hereof and prior to the Effective Time.
(g) FRACTIONAL SHARES. No fraction of a share of Acquiror
Common Stock will be issued, but in lieu thereof each holder of shares of Target
Capital Stock who would otherwise be entitled to a fraction of a share of
Acquiror Common Stock (after aggregating all fractional shares of Acquiror
Common Stock to be received by such holder) shall receive from Acquiror an
amount of cash (rounded to the nearest whole cent) equal to the product of (i)
such fraction, multiplied by (ii) the Adjusted Closing Stock Price.
(h) DISSENTERS' RIGHTS. Any Dissenting Shares shall not be
converted into Acquiror Common Stock and shall not receive any cash in lieu of
fractional shares but instead shall be converted into the right to receive such
consideration as may be determined to be due with respect to such Dissenting
Shares pursuant to Delaware Law. Target agrees that, except with the prior
written consent of Acquiror, or as required under Delaware Law it will not make
any payment with respect to, or settle or offer to settle, any claim, demand or
other liability with
5
respect to any Dissenting Shares. Each holder of Dissenting Shares (a
"DISSENTING STOCKHOLDER") who, pursuant to the provisions of Delaware Law
becomes entitled to payment of the fair value for shares of Target Capital Stock
shall receive payment therefor (but only after the value therefor shall have
been agreed upon or finally determined pursuant to such provisions). If, after
the Effective Time, any Dissenting Shares shall lose their status as Dissenting
Shares, Acquiror shall issue and deliver, upon surrender by such Dissenting
Stockholder of a certificate or certificates representing shares of Target
Capital Stock, the Target Common Stock Per Share Consideration to which such
Dissenting Stockholder would otherwise be entitled under this SECTION 1.6 and
the Certificate of Merger less the number of shares of Acquiror Common Stock
allocable to such Dissenting Stockholder that have been or will be deposited in
the Escrow Fund (as defined below) pursuant to SECTION 1.7(c) and ARTICLE VIII.
(i) SPECIAL ADJUSTMENT TO MIX OF CONSIDERATION. In the event
that the Actual Merger Consideration Value shall be less than the Projected
Merger Consideration Value, then, solely for purposes of applying the final
paragraph of SECTION 1.6(a), the Target Common Stock Per Share Cash
Consideration shall be equal to the quotient obtained by dividing (i) the
product of 0.1999 multiplied by the Actual Merger Consideration Value by (ii)
the total number of shares of Target Common Stock issued and outstanding
immediately prior to the Effective Time and the Target Common Stock Exchange
Ratio shall be equal to the quotient obtained by dividing the (iii) the product
of 0.8001 multiplied by the Actual Merger Consideration Value by (iv) the
product of the Adjusted Stock Closing Price multiplied by the total number of
shares of Target Common Stock issued and outstanding immediately prior to the
Effective Time. For purposes of this SECTION 1.6(i), "ACTUAL MERGER
CONSIDERATION VALUE" shall mean the product of (w) the total number of shares of
Target Common Stock issued and outstanding immediately prior to the Effective
Time multiplied by (x) the sum of (A) the Target Common Stock Per Share Cash
Consideration and (B) the product of (i) the Adjusted Stock Closing Price
multiplied by (ii) the Target Common Stock Exchange Ratio; and "PROJECTED MERGER
CONSIDERATION VALUE" shall mean the quotient obtained by dividing (y) the
product of the Target Common Stock Per Share Cash Consideration multiplied by
the total number of shares of Target Common Stock issued and outstanding
immediately prior to the Effective Time by (z) 0.2. Notwithstanding the
foregoing provisions of this SECTION 1.6(i), in no event shall the aggregate
number of shares of Acquiror Common Stock issuable in connection with the Merger
(including shares issuable upon the exercise of Target Options and Target
Warrants assumed by Acquiror) exceed 2,000,000.
(j) ILLUSTRATIVE EXAMPLES OF MERGER EXCHANGE RATIO
CALCULATIONS. Two illustrative examples of the calculations to be made pursuant
to this SECTION 1.6 are attached hereto on ANNEX I. Such examples are based
partly on hypothetical values and are for illustrative purposes only. In the
event of any conflict between such examples and the language of this Agreement,
the Agreement shall be dispositive, unless the parties hereto otherwise agree in
writing.
1.7 SURRENDER OF CERTIFICATES.
(a) EXCHANGE AGENT. Acquiror, or an agent designated by it,
shall act as exchange agent (the "EXCHANGE AGENT") in the Merger.
6
(b) ACQUIROR TO PROVIDE COMMON STOCK AND CASH. Promptly after
the Effective Time, Acquiror shall make available in accordance with this
ARTICLE I, through such reasonable procedures as Acquiror may adopt, (i) the
shares of Acquiror Common Stock issuable pursuant to SECTION 1.6(a) in exchange
for shares of Target Capital Stock outstanding immediately prior to the
Effective Time less the Escrow Shares (as defined below) to be deposited into an
escrow fund (the "ESCROW FUND") pursuant to the requirements of SECTION 1.7(c)
and ARTICLE VIII, (ii) the portion of the Cash Consideration determined to be
payable pursuant to SECTION 1.6 less the Escrow Cash (as defined below) to be
deposited into the Escrow Fund pursuant to the requirements of SECTION 1.7(c)
and ARTICLE VIII and (iii) cash in an amount sufficient to permit payment of
cash in lieu of fractional shares pursuant to SECTION 1.6(g).
(c) EXCHANGE PROCEDURES. Promptly after the Effective Time,
Acquiror shall cause the Exchange Agent to mail to each holder of record (the
"FORMER TARGET STOCKHOLDERS") of a certificate or certificates (the
"CERTIFICATES") which immediately prior to the Effective Time represented
outstanding shares of Target Capital Stock, whose shares were converted,
pursuant to SECTION 1.6, into the right to receive shares of Acquiror Common
Stock and the Target Common Stock Per Share Cash Consideration for each share of
Target Common Stock so converted, (i) a letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon receipt of the Certificates by the Exchange
Agent, and shall be in such form and have such other provisions as Acquiror may
reasonably specify) and (ii) instructions for use in effecting the surrender of
the Certificates. Upon surrender of a Certificate for cancellation to such agent
or agents as may be appointed by Acquiror, together with such letter of
transmittal, duly completed and validly executed in accordance with the
instructions thereto, the Certificate so surrendered shall forthwith be
cancelled and the holder of such Certificate shall be entitled to receive in
exchange therefor (A) a certificate representing the number of whole shares of
Acquiror Common Stock into which such Target Common Stock is converted (less the
number of shares of Acquiror Common Stock to be deposited in the Escrow Fund on
such holder's behalf pursuant to ARTICLE VIII), (B) cash in lieu of fractional
shares, and (C) the Target Common Stock Per Share Cash Consideration for each
share of Target Common Stock so converted (less an amount of such cash to be
deposited in the Escrow Fund on such holder's behalf pursuant to ARTICLE VIII).
Until so surrendered, each outstanding Certificate that, prior to the Effective
Time, represented shares of Target Capital Stock will be deemed from and after
the Effective Time, for all corporate purposes, other than the payment of
dividends, to evidence (X) the ownership of the number of full shares of
Acquiror Common Stock into which such shares of Target Capital Stock shall have
been so converted, (Y) the right to receive an amount in cash in lieu of
fractional shares, and (Z) the right to receive the Target Common Stock Per
Share Cash Consideration for each share of Target Common Stock so converted, all
pursuant to SECTION 1.6. As soon as practicable after the Effective Time and
subject to and in accordance with the provisions of SECTION 8.3, Acquiror shall
cause to be delivered to the Escrow Agent (as defined in SECTION 8.3) (i) a
certificate or certificates representing the Escrow Shares (as defined below),
which shall be registered in the name of the Escrow Agent as nominee for the
holders of Certificates cancelled pursuant to this SECTION 1.7, and (ii) the
Escrow Cash (as defined below). Such Escrow Shares and Escrow Cash shall be
beneficially owned by such holders and shall be held in escrow and shall be
available to compensate Acquiror for damages as provided in ARTICLE VIII. To
the extent not used for such purposes, such Escrow Shares and Escrow Cash shall
be released, all as provided in ARTICLE VIII.
7
As used in this Agreement, the following defined terms shall have
the meanings indicated below:
"ESCROW FUND VALUE" means the Adjusted Stock Closing Price
multiplied by 10% of the product obtained by multiplying (a) the number of
shares of Target Common Stock outstanding immediately prior to the Effective
Time by (b) the Target Common Stock Exchange Ratio.
"ESCROW SHARES" means the number of shares obtained by (a)
multiplying the Escrow Fund Value by .80 and (b) dividing the product obtained
in (a) by the Adjusted Closing Stock Price.
"ESCROW CASH" means the dollar amount obtained by multiplying the
Escrow Fund Value by .20.
(d) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No
dividends or other distributions with respect to Acquiror 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 Acquiror Common Stock
represented thereby until the holder of record of such Certificate surrenders
such Certificate. Subject to applicable law, following surrender of any such
Certificate, there shall be paid to the record holder of the certificates
representing whole shares of Acquiror Common Stock issued in exchange therefor,
without interest, at the time of such surrender, the amount of any such
dividends or other distributions with a record date after the Effective Time
which would have been previously payable (but for the provisions of this SECTION
1.7(d)) with respect to such shares of Acquiror Common Stock.
(e) TRANSFERS OF OWNERSHIP. If any certificate for shares of
Acquiror Common Stock is to be issued in a name other than that in which the
Certificate surrendered in exchange therefor is registered, it shall be a
condition of the issuance thereof that the Certificate so surrendered is
properly endorsed and otherwise in proper form for transfer and that the person
requesting such exchange will have paid to Acquiror or the Exchange Agent any
transfer or other Taxes (as defined in SECTION 2.13) required by reason of the
issuance of a certificate for shares of Acquiror Common Stock in any name other
than that of the registered holder of the Certificate surrendered, or
established to the satisfaction of Acquiror or the Exchange Agent that such Tax
has been paid or is not payable.
(f) NO LIABILITY. Notwithstanding anything to the contrary in
this SECTION 1.7, no party hereto or any of their respective agents shall be
liable to any person for any amount properly paid to a public official pursuant
to any applicable abandoned property, escheat or similar law.
(g) DISSENTING SHARES. The provisions of this SECTION 1.7 also
shall apply to Dissenting Shares that lose their status as such, except that the
obligations of Acquiror under this SECTION 1.7 shall commence on the date of
loss of such status and the holder of such shares shall be entitled to receive
in exchange for such shares the number of shares of Acquiror Common Stock to
which such holder is entitled pursuant to SECTION 1.6.
8
1.8 NO FURTHER OWNERSHIP RIGHTS IN TARGET CAPITAL STOCK. All shares
of Acquiror Common Stock issued upon the surrender for exchange of shares of
Target Capital Stock in accordance with the terms hereof shall be deemed to have
been issued in full satisfaction of all rights pertaining to such shares of
Target Capital Stock, and there shall be no further registration of transfers on
the records of the Surviving Corporation of shares of Target Capital Stock which
were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to the Surviving Corporation for any
reason, they shall be cancelled and exchanged as provided in this ARTICLE I.
1.9 LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any
Certificate shall have been lost, stolen or destroyed, the Acquiror shall issue
or cause to be issued in exchange for such lost, stolen or destroyed
Certificate, upon the making of an affidavit of that fact by the holder thereof,
such shares of Acquiror Common Stock as may be required pursuant to SECTION 1.6;
PROVIDED, HOWEVER, that Acquiror may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed Certificate to deliver a bond in such sum as it may reasonably direct
as indemnity against any claim that may be made against Acquiror, the Surviving
Corporation or any of their agents with respect to the Certificate alleged to
have been lost, stolen or destroyed.
1.10 TAX CONSEQUENCES. It is intended by the parties hereto that the
Merger shall constitute a reorganization within the meaning of Section 368 of
the Code. No party shall take any action which would, to such party's
knowledge, cause the Merger to fail to so qualify as a reorganization within the
meaning of Section 368 of the Code.
1.11 EXEMPTION FROM REGISTRATION. The shares of Acquiror Common Stock
to be issued in connection with the Merger will be issued in a transaction
exempt from registration under (a) the Securities Act of 1933, as amended (the
"SECURITIES ACT"), by reason of Section 4(2) thereof, and (b) applicable state
securities laws. The Acquiror Capital Stock issued in connection with the
Merger will be "RESTRICTED SECURITIES" under the Securities Act and Rule 144
promulgated thereunder and may only be sold or otherwise transferred pursuant to
an effective registration statement under the Securities Act and applicable
state securities laws or pursuant to an exemption from the registration
requirements of the Securities Act and applicable state securities laws.
1.12 TAKING OF NECESSARY ACTION; FURTHER ACTION. If, at any time after
the Effective Time, any further action is necessary or desirable to carry out
the purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of Target and Merger Sub, the officers and directors of Target
and Merger Sub are fully authorized in the name of their respective corporations
or otherwise to take, and shall take, all such lawful and necessary action, so
long as such action is not inconsistent with this Agreement.
1.13 STOCK RESTRICTION AGREEMENT; TRANSFER RESTRICTIONS.
(a) STOCK RESTRICTION AGREEMENT. From and after the Effective
Time, all of the shares of Acquiror Common Stock issued or issuable in exchange
for the outstanding shares of Target Common Stock at the Effective Time will be
subject to the restrictions upon transfer of
9
such shares set forth below and in the Stock Restriction Agreement by and among
Acquiror, the Stockholders' Agent, the Target Former Stockholders and the
warrantholders and noteholders listed on Schedule I thereto, the form of which
is attached hereto as EXHIBIT C (the "STOCK RESTRICTION AGREEMENT"). Such
Target Former Stockholders, warrantholders and noteholders are referred to
herein individually as a "HOLDER" and collectively as the "HOLDERS.
(b) DEFINITION OF RESTRICTED STOCK. For purposes of this
SECTION 1.13, "RESTRICTED STOCK" means (i) all Acquiror Common Stock received
and to be received by the Holders in connection with the Merger (including (A)
any shares of Acquiror Common Stock issued to a Holder upon the exercise of
warrants assumed by Acquiror in the Merger, (B) any shares of Acquiror Common
Stock issued to a Holder upon the conversion of convertible notes assumed by
Acquiror in the Merger, and (C) any shares of Acquiror Common Stock held in
escrow pursuant to ARTICLE VIII) and (ii) any securities issued or issuable with
respect to such shares of Acquiror Common Stock by way of a stock dividend or
stock split or in connection with a combination or reclassification of shares,
recapitalization, merger, consolidation or other reorganization or otherwise.
Shares of Acquiror Common Stock issued upon the exercise of Target Options
assumed by Acquiror in the Merger shall not be considered "RESTRICTED STOCK" as
such assumed Target Options will be registered by Acquiror on Form S-8 pursuant
to SECTION 5.14.
(c) TRANSFER RESTRICTIONS. Each Holder agrees that such Holder
will not, in any of the successive 90 calendar-day periods following the Closing
(the first of which begins on the Closing Date), without the prior written
consent of Acquiror, directly or indirectly, offer, sell, assign, transfer,
encumber, pledge, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, lend, or otherwise dispose of, more than the greater of (a) 12 1/2
percent of the Restricted Stock initially issued and issuable to such Holder or
(b) 2,000 shares of Restricted Stock, in each case as adjusted for stock
dividends, stock splits and the like occurring after the Closing (including
Restricted Stock which may be deemed to be beneficially owned by such Holder in
accordance with the rules and regulations promulgated under the Securities Act
of 1933, as the same may be amended or supplemented from time to time). Such
restrictions shall terminate on the 180th day following the second anniversary
of the Closing.
(d) PERMITTED TRANSFERS. Notwithstanding the foregoing
restrictions on transfer, the undersigned shall be permitted to make the
following transfers: (i) transfers made by a BONA FIDE gift, will or intestacy,
provided the donee or other transferee thereof agrees in writing to be bound by
the terms hereof, (ii) to any trust, partnership, limited partnership or similar
entity for the direct or indirect benefit of the undersigned or the immediate
family of the undersigned, and (iii) privately negotiated sales of Restricted
Stock not involving any public offering, PROVIDED, in each case, that the
transferee agrees in writing to be bound by the terms hereof as if such
transferee were an original Holder. For the purposes of this Agreement,
"IMMEDIATE FAMILY" shall mean any relationship by blood marriage or adoption,
not more remote than first cousin.
(e) RESTRICTIVE LEGEND. The stock certificates for the
Restricted Stock shall be endorsed with the following restrictive legend:
10
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
CERTAIN RESTRICTIONS AND AGREEMENTS CONTAINED IN A STOCK RESTRICTION AGREEMENT
WITH THE COMPANY. A COPY OF THE STOCK RESTRICTION AGREEMENT AND ALL APPLICABLE
AMENDMENTS THERETO WILL BE FURNISHED BY THE COMPANY TO THE RECORD HOLDER OF THIS
CERTIFICATE WITHOUT CHARGE UPON WRITTEN REQUEST TO THE COMPANY AT ITS PRINCIPAL
PLACE OF BUSINESS OR REGISTERED OFFICE."
