1
Exhibit 2.1
AGREEMENT AND PLAN OF MERGER
AMONG
STUDENT ADVANTAGE, INC., SA ACQUISITION I, INC.,
UNIVERSITY NETCASTING, INC.
AND
THE STOCKHOLDERS LISTED ON SCHEDULE I
May 7, 1999
2
TABLE OF CONTENTS
Page
----
ARTICLE I THE MERGER..........................................................1
1.1 The Merger..................................................1
1.2 The Closing.................................................1
1.3 Actions at the Closing......................................1
1.4 Additional Action...........................................2
1.5 Conversion of Shares........................................2
1.6 Dissenting Shares...........................................4
1.7 Fractional Shares...........................................5
1.8 Escrow......................................................5
1.9 Certificate of Incorporation and By-laws....................6
1.10 No Further Rights...........................................6
1.11 Closing of Transfer Books...................................6
1.12 Tax and Accounting Consequences.............................6
1.13 Lock-up Period..............................................6
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY......................7
2.1 Organization, Qualification and Corporate Power.............8
2.2 Capitalization..............................................8
2.3 Authorization of Transaction................................9
2.4 Noncontravention............................................9
2.5 Subsidiaries...............................................10
2.6 Financial Statements.......................................11
2.7 Absence of Certain Changes.................................11
2.8 Undisclosed Liabilities....................................11
2.9 Tax Matters................................................12
2.10 Assets.....................................................13
2.11 Owned Real Property........................................14
2.12 Real Property Leases.......................................15
2.13 Intellectual Property......................................16
2.14 Inventory..................................................18
2.15 Contracts..................................................19
2.16 Accounts Receivable........................................20
2.17 Powers of Attorney.........................................20
2.18 Insurance..................................................20
2.19 Litigation.................................................20
2.20 Product Warranty...........................................21
2.21 Employees..................................................21
2.22 Employee Benefits..........................................21
2.23 Environmental Matters......................................24
2.24 Legal Compliance...........................................25
-i-
3
Page
----
2.25 Customers and Suppliers....................................26
2.26 Permits....................................................26
2.27 Certain Business Relationships With Affiliates.............26
2.28 Brokers' Fees..............................................26
2.29 Books and Records..........................................26
2.30 Government Contracts.......................................27
2.31 Pooling....................................................27
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE BUYER
AND THE TRANSITORY SUBSIDIARY.......................................28
3.1 Organization, Qualification and Corporate Power............28
3.2 Capitalization.............................................28
3.3 Authorization of Transaction...............................28
3.4 Noncontravention...........................................29
3.5 Reports and Financial Statements...........................29
3.6 Absence of Certain Changes.................................30
3.7 Litigation.................................................30
3.8 Pooling....................................................30
3.9 Interim Operations of the Transitory Subsidiary............30
3.10 Brokers' Fees..............................................30
ARTICLE IV COVENANTS.........................................................30
4.1 Closing Efforts............................................30
4.2 Governmental and Third-Party Notices and Consents..........31
4.3 Stockholder Approval.......................................31
4.4 Operation of Business......................................32
4.5 Access to Information......................................34
4.6 Exclusivity................................................35
4.7 Expenses...................................................35
4.8 Indemnification............................................35
4.9 Agreements from Certain Affiliates of the Company..........36
4.10 Loan from Buyer............................................36
4.11 Certain Benefit Plans......................................36
4.12 Stock Issuance by Buyer....................................36
4.13 Exercise of Option.........................................37
-ii-
4
Page
----
ARTICLE V CONDITIONS TO CONSUMMATION OF MERGER...............................37
5.1 Conditions to Each Party's Obligations.....................37
5.2 Conditions to Obligations of the Buyer and the
Transitory Subsidiary......................................37
5.3 Conditions to Obligations of the Company...................39
ARTICLE VI INDEMNIFICATION...................................................40
6.1 Indemnification by the Company Stockholders................40
6.2 Indemnification by the Buyer...............................41
6.3 Indemnification Claims.....................................41
6.4 Survival of Representations and Warranties.................44
6.5 Limitations................................................45
ARTICLE VII REGISTRATION RIGHTS..............................................46
7.1 Registration of Shares.....................................46
7.2 Limitations on Registration Rights.........................46
7.3 Registration Procedures....................................47
7.4 Requirements of Company Stockholders.......................48
7.5 Indemnification............................................48
7.6 Assignment of Rights.......................................49
ARTICLE VIII TERMINATION.....................................................49
8.1 Termination of Agreement...................................49
8.2 Effect of Termination......................................50
ARTICLE IX DEFINITIONS.......................................................50
ARTICLE X MISCELLANEOUS......................................................52
10.1 Press Releases and Announcements...........................52
10.2 No Third Party Beneficiaries...............................52
10.3 Entire Agreement...........................................52
10.4 Succession and Assignment..................................53
10.5 Counterparts...............................................53
10.6 Headings...................................................53
10.7 Notices....................................................53
10.8 Governing Law..............................................54
10.9 Amendments and Waivers.....................................54
10.10 Severability...............................................54
10.11 Submission to Jurisdiction.................................54
-iii-
5
Page
----
10.12 Construction...............................................55
Exhibit A - Escrow Agreement
Exhibit B - Affiliate Agreement
Exhibit C - Investment Representation Letter
Exhibit D - Opinion of Counsel to the Company
Exhibit E - Employment Agreement
Exhibit F - Opinion of Counsel to the Buyer and the Transitory Subsidiary
Exhibit G - Voting Agreement and Proxy
Exhibit H - Lock-up Agreement
Exhibit I - Promissory Note
-iv-
6
AGREEMENT AND PLAN OF MERGER
Agreement entered into as of May 7, 1999 by and among Student
Advantage, Inc., a Delaware corporation (the "Buyer"), SA Acquisition I, Inc., a
Delaware corporation and a wholly-owned subsidiary of the Buyer (the "Transitory
Subsidiary"), and University Netcasting, Inc., a Delaware corporation (the
"Company"). The Buyer, the Transitory Subsidiary and the Company are referred to
collectively herein as the "Parties."
This Agreement contemplates a merger of the Transitory Subsidiary into
the Company. In such merger, the stockholders of the Company will receive common
stock of the Buyer in exchange for their capital stock of the Company.
Now, therefore, in consideration of the representations, warranties and
covenants herein contained, the Parties agree as follows.
ARTICLE I
THE MERGER
1.1 THE MERGER. Upon and subject to the terms and conditions of
this Agreement, the Transitory Subsidiary shall merge with and into the Company
(with such merger referred to herein as the "Merger") at the Effective Time (as
defined below). From and after the Effective Time, the separate corporate
existence of the Transitory Subsidiary shall cease and the Company shall
continue as the surviving corporation in the Merger (the "Surviving
Corporation"). The "Effective Time" shall be the time at which the Surviving
Corporation files a certificate of merger or other appropriate documents
prepared and executed in accordance with Section 251(c) of the Delaware General
Corporation Law (the "Certificate of Merger") with the Secretary of State of the
State of Delaware. The Merger shall have the effects set forth in Section 259 of
the Delaware General Corporation Law.
1.2 THE CLOSING. The closing of the transactions contemplated by
this Agreement (the "Closing") shall take place at the offices of Xxxx and Xxxx
LLP in Boston, Massachusetts, commencing at 9:00 a.m. local time on the earlier
of one day after the effective date of the Buyer's initial public offering or
July 15, 1999 (provided, however, that the Closing is not dependent upon the
effectiveness of the Buyer's initial public offering), or, if all of the
conditions to the obligations of the Parties to consummate the transactions
contemplated hereby have not been satisfied or waived by such date, on such
mutually agreeable later date as soon as practicable (and in any event not later
than three business days) after the satisfaction or waiver of all conditions
(excluding the delivery of any documents to be delivered at the Closing by any
of the Parties) set forth in Article V hereof (the "Closing Date").
1.3 ACTIONS AT THE CLOSING. At the Closing, (a) the Company shall
deliver to the Buyer and the Transitory Subsidiary the various certificates,
instruments and documents referred to in Section 5.2, (b) the Buyer and the
Transitory Subsidiary shall
7
deliver to the Company the various certificates, instruments and documents
referred to in Section 5.3, (c) the Surviving Corporation shall file with the
Secretary of State of the State of Delaware the Certificate of Merger, (d) each
of the stockholders of record of the Company immediately prior to the Effective
Time (the "Company Stockholders") shall deliver to the Buyer the certificate(s)
representing his, her or its Company Shares (as defined below), and (e) the
Buyer, G. Xxxxxxxx Xxxxx and E. Xxxxxxx Xxxxx (the "Indemnification
Representatives") and an escrow agent to be named by the Buyer and acceptable to
the Company (the "Escrow Agent") shall execute and deliver the Escrow Agreement
attached hereto as EXHIBIT A (the "Escrow Agreement") and the Buyer shall
deliver to the Escrow Agent a certificate for the Escrow Shares (as defined
below) being placed in escrow on the Closing Date pursuant to Section 1.8.
1.4 ADDITIONAL ACTION. The Surviving Corporation may, at any time
after the Effective Time, take any action, including executing and delivering
any document, in the name and on behalf of either the Company or the Transitory
Subsidiary, in order to consummate the transactions contemplated by this
Agreement.
1.5 CONVERSION OF SHARES. At the Effective Time, by virtue of the
Merger and without any action on the part of any Party or the holder of any of
the following securities:
(a) Each share of common stock, $.01 par value per share, of
the Company ("Common Shares") issued and outstanding immediately prior to the
Effective Time (other than Common Shares owned beneficially by the Buyer or the
Transitory Subsidiary, Dissenting Shares (as defined below) and Common Shares
held in the Company's treasury) shall be converted into and represent the right
to receive (subject to the provisions of Section 1.8) such number of shares of
common stock, $.01 par value per share, of the Buyer ("Buyer Common Stock")
determined in accordance with subsection (d) of this Section 1.5.
(b) Each share of Series A Preferred Stock, $.01 par value per
share, of the Company ("Series A Preferred Shares") issued and outstanding
immediately prior to the Effective Time (other than Series A Preferred Shares
owned beneficially by the Buyer or the Transitory Subsidiary, Dissenting Shares
and Series A Preferred Shares held in the Company's treasury) shall be converted
into and represent the right to receive (subject to the provisions of Section
1.8) such number of shares of Buyer Common Stock determined in accordance with
subsection (d) of this Section 1.5.
(c) Each share of Series B Preferred Stock, $.01 par value per
share, of the Company ("Series B Preferred Shares"; together with the Series A
Preferred Shares and the Common Shares, the "Company Shares") issued and
outstanding immediately prior to the Effective Time (other than Series B
Preferred Shares owned beneficially by the Buyer or the Transitory Subsidiary,
Dissenting Shares and Series B Preferred Shares held in the Company's treasury)
shall be converted into and represent the right to receive (subject to the
provisions of Section 1.8) such number of
-2-
8
shares of Buyer Common Stock determined in accordance with subsection (d) of
this Section 1.5.
(d) Each Common Share, Series A Preferred Share and Series B
Preferred Share issued and outstanding immediately prior to the Effective Time
(other than Shares held in the Company's treasury) shall be converted into and
represent the right to receive, subject to the provisions of Section 1.8, on the
Closing Date, respectively, .0117 (the "Common Conversion Ratio"), .04135 (the
"Series A Preferred Conversion Ratio") and .03393 (the "Series B Preferred
Conversion Ratio") shares of Buyer Common Stock. On the Closing Date, the Buyer
will deliver the Buyer Common Stock to the Stockholders. Stockholders of record
of the Company immediately prior to the Effective Time shall be entitled to
receive immediately 90% of the shares of Buyer Common Stock into which their
Company Shares were converted pursuant to this Section 1.5 (the "Initial
Shares"); the remaining 10% of the shares of Buyer Common Stock into which their
Company Shares were converted pursuant to this Section 1.5 (the "Escrow Shares")
shall be deposited in escrow pursuant to Section 1.9 and shall be held and
disposed of in accordance with the terms of the Escrow Agreement. The Initial
Shares and the Escrow Shares shall together be referred to herein as the "Merger
Shares," and the total thereof is 830,175.
(e) The Common Conversion Ratio, the Series A Preferred
Conversion Ratio and the Series B Preferred Conversion Ratio shall each be
adjusted to reflect fully the effect of any stock split, reverse split, stock
dividend (including any split, dividend or distribution of securities
convertible into any shares of the Buyer's capital stock), reorganization,
recapitalization or other like change with respect to the Buyer's capital stock
occurring on or after the date hereof and prior to the Effective Time.
(f) Each Company Share held in the Company's treasury
immediately prior to the Effective Time and each Company Share owned
beneficially by the Buyer or the Transitory Subsidiary shall be cancelled and
retired without payment of any consideration therefor.
(g) Each share of common stock, $.01 par value per share, of
the Transitory Subsidiary issued and outstanding immediately prior to the
Effective Time shall be converted into and thereafter evidence one share of
common stock, $.01 par value per share, of the Surviving Corporation.
(h) At the Effective time, all options to purchase Company
Common Stock or Company Series A Preferred Stock then outstanding under the
Company's 1995 Stock Option/Stock Issuance Plan and 1996 Stock Option/Stock
Issuance Plan (each individually an "Option Plan" and collectively, the "Option
Plans") or otherwise shall be assumed by Buyer in accordance with the provisions
described below.
(i) At the Effective Time, each outstanding option to purchase
shares of Company Common Stock or Company Series A Preferred Stock (each a
"Company Option") under the Option Plans or otherwise, whether vested or
unvested, shall be,
-3-
9
in connection with the Merger, assumed by Buyer. Each Company Option so assumed
by Buyer under this Agreement shall continue to have, and be subject to, the
same terms and conditions set forth in the Option Plan pursuant to which such
Company Option was granted and/or as provided in the respective option
agreements governing such Company Option immediately prior to the Effective
Time, except that (A) such Company Option shall be exercisable for that number
of whole shares of Buyer Common Stock equal to the product of the number of
shares of Company Common Stock or Company Series A Preferred Stock that were
issuable upon exercise of such Company Option immediately prior to the Effective
Time multiplied by the Common Conversion Ratio or the Preferred Conversion
Ratio, as the case may be, rounded to the nearest whole number of shares of
Buyer Common Stock and (B) the per share exercise price for the shares of Buyer
Common Stock issuable upon exercise of such assumed Company Option shall be
equal to the quotient determined by dividing the exercise price per share of the
Company Common Stock or Company Series A Preferred Stock at which such Company
Option was exercisable immediately prior to the Effective Time by the Common
Conversion Ratio or the Series A Preferred Conversion Ratio, as the case may
be, rounded to the nearest whole cent, provided, however, that the provisions
governing the vesting of any Company Option and any terms regarding repurchase
rights contained in the Option Plan or an agreement governing a Company Option
shall remain unchanged, and shall either accelerate or not accelerate based on
the terms thereof.