1.14 REGISTRATION RIGHTS AGREEMENT. From and after the Effective Time,
the holders of the shares of Acquiror Common Stock issued in exchange for the
outstanding shares of Target Common Stock at the Effective Time and the holders
of the Target Warrants assumed by Acquiror shall have the rights set forth in
the Registration Rights Agreement attached hereto as EXHIBIT D (the
"REGISTRATION RIGHTS AGREEMENT").
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF TARGET
In this Agreement, any reference to any event, change, condition or
effect being "MATERIAL" with respect to any entity means any material event,
change, condition or effect related to the financial condition, properties,
assets (including intangible assets), liabilities, business, operations or
results of operations of such entity and its subsidiaries, taken as a whole. In
this Agreement, any reference to a "MATERIAL ADVERSE EFFECT" with respect to any
entity means any event, change or effect that is materially adverse to the
financial condition, properties, assets (including intangible assets),
liabilities, business, operations or results of operations of such entity and
its subsidiaries, taken as a whole; PROVIDED, that for purposes of SECTION
6.2(a) and SECTION 6.3(a), changes or effects which are primarily and directly
caused by (i) the execution and delivery of this Agreement or the announcement
of the transactions contemplated hereby, (ii) changes affecting the industry in
which such entity operates generally, and (iii) changes affecting the United
States economy generally shall not constitute a Material Adverse Effect.
In this Agreement, the words "AWARE," "KNOWLEDGE" or similar
words, expressions or phrases with respect to a party means such party's actual
knowledge after reasonable inquiry of officers and directors of such party and
its subsidiaries reasonably believed to have knowledge of the relevant matters.
Target represents and warrants to Acquiror and Merger Sub that the
statements contained in this ARTICLE II are true and correct, except as set
forth in the Disclosure Schedule delivered by Target to Acquiror prior to the
execution and delivery of this Agreement (the "TARGET DISCLOSURE SCHEDULE").
The Target Disclosure Schedule shall be arranged in paragraphs corresponding to
the numbered Sections contained in this Agreement, and the disclosure in any
Section shall qualify only the corresponding Section in this Agreement. Any
reference in this ARTICLE II to an agreement being "ENFORCEABLE" shall be deemed
to be qualified to the extent such enforceability is subject to (i) laws of
general application relating to bankruptcy, insolvency, moratorium, fraudulent
conveyance and the relief of debtors and (ii) the availability of specific
performance, injunctive relief and other equitable remedies.
11
2.1 ORGANIZATION, STANDING AND POWER. Target is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has full corporate power and authority to conduct its business as
presently conducted and as proposed to be conducted and to enter into this
Agreement and to carry out the transactions contemplated by this Agreement.
Target is duly qualified and in good standing to do business as a foreign
corporation in Maryland and Virginia and is not required to be so qualified in
any other jurisdiction, except where the failure to be so qualified would not
have a Material Adverse Effect on Target. Target has furnished to Acquiror true
and complete copies of its Certificate of Incorporation and Bylaws, each as
amended to date and currently in effect. Target is not in violation of any of
the provisions of its Certificate of Incorporation or Bylaws. Target does not
own, directly or indirectly, any equity or similar interest in, or any interest
convertible into or exchangeable or exercisable for, any equity or similar
interest in, any corporation, partnership, joint venture or other business
association or entity.
2.2 CAPITAL STRUCTURE. The authorized capital stock of Target
consists of 25,000,000 shares of Target Common Stock, of which 6,535,346 shares
are issued and outstanding, and 15,000,000 shares of preferred stock, par value
$0.0001 per share, of which no shares are issued and outstanding. All of the
issued and outstanding shares of Target Capital Stock have been duly authorized
and validly issued and are fully paid and nonassessable. Except as set forth in
SECTION 2.2 of the Target Disclosure Schedule, (a) no subscription, warrant,
option, convertible security or other right (contingent or otherwise) to
purchase or acquire from Target any shares of capital stock of Target is
authorized or outstanding, (b) Target has no obligation (contingent or
otherwise) to issue any subscription, warrant, option, convertible security or
other such right or to issue or distribute to holders of any shares of its
capital stock any evidences of indebtedness or assets of Target and (c) Target
has no obligation (contingent or otherwise) to purchase, redeem or otherwise
acquire any shares of its capital stock or any interest therein or to pay any
dividend or make any other distribution in respect thereof. True and complete
copies of all agreements and instruments relating to or issued under the Target
Stock Option Plan and the Target Warrants have been made available to Acquiror,
and such agreements and instruments have not been amended, modified or
supplemented, and there are no agreements to amend, modify or supplement such
agreements or instruments from the forms made available to Acquiror. All of the
issued and outstanding securities of Target have been offered, issued and sold
by Target in compliance with applicable securities laws.
2.3 AUTHORITY. The execution and delivery by Target of this Agreement
and the Certificate of Merger, and the consummation by Target of the
transactions contemplated hereby and thereby, have been duly authorized by all
necessary corporate action on the part of Target, subject only to the approval
of the Merger by Target's stockholders. This Agreement has been duly executed
and delivered by Target and constitutes a valid and binding obligation of Target
enforceable in accordance with its terms. The execution and delivery of this
Agreement by Target does not, and the consummation of the transactions
contemplated hereby will not, conflict with, or result in any violation of, or
breach of or default under (with or without notice or lapse of time, or both),
or give rise to a right of termination, cancellation or acceleration of any
obligation or loss of any benefit under, or require a waiver or consent under
(a) its Certificate of Incorporation or Bylaws (each as amended to date) or (b)
any material mortgage, indenture, lease, contract or other agreement or
instrument, permit, concession, franchise, license, judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to Target or its
12
properties or assets. No consent, approval, order or authorization of, or
registration, qualification, designation, declaration or filing with, any court,
administrative agency or commission or other governmental authority or
instrumentality ("GOVERNMENTAL ENTITY") is required on the part of Target in
connection with the execution and delivery of this Agreement or the consummation
of the other transactions contemplated by this Agreement, except for (x) the
filing of the Certificate of Merger, (y) such consents, approvals, orders,
authorizations, registrations, declarations and filings as may be required under
applicable state securities laws and the securities laws of any foreign country;
and (z) such filings as may be required under the Xxxx-Xxxxx-Xxxxxx Antitrust
Improvements Act of 1976, as amended ("HSR"). The terms of the Target Stock
Option Plan permit the assumption thereof by Acquiror or the substitution of
options to purchase Acquiror Common Stock as provided in this Agreement, without
the consent or approval of the holders of such options, the Target stockholders
or otherwise and without any acceleration of the exercise schedule or vesting
provisions in effect for such options. The terms of the Target Warrants permit
the assumption thereof by Acquiror or the substitution of warrants to purchase
Acquiror Common Stock as provided in this Agreement, without the consent or
approval of the holders of such warrants, the Target stockholders or otherwise
and without any acceleration of the exercise schedule or vesting provisions in
effect for such warrants.
2.4 FINANCIAL STATEMENTS. Target has delivered to Acquiror its
audited financial statements (balance sheet, statement of operations and
statement of cash flows) on a consolidated basis as at, and for the fiscal years
ended December 31, 1997, 1998 and 1999 and its unaudited financial statements
(balance sheet, statement of operations and statement of cash flows) on a
consolidated basis as at and for the four-month periods ended, April 30, 1999
and 2000 (collectively, the "TARGET FINANCIAL STATEMENTS"). The Target
Financial Statements were complete and correct in all material respects as of
their respective dates, and were prepared in accordance with generally accepted
accounting principles ("GAAP") (except that the unaudited financial statements
do not have notes thereto and except for normal year-end adjustments) applied on
a consistent basis throughout the periods indicated and with each other (except
as may be indicated in the notes thereto). The Target Financial Statements
fairly present in all material respects the consolidated financial condition and
operating results of Target as of the dates, and for the periods, indicated
therein, subject to normal year-end audit adjustments. Target maintains and
will continue to maintain a standard system of accounting established and
administered in accordance with GAAP.
2.5 ABSENCE OF CERTAIN CHANGES. Since April 30, 2000 (the "TARGET
BALANCE SHEET DATE"), Target has conducted its business in the ordinary course
consistent with past practice and there has not occurred: (a) any change, event
or condition (whether or not covered by insurance) that has resulted in, or
would result in, a Material Adverse Effect on Target; (b) any acquisition, sale
or transfer of any material asset of Target other than in the ordinary course of
business and consistent with past practice (including transfers of Target
Intellectual Property (as defined in SECTION 2.11) on a non-exclusive basis to
Target's customers, distributors or other licensees in the ordinary course of
business and consistent with past practice); (c) any material change in
accounting methods or practices (including any change in depreciation or
amortization policies or rates) by Target or any material revaluation by Target
of any of its assets; (d) any declaration, setting aside, or payment of a
dividend or other distribution with respect to the capital stock Target, or any
direct or indirect redemption, purchase or other acquisition by Target of any of
its capital stock; (e) any Material Contract (as defined in SECTION 2.25)
entered into by Target; (f)
13
any material amendment or termination of, or default under, any contract to
which Target is a party or by which it is bound which would reasonably be
expected to have a Material Adverse Effect on Target; (g) any amendment or
change to the Certificate of Incorporation or Bylaws of Target or any proposal
by Target's Board of Directors or stockholders relating thereto; (h) any
material increase in or modification of the compensation or benefits payable or
to become payable by Target to any of its consultants, independent contractors,
directors or employees or (i) any agreement by Target to do any of the things
described in the preceding clauses (a) through (h) (other than negotiations with
Acquiror and its representatives regarding the transactions contemplated by this
Agreement).
2.6 ACCOUNTS RECEIVABLE. The accounts receivable shown on the most
recent Balance Sheet included in the Target Financial Statements (the "TARGET
BALANCE SHEET") arose in the ordinary course of business and consistent with
past practice. Allowances for doubtful accounts and returns have been prepared
in accordance with the past practices of Target. The accounts receivable of
Target arising after the Target Balance Sheet Date and prior to the date hereof
arose in the ordinary course of business and consistent with past practice. No
agreement for deduction or discount has been made with respect to any accounts
receivable.
2.7 LITIGATION. There is no private or governmental action, suit,
proceeding, claim, arbitration or investigation pending before any agency, court
or tribunal, foreign or domestic, or, to the knowledge of Target, threatened
against Target or any of its properties or any of its officers or directors (in
their capacities as such) that, individually or in the aggregate, would
reasonably be expected to have a Material Adverse Effect on Target. All
actions, suits, proceedings, claims, arbitrations and investigations to which
Target is a party (or, to the knowledge of Target, threatened to become a party)
are disclosed in SECTION 2.7 of the Target Disclosure Schedule. Also disclosed
in SECTION 2.7 of the Target Disclosure Schedule are all actions, suits,
proceedings, claims, arbitrations and investigations to which any of Target's
properties or officers or directors (in their capacities as such) is, to
Target's knowledge, a party or threatened to become a party. There is no
judgment, decree or order against Target or, to the knowledge of Target, any of
its directors or officers (in their capacities as such), that would prevent,
enjoin, or materially alter or delay any of the transactions contemplated by
this Agreement.
2.8 RESTRICTIONS ON BUSINESS ACTIVITIES. There is no judgment,
injunction, order or decree binding upon Target which would reasonably be
expected to have the effect of prohibiting or materially impairing any current
business practice of Target, any acquisition of property by Target or the
conduct of business by Target as currently conducted by Target; nor is there any
agreement binding upon Target which purports to restrain or restrict Target's
ability to compete with any person in the conduct of its business.
2.9 GOVERNMENTAL AUTHORIZATION. Target has obtained each federal,
state, county, local or foreign governmental consent, license, permit, grant or
other authorization of a Governmental Entity (a) pursuant to which Target
currently operates or holds any interest in any of its properties or (b) that is
required for the operation of Target's business or the holding of any such
interest ((a) and (b) herein collectively called the "TARGET AUTHORIZATIONS"),
and all of such Target Authorizations are in full force and effect, in each case
except where the failure to obtain or have any such Target Authorizations would
not have a Material Adverse Effect on Target.
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2.10 TITLE TO PROPERTY. Target has good and valid title to all of its
real and personal properties and interests in real and personal properties and
assets, reflected in the Target Balance Sheet or acquired after the Target
Balance Sheet Date (except properties, interests in properties and assets sold
or otherwise disposed of since the Target Balance Sheet Date in the ordinary
course of business and consistent with past practice), or with respect to leased
properties and assets, valid leasehold interests in, free and clear of all
mortgages, liens, pledges, charges or encumbrances of any kind or character,
except (a) the lien of current taxes not yet due and payable, (b) such
imperfections of title, liens and easements as do not and will not materially
detract from or interfere with the use of the properties subject thereto or
affected thereby, or otherwise materially impair business operations involving
such properties, and (c) liens securing debt which is reflected on the Target
Balance Sheet. The plant, property and equipment of Target that are used in the
operations of its business are in good operating condition and repair. All
properties used in the operations of Target are reflected in the Target Balance
Sheet to the extent GAAP requires the same to be reflected. SECTION 2.10 of the
Target Disclosure Schedule identifies each parcel of real property owned or
leased by Target.
2.11 INTELLECTUAL PROPERTY.
(a) Target owns or is licensed for, and in any event possesses
sufficient and legally enforceable rights with respect to, all Intellectual
Property (as hereinafter defined) that is used, exercised or exploited ("USED")
in, or that may be necessary for, its business as currently conducted or as
proposed to be conducted ("TARGET INTELLECTUAL PROPERTY," which term will also
include all other Intellectual Property owned by or licensed to Target now or in
the past) without any conflict with or infringement or misappropriation of any
rights or property of others ("INFRINGEMENT"), except to the extent that the
failure to have such ownership or rights has not had and would not have a
Material Adverse Effect on Target and except for such items as may reasonably be
expected to be available for licensing on reasonable terms from third parties.
No Target Intellectual Property (excluding Intellectual Property licensed to
Target only on a nonexclusive basis) was conceived or developed directly or
indirectly with or pursuant to government funding or a government contract.
"INTELLECTUAL PROPERTY" means: (A) inventions (whether or not patentable); trade
names, trademarks, service marks, logos and other designations (collectively,
"MARKS"); works of authorship; mask works; data; technology; know-how; trade
secrets; designs; formulas; algorithms; schematics; computer software (in source
code and/or object code form); and all other intellectual and industrial
property of any sort (collectively, "INVENTIONS") and (B) patent rights; Xxxx
rights; copyrights; mask work rights; trade secret rights; moral rights; and all
other intellectual and industrial property rights of any sort throughout the
world, and all applications, registrations, issuances and the like with respect
thereto (collectively, "IP RIGHTS"). With respect to patent rights, moral
rights and Xxxx rights, the representations and warranties of this SECTION
2.11(a) are made only to Target's knowledge and without having conducted any
special investigation or patent or trademark search. All copyrightable matter
within Target Intellectual Property has been created by persons who were
employees or contractors of Target at the time of creation and no third party
has or will have "MORAL RIGHTS" or rights to terminate any assignment or license
with respect thereto. Target has not received any written or verbal
communication alleging that Target has been or may be (whether in its current or
proposed business or otherwise) engaged in, liable for or contributing to any
Infringement, nor does Target have any knowledge of any facts that would
reasonably cause Target to expect that any such communication will be
forthcoming.
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(b) To the extent included in Target Intellectual Property (but
excluding Intellectual Property licensed to Target only on a nonexclusive
basis), SECTION 2.11 of the Target Disclosure Schedule lists (by name, number,
jurisdiction, owner and, where applicable, the name and address of each
inventor) all patents and patent applications; all registered and unregistered
Marks; and all registered and, if material, unregistered copyrights and mask
works; and all other issuances, registrations, applications and the like with
respect to those or any other IP Rights. No cancellation, termination,
expiration or abandonment of any of the foregoing (except natural expiration or
termination at the end of the full possible term, including extensions and
renewals, and failures to obtain allowable subject matter for patent
applications from applicable registration authorities) is anticipated by Target,
except where such event would not have a Material Adverse Effect on Target.
Except as referenced in written documentation previously provided to Acquiror
(including without limitation file wrappers), Target has no knowledge of any
challenges (or any specific basis therefor) with respect to the validity of any
of the foregoing issued or registered IP Rights (or any part or claim thereof)
or with respect to the patentability of any claim of any of the foregoing patent
applications.
(c) There is, to the knowledge of Target, no unauthorized Use,
disclosure, infringement or misappropriation of any Target Intellectual Property
(excluding any such activity with respect to third party Intellectual Property
outside the scope of any exclusivity granted to Target) by any third party,
including, without limitation, any employee or former employee of Target.
(d) Target has taken necessary and appropriate steps to protect
and preserve the confidentiality of all Target Intellectual Property with
respect to which Target has exclusivity and wishes to maintain confidentiality
and that is not otherwise disclosed in published patents or patent applications
or registered copyrights (collectively, the "TARGET CONFIDENTIAL INFORMATION").
All use by and disclosure to employees or others of Target Confidential
Information has been pursuant to the terms of valid and binding written
confidentiality and nonuse/restricted-use agreements. Target has not disclosed
or delivered to any third party, or permitted the disclosure or delivery to any
escrow holder or other person any part of any Source Materials (as defined in
SECTION 2.25(m)).
(e) Each current and former employee and contractor of Target
who is or was involved in, or who has contributed to, the creation or
development of any Target Intellectual Property (other than third-party
Intellectual Property licensed to Target) has executed and delivered and is in
compliance with an enforceable agreement in substantially the form of Target's
standard proprietary information and invention assignment agreement, a copy of
which agreement has been previously provided to Acquiror, and which agreement
provides valid written assignments of all title and rights to any Target
Intellectual Property conceived or developed thereunder, or otherwise in
connection with his or her consulting or employment.
(f) To Target's knowledge, Target is not Using, and it will not
be necessary to Use, (i) any Inventions of any of its past or present employees
or contractors (or people currently intended to be hired) made prior to or
outside the scope of their employment by Target or (ii) any confidential
information or trade secrets of any former employer of any such person.
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(g) There are no actions that must be taken by Target within 60
days following the Closing Date that, if not taken, would result in the loss of
any Intellectual Property, including the payment of any registration,
maintenance or renewal fees or the filing of any responses to U.S. Patent and
Trademark Office actions, documents, applications or certificates for the
purposes of obtaining, maintaining, perfecting or preserving or renewing any
Intellectual Property.
2.12 ENVIRONMENTAL MATTERS.
(a) The following terms shall be defined as follows:
(i) "ENVIRONMENTAL AND SAFETY LAWS" shall mean any
federal, state, local or foreign laws, ordinances, codes, regulations, rules and
orders relating to the protection of the environment, or that classify,
regulate, call for the remediation of, require reporting with respect to, or
list or define air, water, groundwater, solid waste, hazardous or toxic
substances, materials, wastes, pollutants or contaminants, or which relate to
the health and safety of employees, workers or other persons, including the
public, as in effect on the date hereof.
(ii) "HAZARDOUS MATERIALS" shall mean any toxic or
hazardous substance, material or waste or any pollutant or contaminant, or
infectious or radioactive substance or material, including without limitation,
such substances, materials, wastes, pollutants defined in or regulated under any
Environmental and Safety Laws.
(iii) "PROPERTY" shall mean all real property leased or
owned by Target either currently or in the past.
(iv) "FACILITIES" shall mean all buildings and
improvements on the Property of Target.
(b) Target represents and warrants as follows: (i) to its
knowledge, no methylene chloride or asbestos is contained in or has been used at
or released from the Facilities; (ii) all Hazardous Materials and wastes have
been used, handled and disposed of in material compliance with all Environmental
and Safety Laws; and (iii) Target has received no written notice of any
noncompliance of the Facilities or of its past or present operations with
Environmental and Safety Laws (except for such matters which have been resolved
without material liability to Target); (iv) to its knowledge, no notices,
administrative actions or suits are pending or threatened relating to a
violation of any Environmental and Safety Laws; (v) Target has not received
written notice that it is a potentially responsible party under the federal
Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"),
or analogous state statute or any similar foreign law or regulation requiring
assessment or clean up, arising out of events occurring prior to the Closing
Date; (vi) to Target's knowledge, there have not been in the past, and are not
now, any Hazardous Materials on, under or migrating to or from the Facilities or
Property, for which Target could reasonably be expected to have a material
liability; (vii) to Target's knowledge, there have not been in the past, and are
not now, any underground tanks at, on or under the Property including without
limitation, treatment or storage tanks, sumps, or water, gas or oil xxxxx;
(viii) to Target's knowledge, there are no polychlorinated biphenyls ("PCBS")
deposited, stored, disposed of or located on the Property or
17
Facilities or any equipment on the Property containing PCBs at levels in excess
of 50 parts per million; (ix) to Target's knowledge, there is no formaldehyde on
the Property or in the Facilities, nor any insulating material containing urea
formaldehyde in the Facilities; (x) to Target's knowledge, the Facilities and
Target's activities therein have at all times been in material compliance with
all Environmental and Safety Laws; (xi) Target has all the permits and licenses
required to be issued for its operations and are in full compliance with the
terms and conditions of those permits, except where the failure to have or
comply with such permits or licenses would not have a Material Adverse Effect on
Target; and (xii) all written environmental assessments known to Target of
Target's current or past Properties or Facilities have been provided to
Acquiror.
2.13 TAXES. Target, and any consolidated, combined, unitary or
aggregate group for Tax purposes of which Target is or has been a member, have
properly completed and timely filed or obtained valid extensions on all Tax
Returns required to be filed by them and have paid all Taxes shown thereon to be
due. The Target Balance Sheet reflects any unpaid Taxes of Target for periods
(or portions of periods) through the Target Balance Sheet Date. Target does not
have any material liability for unpaid Taxes accruing after the Target Balance
Sheet Date except for Taxes incurred in the ordinary course of business and
consistent with past practice subsequent to the Target Balance Sheet Date.
There is (a) no material claim for Taxes that is a lien against the property of
Target or is being asserted against Target other than liens for Taxes not yet
due and payable, (b) no audit of any Tax Return of Target is being conducted by
a Tax Authority and (c) no extension of any statute of limitations on the
assessment of any Taxes granted by Target and currently in effect. Target has
not been nor will be required to include any material adjustment in Taxable
income for any Tax period (or portion thereof) pursuant to Section 481 or 263A
of the Code or any comparable provision under state or foreign Tax laws as a
result of transactions, events or accounting methods employed prior to the
Merger. Target has not filed nor will file any consent to have the provisions
of paragraph 341(f)(2) of the Code (or comparable provisions of any state Tax
laws) apply to Target. Target is not a party to any Tax sharing or Tax
allocation agreement nor does Target have any liability or potential liability
to another party under any such agreement. Target has not filed any disclosures
under Section 6662 or comparable provisions of state, local or foreign law to
prevent the imposition of penalties with respect to any Tax reporting position
taken on any Tax Return. Target has not ever been a member of a consolidated,
combined, unitary or aggregate group of which Target was not the ultimate parent
corporation. Target has in its possession receipts for any Taxes paid to
foreign Tax Authorities, other than immaterial sales and value-added tax
receipts. Target has not ever been a "United States real property holding
corporation" within the meaning of Section 897 of the Code. For purposes of
this Agreement, the following terms have the following meanings: "TAX" (and,
with correlative meaning, "TAXES" and "TAXABLE") means (x) any net income,
alternative or add-on minimum tax, gross income, gross receipts, sales, use, ad
valorem, transfer, franchise, profits, license, withholding, payroll,
employment, excise, severance, stamp, occupation, premium, property,
environmental or windfall profit tax, custom duty or other tax, governmental fee
or other like assessment or charge of any kind whatsoever, together with any
interest or any penalty, addition to tax or additional amount imposed by any
governmental entity (a "TAX AUTHORITY") responsible for the imposition of any
such tax (domestic or foreign), (y) any liability for the payment of any amounts
of the type described in (x) as a result of being a member of an affiliated,
consolidated, combined, unitary or aggregate group for any Taxable period, and
(z) any liability for the payment of any amounts of the type described in (x) or
(y) as a result of being a transferee of or
18
successor to any person or as a result of any express or implied obligation to
indemnify any other person. As used herein, "TAX RETURN" shall mean any return,
statement, report or form (including, without limitation, estimated tax returns
and reports, withholding tax returns and reports and information returns and
reports) required to be filed with respect to Taxes. As used in this SECTION
2.13, the term "TARGET" means Target and any entity included in, or required
under GAAP to be included in, any of the Target Financial Statements.
2.14 EMPLOYEE BENEFIT PLANS.
(a) SCHEDULE 2.14 of the Target Disclosure Schedule lists, with
respect to Target, any subsidiary of Target and any trade or business (whether
or not incorporated) which is treated as a single employer with Target (an
"ERISA AFFILIATE") within the meaning of Section 414(b), (c), (m) or (o) of the
Code, (i) all material employee benefit plans (as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), (ii) each
loan to any non-officer employee, officer or director and any stock option,
stock purchase, phantom stock, stock appreciation right, supplemental
retirement, severance, sabbatical, medical, dental, vision care, disability,
employee relocation, cafeteria benefit (Code section 125) or dependent care
(Code Section 129), life insurance or accident insurance plans, programs or
arrangements, (iii) all bonus, pension, profit sharing, savings, deferred
compensation or incentive plans, programs or arrangements, (iv) other fringe or
employee benefit plans, programs or arrangements that apply to senior management
of Target and that do not generally apply to all employees, and (v) any current
or former employment or executive compensation or severance agreements, written
or otherwise, as to which unsatisfied obligations of Target of greater than
$10,000 remain for the benefit of, or relating to, any present or former
employee, consultant or director of Target (together, the "TARGET EMPLOYEE
PLANS").
(b) Target has furnished to Acquiror a copy of each of the
Target Employee Plans and related plan documents (including trust documents,
insurance policies or contracts, employee booklets, summary plan descriptions
and other authorizing documents, and any material employee communications
required by law relating thereto) and has, with respect to each Target Employee
Plan which is subject to ERISA reporting requirements, provided copies of the
Form 5500 reports filed for the last three plan years. Any Target Employee Plan
intended to be qualified under Section 401(a) of the Code has either obtained
from the Internal Revenue Service a favorable determination letter as to its
qualified status under the Code, including all amendments to the Code effected
by the Tax Reform Act of 1986 and subsequent legislation, or has applied (or has
time remaining in which to apply) to the Internal Revenue Service for such a
determination letter prior to the expiration of the requisite period under
applicable Treasury Regulations or Internal Revenue Service pronouncements in
which to apply for such determination letter and to make any amendments
necessary to obtain a favorable determination or has been established under a
standardized prototype plan for which an Internal Revenue Service opinion letter
has been obtained by the plan sponsor and is valid as to the adopting employer.
Target has also furnished Acquiror with the most recent Internal Revenue Service
determination or opinion letter issued with respect to each such Target Employee
Plan, and nothing has occurred since the issuance of each such letter which
could reasonably be expected to cause the loss of the tax-qualified status of
any Target Employee Plan subject to Code Section 401(a). Target has also
furnished Acquiror with all registration statements and prospectuses prepared in
connection with each Target Employee Plan.
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(c) (i) None of the Target Employee Plans promises or provides
retiree medical or other retiree welfare benefits to any person other than as
required under the Consolidated Omnibus Budget Reconciliation Act of 1985
("COBRA"); (ii) there has been no "PROHIBITED TRANSACTION," as such term is
defined in Section 406 of ERISA and Section 4975 of the Code, with respect to
any Target Employee Plan, which would reasonably be expected to have, in the
aggregate, a Material Adverse Effect on Target; (iii) each Target Employee Plan
has been administered in accordance with its terms and in compliance with the
requirements prescribed by any and all statutes, rules and regulations
(including ERISA and the Code), except as would not have, in the aggregate, a
Material Adverse Effect on Target, and Target and each ERISA Affiliate have
performed all obligations required to be performed by them under, are not in any
material respect in default under or violation of, and have no knowledge of any
material default or violation by any other party to, any of the Target Employee
Plans; (iv) neither Target nor any ERISA Affiliate is subject to any liability
or penalty under Sections 4976 through 4980 of the Code or Title I of ERISA with
respect to any of the Target Employee Plans; (v) all material contributions
required to be made by Target or any ERISA Affiliate to any Target Employee Plan
have been made on or before their due dates and a reasonable amount has been
accrued for contributions to each Target Employee Plan for the current plan
years; (vi) with respect to each Target Employee Plan, no "REPORTABLE EVENT"
within the meaning of Section 4043 of ERISA (excluding any such event for which
the 30 day notice requirement has been waived under the regulations to Section
4043 of ERISA) nor any event described in Section 4062, 4063 or 4041 of ERISA
has occurred; (vii) no Target Employee Plan is covered by, and neither Target
nor any ERISA Affiliate has incurred or expects to incur any liability under
Title IV of ERISA or Section 412 of the Code; and (viii) each Target Employee
Plan can be amended, terminated or otherwise discontinued after the Effective
Time in accordance with its terms, without liability to Acquiror (other than
ordinary administrative expenses typically incurred in a termination event).
With respect to each Target Employee Plan subject to ERISA as either an employee
pension plan within the meaning of Section 3(2) of ERISA or an employee welfare
benefit plan within the meaning of Section 3(1) of ERISA, Target has prepared in
good faith and timely filed all requisite governmental reports (which were true
and correct as of the date filed) and has properly and timely filed and
distributed or posted all notices and reports to employees required to be filed,
distributed or posted with respect to each such Target Employee Plan. No suit,
administrative proceeding, action or other litigation has been brought, or to
the knowledge of Target is threatened, against or with respect to any such
Target Employee Plan, including any audit or inquiry by the Internal Revenue
Service or United States Department of Labor. Except as set forth in SECTION
2.14 of the Target Disclosure Schedule, no payment or benefit which will or may
be made by Target to any Employee will be characterized as an "EXCESS PARACHUTE
PAYMENT" within the meaning of Section 280G(b)(1) of the Code.
(d) With respect to each Target Employee Plan, Target has
complied with (i) the applicable health care continuation and notice provisions
of COBRA and the regulations (including proposed regulations) thereunder except
to the extent that such failure to comply would not, in the aggregate, have a
Material Adverse Effect on Target, (ii) the applicable requirements of the
Family Medical and Leave Act of 1993 and the regulations thereunder, except to
the extent that such failure to comply would not, in the aggregate, have a
Material Adverse Effect on Target and (iii) the applicable requirements of the
Health Insurance Portability and Accountability Act of 1996 and the regulations
(including proposed regulations) thereunder,
20
except to the extent that such failure to comply would not, in the aggregate,
have a Material Adverse Effect on Target.
(e) There has been no amendment to, written interpretation or
announcement (whether or not written) by Target or any ERISA Affiliate relating
to, or change in participation or coverage under, any Target Employee Plan which
would materially increase the expense of maintaining such Plan above the level
of expense incurred with respect to that Plan for the most recent fiscal year
included in Target's financial statements.
(f) Target does not currently maintain, sponsor, participate in
or contribute to, nor has it ever maintained, established, sponsored,
participated in, or contributed to, any pension plan (within the meaning of
Section 3(2) of ERISA) which is subject to Part 3 of Subtitle B of Title I of
ERISA, Title IV of ERISA or Section 412 of the Code.
(g) Neither Target nor any ERISA Affiliate is a party to, or
has made any contribution to or otherwise incurred any obligation under, any
"MULTIEMPLOYER PLAN" as defined in Section 3(37) of ERISA.
(h) Except as set forth in SECTION 2.14 of the Target
Disclosure Schedule, there is no agreement, contract or arrangement to which
Target is a party to that may result in the payment of any amount that would not
be deductible by reason of Section 280G or Section 404 of the Code.
2.15 EMPLOYEES AND CONSULTANTS. Target has provided Acquiror with a
true and complete list of all persons employed by Target, all persons who
perform work for Target pursuant to any agreement(s) between Target and any
employment agency, and all independent contractors and consultants
(collectively, "INDEPENDENT CONTRACTORS") of Target as of the date hereof and
the position and total compensation, including base salary or wages, bonus,
commissions, and all other available forms of compensation, payable to each such
individual. SECTION 2.15 of the Target Disclosure Schedule lists all current
written or oral employment agreements, offer letters, contractor agreements,
consulting agreements or termination or severance agreements to which Target is
a party. Any employment, contractor or consulting agreement or offer letter
which varies in any material terms from Target's standard form agreement or form
offer letter has been provided to Acquiror. This Agreement and the transactions
contemplated hereby do not and will not violate any such employment agreements,
offer letters, or contractor or consulting agreements. Target is in compliance
in all material respects with all currently applicable federal, state, and local
laws and regulations respecting employment, discrimination in employment, terms
and conditions of employment, wages, hours and occupational safety and health
and employment practices, and Target is not engaged in any unfair labor
practice. All individuals performing services for Target as Independent
Contractors (defined as any individual who provides services for Target who is
not treated as a common-law employee for purposes of statutory withholdings
and/or employment benefits) at any time are properly classified as independent
contractors pursuant to all applicable regulations, including but not limited to
I.R.S. Revenue Ruling 87-41, 1987-1 C.B. 296. Target 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, except
where the failure to so withhold any payment
21
would not, individually or in the aggregate, have a Material Adverse Effect on
Target. Target is not liable for any payment to any trust or other fund or to
any governmental or administrative authority, with respect to unemployment
compensation benefits, social security or other benefits or obligations for
employees (other than routine payments to be made in the normal course of
business and consistent with past practice). There are no pending claims
against Target under any workers compensation plan or policy or for long term
disability. There are no claims or controversies pending or, to the knowledge
of Target, threatened, between Target and any of its employees or Independent
Contractors, which claims of controversies have or could reasonably be expected
to result in an action, suit, proceeding, claim, arbitration or investigation
before any agency, court or tribunal, foreign or domestic. Target is not a
party to any collective bargaining agreement or other labor union contract nor
does Target know of any activities or proceedings of any labor union to organize
any such employees. To the knowledge of Target, no employees or Independent
Contractors of Target are in violation of any term of any employment contract,
patent disclosure agreement, enforceable non-competition agreement, or any
enforceable restrictive covenant to a former employer or customer relating to
the right of any such employee or Independent Contractor to be employed by
Target because of the nature of the business conducted or presently proposed to
be conducted by Target or to the use of trade secrets or proprietary information
of others. No employees or Independent Contractors of Target have given notice
to Target, nor is Target otherwise aware, that any such employee or Independent
Contractor intends to terminate his or her employment or contractor or
consulting relationship with Target.