(ii) It is the intention of the parties that the
Company Options assumed by Buyer qualify following the Effective Time as
incentive stock options as defined in Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code"), to the extent the Company Options qualified as
incentive stock options immediately prior to the Effective Time.
(iii) Promptly following the Effective Time, Buyer
will issue to each holder of an outstanding Company Option a document evidencing
the foregoing assumption of such Company Option by Buyer.
(iv) In the event that Buyer shall at any time
file a registration statement on Form S-8 with respect to any options to
purchase Buyer Common Stock, Buyer shall file a registration statement on Form
S-8 for the shares of Buyer Common Stock issuable with respect to assumed
Company Options promptly, but in no event later than fifteen (15) days after the
later of the date of the filing of such registration statement or the Effective
Time.
1.6 DISSENTING SHARES.
(a) For purposes of this Agreement, "Dissenting Shares"
means Company Shares held as of the Effective Time by a Company Stockholder who
has not voted such Company Shares in favor of the adoption of this Agreement and
the Merger and with respect to which appraisal shall have been duly demanded and
perfected in accordance with Section 262 of the Delaware General Corporation Law
and not effectively withdrawn or forfeited prior to the Effective Time.
Dissenting
-4-
10
Shares shall not be converted into or represent the right to receive Merger
Shares, unless such Company Stockholder shall have forfeited his, her or its
right to appraisal under the Delaware General Corporation Law or properly
withdrawn, his, her or its demand for appraisal. If such Company Stockholder has
so forfeited or withdrawn his, her or its right to appraisal of Dissenting
Shares, then (i) as of the occurrence of such event, such holder's Dissenting
Shares shall cease to be Dissenting Shares and shall be converted into and
represent the right to receive the Merger Shares issuable in respect of such
Company Shares pursuant to Section 1.5, and (ii) promptly following the
occurrence of such event, the Buyer shall deliver to such Company Stockholder a
certificate representing 90% of the Merger Shares to which such holder is
entitled pursuant to Section 1.5 (which shares shall be considered Initial
Shares for all purposes of this Agreement) and shall deliver to the Escrow Agent
a certificate representing the remaining 10% of the Merger Shares to which such
holder is entitled pursuant to Section 1.5 (which shares shall be considered
Escrow Shares for all purposes of this Agreement).
(b) The Company shall give the Buyer (i) prompt notice of any
written demands for appraisal of any Company Shares, withdrawals of such
demands, and any other instruments that relate to such demands received by the
Company and (ii) the opportunity to participate in all negotiations and
proceedings with respect to demands for appraisal under the Delaware General
Corporation Law. The Company shall not, except with the prior written consent of
the Buyer, make any payment with respect to any demands for appraisal of Company
Shares or offer to settle or settle any such demands.
1.7 FRACTIONAL SHARES. No certificates or script representing
fractional Initial Shares ("Certificates") shall be issued to former Company
Stockholders upon the surrender for exchange of Certificates, and such former
Company Stockholders shall not be entitled to any voting rights, rights to
receive any dividends or distributions or other rights as a stockholder of the
Buyer with respect to any fractional Initial Shares that would otherwise be
issued to such former Company Stockholders. In lieu of any fractional Initial
Shares that would otherwise be issued, each former Company Stockholder that
would have been entitled to receive a fractional Initial Share shall, upon
proper surrender of such person's Certificates, receive such whole number of
Initial Shares as is equal to the precise number of Initial Shares to which such
person would be entitled, rounded up or down to the nearest whole number (with a
fractional interest equal to .5 rounded up to the nearest whole number);
provided that each such holder shall receive at least one Initial Share.
1.8 ESCROW.
(a) On the Closing Date, the Buyer shall deliver to the Escrow
Agent a certificate (issued in the name of the Escrow Agent or its nominee)
representing the Escrow Shares, as described in Section 1.5, for the purpose of
securing the indemnification obligations of the Indemnifying Stockholders (as
defined in Section 6.1) set forth in this Agreement. The Escrow Shares shall be
held by the Escrow Agent under the Escrow Agreement pursuant to the terms
thereof. The
-5-
11
Escrow Shares shall be held as a trust fund and shall not be subject to any
lien, attachment, trustee process or any other judicial process of any creditor
of any party, and shall be held and disbursed solely for the purposes and in
accordance with the terms of the Escrow Agreement.
(b) The adoption of this Agreement and the approval of the
Merger by the Company Stockholders shall constitute approval of the Escrow
Agreement and of all of the arrangements relating thereto, including without
limitation the placement of the Escrow Shares in escrow and the appointment of
the Indemnification Representatives.
1.9 CERTIFICATE OF INCORPORATION AND BY-LAWS.
(a) The Certificate of Incorporation of the Surviving
Corporation immediately following the Effective Time shall be the same as the
Certificate of Incorporation of the Transitory Subsidiary immediately prior to
the Effective Time, except that the name of the corporation set forth therein
shall be changed to the name of the Company.
(b) The By-laws of the Surviving Corporation immediately
following the Effective Time shall be the same as the By-laws of the Transitory
Subsidiary immediately prior to the Effective Time, except that the name of the
corporation set forth therein shall be changed to the name of the Company.
1.10 NO FURTHER RIGHTS. From and after the Effective Time, no
Company Shares issued upon the surrender or exchange in accordance with the
terms hereof shall be deemed to be outstanding, and holders of Certificates
shall cease to have any rights with respect thereto, except as provided herein
or by law.
1.11 CLOSING OF TRANSFER BOOKS. At the Effective Time, the stock
transfer books of the Company shall be closed and no transfer of Company Shares
shall thereafter be made. If, after the Effective Time, Certificates are
presented to the Buyer or the Surviving Corporation, they shall be cancelled and
exchanged for Initial Shares in accordance with Section 1.5, subject to Section
1.8 and to applicable law in the case of Dissenting Shares.
1.12 TAX AND ACCOUNTING CONSEQUENCES. It is intended by the parties
hereto that the Merger shall qualify for accounting treatment as a pooling of
interests and shall constitute a reorganization within the meaning of Section
368 of the Internal Revenue Code of 1986, as amended (the "Code").
1.13 LOCK-UP PERIOD. The adoption of this Agreement and the
approval of the Merger by a Company Stockholder shall also constitute the
agreement of such Company Stockholder that such Company Stockholder will not
offer to sell, contract to sell, or otherwise sell, dispose of, loan, pledge or
grant any rights with respect to (collectively, a "Disposition") any shares of
Buyer Common Stock, any options or warrants to purchase any shares of Buyer
Common Stock or any securities
-6-
12
convertible into or exchangeable for shares of Buyer Common Stock (collectively,
"Lock-up Securities") now owned or hereafter acquired directly by such person or
with respect to which such person has or hereafter acquires the power of
disposition, otherwise than (i) as a bona fide gift or gifts, provided the donee
or donees thereof agree in writing to be bound by the restrictions in this
Section 1.13; (ii) as a distribution to partners or shareholders of such person,
provided that the distributees thereof agree in writing to be bound by the terms
of the restrictions in this Section 1.13; (iii) with respect to any dispositions
of Buyer Common Stock acquired on the open market; (iv) to any trust, the
beneficiaries of which are exclusively the undersigned or the immediate family
of the undersigned, provided that the trustee of the trust agrees to be bound by
the restrictions in this Section 1.13 and provided further that any such
transfer shall not involve a disposition for value (for purposes of the
foregoing, "immediate family" shall mean any relationship by blood, marriage or
adoption, not more remote than first cousin) or; (v) with the prior written
consent of BancBoston Xxxxxxxxx Xxxxxxxx Inc., for a period commencing on the
date hereof and continuing to a date 180 days after a Registration Statement on
Form S-1 relating to the Buyer to be filed with the Securities and Exchange
Commission (the "Registration Statement") is declared effective by the
Securities and Exchange Commission (the "Lock-up Period"). The foregoing
restriction has been expressly agreed to preclude any holder of the Lock-up
Securities from engaging in any hedging or other transaction which is designed
to or reasonably expected to lead to or result in a Disposition of Lock-up
Securities during the Lock-up Period, even if such Lock-up Securities would be
disposed of by someone other than such holder. Such prohibited hedging or other
transactions would include, without limitation, any short sale (whether or not
against the box) or any purchase, sale or grant of any right (including, without
limitation, any put or call option) with respect to any Securities or with
respect to any security (other than a broad-based market basket or index) that
included, relates to or derives any significant part of its value from
Securities. Each Company Stockholder also agrees and consents to the entry of
stop transfer instructions with the Buyer's transfer agent and registrar against
the transfer of shares of Buyer Common Stock or Lock-up Securities held by the
Company Stockholder except in compliance with the foregoing restrictions.
In the event that the Registration Statement is not declared effective
on or before August 31, 1999 the foregoing restriction shall be of no further
force or effect.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Buyer that the statements
contained in this Article II are true and correct, except as set forth in the
disclosure schedule provided by the Company to the Buyer on the date hereof (the
"Disclosure Schedule"). For purposes of this Article II, the phrase "to the
knowledge of the Company" or any phrase of similar import shall be deemed to
refer to the actual knowledge of the executive officers of the Company, as well
as any other knowledge which such executive officers would have possessed had
they made reasonable
-7-
13
inquiry of appropriate employees and agents of the Company with respect to the
matter in question.
2.1 ORGANIZATION, QUALIFICATION AND CORPORATE POWER. The Company
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware. The Company is duly qualified to conduct business
and is in good standing as a foreign corporation under the laws of each
jurisdiction in which the nature of its businesses or the ownership or leasing
of its properties requires such qualification, except where the failure to be so
qualified or in good standing would not have a Company Material Adverse Effect
(as defined below). The Company has all requisite corporate power and authority
to carry on the businesses in which it is engaged and to own and use the
properties owned and used by it. The Company has furnished to the Buyer complete
and accurate copies of its Certificate of Incorporation and By-laws, each as
amended and as in effect on the date hereof. The Company is not in default under
or in violation of any provision of its Certificate of Incorporation or By-laws.
For purposes of this Agreement, "Company Material Adverse Effect" means a
material adverse effect on the assets, business, financial condition, results of
operations or prospects of the Company and the Subsidiaries (as defined below),
taken as a whole.
2.2 CAPITALIZATION. The authorized capital stock of the Company
consists of (a) 24,500,000 Common Shares, of which, as of the date of this
Agreement, 33,837 shares were issued and outstanding and (b) 21,804,100
Preferred Shares, of which (i) 11,923,700 shares have been designated as Series
A Preferred Stock, of which, as of the date of this Agreement, 11,610,403 shares
were issued and outstanding and (ii) 9,880,400 shares have been designated as
Series B Preferred Stock, of which, as of the date of this Agreement, 9,428,172
shares were issued and outstanding. Section 2.2 of the Disclosure Schedule sets
forth a complete and accurate list of (i) all stockholders of the Company,
indicating the number and class or series of Company Shares held by each
stockholder and (for Company Shares other than Common Shares) the number of
Common Shares (if any) into which such Company Shares are convertible, (ii) all
holders of Options and Warrants, indicating (A) the number and class or series
of Company Shares subject to each Option and Warrant and (for Company Shares
other than Common Shares) the number of Common Shares (if any) into which such
Company Shares are convertible, (B) the number of such shares for which each
Option or Warrant is exercisable, and (C) any acceleration of vesting that will
occur in connection with the Merger, and (iii) all stock option plans and other
stock or equity-related plans of the Company. All of the issued and outstanding
Company Shares are, and all Company Shares that may be issued upon exercise of
Options or Warrants will be, duly authorized, validly issued, fully paid,
nonassessable and free of all preemptive rights. There are no outstanding or
authorized options, warrants, rights, agreements or commitments to which the
Company is a party or which are binding upon the Company providing for the
issuance, disposition or acquisition of any of its capital stock, other than the
Options and Warrants listed in Section 2.2 of the Disclosure Schedule. There are
no outstanding or authorized stock appreciation, phantom stock or similar rights
with respect to the Company. There are no agreements, voting trusts, proxies or
-8-
14
understandings with respect to the voting, or registration under the Securities
Act, of any Company Shares. All of the issued and outstanding Company Shares
were issued in compliance with applicable federal and state securities laws.
2.3 AUTHORIZATION OF TRANSACTION. Subject only to obtaining the
requisite approval of the Merger and this Agreement by the Company's
shareholders the Company has all requisite power and authority to execute and
deliver this Agreement and to perform its obligations and consummate the
transactions contemplated hereunder. The execution and delivery by the Company
of this Agreement and, subject to the adoption of this Agreement and the
approval of the Merger by a majority of the votes represented by the outstanding
Company Shares entitled to vote on this Agreement and the Merger (the "Requisite
Stockholder Approval"), the consummation by the Company of the transactions
contemplated hereby have been duly and validly authorized by all necessary
corporate action on the part of the Company. Without limiting the generality of
the foregoing, the Board of Directors of the Company, at a meeting duly called
and held, by the unanimous vote of all directors (i) determined that the Merger
is fair and in the best interests of the Company and its stockholders, (ii)
adopted this Agreement in accordance with the provisions of the Delaware General
Corporation Law, and (iii) directed that this Agreement and the Merger be
submitted to the stockholders of the Company for their adoption and approval and
resolved to recommend that the stockholders of Company vote in favor of the
adoption of this Agreement and the approval of the Merger. This Agreement has
been duly and validly executed and delivered by the Company and constitutes a
valid and binding obligation of the Company, enforceable against the Company in
accordance with its terms except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general application
affecting enforcement of creditor's rights generally and (ii) as limited by laws
relating to the availability of specific performance, injunctive relief or other
equitable remedies.
2.4 NONCONTRAVENTION. Subject to compliance with applicable
requirements of the Securities Act and any applicable state securities laws, the
Exchange Act and filing of the Certificate of Merger as required by the Delaware
General Corporation Law, neither the execution and delivery by the Company of
this Agreement, nor the consummation by the Company of the transactions
contemplated hereby, will (a) conflict with or violate any provision of the
Certificate of Incorporation or By-laws of the Company, (b) require on the part
of the Company or any Subsidiary (as defined below) any filing with, or any
permit, authorization, consent or approval of, any court, arbitrational
tribunal, administrative agency or commission or other governmental or
regulatory authority or agency (a "Governmental Entity"), (c) conflict with,
result in a breach of, constitute (with or without due notice or lapse of time
or both) a default under, result in the acceleration of obligations under,
create in any party the right to terminate, modify or cancel, or require any
notice, consent or waiver under, any contract or instrument to which the Company
or any Subsidiary is a party or by which the Company or any Subsidiary is bound
or to which any of their assets is subject, except for (i) any conflict, breach,
default, acceleration, termination, modification or cancellation which would not
have a Company Material
-9-
15
Adverse Effect and would not adversely affect the consummation of the
transactions contemplated hereby or (ii) any notice, consent or waiver the
absence of which would not have a Company Material Adverse Effect and would not
adversely affect the consummation of the transactions contemplated hereby, (d)
result in the imposition of any Security Interest (as defined below) upon any
assets of the Company or any Subsidiary or (e) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to the Company, any
Subsidiary or any of their properties or assets. For purposes of this Agreement:
"Security Interest" means any mortgage, pledge, security interest, encumbrance,
charge or other lien (whether arising by contract or by operation of law), other
than (i) mechanic's, materialmen's, and similar liens, (ii) liens arising under
worker's compensation, unemployment insurance, social security, retirement, and
similar legislation, and (iii) liens on goods in transit incurred pursuant to
documentary letters of credit, in each case arising in the Ordinary Course of
Business (as defined below) of the Company and not material to the Company; and
"Ordinary Course of Business" means the ordinary course of the Company's
business, consistent with past custom and practice (including with respect to
frequency and amount).
2.5 SUBSIDIARIES.
(a) Section 2.5 of the Disclosure Schedule sets forth: (i) the
name of each corporation, partnership, joint venture or other entity in which
the Company has, directly or indirectly, an equity interest representing 50% or
more of the capital stock thereof or other equity interests therein
(individually, a "Subsidiary" and, collectively, the "Subsidiaries"); (ii) the
number and type of outstanding equity securities of each Subsidiary and a list
of the holders thereof; (iii) the jurisdiction of organization of each
Subsidiary; (iv) the names of the officers and directors of each Subsidiary; and
(v) the jurisdictions in which each Subsidiary is qualified or holds licenses to
do business as a foreign corporation.
(b) Each Subsidiary is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation. Each Subsidiary is duly qualified to conduct business and is in
corporate and tax good standing under the laws of each jurisdiction in which the
nature of its businesses or the ownership or leasing of its properties requires
such qualification. Each Subsidiary has all requisite corporate power and
authority to carry on the businesses in which it is engaged and to own and use
the properties owned and used by it. The Company has delivered to the Buyer
complete and accurate copies of the charter and By-laws of each Subsidiary, as
amended to date. No Subsidiary is in default under or in violation of any
provision of its charter or By-laws. All of the issued and outstanding shares of
capital stock of each Subsidiary are duly authorized, validly issued, fully
paid, nonassessable and free of preemptive rights. All shares of each Subsidiary
that are held of record or owned beneficially by either the Company or any
Subsidiary are held or owned free and clear of any restrictions on transfer
(other than restrictions under the Securities Act and state securities laws),
claims, Security Interests, options, warrants, rights, contracts, calls,
commitments, equities and demands. There are no outstanding or authorized
options, warrants, rights,
-10-
16
agreements or commitments to which the Company or any Subsidiary is a party or
which are binding on any of them providing for the issuance, disposition or
acquisition of any capital stock of any Subsidiary. There are no outstanding
stock appreciation, phantom stock or similar rights with respect to any
Subsidiary. There are no voting trusts, proxies or other agreements or
understandings with respect to the voting of any capital stock of any
Subsidiary. The Company does not control directly or indirectly or have any
direct or indirect equity participation in any corporation, partnership, limited
liability company, joint venture, trust or other business association which is
not a Subsidiary.
2.6 FINANCIAL STATEMENTS. The Company has provided to the Buyer
(a) the audited consolidated balance sheets and statements of income, changes in
stockholders' equity and cash flows of the Company as of and for each of the
last three fiscal years; and (b) including the audited consolidated balance
sheet and statements of income, changes in stockholders' equity and cash flows
as of and for the fiscal year ended as of March 31, 1999 (the "Most Recent
Balance Sheet Date"). Such financial statements (collectively, the "Financial
Statements") have been prepared in accordance with United States generally
accepted accounting principles ("GAAP") applied on a consistent basis throughout
the periods covered thereby, fairly present the financial condition, results of
operations and cash flows of the Company and the Subsidiaries as of the
respective dates thereof and for the periods referred to therein and are
consistent with the books and records of the Company and the Subsidiaries;
PROVIDED, HOWEVER, that the Financial Statements referred to in clause (b) above
are subject to normal recurring year-end adjustments (which will not be
material) and do not include footnotes.
2.7 ABSENCE OF CERTAIN CHANGES. Since the Most Recent Balance
Sheet Date, (a) there has occurred no event or development which has had, or
could reasonably be foreseen to have in the future, a Company Material Adverse
Effect, and (b) neither the Company nor any Subsidiary has taken any of the
actions set forth in paragraphs (a) through (o) of Section 4.4.
2.8 UNDISCLOSED LIABILITIES. None of the Company and its
Subsidiaries has any material liability (whether known or unknown, whether
absolute or contingent, whether liquidated or unliquidated and whether due or to
become due), except for (a) liabilities shown on the balance sheet referred to
in clause (b) of Section 2.6 (the "Most Recent Balance Sheet"), (b) liabilities
which have arisen since the Most Recent Balance Sheet Date in the Ordinary
Course of Business and which are similar in nature and amount to the liabilities
which arose during the comparable period of time in the immediately preceding
fiscal period and (c) contractual and other liabilities incurred in the Ordinary
Course of Business which were not required by GAAP to be reflected on the
balance sheet provided by the Company as of the Most Recent Balance Sheet Date.
-11-
17
2.9 TAX MATTERS.
(a) For purposes of this Agreement, the following terms
shall have the following meanings:
(i) "Taxes" means all taxes, charges, fees,
levies or other similar assessments or liabilities, including without limitation
income, gross receipts, ad valorem, premium, value-added, excise, real property,
personal property, sales, use, transfer, withholding, employment, unemployment
insurance, social security, business license, business organization,
environmental, workers compensation, payroll, profits, license, lease, service,
service use, severance, stamp, occupation, windfall profits, customs, duties,
franchise and other taxes imposed by the United States of America or any state,
local or foreign government, or any agency thereof, or other political
subdivision of the United States or any such government, and any interest,
fines, penalties, assessments or additions to tax resulting from, attributable
to or incurred in connection with any tax or any contest or dispute thereof.
(ii) "Tax Returns" means all reports, returns,
declarations, statements or other information required to be supplied to a
taxing authority in connection with Taxes.
(b) Each of the Company and the Subsidiaries has filed on
a timely basis all Tax Returns that it was required to file, and all such Tax
Returns were complete and accurate in all material respects. Neither the Company
nor any Subsidiary is or has ever been a member of a group of corporations with
which it has filed (or been required to file) consolidated, combined or unitary
Tax Returns, other than a group of which only the Company and the Subsidiaries
are or were members. Each of the Company and the Subsidiaries has paid on a
timely basis all Taxes that were due and payable. All unpaid taxes of the
Company for tax periods through the Most Recent Balance Sheet Date have been
accrued or reserved against in accordance with GAAP. Neither the Company nor any
Subsidiary has any actual or potential liability for any Tax obligation of any
taxpayer (including without limitation any affiliated group of corporations or
other entities that included the Company or any Subsidiary during a prior
period) other than the Company and the Subsidiaries. All Taxes that the Company
or any Subsidiary is or was required by law to withhold or collect have been
duly withheld or collected and, to the extent required, have been paid to the
proper Governmental Entity.
(c) The Company has delivered to the Buyer complete and
accurate copies of all federal income Tax Returns, examination reports and
statements of deficiencies assessed against or agreed to by the Company or any
Subsidiary since March 31, 1998. The federal income Tax Returns of the Company
and each Subsidiary have been audited by the Internal Revenue Service or are
closed by the applicable statute of limitations for all taxable years through
the taxable year specified in Section 2.9(c) of the Disclosure Schedule. The
Company has delivered or made available to the Buyer complete and accurate
copies of all other material Tax Returns of the Company and the Subsidiaries
together with all related examination
-12-
18
reports and statements of deficiency for all periods from and after March 31,
1998. No examination or audit of any Tax Return of the Company or any Subsidiary
by any Governmental Entity is currently in progress or, to the knowledge of the
Company, threatened or contemplated. Neither the Company nor any Subsidiary has
been informed by any jurisdiction that the jurisdiction believes that the
Company or Subsidiary was required to file any Tax Return that was not filed.
Neither the Company nor any Subsidiary has waived any statute of limitations
with respect to Taxes or agreed to an extension of time with respect to a Tax
assessment or deficiency.
(d) Neither the Company nor any Subsidiary: (i) is a
"consenting corporation" within the meaning of Section 341(f) of the Code, and
none of the assets of the Company or the Subsidiaries are subject to an election
under Section 341(f) of the Code; (ii) has been a United States real property
holding corporation within the meaning of Section 897(c)(2) of the Code during
the applicable period specified in Section 897(c)(l)(A)(ii) of the Code; (iii)
except as set forth on Schedule 2.22(k) has made any payments, is obligated to
make any payments, or is a party to any agreement that could obligate it to make
any payments that may be treated as an "excess parachute payment" under Section
280G of the Code; (iv) has any actual or potential liability for any Taxes of
any person (other than the Company and its Subsidiaries) under Treasury
Regulation Section 1.1502-6 (or any similar provision of federal, state, local,
or foreign law), or as a transferee or successor, by contract, or otherwise; or
(v) is or has been required to make a basis reduction pursuant to Treasury
Regulation Section 1.1502-20(b) or Treasury Regulation Section 1.337(d)-2(b).
(e) None of the assets of the Company or any Subsidiary: (i)
is property that is required to be treated as being owned by any other person
pursuant to the provisions of former Section 168(f)(8) of the Code; (ii) is
"tax-exempt use property" within the meaning of Section 168(h) of the Code; or
(iii) directly or indirectly secures any debt the interest on which is tax
exempt under Section 103(a) of the Code.
(f) Neither the Company nor any Subsidiary has undergone a
change in its method of accounting resulting in an adjustment to its taxable
income pursuant to Section 481 of the Code.
(g) No state or federal "net operating loss" of the Company
determined as of the Closing Date is subject to material limitation on its use
pursuant to Section 382 of the Code or comparable provisions of state law as a
result of any "ownership change" within the meaning of Section 382(g) of the
Code or comparable provisions of any state law occurring prior to the Closing
Date.
2.10 ASSETS. Each of the Company and the Subsidiaries owns or
leases all tangible assets necessary for the conduct of its businesses as
presently conducted. Each such tangible asset is free from material defects, has
been maintained in accordance with normal industry practice, is in good
operating condition and repair (subject to normal wear and tear) and is suitable
for the purposes for which it
-13-
19
presently is used. No asset of the Company or any Subsidiary (tangible or
intangible) is subject to any Security Interest, other than liens for taxes not
yet due and payable and Security Interests which do not, individually or in the
aggregate, materially detract from the value of the assets subject thereto or
materially impair the operations of the Company and the Subsidiaries, taken as a
whole.
2.11 OWNED REAL PROPERTY. Section 2.11 of the Disclosure Schedule
lists all real property that the Company or any Subsidiary owns. With respect to
each parcel of such real property:
(a) the identified owner has good and clear record and
marketable title to such parcel, insurable by a recognized national title
insurance company at standard rates, free and clear of any Security Interest,
easement, covenant or other restriction, except for recorded easements,
covenants and other restrictions which do not impair the uses, occupancy or
value of such parcel to be used to conduct such business as is currently
conducted (the "Intended Uses");
(b) there are no (i) pending or, to the knowledge of the
Company, threatened condemnation proceedings relating to such parcel, (ii)
pending or, to the knowledge of the Company, threatened litigation or
administrative actions relating to such parcel, or (iii) other matters affecting
adversely the Intended Uses, occupancy or value thereof;
(c) the legal description for such parcel contained in the
deed thereof describes such parcel fully and adequately; the buildings and
improvements may be used as of right under applicable zoning and land use laws
for the Intended Uses, and such buildings and improvements are located within
the boundary lines of the described parcels of land, are not in violation of
current setback requirements, zoning laws and ordinances and do not encroach on
any easement which may burden the land; the land does not serve any adjoining
property for any purpose inconsistent with the use of the land; and such parcel
is not located within any flood plain or subject to any similar type restriction
for which any permits or licenses necessary to the use thereof have not been
obtained;
(d) there are no leases, subleases, licenses or agreements,
written or oral, granting to any party or parties (other than the Company, a
Subsidiary and those tenants under leases disclosed in Section 2.12 of the
Disclosure Schedule) the right of use or occupancy of any portion of such
parcel;
(e) there are no outstanding options or rights of first
refusal to purchase such parcel, or any portion thereof or interest therein;
(f) all facilities located on such parcel are supplied with
utilities and other services necessary for the operation of such facilities,
including gas, electricity, water, telephone, sanitary sewer and storm sewer,
all of which services are adequate for the Intended Uses and in accordance with
all applicable laws, ordinances, rules
-14-
20
and regulations and are provided via public roads or via permanent, irrevocable,
appurtenant easements benefiting such parcel;
(g) such parcel abuts on and has direct vehicular access to a
public road or access to a public road via a permanent, irrevocable, appurtenant
easement benefiting such parcel;
(h) neither the Company nor any Subsidiary has received notice
of, and to the knowledge of the Company, there is no proposed or pending
proceeding to change or redefine the zoning classification of all or any portion
of the parcels;
(i) the improvements constructed on the parcels are in good
condition and proper order, free of roof leaks, insect infestation, and material
construction defects, and all mechanical and utility systems servicing such
improvements are in good condition and proper working order, free of material
defects; and
(j) each parcel is an independent unit which does not rely on
any facilities (other than the facilities of public utility and water companies)
located on any other property (i) to fulfill any zoning, building code or other
municipal or governmental requirement, (ii) for structural support or the
furnishing of any essential building systems or utilities, including, but not
limited to electric, plumbing, mechanical, heating, ventilating, and air
conditioning systems, or (iii) to fulfill the requirements of any lease. No
building or other improvement not included in the parcels relies on any part of
the parcels to fulfill any zoning, building code or other municipal or
governmental requirement or for structural support or the furnishing of any
essential building systems or utilities. Each of the parcels is assessed by
local property assessors as a tax parcel or parcels separate from all other tax
parcels.