2.16 CERTAIN AGREEMENTS AFFECTED BY THE MERGER. Neither the execution
and delivery of this Agreement nor the consummation of the transactions
contemplated hereby will (a) result in any payment (including, without
limitation, severance, unemployment compensation, golden parachute, bonus or
otherwise) becoming due to any director, employee or consultant of Target, (b)
materially increase any benefits otherwise payable by Target or (c) result in
the acceleration of the time of payment or vesting of any such benefits, except
as required under Code Section 411(d)(3).
2.17 RELATED-PARTY TRANSACTIONS. No employee, officer or director of
Target, or to Target's knowledge, any member of his or her immediate family, is
indebted to Target, nor is Target indebted (or committed to make loans or extend
or guarantee credit) to any such employee, officer or director or, to Target's
knowledge, any member of his or her immediate family. To Target's knowledge,
none of such persons has a direct ownership interest in any firm or corporation
with which Target has a material business relationship, except (a) to the extent
that employees, officers, or directors of Target and members of their immediate
families own stock in publicly traded companies and (b) ownership interests held
by investment funds affiliated with Target's directors. To Target's knowledge,
no member of the immediate family of any officer or director of Target is
directly or indirectly interested in any Material Contract (as defined below) of
Target.
2.18 INSURANCE. SECTION 2.18 of the Target Disclosure Schedule lists
all policies of insurance and bonds, and the respective amounts of such policies
and bond, carried by Target. There is no claim pending under any of such
policies or bonds as to which coverage has been questioned, denied or disputed
by the underwriters of such policies or bonds. All premiums due and payable
under all such policies and bonds have been paid and Target is otherwise in
22
compliance with the terms of such policies and bonds. Target has no knowledge
of any threatened termination of, or material premium increase with respect to,
any of such policies.
2.19 COMPLIANCE WITH LAWS. Target has complied with, is not in
violation of, and has not received any notices of violation with respect to, any
federal, state, local or foreign statute, law or regulation with respect to the
conduct of its business, or the ownership or operation of its business, except
for such violations or failure to comply as would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on Target.
2.20 BROKERS' AND FINDERS' FEES. Target has not incurred, nor will it
incur, directly or indirectly, any liability for brokerage or finders' fees or
agents' commissions or investment bankers' or financial advisory fees or any
similar charges in connection with this Agreement or the Merger.
2.21 [RESERVED]
2.22 TARGET VOTING AGREEMENTS. All of the executive officers,
directors and holders of at least 5% of Target's outstanding voting power are
listed in SECTION 2.22 of the Target Disclosure Schedule. Each of the persons
listed on SECTION 2.22 of the Target Disclosure Schedule has executed and
delivered to Acquiror a Target Voting Agreement and has executed and delivered
to Acquiror a Target Irrevocable Proxy in the form attached as ANNEX I to such
Target Voting Agreement (the "IRREVOCABLE PROXIES").
2.23 BOARD APPROVAL; STOCKHOLDER APPROVAL REQUIRED. The Board of
Directors of Target has unanimously (a) approved this Agreement and the Merger,
(b) determined that in its opinion the Merger is advisable and in the best
interests of the stockholders of Target and (c) recommended that the
stockholders of Target approve this Agreement and the Merger. The affirmative
vote of the holders of a majority of the outstanding shares of Target Capital
Stock outstanding on the record date set for the determination of stockholders
entitled to vote on or consent to the Merger is the only vote or consent of the
holders of Target Capital Stock necessary to approve this Agreement and the
Merger.
2.24 CUSTOMERS AND SUPPLIERS. As of the date hereof, no customer which
individually accounted for more than 5% of Target's gross revenues during the
12-month period preceding the date hereof, and no material supplier of Target
during such period, has cancelled or otherwise terminated, or made any threat to
Target to cancel or otherwise terminate its relationship with Target for any
reason including, without limitation the consummation of the transactions
contemplated hereby, or has at any time on or after the Target Balance Sheet
Date decreased materially its services or supplies to Target in the case of any
such supplier, or its usage of the services or products of Target in the case of
such customer. Target has not knowingly breached, so as to provide a benefit to
Target that was not intended by the parties, any agreement with, or engaged in
any fraudulent conduct with respect to, any customer or supplier of Target.
2.25 MATERIAL CONTRACTS. SECTION 2.25 of the Target Disclosure
Schedule sets forth a list of all material agreements or commitments ("MATERIAL
CONTRACTS") of any nature to which Target is a party or by which it is bound,
including without limitation:
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(a) each agreement which requires future expenditures by Target
in excess of $25,000 or which might result in payments to Target in excess of
$25,000;
(b) all employment and consulting agreements, employee benefit,
bonus, pension, profit-sharing, stock option, stock purchase and similar plans
and arrangements, and distributor and sales representative agreements;
(c) each agreement with any stockholder, officer or director of
Target, or any "AFFILIATE" of such persons (as such term is defined in the rules
and regulations promulgated under the Securities Act), including without
limitation any agreement or other arrangement providing for the furnishing of
services by, rental of real or personal property from, or otherwise requiring
payments to, any such person or entity;
(d) any agreement between Target and a third party relating to
the licensing of the Target Intellectual Property set forth in SECTION 2.11 of
the Target Disclosure Schedule;
(e) any agreement for the borrowing of money or line of credit,
trust indenture, mortgage, promissory note, loan agreement or any currency
exchange, commodities or other hedging arrangement or any leasing transaction of
the type required to be capitalized in accordance with GAAP;
(f) agreements with respect to security interests, liens or
pledges;
(g) any agreement not made in the ordinary course of Target's
business;
(h) any agreement which provides for the restraint or
restriction of Target's right to compete with any person in the conduct of its
business;
(i) any confidentiality, secrecy or non-disclosure agreement
with any party with which Target has, has had or reasonably expects to have a
significant relationship;
(j) any distributor, reseller, agency or manufacturer's
representative contract;
(k) any contract to support or maintain Target's products, that
expires or may be renewed at the option of any person other than Target so as to
expire more than one year after the date of this Agreement;
(l) any agreement of guarantee, support, assumption or
endorsement of, or any similar commitment with respect to, the obligations,
liabilities (whether accrued, absolute, contingent or otherwise) or indebtedness
of any other person;
(m) any agreement pursuant to which Target has deposited or is
required to deposit with an escrow holder or any other person or entity, all or
part of the source code (or any algorithm or documentation contained in or
relating to any source code) of any Target Intellectual Property ("SOURCE
MATERIALS");
(n) any agreement to indemnify, hold harmless or defend any
other person with respect to any assertion of personal injury, damage to
property or Intellectual Property
24
infringement, misappropriation or violation or warranting the lack thereof,
other than indemnification provisions contained in a customary purchase
orders/purchase agreements/product licenses arising in the ordinary course of
business and consistent with past practice; and
(o) any agreement with any person with whom Target does not
deal at arm's length.
2.26 NO BREACH OF MATERIAL CONTRACTS. Target has performed all of the
material obligations required to be performed by it, and is not in default
under, any Material Contract. Each of the Material Contracts is (as to Target)
in full force and effect, unamended, and there exists no default or event of
default or event, occurrence, condition or act, with respect to Target or to
Target's knowledge with respect to the other contracting party, or otherwise
that, with or without the giving of notice, the lapse of the time or the
happening of any other event or conditions, would reasonably be expected to
(a) become a material default or event of material default under any Material
Contract, (b) result in the loss or expiration of any material right or option
by Target (or the gain thereof by any third party) under any Material Contract
or (c) result in the release, disclosure or delivery to any third party of any
Source Materials. True, correct and complete copies of all Material Contracts
have been delivered to the Acquiror.
2.27 THIRD-PARTY CONSENTS. SECTION 2.27 of the Target Disclosure
Schedule lists all contracts that require a novation or consent to assignment,
as the case may be, prior to the Effective Time so that the Surviving
Corporation shall be made a party in place of Target or as assignee.
2.28 MATERIAL THIRD PARTY CONSENTS. SECTION 2.28 of the Target
Disclosure Schedule sets forth every contract which, if no novation occurs to
make Acquiror or the Surviving Corporation a party thereto or if no consent to
assignment is obtained, would have a material adverse effect on Acquiror's or
the Surviving Corporation's ability to operate the business in the same manner
as the business was operated by Target prior to the Effective Time.
2.29 MINUTE BOOKS. The minute books of Target made available to
Acquiror contain an accurate summary of all resolutions adopted and all other
material actions taken at all meetings of directors and stockholders and all
actions by written consent since the time of incorporation of Target through the
date of this Agreement.
2.30 COMPLETE COPIES OF MATERIALS. To its knowledge, Target has
delivered or made available true and complete copies of each document which has
been requested in writing by Acquiror or its counsel or other representatives in
connection with their legal and accounting review of Target.
2.31 YEAR 2000 COMPATIBILITY. None of the products and services sold,
licensed, rendered, or otherwise provided by Target in the conduct of its
business has malfunctioned, ceased to function, generated materially incorrect
data or produced materially incorrect results or caused any of the above with
respect to the property or business of third parties using such products or
services when processing, providing or receiving (a) date-related data from,
into and between the Twentieth (20th) and Twenty-First (21st) centuries or (b)
date-related data in
25
connection with any valid date in the Twentieth (20th) and Twenty-First (21st)
centuries. Target has not made any other representations or warranties
specifically relating to the ability of any product or service sold, licensed,
rendered or otherwise provided by Target in the conduct of its business to
operate without malfunction, to operate without ceasing to function, to generate
correct data or to produce correct results when processing, providing or
receiving (x) date-related data from, into and between the Twentieth (20th) and
Twenty-First (21st) centuries and (y) date-related data in connection with any
valid date in the Twentieth (20th) and Twenty-First (21st) centuries.
2.32 ABSENCE OF UNDISCLOSED LIABILITIES. Target has no material
obligations or liabilities of any nature (matured or unmatured, fixed or
contingent) other than (a) those set forth or adequately provided for in the
Target Balance Sheet, (b) those not required to be set forth or adequately
provided for in the Target Balance Sheet under GAAP, (c) those incurred in the
ordinary course of business since the Target Balance Sheet Date and consistent
with past practice and (d) those incurred in connection with the execution of
this Agreement.
2.33 TAX MATTERS. To Target's knowledge, neither Target nor any of its
affiliates has taken or agreed to take any action, nor does Target have
knowledge of any fact or circumstance, that would prevent the Merger from
qualifying as a reorganization within the meaning of Section 368(a) of the Code.
2.34 EXPORT CONTROL LAWS. Target has conducted its export transactions
in accordance with applicable provisions of United States export control laws
and regulations, including but not limited to the Export Administration Act and
implementing Export Administration Regulations. Without limiting the foregoing,
Target represents and warrants that:
(a) Target has obtained all export licenses and other approvals
required for its exports of products, software and technologies from the United
States;
(b) Target is in compliance with the terms of all applicable
export licenses or other approvals;
(c) There are no pending or, to Target's knowledge, threatened
claims against Target with respect to such export licenses or other approvals;
(d) To Target's knowledge there are no actions, conditions or
circumstances pertaining to Target's export transactions that may give rise to
any future claims; and
(e) No consents or approvals for the transfer of export
licenses to Acquiror are required, or such consents and approvals can be
obtained expeditiously without material cost.
2.35 PRODUCT RELEASES. Target has provided Acquiror a Schedule of
Product Releases, which Schedule is included in SECTION 2.35 of the Target
Disclosure Schedule. Target has a good faith reasonable belief that it can
achieve the release of products on the schedule described therein and is not
currently aware of any change in its circumstances or other fact that has
occurred that would cause it to believe that it will be unable to meet such
release schedule.
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2.36 REPRESENTATIONS COMPLETE. None of the representations or
warranties made by Target herein or in any Schedule hereto, including the Target
Disclosure Schedule, or certificate furnished by Target pursuant to this
Agreement, when all such documents are read together in their entirety, contains
or will contain at the Effective Time any untrue statement of a material fact,
or omits or will omit at the Effective Time to state any material fact necessary
in order to make the statements contained herein or therein, in the light of the
circumstances under which made, not misleading.
2.37 INFORMATION STATEMENT. The information supplied by Target for
inclusion in the information statement to be sent to the stockholders of Target
in connection with the Target stockholders' consideration of this Agreement and
the Merger (the "TARGET STOCKHOLDERS' ACTION") (such information statement as
amended or supplemented is referred to herein as the "INFORMATION STATEMENT")
shall not, on the date the Information Statement is first mailed to Target
stockholders, at the time of the Target Stockholders' Action and at the
Effective Time, contain any statement which, at such time, is false or
misleading with respect to any material fact, or omit to state any material fact
necessary in order to make the statements made therein, in light of the
circumstances under which they are made, not false or misleading; or omit to
state any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies or consents for the
Target Stockholders' Action which has become false or misleading.
Notwithstanding the foregoing, Target makes no representation, warranty or
covenant with respect to any information supplied by Acquiror or Merger Sub
which is contained in the Information Statement.
2.38 REGISTRATION RIGHTS. There is no agreement of Target to register
under the Securities Act any shares of Target Capital Stock or any shares of
Target Capital Stock issuable upon the exercise of Target Options or Target
Warrants, except pursuant to agreements that will be terminated or that will
terminate pursuant to their terms at or prior to the Closing.
2.39 STANDSTILL AGREEMENT. Target has entered into a valid and
enforceable Standstill Agreement with Sevenson Environmental Services, Inc.
("SEVENSON") pursuant to which Sevenson has agreed that the purchase of all of
the Target Capital Stock by Acquiror on the terms set forth in this Agreement
shall be deemed a "QUALIFIED TRANSACTION," for purposes of the Bridge Loan
Agreement dated March 15, 2000 between Target and Sevenson.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND MERGER SUB
Acquiror and Merger Sub represent and warrant to Target that the
statements contained in this ARTICLE III are true and correct, except as set
forth in the disclosure schedule delivered by Acquiror to Target prior to the
execution and delivery of this Agreement (the "ACQUIROR DISCLOSURE SCHEDULE").
The Acquiror Disclosure Schedule shall be arranged in paragraphs corresponding
to the numbered Sections contained in this ARTICLE III, and the disclosure in
any Section shall qualify only the corresponding Section in this ARTICLE III.
Any reference in this ARTICLE III to an agreement being "ENFORCEABLE" shall be
deemed to be qualified
27
to the extent such enforceability is subject to (i) laws of general application
relating to bankruptcy, insolvency, moratorium, fraudulent conveyance and the
relief of debtors and (ii) the availability of specific performance, injunctive
relief and other equitable remedies.
3.1 ORGANIZATION, STANDING AND POWER. Each of Acquiror and its
subsidiaries, including Merger Sub, is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
organization. Each of Acquiror and its subsidiaries has the corporate power to
own its properties and to carry on its business as now being conducted and as
proposed to be conducted and is duly qualified to do business and is in good
standing in each jurisdiction in which the failure to be so qualified and in
good standing would have a Material Adverse Effect on Acquiror. Acquiror has
delivered a true and correct copy of the Certificate of Incorporation and Bylaws
or other charter documents, as applicable, of Acquiror and Merger Sub, each as
amended to date, to Target. Neither Acquiror nor Merger Sub is in violation of
any of the provisions of its Certificate of Incorporation or Bylaws or
equivalent organizational documents.
3.2 CAPITAL STRUCTURE. The authorized capital stock of Acquiror
consists of 150,000,000 shares of Acquiror Common Stock, and 10,000,000 shares
of preferred stock, par value $0.01 per share, of which there were issued and
outstanding as of the close of business on July 10, 2000, 13,214,418 shares of
Acquiror Common Stock and no shares of preferred stock. The authorized capital
stock of Merger Sub consists of 1,000 shares of common stock, par value $0.01
per share, all of which are issued and outstanding and held by Acquiror. All
outstanding shares of Acquiror and Merger Sub have been duly authorized, validly
issued, fully paid and are nonassessable and free of any liens or encumbrances
other than any liens or encumbrances created by or imposed upon the holders
thereof. The shares of Acquiror Common Stock to be issued pursuant to the
Merger will be duly authorized, validly issued, fully paid and nonassessable,
and no stockholder of Acquiror will have any preemptive right of subscription or
purchase in respect thereof.