2.12 REAL PROPERTY LEASES. Section 2.12 of the Disclosure Schedule
lists all real property leased or subleased to or by the Company or any
Subsidiary and lists the term of such lease, and the rent payable thereunder.
The Company has delivered to the Buyer complete and accurate copies of the
leases and subleases (as amended to date) listed in Section 2.12 of the
Disclosure Schedule. With respect to each lease and sublease listed in Section
2.12 of the Disclosure Schedule:
(a) the lease or sublease is legal, valid, binding,
enforceable and in full force and effect;
(b) the lease or sublease will continue to be legal, valid,
binding, enforceable and in full force and effect immediately following the
Closing in accordance with the terms thereof as in effect immediately prior to
the Closing;
(c) neither the Company nor any Subsidiary nor, to the
knowledge of the Company, any other party, is in breach or violation of, or
default under, any such lease or sublease, and no event, to the knowledge of the
Company, has occurred, is pending or, is threatened, which, after the giving of
notice, with lapse of time, or
-15-
21
otherwise, would constitute a breach or default by the Company or any Subsidiary
or, to the knowledge of the Company, any other party under such lease or
sublease;
(d) neither the Company nor any Subsidiary has assigned,
transferred, conveyed, mortgaged, deeded in trust or encumbered any interest in
the leasehold or subleasehold; and
(e) the Company is not aware of any Security Interest,
easement, covenant or other restriction applicable to the real property subject
to such lease, except for recorded easements, covenants and other restrictions
which do not materially impair the current uses or the occupancy by the Company
or a Subsidiary of the property subject thereto.
2.13 INTELLECTUAL PROPERTY.
(a) Each of the Company and the Subsidiaries owns or has the
right to use all Intellectual Property (as defined below) necessary (i) to use,
manufacture, market and distribute the products manufactured, marketed, sold or
licensed, and to provide the services provided, by the Company to other parties
(together, the "Customer Deliverables") or (ii) to operate the Company's
internal systems that are material to the business or operations of the Company,
including, without limitation, computer hardware systems, software applications
and embedded systems (the "Internal Systems"; the Intellectual Property owned by
or licensed to the Company and incorporated in or underlying the Customer
Deliverables or the Internal Systems is referred to herein as the "Company
Intellectual Property"). Each item of Company Intellectual Property will be
owned or available for use by the Surviving Corporation on substantially
identical terms and conditions immediately following the Closing. The Company
has taken reasonable measures to protect and to maintain in confidence all trade
secrets and confidential information, that it owns or uses to the extent that
the failure to protect or maintain such trade secrets and confidential
information would have a Company Material Adverse Effect. To the knowledge of
the Company, (a) no other person or entity has any rights to any of the Company
Intellectual Property owned by the Company (except pursuant to agreements or
licenses specified in Section 2.13(c) of the Disclosure Schedule), and (b) no
other person or entity is infringing, violating or misappropriating any of the
Company Intellectual Property. For purposes of this Agreement, "Intellectual
Property" means all (i) patents and patent applications, (ii) copyrights and
registrations thereof, (iii) mask works and registrations and applications for
registration thereof, (iv) computer software, data and documentation, (v) trade
secrets and confidential business information, whether patentable or
unpatentable and whether or not reduced to practice, know-how, manufacturing and
production processes and techniques, research and development information,
copyrightable works, financial, marketing and business data, pricing and cost
information, business and marketing plans and customer and supplier lists and
information, (vi) trademarks, service marks, trade names, domain names and
applications and registrations therefor and (vii) other proprietary rights
relating to any of the foregoing. Section 2.13(a) of the Disclosure Schedule
lists each patent, patent application, copyright registration or application
-16-
22
therefor, mask work registration or application therefor, and trademark, service
xxxx and domain name registration or application therefor of the Company or any
Subsidiary.
(b) To the Company's knowledge, none of the Customer
Deliverables, or the marketing, distribution, provision or use thereof,
infringes or violates, or constitutes a misappropriation of, any Intellectual
Property rights of any person or entity. To the knowledge of the Company, none
of the Internal Systems, or the use thereof, infringes or violates, or
constitutes a misappropriation of, any Intellectual Property rights of any
person or entity. Section 2.13(b) of the Disclosure Schedule lists any
complaint, claim or notice, or written threat thereof, received by the Company
or any Subsidiary alleging any such infringement, violation or misappropriation;
and the Company has made available to the Buyer complete and accurate copies of
all written documentation in the possession of the Company or any Subsidiary
relating to any such complaint, claim, notice or threat. The Company has made
available to the Buyer complete and accurate copies of all written documentation
in the Company's possession relating to claims or disputes known to the Company
concerning any Company Intellectual Property.
(c) Section 2.13(c) of the Disclosure Schedule identifies each
license or other agreement (or type of license or other agreement) pursuant to
which the Company or a Subsidiary has licensed, distributed or otherwise granted
any rights to any third party with respect to, any Company Intellectual
Property.
(d) Section 2.13(d) of the Disclosure Schedule identifies each
item of Company Intellectual Property that is owned by a party other than the
Company or a Subsidiary, and the license or agreement pursuant to which the
Company or a Subsidiary uses it (excluding off-the-shelf software programs
licensed by the Company pursuant to "shrink wrap" licenses).
(e) Neither the Company nor any Subsidiary has disclosed the
source code for any of the software owned by the Company or a Subsidiary and
incorporated in any Customer Deliverables or Internal Systems (the "Software")
or other confidential information constituting, embodied in or pertaining to the
Software to any person or entity, except pursuant to the agreements listed in
Section 2.13(e) of the Disclosure Schedule, and the Company has taken reasonable
measure to prevent disclosure of such source code.
(f) All of the copyrightable materials (including Software)
incorporated in or bundled with the Customer Deliverables have been created by
employees of the Company or a Subsidiary within the scope of their employment by
the Company or a Subsidiary or by independent contractors of the Company or a
Subsidiary who have executed agreements expressly assigning all right, title and
interest in such copyrightable materials to the Company or a Subsidiary. No
portion of such copyrightable materials was jointly developed with any third
party.
-17-
23
(g) To the knowledge of the Company, the Customer
Deliverables and the Internal Systems are free from significant defects or
programming errors and conform in all material respects to the written
documentation and specifications therefor.
(h) All of the Customer Deliverables currently being
marketed, distributed or licensed by the Company or a Subsidiary or which were
marketed, distributed or licensed by the Company since January 1, 1998, and all
Internal Systems, are Year 2000 Compliant. The Company is not aware of any
failure to be Year 2000 Compliant of any third-party system that is material to
the business or operations of the Company, including without limitation any
system belonging to any of the Company's suppliers, service providers or
customers.
(i) For purposes of this Agreement, "Year 2000 Compliant"
means that the applicable system or item:
(i) will accurately receive, record, store,
provide, recognize and process all date and time data from, during, into and
between the twentieth and twenty-first centuries, the years 1999 and 2000 and
all leap years;
(ii) will accurately perform all date-dependent
calculations and operations (including, without limitation, mathematical
operations, sorting, comparing and reporting) from, during, into and between the
twentieth and twenty-first centuries, the years 1999 and 2000 and all leap
years; and
(iii) will not malfunction, cease to function or
provide invalid or incorrect results as a result of (x) the change of years from
1999 to 2000, (y) date data, including date data which represents or references
different centuries, different dates during 1999 and 2000, or more than one
century or (z) the occurrence of any particular date;
in each case without human intervention, other than original data entry;
provided, in each case, that all applications, hardware and other systems used
in conjunction with such system or item which are not owned or licensed by the
Company correctly exchange date data with or provide data to such system or
item.
2.14 INVENTORY. All inventory of the Company and the Subsidiaries,
whether or not reflected on the Most Recent Balance Sheet, consists of a quality
and quantity usable and saleable in the Ordinary Course of Business, except for
obsolete items and items of below-standard quality, all of which have been
written-off or written-down to net realizable value on the Most Recent Balance
Sheet. The quantities of each type of inventory, whether raw materials,
work-in-process or finished goods, are not reasonably believed to be excessive
in the present circumstances of the Company and the Subsidiaries.
-18-
24
2.15 CONTRACTS.
(a) Section 2.15 of the Disclosure Schedule lists the
following agreements (written or oral) to which the Company or any Subsidiary is
a party as of the date of this Agreement:
(i) any agreement (or group of related
agreements) for the lease of personal property from or to third parties
providing for lease payments in excess of $100,000 per annum;
(ii) any agreement (or group of related
agreements) for the purchase or sale of products or for the furnishing or
receipt of services (A) which calls for performance over a period of more than
one year, (B) which involves more than the sum of $100,000, or (C) in which the
Company or any Subsidiary has granted manufacturing rights, "most favored
nation" pricing provisions or exclusive marketing or distribution rights
relating to any products or territory or has agreed to purchase a minimum
quantity of goods or services or has agreed to purchase goods or services
exclusively from a certain party;
(iii) any agreement establishing a partnership or
joint venture;
(iv) any agreement (or group of related
agreements) under which it has created, incurred, assumed or guaranteed (or may
create, incur, assume or guarantee) indebtedness (including capitalized lease
obligations) involving more than $100,000 or under which it has imposed (or may
impose) a Security Interest on any of its assets, tangible or intangible;
(v) any agreement concerning confidentiality or
noncompetition;
(vi) any agreement involving any officer,
director or stockholder of the Company or any affiliate (an "Affiliate"), as
defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), thereof;
(vii) any agreement under which the consequences
of a default or termination could have a Company Material Adverse Effect;
(viii) any agreement which contains any provisions
requiring the Company or any Subsidiary to indemnify any other party thereto;
and
(ix) any other agreement (or group of related
agreements) either involving more than $100,000 or not entered into in the
Ordinary Course of Business.
(b) The Company has delivered to the Buyer a complete and
accurate copy of each agreement (as amended to date) listed in Section 2.13 or
Section 2.15 of the Disclosure Schedule. With respect to each agreement so
listed: (i) the agreement
-19-
25
is legal, valid, binding and enforceable and in full force and effect; (ii) the
agreement will continue to be legal, valid, binding and enforceable and in full
force and effect immediately following the Closing in accordance with the terms
thereof as in effect immediately prior to the Closing; and (iii) neither the
Company nor any Subsidiary nor, to the knowledge of the Company, any other
party, is in material breach or violation of, or default under, any such
agreement, and to the knowledge of the Company, no event has occurred, is
pending or is threatened, which, after the giving of notice, with lapse of time,
or otherwise, would constitute a material breach or default by the Company or
any Subsidiary or, to the knowledge of the Company, any other party under such
contract.
2.16 ACCOUNTS RECEIVABLE. To the Company's knowledge, all accounts
receivable of the Company and the Subsidiaries reflected on the Most Recent
Balance Sheet are valid receivables subject to no setoffs or counterclaims and
are current and collectible (within 90 days after the date on which it first
became due and payable), net of the applicable reserve for bad debts on the Most
Recent Balance Sheet. To the Company's knowledge, all accounts receivable
reflected in the financial or accounting records of the Company that have arisen
since the Most Recent Balance Sheet Date are valid receivables subject to no
setoffs or counterclaims and are collectible (within 90 days after the date on
which it first became due and payable), net of a reserve for bad debts in an
amount proportionate to the reserve shown on the Most Recent Balance Sheet.
2.17 POWERS OF ATTORNEY. There are no outstanding powers of
attorney executed on behalf of the Company or any Subsidiary.
2.18 INSURANCE. Section 2.18 of the Disclosure Schedule lists each
insurance policy (including fire, theft, casualty, general liability, workers
compensation, business interruption, environmental, product liability and
automobile insurance policies and bond and surety arrangements) to which the
Company or any Subsidiary is a party. There is no material claim pending under
any such policy as to which coverage has been questioned, denied or disputed by
the underwriter of such policy. All premiums due and payable under all such
policies have been paid and the Company and the Subsidiaries are otherwise in
compliance in all material respects with the terms of such policies. The Company
has no knowledge of any threatened termination of, or material premium increase
with respect to, any such policy. Each such policy will continue to be
enforceable and in full force and effect immediately following the Closing in
accordance with the terms thereof as in effect immediately prior to the Closing.
2.19 LITIGATION. As of the date of this Agreement, there is no
action, suit, proceeding, claim, arbitration or, to the Company's knowledge,
investigation before any Governmental Entity or before any arbitrator (a "Legal
Proceeding") which is pending or, to the Company's knowledge, threatened against
the Company or any Subsidiary which, if determined adversely to the Company or
such Subsidiary, could have a Company Material Adverse Effect or which in any
manner challenges or seeks to prevent, enjoin, alter or delay the transactions
contemplated by this Agreement.
-20-
26
2.20 PRODUCT WARRANTY. No product manufactured, sold, leased,
licensed or delivered by the Company or any Subsidiary is subject to any
guaranty, warranty, right of return, right of credit or other indemnity other
than (i) the applicable standard terms and conditions of sale or lease by the
Company or the appropriate Subsidiary, which are set forth in Section 2.20 of
the Disclosure Schedule and (ii) manufacturers' warranties for which neither the
Company nor any Subsidiary has any liability. Section 2.20 of the Disclosure
Schedule sets forth the aggregate expenses incurred by the Company and the
Subsidiaries in fulfilling their obligations under their guaranty, warranty,
right of return and indemnity provisions during each of the fiscal years and the
interim period covered by the Financial Statements; and the Company does not
reasonably believe that such expenses should significantly increase as a
percentage of sales in the future.