3.3 AUTHORITY. Acquiror and Merger Sub have all requisite corporate
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Acquiror and Merger
Sub. This Agreement has been duly executed and delivered by Acquiror and Merger
Sub and constitutes the valid and binding obligations of Acquiror and Merger Sub
enforceable against Acquiror and Merger Sub in accordance with its terms. The
execution and delivery of this Agreement do not, and the consummation of the
transactions contemplated hereby will not, conflict with, or result in any
violation of, or default under (with or without notice or lapse of time, or
both), or give rise to a right of termination, cancellation or acceleration of
any obligation or loss of a benefit under (a) any provision of the Certificate
of Incorporation or Bylaws of Acquiror or Merger Sub, as amended, or (b) any
material mortgage, indenture, lease, contract or other agreement or instrument,
permit, concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Acquiror or any of its subsidiaries
or their properties or assets, except where such conflict, violation, default,
termination, cancellation or acceleration with respect to the foregoing
provisions of clause (b) would not, individually or in the aggregate, have a
Material Adverse Effect on Acquiror. No consent, approval, order or
authorization of, or registration, declaration or filing with, any
28
Governmental Entity, is required by or, to the knowledge of Acquiror, with
respect to Acquiror or any of its subsidiaries in connection with the execution
and delivery of this Agreement by Acquiror and Merger Sub or the consummation by
Acquiror and Merger Sub of the Merger and the other transactions contemplated
hereby, except for (u) the filing of the Certificate of Merger, (v) any filings
as may be required under applicable state securities laws and the securities
laws of any foreign country, (w) the filing of a Form 8-K with the Securities
and Exchange Commission ("SEC") within 15 days after the Closing Date, (x) the
filing with the Nasdaq National Market of a Notification Form for Listing of
Additional Shares with respect to the shares of Acquiror Common Stock issuable
upon conversion of the Target Capital Stock in the Merger and upon exercise of
the Target Options and Target Warrants, (y) such filings as may be required
under HSR, and (z) such other consents, authorizations, filings, approvals and
registrations which, if not obtained or made, would not have a Material Adverse
Effect on Acquiror and would not prevent, materially alter or delay any of the
transactions contemplated by this Agreement.
3.4 SEC DOCUMENTS; FINANCIAL STATEMENTS. As of their respective
filing dates, each 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 Acquiror
(collectively, the "ACQUIROR SEC DOCUMENTS") complied in all material respects
with the applicable requirements of the Securities Exchange Act of 1934, as
amended (the "EXCHANGE ACT"), and the Securities Act, and none of the Acquiror
SEC Documents contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances in which they were made,
not misleading, except to the extent corrected by a subsequently filed Acquiror
SEC Document. All documents required to be filed as exhibits to the Acquiror
SEC Documents have been so filed. The financial statements of Acquiror,
including the notes thereto, included in the Acquiror SEC Documents (the
"ACQUIROR FINANCIAL STATEMENTS") were complete and correct in all material
respects as of their respective dates, complied 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 were 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 indicated in the notes thereto or, in the case
of unaudited statements included in Quarterly Reports on Form 10-Q, as permitted
by Form 10-Q under the Exchange Act). The Acquiror Financial Statements fairly
present in all material respects the consolidated financial condition and
operating results of Acquiror and its subsidiaries at the dates and during the
periods indicated therein (subject, in the case of unaudited statements, to
normal, recurring year-end audit adjustments). There has been no change in
Acquiror's accounting policies except as described in the notes to the Acquiror
Financial Statements.
3.5 TAX MATTERS. To Acquiror's knowledge, neither Acquiror nor any of
its "AFFILIATES" (as such term is defined in Rule 145 promulgated under the
Securities Act) has taken or agreed to take any action, nor does Acquiror have
knowledge of any fact or circumstance, that would prevent the Merger from
qualifying as a reorganization within the meaning of Section 368(a) of the Code.
3.6 ABSENCE OF UNDISCLOSED LIABILITIES. Acquiror has no material
obligations or liabilities of any nature (matured or unmatured, fixed or
contingent) other than (a) those set forth
29
or adequately provided for in the Balance Sheet, and notes thereto, included in
Acquiror's Annual Report on Form 10-K for the year ended March 31, 2000 (the
"ACQUIROR BALANCE SHEET"), (b) those not required to be set forth or adequately
provided for in the Acquiror Balance Sheet under GAAP, (c) those incurred in the
ordinary course of business since March 31, 2000 and consistent with past
practice and (d) those incurred in connection with the execution of this
Agreement.
3.7 NO BROKERS. Acquiror has not incurred, nor will it incur,
directly or indirectly, any liability for brokerage or finders' fees or agents'
commissions or investment bankers' or financial advisory fees or any similar
charges in connection with this Agreement or any transaction contemplated
hereby.
3.8 REPRESENTATIONS COMPLETE. None of the representations, warranties
or statements made by Acquiror herein or in any Schedule hereto, including the
Acquiror Disclosure Schedule, or certificate furnished by Acquiror pursuant to
this Agreement, when all such documents are read together in their entirety,
contains or will contain at the Effective Time any untrue statement of a
material fact, or omits or will omit at the Effective Time to state any material
fact necessary in order to make the statements contained herein or therein, in
the light of the circumstances under which made, not misleading.
3.9 INFORMATION TO BE SUPPLIED BY ACQUIROR. The information supplied
by Acquiror for inclusion in the Information Statement shall not, on the date
the Information Statement is first mailed to Target's stockholders, at the time
of the Target Stockholders' Action and at the Effective Time, contain any
statement which, at such time, is false or misleading with respect to any
material fact, or omit to state any material fact necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
false or misleading; or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to the solicitation of
proxies or consents for the Target Stockholders' Action which has become false
or misleading. Notwithstanding the foregoing, Acquiror and Merger Sub make no
representation, warranty or covenant with respect to any information supplied by
Target which is contained in the Information Statement.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 CONDUCT OF BUSINESS OF TARGET. During the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement or the Effective Time, Target agrees (except to the extent expressly
contemplated by this Agreement or as consented to in writing by Acquiror), to
carry on its business in the usual, regular and ordinary course in substantially
the same manner as heretofore conducted. Target further agrees to (a) pay debts
and Taxes when due subject to good faith disputes over such debts or Taxes, (b)
subject to Acquiror's consent to the filing of material Tax Returns, if
applicable, pay or perform other obligations when due and (c) use all reasonable
efforts consistent with past practice and policies to preserve intact its
present business organizations, keep available the services of its present
officers and key employees and preserve its relationships with customers,
suppliers, distributors, licensors, licensees and others having business
dealings with it, to the end that its goodwill and
30
ongoing business shall be unimpaired at the Effective Time. Target agrees to
promptly notify Acquiror of any event or occurrence not in the ordinary course
of Target's business, and of any event which could have a Material Adverse
Effect on Target.
4.2 RESTRICTIONS ON CONDUCT OF BUSINESS OF TARGET. During the period
from the date of this Agreement and continuing until the earlier of the
termination of this Agreement or the Effective Time, except as expressly
contemplated by this Agreement, Target shall not do, cause or permit any of the
following, without the prior written consent of Acquiror:
(a) CHARTER DOCUMENTS. Cause or permit any amendments to its
Certificate of Incorporation or Bylaws;
(b) DIVIDENDS; CHANGES IN CAPITAL STOCK. Declare or pay any
dividends on or make any other distributions (whether in cash, stock or
property) in respect of any of its capital stock, or split, combine or
reclassify any of its capital stock or issue or authorize the issuance of any
other securities in respect of, in lieu of or in substitution for shares of its
capital stock, or repurchase or otherwise acquire, directly or indirectly, any
shares of its capital stock except from former employees, directors and
consultants in accordance with agreements providing for the repurchase of shares
in connection with any termination of service to it;
(c) MATERIAL CONTRACTS. Enter into any material contract,
agreement, license or commitment, or violate, amend or otherwise modify or waive
any of the terms of any of its material contracts, agreements or licenses;
(d) STOCK OPTION PLANS, ETC. Accelerate, amend or change the
period of exercisability or vesting of options or other rights granted under its
stock plans or authorize cash payments in exchange for any options or other
rights granted under any of such plans;
(e) ISSUANCE OF SECURITIES. Issue, deliver or sell or
authorize or propose the issuance, delivery or sale of, or purchase or propose
the purchase of, any shares of Target Capital Stock or securities convertible
into, or subscriptions, rights, warrants or options to acquire, or other
agreements or commitments of any character obligating it to issue any such
shares or other convertible securities, other than the issuance of shares of
Target Common Stock pursuant to the exercise of stock options, warrants or other
rights therefor outstanding as of the date of this Agreement;
(f) INTELLECTUAL PROPERTY. Transfer to or license any person
or entity or otherwise extend, amend or modify any rights to Target Intellectual
Property other than the grant of non-exclusive licenses in the ordinary course
of business and consistent with past practice;
(g) EXCLUSIVE RIGHTS. Enter into or amend any agreements
pursuant to which any other party is granted exclusive marketing, manufacturing
or other exclusive rights of any type or scope with respect to any of its
products or technology;
(h) DISPOSITIONS. Sell, lease, license or otherwise dispose of
or encumber any of its properties or assets, other than licenses of Target
Intellectual Property to customers in the ordinary course of business and
consistent with past practice;
31
(i) INDEBTEDNESS. Incur or commit to incur any indebtedness
for borrowed money in excess of $10,000 or guarantee any such indebtedness in
excess of $10,000 or issue or sell any debt securities or guarantee any debt
securities of others;
(j) LEASES. Enter into any operating lease requiring payments
in excess of $10,000;
(k) PAYMENT OF OBLIGATIONS. Pay, discharge or satisfy in an
amount in excess of $10,000 in any one case or $20,000 in the aggregate, any
claim, liability or obligation (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than (i) arising in the ordinary course of
business and consistent with past practice and (ii) the payment, discharge or
satisfaction of liabilities reflected or reserved against in the Target
Financial Statements;
(l) CAPITAL EXPENDITURES. Incur or commit to incur any capital
expenditures in excess of $10,000 in the aggregate;
(m) INSURANCE. Materially reduce the amount of any insurance
coverage provided by existing insurance policies;
(n) TERMINATION OR WAIVER. Terminate or waive any right of
substantial value;
(o) EMPLOYEE BENEFITS; SEVERANCE. Take any of the following
actions: (i) increase or agree to increase the compensation (including base
salary, wages, bonus, and/or commissions) payable or to become payable to its
directors, officers, employees, or independent contractors, (ii) grant any
additional severance or termination pay to, or enter into any employment or
severance agreements with, any officer, employee, or independent contractor,
(iii) enter into any collective bargaining agreement, or (iv) establish, adopt,
enter into or amend any bonus, profit sharing, thrift, compensation, stock
option, restricted stock, pension, retirement, deferred compensation,
employment, termination, severance or other plan, trust, fund, policy or
arrangement for the benefit of any directors, officers, employees or independent
contractors;
(p) LAWSUITS. Commence a lawsuit or arbitration proceeding
other than (i) for the routine collection of bills, (ii) in such cases where it
in good faith determines that failure to commence suit would result in the
material impairment of a valuable asset of its business, PROVIDED that it
consults with Acquiror prior to the filing of such a suit, or (iii) for a breach
of this Agreement;
(q) ACQUISITIONS. Acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial portion of the assets of, or
by any other manner, any business or any corporation, partnership, association
or other business organization or division thereof, or otherwise acquire or
agree to acquire any assets;
(r) TAXES. Make any material Tax election, change any material
Tax election, adopt any Tax accounting method, change any Tax accounting method,
file any Tax Return (other than any estimated Tax Returns, immaterial
information returns, payroll tax returns or sales Tax Returns) or any amendment
to a Tax Return, enter into any closing agreement, settle any Tax claim or
assessment or consent to any Tax claim or assessment;
32
(s) REVALUATION. Revalue any of its assets, including without
limitation writing down the value of inventory or writing off notes or accounts
receivable; or
(t) OTHER. Take or agree in writing or otherwise to take, any
of the actions described in SECTIONS 4.2(a) through (s) above, or any action
which would make any of its representations or warranties contained in this
Agreement untrue or incorrect or prevent it from performing or cause it not to
perform its covenants hereunder.
4.3 NOTICES. Target shall give all notices and other information
required to be given to the employees of Target, any collective bargaining unit
representing any group of employees of Target, and any applicable government
authority under the National Labor Relations Act, the Internal Revenue Code, the
Consolidated Omnibus Budget Reconciliation Act, and other applicable law in
connection with the transactions provided for in this Agreement.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 NO SOLICITATION.
(a) From and after the date of this Agreement until the earlier
of the termination of this Agreement or the Effective Time, Target shall not,
directly or indirectly, through any officer, director, employee, representative
or agent, (i) solicit, initiate, or knowingly encourage any inquiries or
proposals that constitute, or could reasonably be expected to lead to, a
proposal or offer for a merger, consolidation, business combination, sale of all
or substantially all of the assets, sale of shares of capital stock (including
without limitation by way of a tender offer) or similar transactions involving
Target, or any asset of Target the absence of which would materially diminish
the value of the Merger to Acquiror or the benefits expected by Acquiror to be
realized from the Merger other than the transactions contemplated by this
Agreement (any of the foregoing inquiries or proposals being referred to in this
Agreement as a "TAKEOVER PROPOSAL"), (ii) engage in negotiations or discussions
concerning, or provide any non-public information to any person or entity
relating to, any Takeover Proposal or (iii) agree to, approve or recommend any
Takeover Proposal.
(b) Target and its representative will immediately cease and
cause to be terminated any and all existing discussions, negotiations, exchanges
of information and other activities with respect to any Takeover Proposal.
Promptly following the execution and delivery of this Agreement, Target shall
(i) inform each of its representatives of the obligations undertaken in this
SECTION 5.1 and (ii) request each person that has heretofore executed a
confidentiality or non-disclosure agreement in connection with its consideration
of acquiring it to return to Target all confidential information heretofore
furnished to such person by or on behalf of it. Target shall notify Acquiror
forthwith if any inquiries, proposals or offers relating to a Takeover Proposal
are received by, any such information is requested from, or any such discussions
or negotiations are sought to be initiated or continued with, Target or any of
its representatives, indicating, in connection with such notice, the name of the
person making the
33
inquiry, proposal or offer and the material terms and conditions of any
proposals or offers. Thereafter Target shall provide Acquiror with a true and
complete copy of such Takeover Proposal or communication (if it is in writing)
and shall otherwise keep Acquiror informed, on a current basis, with respect to
the status and terms of any such proposal or offer.
(c) Target and Acquiror agree that irreparable damage would
occur in the event that the provisions of this SECTION 5.1 were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed by the parties hereto that Acquiror shall be entitled to seek
an injunction or injunctions to prevent breaches of this SECTION 5.1 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 the parties may be entitled at law or in equity.
5.2 PREPARATION OF INFORMATION STATEMENT. As soon as practicable
after the execution of this Agreement, Target shall prepare, with the
cooperation of Acquiror, an Information Statement for the stockholders of Target
to approve this Agreement, the Certificate of Merger and the transactions
contemplated hereby and thereby. The Information Statement shall constitute a
disclosure document for the offer and issuance of the shares of Acquiror Common
Stock to be received by the holders of Target Capital Stock in the Merger.
Acquiror and Target shall each use its best efforts to cause the Information
Statement to comply with applicable federal and state securities laws
requirements. Each of Acquiror and Target agrees to provide promptly to the
other such information concerning its business and financial statements and
affairs as, in the reasonable judgment of the providing party or its counsel,
may be required or appropriate for inclusion in the Information Statement, or in
any amendments or supplements thereto, and to cause its counsel and independent
accountants to cooperate with the other's counsel and independent accountants in
the preparation of the Information Statement. Target will promptly advise
Acquiror, and Acquiror will promptly advise Target, in writing if at any time
prior to the Effective Time either Target or Acquiror shall obtain knowledge of
any facts that might make it necessary or appropriate to amend or supplement the
Information Statement in order to make the statements contained therein not
misleading or to comply with applicable law. The Information Statement shall
contain the recommendation of the Board of Directors of Target that the Target
stockholders approve the Merger and this Agreement and the conclusion of the
Target Board of Directors that the terms and conditions of the Merger are fair
and reasonable to the stockholders of Target. Anything to the contrary
contained herein notwithstanding, Target shall not include in the Information
Statement any information with respect to Acquiror or its affiliates or
associates, the form and content of which information shall not have been
approved by Acquiror prior to such inclusion.
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5.3 STOCKHOLDERS MEETING OR CONSENT SOLICITATION. As soon as
permitted by applicable laws or other rules or regulations, Target shall
promptly take all actions necessary to either (a) call a meeting of its
stockholders to be held for the purpose of voting upon this Agreement and the
Merger or (b) commence a consent solicitation to obtain such approvals in order
to effect consummation of the Merger on or before August 31, 2000. Target will,
through its Board of Directors, recommend to its stockholders approval of such
matters as soon as practicable after the date hereof. Target shall use all
reasonable efforts to solicit from its stockholders proxies or consents in favor
of such matters.
5.4 ACCESS TO INFORMATION.
(a) Target shall afford Acquiror and its accountants, counsel
and other representatives, reasonable access during normal business hours during
the period prior to the Effective Time to (i) all of Target's properties, books,
contracts, commitments and records and (ii) all other information concerning the
business, properties and personnel of Target as Acquiror may reasonably request.
Target agrees to provide to Acquiror and its accountants, counsel and other
representatives copies of internal financial statements promptly upon request.
(b) Subject to compliance with applicable law, from the date
hereof until the earlier of the termination of this Agreement or the Effective
Time, each of Acquiror and Target shall confer on a regular and frequent basis
with one or more representatives of the other party to report operational
matters of materiality and the general status of ongoing operations.
(c) No information or knowledge obtained in any investigation
pursuant to this SECTION 5.4 shall affect or be deemed to modify any
representation or warranty contained herein or the conditions to the obligations
of the parties to consummate the Merger.
(d) Target shall provide Acquiror and its accountants, counsel
and other representatives reasonable access, during normal business hours during
the period prior to the earlier of the termination of this Agreement or the
Effective Time, to all of Target's Tax Returns and other records and workpapers
relating to Taxes and shall provide the following information to Acquiror and
its representatives promptly upon any request therefor: (i) a list of the types
of Tax Returns being filed by Target in each Taxing jurisdiction, including the
year of the commencement of the filing of each such type of Tax Return and all
closed years with respect to each such type of Tax Return filed in each
jurisdiction, (ii) a list of all material Tax elections filed in each
jurisdiction by Target, (iii) a schedule of any deferred intercompany gain with
respect to transactions to which Target has been a party and (iv) receipts for
any Taxes paid to foreign Tax Authorities.
5.5 CONFIDENTIALITY. The parties each agree that all information
provided by one party to the other in the course of pursuing the Merger will be
deemed confidential and proprietary to the providing party, and will not be
disclosed to any other person or entity (other than the receiving party's
attorneys, accountants, or other advisers subject to similar confidentiality
restrictions), and such information will not be used by the receiving party
except for the limited purpose of evaluating the desirability of completing this
proposed transaction; PROVIDED, HOWEVER, that these confidentiality restrictions
will not apply to information that the receiving party can demonstrate is
publicly available or was already known by the receiving party through
35
a third party with no confidentiality obligations to the other party. All
documents and other written information (and all copies thereof, including
copies on electronic media) received by one party from the other shall promptly
be returned to the disclosing party upon the written request of the disclosing
party. The parties further acknowledge that the provisions of this SECTION 5.5
shall be in addition to, and not in substitution for, the provisions of
paragraph 15 of the letter agreement dated April 25, 2000 between Target and
Acquiror (the "NON-DISCLOSURE AGREEMENT"), and that to the extent there is a
conflict between this SECTION 5.5 and the Non-Disclosure Agreement, the
provisions of this SECTION 5.5 shall prevail.
5.6 PUBLIC DISCLOSURE. Unless otherwise permitted by this Agreement,
Acquiror and Target shall consult with each other before issuing any press
release or otherwise making any public statement or making any other public (or
non-confidential) disclosure (whether or not in response to an inquiry)
regarding the terms of this Agreement and the transactions contemplated hereby,
and neither shall issue any such press release or make any such statement or
disclosure without the prior approval of the other (which approval shall not be
unreasonably withheld), except as may be required by law or required by Acquiror
to comply with the rules and regulations of the SEC or The Nasdaq Stock Market
or to comply with disclosure obligations under applicable securities laws.
5.7 CONSENTS; COOPERATION.
(a) Target shall promptly apply for or otherwise seek, and use
all reasonable efforts to obtain, all consents and approvals required to be
obtained by it for the consummation of the Merger, and shall use all
commercially reasonable efforts to obtain all necessary consents, waivers and
approvals listed in SECTION 2.27 of the Target Disclosure Schedule in connection
with the Merger for consent therefor or assignment thereof or otherwise. The
parties hereto will consult and cooperate with one another, and consider in good
faith the views of one another, in connection with any analyses, appearances,
presentations, memoranda, briefs, arguments, opinions and proposals made or
submitted by or on behalf of any party hereto in connection with proceedings
under or relating to HSR or any other federal or state antitrust or fair trade
law.
(b) Each of Acquiror and Target shall use all commercially
reasonable efforts to resolve such objections, if any, as may be asserted by any
Governmental Entity with respect to the transactions contemplated by this
Agreement under HSR, the Xxxxxxx Act, as amended, the Xxxxxxx Act, as amended,
the Federal Trade Commission Act, as amended, and any other federal, state or
foreign statutes, rules, regulations, orders or decrees that are designed to
prohibit, restrict or regulate actions having the purpose or effect of
monopolization or restraint of trade (collectively, "ANTITRUST LAWS"). In
connection therewith, if any administrative or judicial action or proceeding is
instituted (or threatened to be instituted) challenging any transaction
contemplated by this Agreement as violative of any Antitrust Law, each of
Acquiror and Target shall cooperate and use all commercially reasonable efforts
vigorously to contest and resist any such action or proceeding and to have
vacated, lifted, reversed, or overturned any decree, judgment, injunction or
other order, whether temporary, preliminary or permanent (each an "ORDER"), that
is in effect and that prohibits, prevents, or restricts consummation of the
Merger or any such other transactions, unless by mutual agreement Acquiror and
Target decide that litigation is not in their respective best interests.
Notwithstanding the provisions of the immediately preceding sentence, it is
expressly understood and agreed that neither party shall
36
have any obligation to litigate or contest any administrative or judicial action
or proceeding or any Order beyond the earlier of (i) 60 days after the date of
this Agreement or (ii) the date of a ruling preliminarily enjoining the Merger
issued by a court of competent jurisdiction. Each of Acquiror and Target shall
use all commercially reasonable efforts to take such action as may be required
to cause the expiration of the notice periods under HSR or other Antitrust Laws
with respect to such transactions as promptly as possible after the execution of
this Agreement.
(c) Notwithstanding the foregoing, neither Acquiror nor Target
shall be required to agree, as a condition to any Approval, to divest itself of
or hold separate any subsidiary, division or business unit which is material to
the business of such party and its subsidiaries, taken as a whole, or the
divestiture or holding separate of which would be reasonably likely to have a
Material Adverse Effect on (i) the business, properties, assets, liabilities,
financial condition or results of operations of such party and its subsidiaries,
taken as a whole or (ii) the benefits intended to be derived as a result of the
Merger.
5.8 UPDATE DISCLOSURE; BREACHES. From and after the date of this
Agreement until the Effective Time, each party hereto shall promptly notify the
other party, by written update to its Disclosure Schedule, of (a) the occurrence
or non-occurrence of any event which 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 not to be satisfied, or (b) the failure of Target
or Acquiror, 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 which would be likely to result in any condition to the obligations of
any party to effect the Merger and the other transactions contemplated by this
Agreement not to be satisfied. The delivery of any notice pursuant to this
SECTION 5.8 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.
5.9 LEGAL REQUIREMENTS. Each of Acquiror and Target will, and will
cause their respective subsidiaries to, take all reasonable actions necessary to
comply promptly with all legal requirements which may be imposed on them with
respect to the consummation of the transactions contemplated by this Agreement
and will promptly cooperate with and furnish information to any party hereto
necessary in connection with any such requirements imposed upon such other party
in connection with the consummation of the transactions contemplated by this
Agreement and will take all reasonable actions necessary to obtain (and will
cooperate with the other parties hereto in obtaining) any consent, approval,
order or authorization of, or any registration, declaration or filing with, any
Governmental Entity or other person, required to be obtained or made in
connection with the taking of any action contemplated by this Agreement.
5.10 TAX-FREE REORGANIZATION. Neither Target, Acquiror nor Merger Sub
will, either before or after consummation of the Merger, take any action which,
to the knowledge of such party, would cause the Merger to fail to constitute a
"REORGANIZATION" within the meaning of Code Section 368.
5.11 BLUE SKY LAWS. Acquiror shall take such steps as may be necessary
to comply with the securities and blue sky laws of all jurisdictions which are
applicable to the issuance of the Acquiror Common Stock in connection with the
Merger. Target shall use its best efforts to
37
assist Acquiror as may be necessary to comply with the securities and blue sky
laws of all jurisdictions which are applicable in connection with the issuance
of Acquiror Common Stock in connection with the Merger.
5.12 STOCK OPTIONS.
(a) At the Effective Time, the Target Stock Option Plan and
each outstanding option to purchase shares of Target Common Stock under such
Plan, whether vested or unvested, shall be assumed by Acquiror. Each such
option so assumed by Acquiror under this Agreement shall continue to have, and
be subject to, the same terms and conditions set forth in the Target Stock
Option Plan and related stock option agreement immediately prior to the
Effective Time (but giving effect to any vesting acceleration provisions
therein, to the extent the requisite approvals have been obtained under Section
280G of the Code), except that (i) such option shall be exercisable for that
number of whole shares of Acquiror Common Stock equal to the product of the
number of shares of Target Common Stock that were issuable upon exercise of such
option immediately prior to the Effective Time multiplied by the Target Option
Exchange Ratio (as defined below) and rounded down to the nearest whole number
of shares of Acquiror Common Stock and (ii) the per share exercise price for the
shares of Acquiror Common Stock issuable upon exercise of such assumed option
shall be equal to the quotient determined by dividing the exercise price per
share of Target Common Stock at which such option was exercisable immediately
prior to the Effective Time by the Target Option Exchange Ratio, rounded up to
the nearest whole cent. It is the intention of the parties that the options so
assumed by Acquiror qualify following the Effective Time as incentive stock
options as defined in Section 422 of the Code to the extent such options
qualified as incentive stock options prior to the Effective Time. After the
Effective Time, Acquiror will issue to each person who, immediately prior to the
Effective Time was a holder of an outstanding option under the Target Stock
Option Plan, a document in form and substance satisfactory to the Stockholders'
Agent (as defined in SECTION 8.8) evidencing the foregoing assumption of such
option by Acquiror. As used in this Agreement, "TARGET OPTION EXCHANGE RATIO"
shall mean the quotient derived by dividing (i) the Target Common Stock Per
Share Value by (ii) the Adjusted Closing Stock Price.
(b) It is the intention of the parties that the options so
assumed by Acquiror qualify, to the maximum extent permissible, following the
Effective Time, as incentive stock options as defined in Section 422 of the Code
to the extent such options qualified as incentive stock options prior to the
Effective Time.
(c) Acquiror shall take all corporate action necessary to
reserve and make available for issuance a sufficient number of shares of
Acquiror Common Stock for delivery under Target Options assumed in accordance
with this SECTION 5.12.
(d) All outstanding rights of Target which it may hold
immediately prior to the Effective Time to repurchase unvested shares of Target
Capital Stock (the "REPURCHASE OPTIONS") shall be assigned to Acquiror in the
Merger and shall thereafter be exercisable by Acquiror upon the same terms and
conditions in effect immediately prior to the Effective Time, except (i) as
described in SECTION 5.12 of the Target Disclosure Schedule and (ii) that the
shares purchasable pursuant to the Repurchase Options and the purchase price per
share shall be adjusted to reflect the Target Option Exchange Ratio.
38
(e) Target shall use all reasonable efforts to prepare a
spreadsheet in form acceptable to Acquiror or its agent which spreadsheet shall
list, as of the date of this Agreement and as of the Effective Time, all Target
stockholders, optionholders and warrant holders and their respective addresses,
the number of Target shares or options or warrants to purchase shares held by
such persons (including in the case of shares, the respective certificate
numbers), the exercise price of such options or warrants, the Exchange Ratio
applicable to each holder, the number of shares of Acquiror Common Stock (or
options or warrants to purchase Acquiror Common Stock) to be issued to each
holder, the number of shares of Acquiror Common Stock and portion of the Cash
Consideration to be deposited into the Escrow Fund on behalf of each stockholder
and the vesting arrangement with respect to Target Options and Target Warrants
(the "OPTION AND WARRANT SPREADSHEET"). The Option and Warrant Spreadsheet
shall be certified as complete and correct by a duly elected officer of Target
at the Closing.
5.13 ESCROW AGREEMENT. On or before the Effective Time, the Escrow
Agent, the Stockholders' Agent, Target and Acquiror will execute the Escrow
Agreement contemplated by ARTICLE VIII in substantially the form attached hereto
as EXHIBIT E (the "ESCROW AGREEMENT").
5.14 FORM S-8. Acquiror agrees to file, no later than 90 days after
the Closing, a registration statement on Form S-8 covering the shares of
Acquiror Common Stock issuable pursuant to outstanding options under the Target
Stock Option Plan assumed by Acquiror; PROVIDED, that Acquiror has received not
less than ten business days prior to such projected filing date, all option
documentation relating to the outstanding options); and PROVIDED FURTHER, that
such options qualify for registration on such Form S-8. Target shall cooperate
with and assist Acquiror in the preparation of such registration statement.
5.15 LISTING OF ADDITIONAL SHARES. Prior to the Effective Time,
Acquiror shall file with the Nasdaq Stock Market a Notification Form for Listing
of Additional Shares with respect to the shares of Acquiror Common Stock
issuable upon conversion of the Target Capital Stock in the Merger and upon
exercise of the Target Options and Target Warrants assumed by Acquiror.
5.16 EMPLOYEES. The terms of employment of the Target employees set
forth in SECTION 5.16 of the Acquiror Disclosure Schedule shall be modified
pursuant to an Addendum to Employment Agreement, substantially in the form of
EXHIBITS F-1, F-2, and F-3 hereto (each, a "TARGET EMPLOYMENT AGREEMENT").
Acquiror will negotiate in good faith to enter into such agreements with the
employees listed in SECTION 5.16 of the Acquiror Disclosure Schedule. Target
shall cooperate with Acquiror to assist Acquiror in entering into such
agreements with such employees. Acquiror shall have no obligation to make an
offer of employment to any employee of Target except those listed in SECTION
5.16 of the Acquiror Disclosure Schedule.
5.17 ADDITIONAL AGREEMENTS; BEST EFFORTS. Each of the parties agrees
to use their best efforts to take, or cause to be taken, all action and to do,
or cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated by this Agreement, subject to the appropriate vote or consent of
stockholders of Target described in SECTION 5.3, including cooperating fully
with the other party, including by provision of information. In case at any
time after the Effective Time any further action is necessary or desirable to
carry out the purposes of this Agreement or to vest the Surviving Corporation
with full title to all properties, assets, rights, approvals, immunities and
39
franchises, the proper officers and directors of each party to this Agreement
shall take all such necessary action.
5.18 DIRECTOR AND OFFICER INDEMNIFICATION.
(a) Until the third anniversary of the Effective Date, Acquiror
will, and will cause the Surviving Corporation to, indemnify and hold harmless
the present and former officers and directors of Target in respect of acts or
omissions occurring on or prior to the Effective Time to the extent (but only to
the extent) provided under Target's Certificate of Incorporation and Bylaws, in
each case as in effect on the date hereof; PROVIDED, that such indemnification
shall be subject to any limitation imposed from time to time under applicable
law.
(b) In the event any claim, action, suit, proceeding or
investigation is asserted for which a person is entitled to indemnification
hereunder, (i) any counsel retained by the indemnified parties shall be
reasonably satisfactory to Acquiror and the Surviving Corporation and (ii)
Acquiror and the Surviving Corporation will cooperate in the defense of any such
matter; PROVIDED, HOWEVER, that neither Acquiror nor the Surviving Corporation
shall be liable for any settlement effected without its written consent (which
consent shall not be unreasonably withheld); and PROVIDED, FURTHER, that, in the
event that any claim or claims for indemnification are asserted or made within
such three-year period, all rights to indemnification in respect of any such
claim or claims shall continue until the disposition of any and all such claims.
(c) The provisions of this SECTION 5.18 are intended to be for
the benefit of, and shall be enforceable by, each such indemnified party.
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER. The
respective obligations of each party to this Agreement to consummate and effect
this Agreement and the transactions contemplated hereby shall be subject to the
satisfaction at or prior to the Effective Time of each of the following
conditions, any of which may be waived, in writing, by agreement of all the
parties hereto:
(a) STOCKHOLDER APPROVAL. This Agreement and the Merger shall
have been approved and adopted by the holders of at least a majority of the
shares of the Target Common Stock outstanding as of the record date set for the
Target stockholders' meeting or solicitation of stockholder consents; and any
agreements or arrangements that may result in the payment of any amount that
would not be deductible by reason of Section 280G of the Code shall have been
approved by such number of stockholders of Target as is required by the terms of
Code Section 280G(b)(5)(B).
(b) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Merger
40
shall be in effect, nor shall any proceeding brought by an administrative agency
or commission or other governmental authority or instrumentality, domestic or
foreign, seeking any of the foregoing be pending; nor shall there be any action
taken, or any statute, rule, regulation or order enacted, entered, enforced or
deemed applicable to the Merger, which makes the consummation of the Merger
illegal. In the event an injunction or other order shall have been issued, each
party agrees to use its reasonable diligent efforts to have such injunction or
other order lifted.
(c) GOVERNMENTAL APPROVAL. Acquiror and Target and their
respective subsidiaries shall have timely obtained from each Governmental Entity
all approvals, waivers and consents, if any, necessary for consummation of or in
connection with the Merger and the several transactions contemplated hereby,
including such approvals, waivers and consents as may be required under the
Securities Act and under state blue sky laws.
(d) TAX OPINION. Target shall have received the written
opinion of Target's legal counsel, in form and substance reasonably satisfactory
to Target, and dated on or about the Closing Date, to the effect that the Merger
will constitute a reorganization within the meaning of Section 368(a) of the
Code, and such opinion shall not have been withdrawn. In rendering such
opinion, Target's legal counsel shall be entitled to rely upon, among other
things, reasonable assumptions as well as representations of Acquiror and
Target.
(e) ESCROW AGREEMENT. Acquiror, the Escrow Agent and the
Stockholders' Agent shall have entered into the Escrow Agreement.