2.21 EMPLOYEES.
(a) Section 2.21 of the Disclosure Schedule contains a
list of all employees of the Company and each Subsidiary whose annual rate of
compensation exceeds $100,000 per year, along with the position and the annual
rate of compensation of each such person. Each such employee has entered into a
proprietary information/inventions agreement with the Company or a Subsidiary, a
copy of which has previously been delivered to the Buyer. Section 2.21 of the
Disclosure Schedule contains a list of all employees of the Company or any
Subsidiary who are a party to a non-competition agreement with the Company or
any Subsidiary; copies of such agreements have previously been delivered to the
Buyer. To the knowledge of any Company Stockholder, no key employee or group of
employees has any plans to terminate employment with the Company or any
Subsidiary.
(b) Neither the Company nor any Subsidiary is a party to
or bound by any collective bargaining agreement, nor has any of them experienced
any strikes, grievances, claims of unfair labor practices or other collective
bargaining disputes. The Company has no knowledge of any organizational effort
made or threatened, either currently or within the past two years, by or on
behalf of any labor union with respect to employees of the Company or any
Subsidiary.
2.22 EMPLOYEE BENEFITS.
(a) For purposes of this Agreement, the following terms
shall have the following meanings:
(i) "Employee Benefit Plan" means any "employee
pension benefit plan" (as defined in Section 3(2) of ERISA), any "employee
welfare benefit plan" (as defined in Section 3(1) of ERISA), and any other
written or oral plan, agreement or arrangement involving direct or indirect
compensation, including without limitation insurance coverage, severance
benefits, disability benefits, deferred compensation, bonuses, stock options,
stock purchase, phantom stock, stock
-21-
27
appreciation or other forms of incentive compensation or post-retirement
compensation.
(ii) "ERISA" means the Employee Retirement Income
Security Act of 1974, as amended.
(iii) "ERISA Affiliate" means any entity which is,
or at any applicable time was, a member of (1) a controlled group of
corporations (as defined in Section 414(b) of the Code), (2) a group of trades
or businesses under common control (as defined in Section 414(c) of the Code),
or (3) an affiliated service group (as defined under Section 414(m) of the Code
or the regulations under Section 414(o) of the Code), any of which includes or
included the Company or a Subsidiary.
(b) Section 2.22(b) of the Disclosure Schedule contains a
complete and accurate list of all Employee Benefit Plans maintained, or
contributed to, by the Company, any Subsidiary or any Employee Benefit Plan
subject to section 412 of the Code of Title 4 of ERISA of any ERISA Affiliate.
Complete and accurate copies of (i) all Employee Benefit Plans which have been
reduced to writing, (ii) written summaries of all unwritten Employee Benefit
Plans, (iii) all related trust agreements, insurance contracts and summary plan
descriptions, and (iv) all annual reports filed on IRS Form 5500, 5500C or 5500R
and (for all funded plans) all plan financial statements for the last five plan
years for each Employee Benefit Plan, have been delivered to the Buyer. Each
Employee Benefit Plan has been administered in all material respects in
accordance with its terms and each of the Company, the Subsidiaries and the
ERISA Affiliates has in all material respects met its obligations with respect
to such Employee Benefit Plan and has made all required contributions thereto.
The Company, each Subsidiary, each ERISA Affiliate and each Employee Benefit
Plan are in compliance in all material respects with the currently applicable
provisions of ERISA and the Code and the regulations thereunder (including
without limitation Section 4980 B of the Code, Subtitle K, Chapter 100 of the
Code and Sections 601 through 608 and Section 701 et seq. of ERISA). All filings
and reports as to each Employee Benefit Plan required to have been submitted to
the Internal Revenue Service or to the United States Department of Labor have
been duly submitted.
(c) There are no Legal Proceedings (except claims for
benefits payable in the normal operation of the Employee Benefit Plans and
proceedings with respect to qualified domestic relations orders) against or
involving any Employee Benefit Plan or asserting any rights or claims to
benefits under any Employee Benefit Plan that could give rise to any material
liability.
(d) All the Employee Benefit Plans that are intended to
be qualified under Section 401(a) of the Code have received determination
letters from the Internal Revenue Service to the effect that such Employee
Benefit Plans are qualified or is intended to be submitted for a determination
letter to the Internal Revenue Service within it remedial amendment period and
the plans and the trusts related thereto are exempt from federal income taxes
under Sections 401(a) and 501(a),
-22-
28
respectively, of the Code, no such determination letter has been revoked and
revocation has not been threatened, and no such Employee Benefit Plan has been
amended or operated since the date of its most recent determination letter or
application therefor in any respect, and no act or omission has occurred, that
would adversely affect its qualification or materially increase its cost. Each
Employee Benefit Plan which is required to satisfy Section 401(k)(3) or Section
401(m)(2) of the Code has been tested for compliance with, and satisfies the
requirements of, Section 401(k)(3) and Section 401(m)(2) of the Code for each
plan year ending prior to the Closing Date.
(e) Neither the Company, any Subsidiary, nor any ERISA
Affiliate has ever maintained an Employee Benefit Plan subject to Section 412 of
the Code or Title IV of ERISA.
(f) At no time has the Company, any Subsidiary or any ERISA
Affiliate been obligated to contribute to any "multiemployer plan" (as defined
in Section 4001(a)(3) of ERISA).
(g) There are no unfunded obligations under any Employee
Benefit Plan providing benefits after termination of employment to any employee
of the Company or any Subsidiary (or to any beneficiary of any such employee),
including but not limited to retiree health coverage and deferred compensation,
but excluding continuation of health coverage required to be continued under
Section 4980B of the Code or other applicable law and insurance conversion
privileges under state law. The assets of each Employee Benefit Plan which is
funded are reported at their fair market value on the books and records of such
Employee Benefit Plan.
(h) To the knowledge of the Company, no act or omission has
occurred and no condition exists with respect to any Employee Benefit Plan
maintained by the Company, any Subsidiary or any ERISA Affiliate that would
subject the Company, any Subsidiary or any ERISA Affiliate to (i) any material
fine, penalty, tax or liability of any kind imposed under ERISA or the Code or
(ii) any contractual indemnification or contribution obligation protecting any
fiduciary, insurer or service provider with respect to any Employee Benefit
Plan.
(i) No Employee Benefit Plan is funded by, associated with or
related to a "voluntary employee's beneficiary association" within the meaning
of Section 501(c)(9) of the Code.
(j) Each Employee Benefit Plan is amendable and terminable
unilaterally by the Company at any time without liability to the Company as a
result thereof and no Employee Benefit Plan, plan documentation or agreement,
summary plan description or other written communication distributed generally to
employees by its terms prohibits the Company from amending or terminating any
such Employee Benefit Plan.
-23-
29
(k) Section 2.22(k) of the Disclosure Schedule discloses each:
(i) agreement with any stockholder, director, executive officer or other key
employee of the Company or any Subsidiary (A) the benefits of which are
contingent, or the terms of which are materially altered, upon the occurrence of
a transaction involving the Company or any Subsidiary of the nature of any of
the transactions contemplated by this Agreement, (B) providing any term of
employment or compensation guarantee or (C) providing severance benefits or
other benefits after the termination of employment of such director, executive
officer or key employee; (ii) agreement, plan or arrangement under which any
person may receive payments from the Company or any Subsidiary that may be
subject to the tax imposed by Section 4999 of the Code or included in the
determination of such person's "parachute payment" under Section 280G of the
Code; and (iii) agreement or plan binding the Company or any Subsidiary,
including without limitation any stock option plan, stock appreciation right
plan, restricted stock plan, stock purchase plan, severance benefit plan or
Employee Benefit Plan, any of the benefits of which will be increased, or the
vesting of the benefits of which will be accelerated, by the occurrence of any
of the transactions contemplated by this Agreement or the value of any of the
benefits of which will be calculated on the basis of any of the transactions
contemplated by this Agreement.
(l) Section 2.22(l) of the Disclosure Schedule sets forth the
policy of the Company and any Subsidiary with respect to accrued vacation,
accrued sick time and earned time-off and the amount of such liabilities as of
March 31, 1999.
2.23 ENVIRONMENTAL MATTERS.
(a) Each of the Company and the Subsidiaries has complied with
all applicable Environmental Laws (as defined below), except for violations of
Environmental Laws that do not and will not, individually or in the aggregate,
have a Company Material Adverse Effect. There is no pending or, to the knowledge
of the Company, threatened civil or criminal litigation, written notice of
violation, formal administrative proceeding, or investigation, inquiry or
information request by any Governmental Entity, relating to any Environmental
Law involving the Company or any Subsidiary, except for litigation, notices of
violations, formal administrative proceedings or investigations, inquiries or
information requests that will not, individually or in the aggregate, have a
Company Material Adverse Effect. For purposes of this Agreement, "Environmental
Law" means any federal, state or local law, statute, rule or regulation or the
common law relating to the environment or occupational health and safety,
including without limitation any statute, regulation, administrative decision or
order pertaining to (i) treatment, storage, disposal, generation and
transportation of industrial, toxic or hazardous materials or substances or
solid or hazardous waste; (ii) air, water and noise pollution; (iii) groundwater
and soil contamination; (iv) the release or threatened release into the
environment of industrial, toxic or hazardous materials or substances, or solid
or hazardous waste, including without limitation emissions, discharges,
injections, spills, escapes or dumping of pollutants, contaminants or chemicals;
(v) the protection of wild life, marine life and wetlands, including without
limitation all endangered and
-24-
30
threatened species; (vi) storage tanks, vessels, containers, abandoned or
discarded barrels, and other closed receptacles; (vii) health and safety of
employees and other persons; and (viii) manufacturing, processing, using,
distributing, treating, storing, disposing, transporting or handling of
materials regulated under any law as pollutants, contaminants, toxic or
hazardous materials or substances or oil or petroleum products or solid or
hazardous waste. As used above, the terms "release" and "environment" shall have
the meaning set forth in the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended ("CERCLA").
(b) There have been no releases of any Materials of
Environmental Concern (as defined below) into the environment at any parcel of
real property or any facility formerly or currently owned, operated or
controlled by the Company or a Subsidiary. With respect to any such releases of
Materials of Environmental Concern, the Company or such Subsidiary has given all
required notices to Governmental Entities (copies of which have been provided to
the Buyer). The Company is not aware of any releases of Materials of
Environmental Concern at parcels of real property or facilities other than those
owned, operated or controlled by the Company or a Subsidiary that could
reasonably be expected to have an impact on the real property or facilities
owned, operated or controlled by the Company or a Subsidiary. For purposes of
this Agreement, "Materials of Environmental Concern" means any chemicals,
pollutants or contaminants, hazardous substances (as such term is defined under
CERCLA), solid wastes and hazardous wastes (as such terms are defined under the
Resource Conservation and Recovery Act), toxic materials, oil or petroleum and
petroleum products or any other material subject to regulation under any
Environmental Law.
(c) Set forth in Section 2.23(c) of the Disclosure Schedule is
a list of all documents (whether in hard copy or electronic form) that contain
any environmental reports, investigations and audits relating to premises
currently or previously owned or operated by the Company or a Subsidiary
(whether conducted by or on behalf of the Company or a Subsidiary or a third
party, and whether done at the initiative of the Company or a Subsidiary or
directed by a Governmental Entity or other third party) which the Company has
possession of or access to. A complete and accurate copy of each such document
has been provided to the Buyer.
(d) The Company is not aware of any material environmental
liability of any solid or hazardous waste transporter or treatment, storage or
disposal facility that has been used by the Company or any Subsidiary.
2.24 LEGAL COMPLIANCE. Each of the Company and the Subsidiaries,
and the conduct and operations of their respective businesses, are in compliance
in all material respects with each law (including rules and regulations
thereunder) of any federal, state, local or foreign government, or any
Governmental Entity, which (a) affects or relates to this Agreement or the
transactions contemplated hereby or (b) is applicable to the Company or such
Subsidiary or business, except for any
-25-
31
violation of or default under a law referred to in clause (b) above which
reasonably may be expected not to have a Company Material Adverse Effect.
2.25 CUSTOMERS AND SUPPLIERS. Section 2.25 of the Disclosure
Schedule sets forth a list of (a) each customer that accounted for more than 5%
of the consolidated revenues of the Company during the last full fiscal year or
the interim period through the Most Recent Balance Sheet Date and the amount of
revenues accounted for by such customer during each such period and (b) each
supplier that is the sole supplier of any significant product to the Company or
a Subsidiary. No such customer or supplier has indicated within the past year
that it will stop, or decrease the rate of, buying products or supplying
products, as applicable, to the Company or any Subsidiary. No unfilled customer
order or commitment obligating the Company or any Subsidiary to process,
manufacture or deliver products or perform services will, to the Company's
knowledge, result in a loss to the Company or any Subsidiary upon completion of
performance. To the Company's knowledge (a) no purchase order or commitment of
the Company or any Subsidiary is in excess of normal requirements, nor (b) are
prices provided therein in excess of current market prices for the products or
services to be provided thereunder.
2.26 PERMITS. The Company has obtained all permits, licenses,
registrations, certificates, orders or approvals from any Governmental Entity
(including without limitation those issued or required under Environmental Laws
and those relating to the occupancy or use of owned or leased real property)
("Permits") that are required for the Company and the Subsidiaries to conduct
their respective businesses as presently conducted, except for those the absence
of which would not have a Company Material Adverse Effect. Each such Permit is
in full force and effect and, to the best of the knowledge of the Company, no
suspension or cancellation of such Permit is threatened and there is no basis
for believing that such Permit will not be renewable upon expiration. Each such
Permit will continue in full force and effect immediately following the Closing.
2.27 CERTAIN BUSINESS RELATIONSHIPS WITH AFFILIATES. No Affiliate
of the Company or of any Subsidiary (a) owns any property or right, tangible or
intangible, which is used in the business of the Company or any Subsidiary, (b)
to the Company's knowledge, has any claim or cause of action against the Company
or any Subsidiary, or (c) owes any money to, or is owed any money by, the
Company or any Subsidiary.
2.28 BROKERS' FEES. Except for the fees owed to Broadview
International LLC described in Section 2.28 of the Disclosure Schedule and to be
paid in accordance with Section 4.7 of this Agreement, neither the Company nor
any Subsidiary has any liability or obligation to pay any fees or commissions to
any broker, finder or agent with respect to the transactions contemplated by
this Agreement.