6.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF TARGET. The obligations
of Target to consummate and effect this Agreement and the transactions
contemplated hereby shall be subject to the satisfaction at or prior to the
Effective Time of each of the following conditions, any of which may be waived,
in writing, by Target:
(a) REPRESENTATIONS, WARRANTIES AND COVENANTS. Except as
disclosed in the Acquiror Disclosure Schedule dated the date of this Agreement,
(i) the representations and warranties of Acquiror and Merger Sub in this
Agreement shall be true and correct in all material respects (except for such
representations and warranties that are qualified by their terms by a reference
to materiality which representations and warranties as so qualified shall be
true in all respects) on and as of the Effective Time as though such
representations and warranties were made on and as of such time (except that
representations and warranties which by their express terms are made on and as
of a specified earlier date shall be made only on and as of such specified
earlier date) and (ii) Acquiror and Merger Sub shall have performed and complied
in all material respects with all covenants, obligations and conditions of this
Agreement required to be performed and complied with by them as of the Effective
Time.
(b) CERTIFICATE OF ACQUIROR. Target shall have been provided
with a certificate executed on behalf of Acquiror by its Chief Financial Officer
to the effect set forth in SECTION 6.2(a).
(c) LEGAL OPINION. Target shall have received a legal opinion
from Acquiror's legal counsel substantially in the form attached as EXHIBIT G
hereto.
41
(d) REGISTRATION RIGHTS AGREEMENT. Acquiror shall have entered
into the Registration Rights Agreement with the stockholders and warrantholders
of Target.
6.3 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF ACQUIROR AND MERGER
SUB. The obligations of Acquiror and Merger Sub to consummate and effect this
Agreement and the transactions contemplated hereby shall be subject to the
satisfaction at or prior to the Effective Time of each of the following
conditions, any of which may be waived, in writing, by Acquiror:
(a) REPRESENTATIONS, WARRANTIES AND COVENANTS. Except as
disclosed in the Target Disclosure Schedule dated the date of this Agreement,
(i) the representations and warranties of Target in this Agreement shall be true
and correct in all material respects (except for (A) changes consented to by
Acquiror as contemplated by SECTION 4.2 of this Agreement and (B) such
representations and warranties that are qualified by their terms by a reference
to materiality which representations and warranties as so qualified shall be
true in all respects) on and as of the Effective Time as though such
representations and warranties were made on and as of such time (except that
representations and warranties which by their express terms are made on and as
of a specified earlier date shall be made only on and as of such specified
earlier date) and (ii) Target shall have performed and complied in all material
respects with all covenants, obligations and conditions of this Agreement
required to be performed and complied with by it as of the Effective Time.
(b) CERTIFICATE OF TARGET. Acquiror shall have been provided
with a certificate executed on behalf of Target by its President and Chief
Financial Officer to the effect set forth in SECTION 6.3(a).
(c) THIRD PARTY CONSENTS. Acquiror shall have been furnished
with evidence satisfactory to it of the consent or approval of those persons, if
any, whose consent or approval shall be required in connection with the Merger
under the contracts of Target set forth in SECTION 2.28 of the Target Disclosure
Schedule.
(d) LEGAL OPINION. Acquiror shall have received a legal
opinion from Target's legal counsel, in substantially the form attached hereto
as EXHIBIT H.
(e) FIRTPA CERTIFICATE. Target shall, prior to the Closing
Date, provide Acquiror with a properly executed FIRPTA Notification Letter,
substantially in the form attached hereto as EXHIBIT I , which states that
shares of capital stock of Target do not constitute "UNITED STATES REAL PROPERTY
INTERESTS" under Section 897(c) of the Code, for purposes of satisfying
Acquiror's obligations under Treasury Regulation Section 1.1445-2(c)(3). In
addition, simultaneously with delivery of such Notification Letter, Target shall
have provided to Acquiror, as agent for Target, a form of notice to the Internal
Revenue Service in accordance with the requirements of Treasury Regulation
Section 1.897-2(h)(2) and substantially in the form attached hereto as EXHIBIT I
along with written authorization for Acquiror to deliver such notice form to the
Internal Revenue Service on behalf of Target upon the Closing of the Merger.
(f) 280G AGREEMENTS. Target shall, prior to the Closing Date,
provide Acquiror with a properly executed Section 280G Agreement in the form
attached hereto as
42
EXHIBIT J from each person identified by Target or Acquiror as potentially
receiving excess parachute payments, as defined in Section 280G of the Code, in
connection with the Merger.
(g) RESIGNATION OF DIRECTORS. The directors of Target in
office immediately prior to the Effective Time shall have resigned as directors
of Target effective as of the Effective Time.
(h) TERMINATION OF PENSION PLAN. If requested by Acquiror in
writing, Target shall, immediately prior to the Closing Date, terminate Target's
401(k) Plan (the "401(k) PLAN") and no further contributions shall be made to
the 401(k) Plan, PROVIDED that as a condition of such termination Target's
employees shall be eligible to participate in Acquiror's 401(k) plan immediately
following the Closing Date. Target shall provide to Acquiror (i) executed
resolutions by the Board of Directors of Target authorizing the termination and
(ii) an executed amendment to the 401(k) Plan sufficient to assure compliance
with all applicable requirements of the Code and regulations thereunder so that
the tax-qualified status of the 401(k) Plan will be maintained at the time of
termination.
(i) OPTION AND WARRANT SPREADSHEET. Acquiror shall have
received the Option and Warrant Spreadsheet, which shall have been certified as
true and correct by an authorized officer of Target.
(j) PROPRIETARY INFORMATION AND INVENTIONS AGREEMENTS. All of
the employees of Target shall have entered into proprietary information and
invention agreements in a form reasonably acceptable to Acquiror.
(k) TARGET EMPLOYMENT AGREEMENTS. Each of the employees of
Target identified on SCHEDULE 5.16 shall have entered into a Target Employment
Agreement and original copies of each shall have been delivered to Acquiror.
(l) EXEMPTION FROM REGISTRATION. Acquiror shall be satisfied,
in its sole and reasonable discretion, that the shares of Acquiror Common Stock
to be issued in connection with the Merger will be issued in a transaction
exempt from registration under (i) the Securities Act, by reason of Section 4(2)
thereof, and (ii) applicable state securities laws.
(m) STOCK RESTRICTION AGREEMENT. Acquiror shall have entered
into the Stock Restriction Agreement with the stockholders and warrantholders of
Target.
(n) AMENDMENT OF CONVERTIBLE PROMISSORY NOTES. Each of the
Convertible Promissory Notes set forth in SECTION 2.25(e) of the Target
Disclosure Schedule, except for the Convertible Promissory Note issued to
Sevenson, shall have been amended to remove the conversion rights contained
therein, and copies of the executed documents evidencing such modification shall
have been delivered to Acquiror.
(o) LIMITATION ON ACQUIROR COMMON STOCK SHARES ISSUABLE.
Notwithstanding the provisions of SECTION 1.6(i), the aggregate number of shares
of Acquiror Common Stock issuable in connection with the Merger, as calculated
pursuant to SECTION 1.6 (including shares issuable upon the exercise of Target
Options and Target Warrants assumed by Acquiror), does not exceed 2,000,000.
43
ARTICLE VII
TERMINATION, EXPENSES, AMENDMENT AND WAIVER
7.1 TERMINATION. At any time prior to the Effective Time, whether
before or after approval of the matters presented in connection with the Merger
by the stockholders of Target, this Agreement may be terminated:
(a) by mutual consents duly authorized by the Boards of
Directors of Acquiror and Target;
(b) by either Acquiror or Target, if, (i) without fault of the
terminating party, the Closing shall not have occurred on or before August 31,
2000 (PROVIDED, that a later date may be agreed upon in writing by the parties
hereto, and PROVIDED FURTHER, that the right to terminate this Agreement under
this clause (b)(i) shall not be available to any party whose action or failure
to act has been a principal cause of or resulted in the failure of the Closing
to occur on or before such date and such action or failure to act constitutes a
breach of this Agreement), (ii) any permanent injunction or other order of a
court or other competent authority preventing the consummation of the Merger
shall have become final and nonappealable, or (iii) on any date after the
execution of this Agreement, the average closing "SALE" price of a share of
Acquiror Common Stock for the 20 most recent days that Acquiror Common Stock has
traded ending on such date, as reported on the Nasdaq National Market, is less
than $5.00 per share;
(c) by Acquiror, if any representation or warranty of Target
not qualified by its terms to materiality set forth in this Agreement shall have
been untrue when made in any material respect (or any representation or warranty
qualified as to materiality shall have been untrue in any respect when made), or
if Target shall materially breach any obligation or agreement hereunder in a
manner causing conditions precedent to the Closing not to be satisfied and such
breach shall not have been cured within five business days of receipt by Target
of written notice of such breach; PROVIDED, that the right to terminate this
Agreement by Acquiror under this paragraph (c) shall not be available to
Acquiror where Acquiror is at that time in material breach of this Agreement; or
(d) by Target, if any representation or warranty of Acquiror
not qualified by its terms to materiality set forth in this Agreement shall have
been untrue when made in any material respect (or any representation or warranty
qualified as to materiality shall have been untrue in any respect when made), or
if Acquiror shall materially breach any obligation or agreement hereunder in a
manner causing conditions precedent to the Closing not to be satisfied and such
breach shall not have been cured within five business days of receipt by
Acquiror of written notice of such breach; PROVIDED, that the right to
terminate this Agreement by Target under this paragraph (d) shall not be
available to Target where Target is at that time in material breach of this
Agreement.
7.2 EFFECT OF TERMINATION. In the event of termination of this
Agreement as provided in SECTION 7.1, this Agreement shall forthwith become void
and there shall be no liability or obligation on the part of Acquiror or Target
or their respective officers, directors, stockholders or affiliates, except to
the extent that such termination results from the breach by a party hereto of
44
any of its representations, warranties or covenants set forth in this Agreement;
PROVIDED that the provisions of SECTION 5.5 (CONFIDENTIALITY), SECTION 5.18
(DIRECTOR AND OFFICER INDEMNIFICATION), this SECTION 7.2, SECTION 7.3 (EXPENSES)
and ARTICLE IX shall remain in full force and effect and survive any termination
of this Agreement.
7.3 EXPENSES.
(a) Subject to paragraphs (b) and (c) below, whether or not the
Merger is consummated, all costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby (including, without
limitation, the fees and expenses of advisers, accountants and legal counsel)
shall be paid by the party incurring such expense; PROVIDED, HOWEVER, that if
the Closing occurs, the out-of-pocket expenses incurred by Target through the
Closing Date, up to a maximum of $800,000, shall be paid by Acquiror within a
reasonable time after presentation of proper documentation of such fees or
expenses, and PROVIDED FURTHER, that if an invoice for the fees of Target's
legal counsel is presented prior to Closing, such invoice will, to the extent it
represents an amount equal to 100% of the time actually billed for hours worked
and actual expenses incurred up to a date reasonably near to Closing, and
including a good faith estimate of amounts to be billed or incurred through the
Closing as agreed to between Acquiror and Target's legal counsel, be paid by
Acquiror at Closing, with the estimated amount being subject to adjustment after
Closing. Any such expenses incurred by Target and (i) not presented to Acquiror
at the Closing or (ii) which cause the aggregate amount of such expenses to
exceed $800,000, or (iii) which represent fees of Target's legal counsel in
excess of the amounts described above, shall remain an obligation of the Former
Target Stockholders. If Acquiror or Target receives any invoices for said
expenses after the Closing, it may, with Acquiror's written approval, pay such
expenses; PROVIDED, HOWEVER, that such payment shall, if not promptly reimbursed
by the Former Target Stockholders at Acquiror's request, constitute "DAMAGES"
recoverable under the Escrow Agreement.
(b) In the event that Acquiror shall terminate this Agreement
pursuant to SECTION 7.1(c), Target shall reimburse Acquiror for all of the
out-of-pocket costs and expenses incurred by Acquiror in connection with this
Agreement and the transactions contemplated hereby (including, without
limitation, the fees and expenses of its advisors, accountants and legal
counsel).
(c) In the event that Target shall terminate this Agreement
pursuant to SECTION 7.1(d), Acquiror shall reimburse Target for all of the
out-of-pocket costs and expenses incurred by Target in connection with this
Agreement and the transactions contemplated hereby (including, without
limitation, the fees and expenses of its advisors, accountants and legal
counsel).
7.4 AMENDMENT. The boards of directors of the parties hereto may
cause this Agreement to be amended at any time by execution of an instrument in
writing signed on behalf of each of the parties hereto; PROVIDED that an
amendment made subsequent to adoption of this Agreement by the stockholders of
Target shall not (a) alter or change the amount or kind of consideration to be
received on conversion of the Target Capital Stock, (b) alter or change any term
of the Certificate of Incorporation of the Surviving Corporation to be effected
by the
45
Merger, or (c) alter or change any of the terms and conditions of this Agreement
if such alteration or change would adversely affect the holders of Target
Capital Stock.
7.5 EXTENSION; WAIVER. At any time prior to the Effective Time any
party hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto and (iii)
waive compliance with any of the agreements or conditions for the benefit of
such party contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party.
ARTICLE VIII
ESCROW AND INDEMNIFICATION
8.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. All the
representations and warranties set forth in this Agreement shall survive the
Effective Time until the first anniversary of the Effective Time; PROVIDED,
HOWEVER, that there shall be no limitation period for matters involving fraud.
The covenants and agreements of the parties shall survive until the expiration
of the time period for their performance as provided herein.
8.2 INDEMNIFICATION.
(a) Subject to the limitations set forth in this ARTICLE VIII,
the stockholders of Target will indemnify and hold harmless Acquiror and its
officers, directors, agents and employees, and each person, if any, who controls
or may control Acquiror within the meaning of the Securities Act (hereinafter
referred to individually as an "INDEMNIFIED PERSON" and collectively as
"INDEMNIFIED PERSONS") from and against any and all losses, costs, damages,
liabilities and expenses arising from claims, demands, actions, causes of
action, including, without limitation, reasonable legal fees, net of any
recoveries by Acquiror under existing insurance policies or indemnities from
third parties (collectively, "DAMAGES") arising out of any misrepresentation or
breach of or default in connection with any of the representations, warranties,
covenants and agreements given or made by Target in this Agreement, the Target
Disclosure Schedule or any exhibit or schedule to this Agreement. The Escrow
Fund shall be security for this indemnity obligation subject to the limitations
in this Agreement. If the Merger is consummated, recovery from the Escrow Fund
shall be the exclusive remedy under this Agreement for any breach or default in
connection with any of the representations, warranties, covenants or agreements
set forth in this Agreement or any exhibit hereto, absent fraud. "DAMAGES" as
used herein is not limited to matters asserted by third parties, but includes
Damages incurred or sustained by Acquiror in the absence of claims by a third
party.
(b) Acquiror and Target each acknowledge that such Damages, if
any, would relate to unresolved contingencies existing at the Effective Time,
which if resolved at the Effective Time would have led to a reduction in the
total number of shares and total amount of cash Acquiror would have agreed to
issue or pay in connection with the Merger. Nothing in this Agreement shall
limit the liability (i) of Target for any breach of any representation, warranty
or
46
covenant if the Merger does not close or (ii) of any Target stockholder in
connection with any breach by such stockholder of the Target Voting Agreement.
8.3 ESCROW FUND. As security for the indemnity provided for in
SECTION 8.2, the Escrow Shares shall be registered in the name of, and, with the
Escrow Cash, be deposited with, an escrow agent selected by Acquiror with the
consent of the Stockholders' Agent (which consent shall not be unreasonably
withheld) (the "ESCROW AGENT"), such deposit to constitute the Escrow Fund to be
governed by the terms set forth herein and in the Escrow Agreement. The Escrow
Fund shall be allocated among the Former Target Stockholders on a pro-rata basis
in accordance with SECTION 1.6 (the "ESCROW ALLOCATION") (excluding for purposes
of this calculation any Dissenting Shares). Upon compliance with the terms
hereof and subject to the provisions of this ARTICLE VIII, Acquiror and the
Surviving Corporation shall be entitled to obtain indemnity from the Escrow Fund
for Damages covered by the indemnity provided for in SECTION 8.2. In
determining the amount of any Damages resulting from any misrepresentation,
breach or default or whether a misrepresentation, breach or default has
occurred, any materiality standard contained in the applicable representation,
warranty or covenant shall be disregarded. Notwithstanding the foregoing,
Acquiror may not receive any shares or cash from the Escrow Fund unless and
until an Officer's Certificate (as defined in SECTION 8.5) identifying Damages,
the aggregate amount of which exceeds $25,000 (the "ESCROW BASKET"), has been
delivered to the Escrow Agent as provided in SECTION 8.5 and such amount is
determined pursuant to this ARTICLE VIII to be payable, in which case Acquiror
shall receive a combination of shares and cash (with the cash portion comprising
20% of the value of any such payment) equal in value to the full amount of
Damages. In determining the amount of any Damage resulting from any
misrepresentation, breach or default or whether a misrepresentation, breach or
default has occurred, any materiality standard contained in the applicable
representation, warranty or covenant shall be disregarded.
8.4 ESCROW PERIOD. The escrow shall terminate on the first
anniversary of the Closing Date (such one-year period, the "ESCROW PERIOD");
PROVIDED, HOWEVER, that a portion of the Escrow Shares and Escrow Cash, which is
necessary to satisfy any unsatisfied claims specified in any Officer's
Certificate delivered to the Escrow Agent prior to termination of the Escrow
Period with respect to facts and circumstances existing prior to expiration of
the Escrow Period, shall remain in the Escrow Fund until such claims have been
resolved (with the cash portion comprising 20% of the value of any such amount
that remains in the Escrow Fund).
8.5 CLAIMS UPON ESCROW FUND.
(a) Upon receipt by the Escrow Agent on or before the last day
of the Escrow Period (the "TERMINATION DATE") of a certificate signed by the
chief financial or chief executive officer of Acquiror (an "OFFICER'S
CERTIFICATE"):
(i) stating that Acquiror or the Surviving Corporation
has incurred or paid or properly accrued or disclosed (in accordance with GAAP)
Damages in an aggregate stated amount with respect to which Acquiror or the
Surviving Corporation is entitled to payment from the Escrow Fund pursuant to
this Agreement; and
47
(ii) specifying in reasonable detail the individual items
of Damages included in the amount so stated, the date each such item was
incurred, paid, properly accrued or disclosed (in accordance with GAAP) and the
specific nature of the breach to which such item is related, the Escrow Agent
shall, subject to the provisions of SECTIONS 8.6 and 8.7, deliver to Acquiror
shares of Acquiror Common Stock and cash in an amount necessary to indemnify
Acquiror for the Damages claimed (with the cash portion comprising 20% of the
value of any such amount); PROVIDED, HOWEVER, that no shares of Acquiror Common
Stock or cash shall be delivered to Acquiror, as a result of a claim based upon
an accrual or disclosure of Damages until such time as the Acquiror has actually
incurred or paid Damages. All shares of Acquiror Common Stock or cash subject
to such claims shall remain in the Escrow Fund until the earliest to occur of
(A) Damages actually are incurred or paid, (B) Acquiror determines in its
reasonably good faith judgment that no Damages will be required to be incurred
or paid, or (C) with respect to claims which Acquiror has accrued or disclosed,
the earlier of (1) such time as the claims are no longer accrued or disclosed or
(2) the expiration of the applicable statute of limitations (in which event such
shares shall be distributed in accordance with SECTION 8.9).
(b) For the purpose of compensating Acquiror for its Damages
pursuant to this Agreement, the Acquiror Common Stock in the Escrow Fund shall
be valued at the Adjusted Closing Stock Price.
8.6 OBJECTIONS TO CLAIMS. At the time of delivery of any Officer's
Certificate to the Escrow Agent, a duplicate copy of such Officer's Certificate
shall be delivered by Acquiror to the Stockholders' Agent and, for a period of
20 days after such delivery to the Escrow Agent, the Escrow Agent shall make no
delivery of Acquiror Common Stock, cash or other property pursuant to SECTION
8.5 unless the Escrow Agent shall have received written authorization from the
Stockholders' Agent to make such delivery. After the expiration of such 20-day
period, the Escrow Agent shall make delivery of the Acquiror Common Stock, cash
or other property in the Escrow Fund in accordance with SECTION 8.5 and as set
forth in a certificate provided by Acquiror, PROVIDED that no such payment or
delivery may be made if the Stockholders' Agent shall object in a written
statement to the claim made in the Officer's Certificate, and such statement
shall have been delivered to the Escrow Agent and to Acquiror prior to the
expiration of such 20-day period.
8.7 RESOLUTION OF CONFLICTS; ARBITRATION.
(a) In case the Stockholders' Agent shall so object in writing
to any claim or claims by Acquiror made in any Officer's Certificate, the
Stockholders' Agent and Acquiror shall attempt in good faith for 30 days to
agree upon the rights of the respective parties with respect to each of such
claims. If the Stockholders' Agent and Acquiror should so agree, a memorandum
setting forth such agreement shall be prepared and signed by both parties and
shall be furnished to the Escrow Agent. The Escrow Agent shall be entitled to
rely on any such memorandum and shall distribute the Acquiror Common Stock, cash
or other property from the Escrow Fund in accordance with the terms thereof.
(b) If no such agreement can be reached after good faith
negotiation, either Acquiror or the Stockholders' Agent may, by written notice
to the other, demand arbitration of the matter unless the amount of the Damages
is at issue in pending litigation with a third party, in
48
which event arbitration shall not be commenced until such amount is ascertained
or both Acquiror and the Stockholders' Agent agree to arbitration; and in such
event the matter shall be settled by arbitration conducted by a single
arbitrator. Acquiror and the Stockholders' Agent shall jointly select an
arbitrator. If Acquiror or the Stockholders' Agent fail to agree upon an
arbitrator within 10 days, an arbitrator shall be selected for them by the
American Arbitration Association ("AAA"). The decision of the arbitrator so
selected as to the validity and amount of any claim in such Officer's
Certificate shall be binding and conclusive upon the parties to this Agreement,
and, notwithstanding anything in SECTION 8.5, the Escrow Agent shall be entitled
to act in accordance with such decision and make or withhold payments or
distributions out of the Escrow Fund in accordance with such decision.
(c) Judgment upon any award rendered by the arbitrators may be
entered in any court having jurisdiction. Any such arbitration shall be held in
Xxxxxx County, Texas under the commercial rules then in effect of the American
Arbitration Association. For purposes of this SECTION 8.7, in any arbitration
hereunder in which any claim or the amount thereof stated in the Officer's
Certificate is at issue, Acquiror shall be deemed to be the Non-Prevailing Party
unless the arbitrators award Acquiror more than one-half (1/2) of the amount in
dispute, plus any amounts not in dispute; otherwise, the Target stockholders for
whom shares of Acquiror Common Stock otherwise issuable to them have been
deposited in the Escrow Fund shall be deemed to be the Non-Prevailing Party.
The Non-Prevailing Party to an arbitration shall pay its own expenses, the fees
of each arbitrator, the administrative fee of the American Arbitration
Association, and the expenses, including without limitation, attorneys' fees and
costs reasonably incurred by the other party to the arbitration.
8.8 STOCKHOLDERS' AGENT.
(a) In the event that the Merger is approved by the Target
stockholders, effective upon such vote, and without further act of any Target
stockholder, Xxxx X. Xxxxxxxx, shall be appointed as agent and attorney-in-fact
(the "STOCKHOLDERS' AGENT") for each stockholder of Target (except such
stockholders, if any, as shall have perfected their dissenters' rights under
Delaware Law), for and on behalf of the Former Target Stockholders, (i) to give
and receive notices and communications to authorize delivery to Acquiror of
shares of Acquiror Common Stock or cash from the Escrow Fund in satisfaction of
claims by Acquiror, to object to such deliveries, to agree to, negotiate, enter
into settlements and compromises of, and demand arbitration and comply with
orders of courts and awards of arbitrators with respect to such claims, and to
take all actions necessary or appropriate in the judgment of the Stockholders'
Agent for the accomplishment of the foregoing, (ii) to enter into the Stock
Restriction Agreement on behalf of the Former Target Stockholders and the
holders of Target Warrants and convertible notes, and (iii) to enter into the
Registration Rights Agreement on behalf of the Former Target Stockholders and
holders of Target Warrants. Such agency may be changed by the stockholders of
Target from time to time upon not less than 30 days prior written notice to
Acquiror; PROVIDED, HOWEVER, that the Stockholders' Agent may not be removed
unless holders of a two-thirds interest in the Escrow Fund (with the Escrow
Shares being valued at the Adjusted Closing Stock Price for purposes of this
calculation) agree to such removal and to the identity of the substituted
stockholders' agent. Any vacancy in the position of the Stockholders' Agent may
be filled by approval of the holders of a majority in interest of the Escrow
Fund (with the Escrow Shares being valued at the Adjusted Closing Stock Price
for purposes of this calculation). No bond shall
49
be required of the Stockholders' Agent, and the Stockholders' Agent shall not
receive compensation for his services. Notice or communications to or from the
Stockholders' Agent shall constitute notice to or from each of the stockholders
of Target.
(b) The Stockholders' Agent shall not be liable for any act
done or omitted hereunder as Stockholders' Agent while acting in good faith and
in the exercise of reasonable judgment, and any act done or omitted pursuant to
the advice of counsel shall be conclusive evidence of such good faith. The
Target stockholders shall severally indemnify the Stockholders' Agent and hold
him or her harmless against any loss, liability or expense incurred without
gross negligence or bad faith on the part of the Stockholders' Agent and arising
out of or in connection with the acceptance or administration of his or her
duties hereunder.
(c) The Stockholders' Agent shall have reasonable access to
information about Target and Acquiror and the reasonable assistance of Target's
and Acquiror's officers and employees for purposes of performing its duties and
exercising its rights hereunder; PROVIDED, that the Stockholders' Agent shall
treat confidentially and not disclose any nonpublic information from or about
Target or Acquiror to anyone (except on a need to know basis to individuals who
agree to treat such information confidentially).
8.9 DISTRIBUTION UPON TERMINATION OF ESCROW PERIOD. Promptly
following the Termination Date, the Escrow Agent shall deliver to the Former
Target Stockholders all of the Escrow Shares and Escrow Cash in the Escrow Fund
in excess of any amount of such shares and cash reasonably necessary to satisfy
any unsatisfied or disputed claims for Damages specified in any Officer's
Certificate delivered to the Escrow Agent on or before the Termination Date
pursuant to SECTION 8.5. As soon as all such claims have been resolved, the
Escrow Agent shall deliver to the Former Target Stockholders all shares and cash
remaining in the Escrow Fund and not required to satisfy such claims.
Deliveries of shares and cash to the Former Target Stockholders pursuant to this
SECTION 8.9 shall be made in proportion to the allocation set forth in SECTION
8.3.
8.10 ACTIONS OF THE STOCKHOLDERS' AGENT. A decision, act, consent or
instruction of the Stockholders' Agent shall constitute a decision of all Target
stockholders for whom shares of Acquiror Common Stock or cash otherwise issuable
or payable to them are deposited in the Escrow Fund and shall be final, binding
and conclusive upon each such Target stockholder, and the Escrow Agent and
Acquiror may rely upon any decision, act, consent or instruction of the
Stockholders' Agent as being the decision, act, consent or instruction of each
and every such Target stockholder. The Escrow Agent and Acquiror are hereby
relieved from any liability to any person for any acts done by them in
accordance with such decision, act, consent or instruction of the Stockholders'
Agent.
8.11 THIRD-PARTY CLAIMS. In the event Acquiror becomes aware of a
third-party claim that Acquiror believes may result in a demand against the
Escrow Fund, Acquiror shall notify the Stockholders' Agent of such claim, and
the Stockholders' Agent and the Target Stockholders for whom shares of Acquiror
Common Stock or cash otherwise issuable or payable to them are deposited in the
Escrow Fund shall be entitled, at their expense, to participate in any defense
of such claim. Acquiror shall have the right in its sole discretion to settle
any such claim; PROVIDED, HOWEVER, that Acquiror may not effect the settlement
of any such claim without the consent of
50
the Stockholders' Agent, which consent shall not be unreasonably withheld,
conditioned or delayed. In the event that the Stockholders' Agent has consented
to any such settlement, the Stockholders' Agent shall have no power or authority
to object under SECTION 8.5 or any other provision of this ARTICLE VIII to the
amount of any claim by Acquiror against the Escrow Fund for indemnity with
respect to such settlement.
8.12 MAXIMUM LIABILITY AND REMEDIES. The liability of any Former
Target Stockholder for damages under this ARTICLE VIII shall be several and not
joint, and any assertion of Damages against any Former Target Stockholder may
only be made pro rata based on the percentage of Escrow Shares and Escrow Cash
attributable to each Former Target Stockholder as set forth on the Escrow
Allocation and shall be the sole and exclusive remedy of Acquiror and the
Surviving Corporation after the Closing with respect to any representation,
warranty, covenant or agreement made by Target under this Agreement and no
former stockholder, optionholder, warrantholder, director, officer, employee or
agent of Target shall have any personal liability to Acquiror or the Surviving
Corporation after the Closing in connection with the Merger; PROVIDED, HOWEVER,
that nothing herein limits any potential remedies and liabilities of Acquiror or
the Surviving Corporation, arising under applicable state and federal laws
against any security holder, director, officer, employee or agent of Target with
respect to that person's commission of fraud.
ARTICLE IX
GENERAL PROVISIONS
9.1 NOTICES. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via facsimile (with confirmation of receipt) to the parties
at the following address (or at such other address for a party as shall be
specified by like notice):
(a) if to Acquiror or Merger Sub, to:
0000 Xx Xxxxxx Xxxxx
Xxxxx 000
Xxxxxx, Xxxxx 00000
Attention: General Counsel
Facsimile No.: (000) 000-0000
Telephone No.: (000) 000-0000
51
with a copy to:
Xxxxxxx, Phleger & Xxxxxxxx LLP
000 Xxxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxx, Xxxxx 00000
Attention: Xxxxxx X. Xxxxxx
Facsimile No.: (000) 000-0000
Telephone No.: (000) 000-0000
(b) if to Target, to:
000 Xxxxxxxx Xxxxxxx Xxxx
Xxxxx 000
Xxxxxxxxx, Xxxxxxxx 00000
Attention: President
Facsimile No.: (000) 000-0000
Telephone No.: (000) 000-0000
with a copy to:
Xxxxx Xxxxxxx Xxxxxxx & Xxxxx LLP
0000 Xxxxx Xxxxxx
Xxxxxxxxx, Xxxxxxxx 00000-0000
Attention: Wm. Xxxxx Xxxxx
Facsimile No.: (000) 000-0000
Telephone No.: (000) 000-0000
9.2 INTERPRETATION. When a reference is made in this Agreement to
Exhibits, such reference shall be to an Exhibit to this Agreement unless
otherwise indicated. The words "INCLUDE," "INCLUDES" and "INCLUDING" when used
herein shall be deemed in each case to be followed by the words "WITHOUT
LIMITATION." The phrase "MADE AVAILABLE" in this Agreement shall mean that the
information referred to has been made available if requested by the party to
whom such information is to be made available. The phrases "THE DATE OF THIS
AGREEMENT", "THE DATE HEREOF", and terms of similar import, unless the context
otherwise requires, shall be deemed to refer to July 12, 2000. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement.
9.3 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 counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
9.4 ENTIRE AGREEMENT; THIRD PARTY BENEFICIARIES. This Agreement and
the documents and instruments and other agreements specifically referred to
herein or delivered pursuant hereto, including the Exhibits, the Schedules, the
Target Disclosure Schedule and the Acquiror Disclosure Schedule (a) constitute
the entire agreement among the parties with respect to the
52
subject matter hereof and supersede all prior agreements and understandings,
both written and oral, among the parties with respect to the subject matter
hereof, except for the Non-Disclosure Agreement, which shall continue in full
force and effect, and shall survive any termination of this Agreement or the
Closing, in accordance with its terms and (b) are not intended to confer upon
any other person any rights or remedies hereunder, except as set forth in
ARTICLE I, SECTIONS 5.12 and 5.14 and ARTICLE VIII of this Agreement.
9.5 SEVERABILITY. In the event that any provision of this Agreement,
or the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to
replace such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
9.6 REMEDIES CUMULATIVE. Except as otherwise provided herein, any and
all remedies herein expressly conferred upon a party will be deemed cumulative
with and not exclusive of any other remedy conferred hereby, or by law or equity
upon such party, and the exercise by a party of any one remedy will not preclude
the exercise of any other remedy.
9.7 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Texas without regard to applicable
principles of conflicts of law. Each of the parties hereto irrevocably consents
to the exclusive jurisdiction of any court located within the State of Texas, in
connection with any matter based upon or arising out of this Agreement or the
matters contemplated herein, agrees that process may be served upon them in any
manner authorized by the laws of the State of Texas for such persons and waives
and covenants not to assert or plead any objection which they might otherwise
have to such jurisdiction and such process.
9.8 ASSIGNMENT; AMENDMENT; BINDING EFFECT. Neither this Agreement nor
any of the rights, interests or obligations hereunder shall be assigned by any
of the parties hereto (whether by operation of law or otherwise) without the
prior written consent of the other parties. This Agreement may be amended after
the Effective Time only by the written agreement of Acquiror, Target and the
Stockholders' Agent. Subject to the preceding sentence, this Agreement will be
binding upon, inure to the benefit of and be enforceable by the parties and
their respective successors and permitted assigns.
9.9 RULES OF CONSTRUCTION. The parties hereto agree that they have
been represented by counsel during the negotiation, preparation and execution of
this Agreement and, therefore, waive the application of any law, regulation,
holding or rule of construction providing that ambiguities in an agreement or
other document will be construed against the party drafting such agreement or
document.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, Acquiror, Merger Sub and Target have caused
this Agreement to be executed and delivered by their respective officers
thereunto duly authorized, all as of the date first written above.
XXXXXX'X, INC.
By: /s/ XXXX X. XXXXXXXX
-------------------------------------
Name: Xxxx X. Xxxxxxxx
Title: Executive Vice President and
Chief Operating Officer
PANDA MERGER CORP.
By: /s/ XXXX X. XXXXXXXX
-------------------------------------
Name: Xxxx X. Xxxxxxxx
Title: President
XXXXXXXX.XXX, INC.
By: /s/ XXX X. XXXXXXX
-------------------------------------
Name: Xxx X. Xxxxxxx
Title: Executive Vice President and
Chief Financial Officer
[SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION]