2.29 BOOKS AND RECORDS. The minute books and other similar records
of the Company and each Subsidiary contain complete and accurate records of all
actions taken at any meetings of the Company's or such Subsidiary's
stockholders, Board of
-26-
32
Directors or any committee thereof and of all written consents executed in lieu
of the holding of any such meeting.
2.30 GOVERNMENT CONTRACTS.
(a) Neither the Company nor any Subsidiary has been suspended
or debarred from bidding on contracts or subcontracts with any Governmental
Entity; no such suspension or debarment has been threatened or initiated; and,
to the Company's knowledge, the consummation of the transactions contemplated by
this Agreement will not result in any such suspension or debarment of the
Company, any Subsidiary or the Buyer (assuming that no such suspension or
debarment will result solely from the identity of the Buyer). Neither the
Company nor any Subsidiary has been or is now being audited or, to the Company's
knowledge, investigated by the United States Government Accounting Office, the
United States Department of Defense or any of its agencies, the Defense Contract
Audit Agency, the contracting or auditing function of any Governmental Entity
with which it is contracting, the United States Department of Justice, the
Inspector General of the United States Governmental Entity, or any prime
contractor with a Governmental Entity; nor, to the knowledge of the Company, has
any such audit or investigation been threatened. To the knowledge of the
Company, there is no valid basis for (i) the suspension or debarment of the
Company or any Subsidiary from bidding on contracts or subcontracts with any
Governmental Entity or (ii) any claim (including any claim for return of funds
to the Government) pursuant to an audit or investigation by any of the entities
named in the foregoing sentence. The Company has no agreements, contracts or
commitments which require it to obtain or maintain a security clearance with any
Governmental Entity.
(b) To the knowledge of the Company, no basis exists for any
of the following with respect to any of its contracts or subcontracts with any
Governmental Entity: (i) a Termination for Default (as provided in 48 C.F.R.
Ch.1 ss.52.249-8, 52.249- 9 or similar sections), (ii) a Termination for
Convenience (as provided in 48. C.F.R. Ch.1 ss.52,241-1, 52.249-2 or similar
sections), or a Stop Work Order (as provided in 48 C.F.R. Ch.1 ss.52.212-13 or
similar sections); and the Company has no reason to believe that funding may not
be provided under any contract or subcontract with any Governmental Entity in
the upcoming federal fiscal year.
2.31 POOLING. To the knowledge of the Company, neither the Company
nor any of its Affiliates has through the date of this Agreement taken or agreed
to take any action that would prevent the Buyer from accounting for the business
combination to be effected by the Merger as a "pooling of interests" in
conformity with GAAP.
-27-
33
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE BUYER
AND THE TRANSITORY SUBSIDIARY
Each of the Buyer and the Transitory Subsidiary represents and warrants
to the Company as follows:
3.1 ORGANIZATION, QUALIFICATION AND CORPORATE POWER. Each of the
Buyer and the Transitory Subsidiary is a corporation duly organized, validly
existing and in good standing under the laws of the state of its incorporation.
The Buyer and the Transitory Subsidiary each is duly qualified to conduct
business and is in good standing under the laws of each jurisdiction in which
the nature of its businesses or the ownership or leasing of its properties
requires such qualification, except where the failure to be so qualified or in
good standing would not have a Buyer Material Adverse Effect (as defined below).
The Buyer and the Transitory Subsidiary each has all requisite corporate power
and authority to carry on the businesses in which it is engaged and to own and
use the properties owned and used by it. The Buyer and the Transitory Subsidiary
each has furnished or made available to the Company complete and accurate copies
of their respective Certificate of Incorporation and Bylaws, each as amended and
as in effect on the date hereof. Neither the Buyer nor the Transitory Subsidiary
is in default under or in violation of its Certificate of Incorporation or
By-laws. For purposes of this Agreement, "Buyer Material Adverse Effect" means a
material adverse effect on the assets, business, financial condition, results of
operations or future prospects of the Buyer and its subsidiaries, taken as a
whole.
3.2 CAPITALIZATION. The authorized capital stock of the Buyer
consists of (a) 15,000,000 shares of Buyer Common Stock, of which 5,417,964
shares were issued and outstanding as of the date hereof, and (b) 4,000,000
shares of Preferred Stock, $.01 par value per share, of which 2,747,036 shares
were issued and outstanding as of the date hereof. As of the date hereof, each
share of Buyer Preferred Stock is convertible, at the option of the holder, into
one share of Buyer Common Stock. All of the issued and outstanding shares of
Buyer Common Stock are duly authorized, validly issued, fully paid,
nonassessable and free of all preemptive rights. The Buyer has issued options to
purchase 740,850 shares of Buyer Common Stock as of the date hereof. All of the
Merger Shares will be, when issued in accordance with this Agreement, duly
authorized, validly issued, fully paid, nonassessable and free of all preemptive
rights.
3.3 AUTHORIZATION OF TRANSACTION. Each of the Buyer and the
Transitory Subsidiary has all requisite power and authority to execute and
deliver this Agreement and (in the case of the Buyer) the Escrow Agreement and
to perform its obligations and consummate the transactions contemplated
hereunder and thereunder. The execution and delivery by the Buyer and the
Transitory Subsidiary of this Agreement and (in the case of the Buyer) the
Escrow Agreement and the consummation by the Buyer and the Transitory Subsidiary
of the transactions
-28-
34
contemplated hereby and thereby have been duly and validly authorized by all
necessary corporate action on the part of the Buyer and Transitory Subsidiary,
respectively. This Agreement has been duly and validly executed and delivered by
the Buyer and the Transitory Subsidiary and constitutes a valid and binding
obligation of the Buyer and the Transitory Subsidiary, enforceable against them
in accordance with its terms except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general application
affecting enforcement of creditor's rights generally and (ii) as limited by laws
relating to the availability of specific performance, injunctive relief or other
equitable remedies..
3.4 NONCONTRAVENTION. Subject to compliance with the applicable
requirements of the Securities Act and any applicable state securities laws, the
Exchange Act and the filing of the Certificate of Merger as required by the
Delaware General Corporation Law, neither the execution and delivery by the
Buyer or the Transitory Subsidiary of this Agreement or (in the case of the
Buyer) the Escrow Agreement, nor the consummation by the Buyer or the Transitory
Subsidiary of the transactions contemplated hereby or thereby, will (a) conflict
with or violate any provision of the charter or By-laws of the Buyer or the
Transitory Subsidiary, (b) require on the part of the Buyer or the Transitory
Subsidiary any filing with, or permit, authorization, consent or approval of,
any Governmental Entity, (c) conflict with, result in breach of, constitute
(with or without due notice or lapse of time or both) a default under, result in
the acceleration of obligations under, create in any party any right to
terminate, modify or cancel, or require any notice, consent or waiver under, any
contract or instrument to which the Buyer or the Transitory Subsidiary is a
party or by which either is bound or to which any of their assets are subject,
except for (i) any conflict, breach, default, acceleration, termination,
modification or cancellation which would not adversely affect the consummation
of the transactions contemplated hereby or (ii) any notice, consent or waiver
the absence of which would not adversely affect the consummation of the
transactions contemplated hereby, or (d) violate any order, writ, injunction,
decree, statute, rule or regulation applicable to the Buyer or the Transitory
Subsidiary or any of their properties or assets or (e) result in the imposition
of any Security Interest upon and assets of Buyer or the Transitory Subsidiary.
3.5 REPORTS AND FINANCIAL STATEMENTS. The Buyer has furnished or
made available to the Company true and complete copies of all reports or
registration statements filed by it with the U.S. Securities and Exchange
Commission (the "SEC"), all in the form so filed (all of the foregoing being
collectively referred to as the "SEC Documents"). As of the date hereof, the SEC
Documents comply in all material respects with the requirements of the
Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as
the case may be. The Buyer has furnished or made available to the Company true
and complete copies of all reports or registration statements filed by it with
the U.S. Securities and Exchange Commission (the "SEC"), all in the form so
filed (all of the foregoing being collectively referred to as the "SEC
Documents"). As of the date hereof, the SEC Documents comply in all material
respects with the requirements of the Securities Act of 1933, as amended or the
Securities Exchange Act of 1934, as the case may be, including where applicable
the
-29-
35
requirements under Item 601 of Regulation S-K to file certain contracts, and
none of the 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. The financial statements of Buyer, including the
notes thereto, included in the SEC Documents (the "Buyer Financial Statements")
comply as to form in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with GAAP consistently applied
(except as may be indicated in the notes thereto) and present fairly the
consolidated financial position of Buyer as of the dates thereof and the
consolidated results of its operations and cash flows for the periods then
ended. There has been no change in Buyer's accounting policies except as
described in the notes to the Buyer Financial Statements.
3.6 ABSENCE OF CERTAIN CHANGES. Since March 31, 1999, there has
occurred no event or development which has had, or could reasonably be foreseen
to have in the future, a Buyer Material Absence Effect.
3.7 LITIGATION. Except as disclosed in the SEC Documents, as of
the date of this Agreement, there is no Legal Proceeding which is pending or, to
the Buyer's knowledge, threatened against the Buyer or any subsidiary of the
Buyer which, if determined adversely to the Buyer or such subsidiary, could have
a Buyer Material Adverse Effect or which in any manner challenges or seeks to
prevent, enjoin, alter or delay the transactions contemplated by this Agreement.
3.8 POOLING. To the knowledge of the Buyer, neither the Buyer nor
any of its Affiliates has through the date of this Agreement taken or agreed to
take any action that would prevent the Buyer from accounting for the business
combination to be effected by the Merger as a "pooling of interests" in
conformity with GAAP.
3.9 INTERIM OPERATIONS OF THE TRANSITORY SUBSIDIARY. The
Transitory Subsidiary was formed solely for the purpose of engaging in the
transactions contemplated by this Agreement and has engaged in no business
activities other than as contemplated by this Agreement.
3.10 BROKERS' FEES. Neither the Buyer nor the Transitory Subsidiary
has any liability or obligation to pay any fees or commissions to any broker,
finder or agent with respect to the transactions contemplated by this Agreement.
ARTICLE IV
COVENANTS
4.1 CLOSING EFFORTS. Each of the Parties shall use its best
efforts, to the extent commercially reasonable ("Reasonable Best Efforts"), to
take all actions and to do all things necessary, proper or advisable to
consummate the transactions contemplated by this Agreement, including without
limitation using its Reasonable
-30-
36
Best Efforts to ensure that (i) its representations and warranties remain true
and correct in all material respects through the Closing Date and (ii) the
conditions to the obligations of the other Parties to consummate the Merger are
satisfied.
4.2 GOVERNMENTAL AND THIRD-PARTY NOTICES AND CONSENTS.
(a) Each Party shall use its Reasonable Best Efforts to
obtain, at its expense, all such waivers, permits, consents, approvals or other
authorizations from Governmental Entities, and to effect all such registrations,
filings and notices with or to Governmental Entities, as may be required for
such Party to consummate the transactions contemplated by this Agreement and to
otherwise comply with all applicable laws and regulations in connection with the
consummation of the transactions contemplated by this Agreement.
(b) The Company shall use its Reasonable Best Efforts to
obtain, at its expense, all such waivers, consents or approvals from third
parties, and to give all such notices to third parties, as are required to be
listed in Section 2.4 of the Disclosure Schedule.
4.3 STOCKHOLDER APPROVAL.
(a) The Company shall use its Reasonable Best Efforts to
obtain, as promptly as practicable, the Requisite Stockholder Approval, either
at a special meeting of stockholders or pursuant to a written stockholder
consent, even if the Board of Directors has withdrawn its recommendations set
forth in Section 4.3(c), all in accordance with the applicable requirements of
the Delaware General Corporation Law. The Company hereby consents to the use of
its Financial Statements and any related information in the Registration
Statement on Form S-1 of the Buyer filed on April 7, 1999 (the "Registration
Statement"). The Company shall ensure that any information furnished by the
Company to the Buyer expressly for inclusion in the Registration Statement does
not contain any untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements made, in light of the
circumstances under which they were made, not misleading The Company also agrees
to use its Reasonable Best Efforts to obtain the consent of its independent
public accountant for the use of such Financial Statements in the Registration
Statement. In connection with such special meeting of stockholders or written
stockholder consent, the Company shall provide to its stockholders a written
proxy or information statement (the "Disclosure Statement") which includes (A) a
summary of the Merger and this Agreement (which summary shall include a summary
of the terms relating to the indemnification obligations of the Company
Stockholders, the escrow arrangements and the authority of the Indemnification
Representatives, and a statement that the adoption of this Agreement by the
stockholders of the Company shall constitute approval of such terms), (B) all of
the information required by Rule 503(b)(2) of Regulation D under the Securities
Act and (C) a statement that appraisal rights are available for the Company
Shares pursuant to Section 262 of the Delaware General Corporation Law and a
copy of such Section 262. The Buyer agrees to cooperate with the Company in the
preparation of the Disclosure Statement. The
-31-
37
Company agrees not to distribute the Disclosure Statement until the Buyer has
had a reasonable opportunity to review and comment on the Disclosure Statement
and the Disclosure Statement has been approved by the Buyer (which approval may
not be unreasonably withheld or delayed). If the Requisite Stockholder Approval
is obtained by means of a written consent, the Company shall send, pursuant to
Sections 228 and 262(d) of the Delaware General Corporation Law, a written
notice to all stockholders of the Company that did not execute such written
consent informing them that this Agreement and the Merger were adopted and
approved by the stockholders of the Company and that appraisal rights are
available for their Company Shares pursuant to Section 262 of the Delaware
General Corporation Law (which notice shall include a copy of such Section 262),
and shall promptly inform the Buyer of the date on which such notice was sent.
(b) The Company, acting through its Board of Directors, shall
include in the Disclosure Statement the unanimous recommendation of its Board of
Directors that the stockholders of the Company vote in favor of the adoption of
this Agreement and the approval of the Merger.
(c) The Company shall ensure that the Disclosure Statement
does not contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements made, in light of the
circumstances under which they were made, not misleading (provided that the
Company shall not be responsible for the accuracy or completeness of any
information furnished by the Buyer in writing for inclusion in the Disclosure
Statement).
(d) The Buyer shall ensure that any information furnished by
the Buyer to the Company in writing for inclusion in the Proxy Statement does
not contain any untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements made, in light of the
circumstances under which they were made, not misleading.
(e) IXL Holdings, Inc., Brentwood Associates VIII, L.P.,
Brentwood Affiliates Fund, L.P., Sorrento Ventures II, L.P., Sorrento Ventures
III, L.P., Sorrento Ventures IV, L.P., Sorrento Growth Partners I, L.P.,
Sorrento Ventures CE, L.P. and Xxxxxxx Xxxxxx each agree to enter into and
deliver, concurrently with the execution of this Agreement, a Voting Agreement
and Proxy in the form attached hereto as EXHIBIT G, agreeing, among other
things, to vote in favor of the Merger.
4.4 OPERATION OF BUSINESS. Except as contemplated by this
Agreement, during the period from the date of this Agreement to the earlier of
the termination of this Agreement or the Effective Time, the Company shall (and
shall cause each Subsidiary to) conduct its operations in the Ordinary Course of
Business and use Reasonable Best Efforts to conduct its business in compliance
with all applicable laws and regulations and, to the extent consistent
therewith, use its Reasonable Best Efforts to preserve intact its current
business organization, keep its physical assets in good working condition, keep
available the services of its current officers and employees and preserve its
relationships with customers, suppliers and others having business
-32-
38
dealings with it to the end that it shall seek to ensure that its goodwill and
ongoing business shall not be impaired in any material respect. Without limiting
the generality of the foregoing, the Company shall not (and shall cause each
Subsidiary not to), without the written consent of the Buyer:
(a) issue or sell, or redeem or repurchase, any stock or other
securities of the Company or any rights, warrants or options to acquire any such
stock or other securities (except pursuant to the conversion or exercise of
convertible securities or Options or Warrants outstanding or pursuant to
obligations set forth in that Consulting Agreement between the Company and IXL
Holdings, Inc., dated August 27, 1996, on the date hereof), or amend any of the
terms of (including without limitation the vesting of) any such convertible
securities or Options or Warrants;
(b) split, combine or reclassify any shares of its capital
stock; declare, set aside or pay any dividend or other distribution (whether in
cash, stock or property or any combination thereof) in respect of its capital
stock;
(c) create, incur or assume any indebtedness (including
obligations in respect of capital leases); assume, guarantee, endorse or
otherwise become liable or responsible (whether directly, contingently or
otherwise) for the obligations of any other person or entity; or make any loans,
advances or capital contributions to, or investments in, any other person or
entity;
(d) enter into, adopt or amend any Employee Benefit Plan or
any employment or severance agreement or arrangement of the type described in
Section 2.22(k) or (except for normal increases in the Ordinary Course of
Business) increase in any manner the compensation or fringe benefits of, or
materially modify the employment terms of, its directors, officers or employees,
generally or individually, or pay any bonus or other benefit to its directors,
officers or employees (except for existing payment obligations listed in Section
2.20 of the Disclosure Schedule), and shall not have undertaken any of the
foregoing subsequent to December 31, 1998;
(e) acquire, sell, lease, license or dispose of any assets or
property (including without limitation any shares or other equity interests in
or securities of any Subsidiary or any corporation, partnership, association or
other business organization or division thereof), other than purchases and sales
of assets in the Ordinary Course of Business;
(f) mortgage or pledge any of its property or assets or
subject any such assets to any Security Interest;
(g) discharge or satisfy any Security Interest or pay any
obligation or liability other than in the Ordinary Course of Business;
(h) amend its Certificate of Incorporation or By-laws;
-33-
39
(i) change in any material respect its accounting methods,
principles or practices, except insofar as may be required by a generally
applicable change in GAAP;
(j) enter into, amend, terminate, take or omit to take any
action that would constitute a violation of or default under, or waive any
rights under, any material contract or agreement;
(k) make or commit to make any capital expenditure in excess
of $50,000 per item or $100,000 in the aggregate;
(l) institute or settle any Legal Proceeding;
(m) take any action or fail to take any action permitted by
this Agreement with the knowledge that such action or failure to take action
would result in (i) any of the representations and warranties of the Company set
forth in this Agreement becoming untrue or (ii) any of the conditions to the
Merger set forth in Article V not being satisfied;
(n) take any action that would prevent the treatment of the
Merger as a "pooling of interests" for accounting purposes; or
(o) agree in writing or otherwise to take any of the foregoing
actions.
4.5 ACCESS TO INFORMATION.
(a) Each of the Parties shall (and shall cause each subsidiary
to) permit representatives of the other to have full access (at all reasonable
times, and in a manner so as not to interfere with the normal business
operations of the Company and the Subsidiaries) to all premises, properties,
financial and accounting records, contracts, other records and documents, and
personnel, of or pertaining to the other.
(b) Within 15 days after the end of each month ending prior to
the Closing, beginning with May 15, 1999, the Company shall furnish to the Buyer
an unaudited income statement for such month and a balance sheet as of the end
of such month, prepared on a basis consistent with the Financial Statements.
Such financial statements shall present fairly the financial condition and
results of operations of the Company and the Subsidiaries on a consolidated
basis as of the dates thereof and for the periods covered thereby, and shall be
consistent with the books and records of the Company and the Subsidiaries.
(c) Each of the Parties (i) shall treat and hold as
confidential any Confidential Information (as defined below), (ii) shall not use
any of the Confidential Information except in connection with this Agreement,
and (iii) if this Agreement is terminated for any reason whatsoever, shall
return to the other all tangible embodiments (and all copies) thereof which are
in its possession. For purposes of this Agreement, "Confidential Information"
means any confidential or proprietary
-34-
40
information of the parties (or any subsidiary thereof) that is furnished in
writing by the other in connection with this Agreement and is labelled
confidential or proprietary; PROVIDED, HOWEVER, that it shall not include any
information (A) which, at the time of disclosure, is available publicly, (B)
which, after disclosure, becomes available publicly through no fault of the
receiving party hereunder, (C) which the receiving party knew or to which the
receiving party had access prior to disclosure or (D) which the receiving party
rightfully obtains from a source other than the other party hereunder.
4.6 EXCLUSIVITY.
(a) The Company shall not, and the Company shall direct each
of its officers, directors, employees, representatives and agents not to,
directly or indirectly, (i) initiate, solicit, encourage or otherwise facilitate
any inquiry, proposal, offer or discussion with any party (other than the Buyer)
concerning any merger, consolidation, share exchange, sale of stock, sale of
material assets or similar business transaction involving the Company, any
Subsidiary or any division of the Company or any Subsidiary, (ii) furnish any
non-public information concerning the business, properties or assets of the
Company, any Subsidiary or any division of the Company to any party (other than
the Buyer) in order to facilitate or encourage any effort or attempt by any such
party to acquire the Company or (iii) engage in discussions or negotiations with
any party (other than the Buyer) concerning any such transaction.
(b) The Company shall immediately notify any party with which
discussions or negotiations of the nature described in paragraph (a) above were
pending that the Company is terminating such discussions or negotiations. If the
Company receives any inquiry, proposal or offer of the nature described in
paragraph (a) above, the Company shall, within two business days after such
receipt, notify the Buyer of such inquiry, proposal or offer, including the
identity of the other party and the terms of such inquiry, proposal or offer.
4.7 EXPENSES. Except as set forth in Article VI and the Escrow
Agreement, each of the Parties shall bear its own costs and expenses (including
legal fees and expenses) incurred in connection with this Agreement and the
transactions contemplated hereby; provided, HOWEVER, that if the Merger is
consummated, the Company and the Subsidiaries shall not incur more than an
aggregate of $825,000 in legal, accounting and investment banking fees and
expenses of Xxxxxxx, Xxxxxxx & Xxxxxxxx, LLP, PricewaterhouseCoopers, LLP and
Broadview International LLC in connection with the Merger. Any expenses in
excess of $825,000 shall be paid in Escrow Shares. The Parties agree to
effectuate such payment in Escrow Shares by giving joint written instructions to
the Escrow Agent in accordance with Section 4 of the Escrow Agreement.
4.8 INDEMNIFICATION. The Buyer shall not, for a period of three
years after the Effective Time, take any action to alter or impair any
exculpatory or indemnification provisions now existing in the Certificate of
Incorporation or By-laws of the Company for the benefit of any individual who
served as a director or officer
-35-
41
of the Company at any time prior to the Effective Time, except for any changes
which may be required to conform with changes in applicable law and any changes
which do not affect the application of such provisions to acts or omissions of
such individuals prior to the Effective Time.
4.9 AGREEMENTS FROM CERTAIN AFFILIATES OF THE COMPANY. Upon the
execution of this Agreement, the Company shall provide to the Buyer a list of
those persons who are, in the Company's reasonable judgment, Affiliates of the
Company. The Company shall provide the Buyer such information and documents as
the Buyer shall reasonably request for purposes of reviewing such list and shall
notify the Buyer in writing regarding any change in the identity of its
Affiliates prior to the Closing Date. In order to help ensure that the Merger
will be accounted for as a "pooling of interests," that the issuance of and any
resale of the Merger Shares will comply with the Securities Act and that the
Merger will be treated as a tax-free reorganization, the Company shall use its
Reasonable Best Efforts to deliver or cause to be delivered to the Buyer, as
soon as practicable and in any case prior to the mailing of the Disclosure
Statement (or, in the case of any person who becomes an Affiliate after such
date, as soon as practicable after such person becomes an Affiliate), an
Affiliate Agreement, in the form attached hereto as EXHIBIT B (an "Affiliate
Agreement"), executed by each of its Affiliates. The Buyer shall be entitled to
place appropriate legends on the certificates evidencing any Merger Shares to be
issued to Affiliates of the Company, and to issue appropriate stop transfer
instructions to the transfer agent for the Buyer Common Stock, setting forth
restrictions on transfer consistent with the terms of the Affiliate Agreement.
4.10 LOAN FROM BUYER. On or after June 15,1999, if the Company has
received the Requisite Stockholder Approval, the Buyer shall make available to
the Company, and fund within five (5) days of receipt of a request therefor, a
loan in a principal amount up to $500,000, to be evidenced by a Promissory Note
from the Company to Buyer in substantially the form attached hereto as EXHIBIT I
(the "Promissory Note"). The Promissory Note shall bear interest at the rate of
twelve percent (12%) per annum, which is the rate that the parties, after
reasonable investigation, deem to be the then current market rate for such a
loan; provided, however, that prior to the execution and delivery of the
Promissory Note by the Company, such rate may be adjusted by the parties to the
extent that it is determined that such rate no longer reflects the then current
market rate and would as a result cause the Merger not to qualify as a "pooling
of interests" for accounting purposes under Accounting Principles Board Opinion
No. 16.
4.11 CERTAIN BENEFIT PLANS. Subject to compliance with pooling of
interest accounting treatment of the Merger, Buyer shall take reasonable actions
as are necessary to allow eligible employees of the Company to participate in
the benefit programs of Buyer, or alternative benefit programs substantially
comparable to those applicable to employees of Buyer, as soon as practicable
after the Effective Time.
4.12 STOCK ISSUANCE BY BUYER. During the period from the date of
this Agreement until the earlier of the termination of this Agreement or the
Effective
-36-
42
Time, except in connection with the transactions contemplated hereby, Buyer
shall not, without the prior written consent of the Company (which consent shall
not be unreasonably withheld by the Company), issue in excess of 1,000,000
shares of the capital stock of Buyer, except for such issuance (i) in an initial
firm commitment underwritten offering of the Buyer's stock, pursuant to a
registration statement on Form S-1 filed with and declared effective by the SEC,
(ii) upon the conversion or exercise of currently outstanding convertible or
exercisable securities, (iii) as Merger Shares, (iv) for warrants or options to
acquire Buyer's common stock issued in the Merger or (v) in an issuance or sale
of Buyer's common stock (or options therefor) to employees, consultants and
directors, directly or pursuant to a stock option plan or employee stock
purchase plan.
4.13 EXERCISE OF OPTIONS. As a condition to the exercise of an
option to purchase Company Common Stock or Company Series A Preferred Stock by
an optionholder pursuant to the Company's 1995 Stock Option/Stock Issuance Plan,
the Company shall use its Reasonable Best Efforts to require such optionholder
to sign a lock-up agreement substantially in the form attached hereto as EXHIBIT
H.
ARTICLE V
CONDITIONS TO CONSUMMATION OF MERGER
5.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS. The respective
obligations of each Party to consummate the Merger are subject to this Agreement
and the Merger having received the Requisite Stockholder Approval, this
Agreement and the Merger having been approved and adopted by the requisite vote,
if any, of the stockholders of the Buyer and Buyer and Company each having
received substantially identical written opinions from their counsel, in form
and substance reasonably satisfactory to them, to the effect that the Merger
will constitute a reorganization within the meaning of Section 368(a) of the
Code. The parties to this Agreement agree to make reasonable representations as
requested by such counsel for the purpose of rendering such opinions.
5.2 CONDITIONS TO OBLIGATIONS OF THE BUYER AND THE TRANSITORY
SUBSIDIARY. The obligation of each of the Buyer and the Transitory Subsidiary to
consummate the Merger is subject to the satisfaction (or waiver by the Buyer) of
the following additional conditions:
(a) the number of Dissenting Shares shall not exceed 5% of the
number of outstanding Common Shares as of the Effective Time (calculated after
giving effect to the conversion into Common Shares of all outstanding Preferred
Shares);
(b) the Company and the Subsidiaries shall have obtained (and
shall have provided copies thereof to the Buyer) all of the waivers, permits,
consents, approvals or other authorizations, and effected all of the
registrations, filings and notices, referred to in Section 4.2 which are
required on the part of the Company or
-37-
43
the Subsidiaries, except for any the failure of which to obtain or effect would
not have a Company Material Adverse Effect or a material adverse effect on the
ability of the Parties to consummate the transactions contemplated by this
Agreement;
(c) the representations and warranties of the Company set
forth in the first sentence of Section 2.1 and in Section 2.3 and any
representations and warranties of the Company set forth in this Agreement that
are qualified as to materiality shall be true and correct, and the
representations and warranties of the Company set forth in this Agreement that
are not so qualified (other than those set forth in the first sentence of
Section 2.1 and in Section 2.3) shall be true and correct in all material
respects, in each case as of the date of this Agreement and as of the Effective
Time as though made as of the Effective Time, except to the extent such
representations and warranties are specifically made as of a particular date or
as of the date of this Agreement (in which case such representations and
warranties shall be true and correct as of such date);
(d) the Company shall have performed or complied with in all
material respects its agreements and covenants required to be performed or
complied with under this Agreement as of or prior to the Effective Time;
(e) no Legal Proceeding shall be pending or threatened wherein
an unfavorable judgment, order, decree, stipulation or injunction would (i)
prevent consummation of any of the transactions contemplated by this Agreement,
(ii) cause any of the transactions contemplated by this Agreement to be
rescinded following consummation or (iii) have a Company Material Adverse
Effect, and no such judgment, order, decree, stipulation or injunction shall be
in effect;
(f) the Company shall have delivered to the Buyer and the
Transitory Subsidiary a certificate (the "Company Certificate") to the effect
that the condition specified in Section 5.1 and clauses (a) through (e) (insofar
as clause (e) relates to Legal Proceedings involving the Company or a
Subsidiary) of this Section 5.2 is satisfied in all respects;
(g) each of the Company Stockholders who is not holding
Dissenting Shares shall have executed and delivered to the Buyer an Investment
Representation Letter in the form attached hereto as EXHIBIT C and the Buyer
shall have no reason to believe that the statements set forth therein are not
true and shall be reasonably satisfied that the issuance and sale of the Merger
Shares is exempt from the registration requirements of the Securities Act;
(h) the Buyer shall have received a letter from
PricewaterhouseCoopers LLP, independent accountants for the Buyer, in a form
reasonably satisfactory to the Buyer, regarding its concurrence with the
conclusion of the Buyer that the Buyer may treat the Merger as a "pooling of
interests" for accounting purposes under Accounting Principles Board Opinion No.
16 if consummated in accordance with this Agreement;
-38-
44
(i) the Buyer shall have received from counsel to the Company
an opinion with respect to the matters set forth in EXHIBIT D attached hereto,
addressed to the Buyer and dated as of the Closing Date;
(j) the Buyer shall have received copies of the resignations,
effective as of the Effective Time, of each director and officer of the Company
and the Subsidiaries (other than any such resignations which the Buyer
designates, by written notice to the Company, as unnecessary);
(k) the Buyer shall have received such other certificates and
instruments (including without limitation certificates of good standing of the
Company and the Subsidiaries in their jurisdiction of organization and the
various foreign jurisdictions in which they are qualified, certified charter
documents, certificates as to the incumbency of officers and the adoption of
authorizing resolutions) as it shall reasonably request in connection with the
Closing; and
(l) the Buyer shall have entered into an Employment Agreement
with Xxxxxx Xxxxx, Xxxx Xxxxxxx, Xxxxxxx Xxxxxx and Xxxxx Xxxxxx substantially
in the form of EXHIBIT E attached hereto.
(m) all beneficial owners of Company Shares not holding
Dissenting Shares shall have executed and delivered to Buyer a Lock-up Agreement
substantially in the form of EXHIBIT H.
5.3 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The obligation of
the Company to consummate the Merger is subject to the satisfaction of the
following additional conditions:
(a) the Buyer shall have effected all of the registrations,
filings and notices referred to in Section 4.2 which are required on the part of
the Buyer, except for any which if not obtained or effected would not have a
Buyer Material Adverse Effect or a material adverse effect on the ability of the
Parties to consummate the transactions contemplated by this Agreement;
(b) the representations and warranties of the Buyer and the
Transitory Subsidiary set forth in the first sentence of Section 3.1 and Section
3.3 and any representations and warranties of the Buyer and the Transitory
Subsidiary set forth in this Agreement that are qualified as to materiality
shall be true and correct, and the representations and warranties of the Buyer
and the Transitory Subsidiary set forth in this Agreement that are not so
qualified (other than those set forth in Section 3.1 and Section 3.3) shall be
true and correct in all material respects, in each case as of the date of this
Agreement and as of the Effective Time as though made as of the Effective Time,
except to the extent such representations and warranties are specifically made
as of a particular date or as of the date of this Agreement (in which case such
representations and warranties shall be true and correct as of such date);
-39-
45
(c) each of the Buyer and the Transitory Subsidiary shall have
performed or complied with in all material respect its agreements and covenants
required to be performed or complied with under this Agreement as of or prior to
the Effective Time;
(d) no Legal Proceeding shall be pending or threatened wherein
an unfavorable judgment, order, decree, stipulation or injunction would (i)
prevent consummation of any of the transactions contemplated by this Agreement,
(ii) cause any of the transactions contemplated by this Agreement to be
rescinded following consummation or (iii) have a Buyer Material Adverse Effect,
and no such judgment, order, decree, stipulation or injunction shall be in
effect;
(e) the Buyer shall have delivered to the Company a
certificate (the "Buyer Certificate") to the effect that each of the conditions
specified in clauses (a) through (e) (insofar as clause (e) relates to Legal
Proceedings involving the Buyer) of this Section 5.3 is satisfied in all
respects;
(f) the Company shall have received from counsel to the Buyer
and the Transitory Subsidiary an opinion with respect to the matters set forth
in EXHIBIT F attached hereto, addressed to the Company and dated as of the
Closing Date;
(g) the Company shall have received such other certificates
and instruments (including without limitation certificates of good standing of
the Buyer and the Transitory Subsidiary in their jurisdiction of organization
and the various foreign jurisdictions where they are qualified, certified
charter documents, certificates as to the incumbency of officers and the
adoption of authorizing resolutions) as it shall reasonably request in
connection with the Closing.
(h) the Buyer shall have entered into an Employment Agreement
with Xxxxxx Xxxxx, Xxxx Xxxxxxx, Xxxxxxx Xxxxxx and Xxxxx Xxxxxx substantially
in the form of EXHIBIT E attached hereto.
ARTICLE VI
INDEMNIFICATION
6.1 INDEMNIFICATION BY THE COMPANY STOCKHOLDERS. The Company
Stockholders receiving the Merger Shares pursuant to Section 1.5 (the
"Indemnifying Stockholders") shall indemnify the Buyer in respect of, and hold
it harmless against, any and all debts, obligations and other liabilities
(whether absolute, accrued, contingent, fixed or otherwise, or whether known or
unknown, or due or to become due or otherwise), monetary damages, fines, fees,
penalties, interest obligations, deficiencies, losses and expenses (including
without limitation amounts paid in settlement, interest, court costs, costs of
investigators, fees and expenses of attorneys, accountants, financial advisors
and other experts, and other expenses of litigation)
-40-
46
("Damages") incurred or suffered by the Surviving Corporation or the Buyer or
any Affiliate thereof resulting from, relating to or constituting:
(a) any misrepresentation, breach of warranty or failure to
perform any covenant or agreement of the Company contained in this Agreement or
the Company Certificate;
(b) any failure of any Company Stockholder to have good, valid
and marketable title to the issued and outstanding Company Shares issued in the
name of such Company Stockholder, free and clear of all Security Interests; or
(c) any claim by a stockholder or former stockholder of the
Company, or any other person or entity, seeking to assert, or based upon: (i)
ownership or rights to ownership of any shares of stock of the Company; (ii) any
rights of a stockholder (other than the right to receive the Merger Shares
pursuant to this Agreement or appraisal rights under the applicable provisions
of the Delaware General Corporation Law), including any option, preemptive
rights or rights to notice or to vote; (iii) any rights under the Certificate of
Incorporation or By-laws of the Company; or (iv) any claim that his, her or its
shares were wrongfully repurchased by the Company.
6.2 INDEMNIFICATION BY THE BUYER. The Buyer shall indemnify the
Indemnifying Stockholders in respect of, and hold them harmless against, any and
all Damages incurred or suffered by the Indemnifying Stockholders resulting
from, relating to or constituting any misrepresentation, breach of warranty or
failure to perform any covenant or agreement of the Buyer or the Transitory
Subsidiary contained in this Agreement or the Buyer Certificate.
6.3 INDEMNIFICATION CLAIMS.
(a) A party entitled, or seeking to assert rights, to
indemnification under this Article VI (an "Indemnified Party") shall give
written notification to the party from whom indemnification is sought (an
"Indemnifying Party") of the commencement of any suit or proceeding relating to
a third party claim for which indemnification pursuant to this Article VI may be
sought. Such notification shall be given within 20 business days after receipt
by the Indemnified Party of notice of such suit or proceeding, and shall
describe (to the extent known by the Indemnified Party) the facts constituting
the basis for such suit or proceeding and the amount of the claimed damages;
provided, however, that no delay on the part of the Indemnified Party in
notifying the Indemnifying Party shall relieve the Indemnifying Party of any
liability or obligation hereunder except to the extent of any damage or
liability caused by or arising out of such failure. Within 20 days after
delivery of such notification, the Indemnifying Party may, upon written notice
thereof to the Indemnified Party, assume control of the defense of such suit or
proceeding with counsel reasonably satisfactory to the Indemnified Party;
provided that (i) the Indemnifying Party may only assume control of such defense
if it acknowledges in writing to the Indemnified Party that any damages, fines,
costs or other liabilities that
-41-
47
may be assessed against the Indemnified Party in connection with such suit or
proceeding constitute Damages for which the Indemnified Party shall be
indemnified pursuant to this Article VI and (ii) the Indemnifying Party may not
assume control of the defense of a suit or proceeding in which equitable relief
is sought against the Indemnified Party. If the Indemnifying Party does not so
assume control of such defense, the Indemnified Party shall control such
defense. The party not controlling such defense (the "Non-controlling Party")
may participate therein at its own expense; provided that if the Indemnifying
Party assumes control of such defense and the Indemnified Party reasonably
concludes that the Indemnifying Party and the Indemnified Party have conflicting
interests or different defenses available with respect to such suit or
proceeding, the reasonable fees and expenses of counsel to the Indemnified Party
shall be considered "Damages" for purposes of this Agreement. The party
controlling such defense (the "Controlling Party") shall keep the
Non-controlling Party advised of the status of such suit or proceeding and the
defense thereof and shall consider in good faith recommendations made by the
Non-controlling Party with respect thereto. The Non-controlling Party shall
furnish the Controlling Party with such information as it may have with respect
to such suit or proceeding (including copies of any summons, complaint or other
pleading which may have been served on such party and any written claim, demand,
invoice, billing or other document evidencing or asserting the same) and shall
otherwise cooperate with and assist the Controlling Party in the defense of such
suit or proceeding. The Indemnifying Party shall not agree to any settlement of,
or the entry of any judgment arising from, any such suit or proceeding without
the prior written consent of the Indemnified Party, which shall not be
unreasonably withheld or delayed; provided that the consent of the Indemnified
Party shall not be required if the Indemnifying Party agrees in writing to pay
any amounts payable pursuant to such settlement or judgment and such settlement
or judgment has no other adverse effect on the Indemnified Party. The
Indemnified Party shall not agree to any settlement of, or the entry of any
judgment arising from, any such suit or proceeding without the prior written
consent of the Indemnifying Party, which shall not be unreasonably withheld or
delayed.
(b) In order to seek indemnification under this Article VI, an
Indemnified Party shall give written notification (a "Claim Notice") to the
Indemnifying Party which contains (i) a description and the amount (the "Claimed
Amount") of any Damages incurred or reasonably expected to be incurred by the
Indemnified Party, (ii) a statement that the Indemnified Party is entitled to
indemnification under this Article VI for such Damages and a reasonable
explanation of the basis therefor, and (iii) a demand for payment (in the manner
provided in paragraph (c) below) in the amount of such Damages. If the
Indemnified Party is the Buyer, the Indemnifying Party shall deliver a copy of
the Claim Notice to the Escrow Agent.
(c) Within 20 days after delivery of a Claim Notice, the
Indemnifying Party shall deliver to the Indemnified Party a written response
(the "Response") in which the Indemnifying Party shall: (i) agree that the
Indemnified Party is entitled to receive all of the Claimed Amount (in which
case the Response shall be accompanied
-42-
48
by a payment by the Indemnifying Party to the Indemnified Party of the Claimed
Amount, by check or by wire transfer; provided that if the Indemnified Party is
the Buyer, the Indemnifying Party and the Indemnified Party shall deliver to the
Escrow Agent, within three days following the delivery of the Response, a
written notice executed by both parties instructing the Escrow Agent to
distribute to the Buyer such number of Escrow Shares as have an aggregate value
equal to the Claimed Amount), (ii) agree that the Indemnified Party is entitled
to receive part, but not all, of the Claimed Amount (the "Agreed Amount") (in
which case the Response shall be accompanied by a payment by the Indemnifying
Party to the Indemnified Party of the Agreed Amount, by check or by wire
transfer; provided that if the Indemnified Party is the Buyer, the Indemnifying
Party and the Indemnified Party shall deliver to the Escrow Agent, within three
days following the delivery of the Response, a written notice executed by both
parties instructing the Escrow Agent to distribute to the Buyer such number of
Escrow Shares as have an aggregate value equal to the Agreed Amount) or (iii)
dispute that the Indemnified Party is entitled to receive any of the Claimed
Amount. If the Indemnifying Party in the Response disputes its liability for all
or part of the Claimed Amount, the Indemnifying Party and the Indemnified Party
shall follow the procedures set forth in Section 6.3(d) for the resolution of
such dispute (a "Dispute").
(d) During the 60-day period following the delivery of a
Response that reflects a Dispute, the Indemnifying Party and the Indemnified
Party shall use good faith efforts to resolve the Dispute. If the Dispute is not
resolved within such 60-day period, the Indemnifying Party and the Indemnified
Party shall discuss in good faith the submission of the Dispute to a mutually
acceptable alternative dispute resolution procedure (which may be non-binding or
binding upon the parties, as they agree in advance) (the "ADR Procedure"). In
the event the Indemnifying Party and the Indemnified Party agree upon an ADR
Procedure, such parties shall, in consultation with the chosen dispute
resolution service (the "ADR Service"), promptly agree upon a format and
timetable for the ADR Procedure, agree upon the rules applicable to the ADR
Procedure, and promptly undertake the ADR Procedure. The provisions of this
Section 6.3(d) shall not obligate the Indemnifying Party and the Indemnified
Party to pursue an ADR Procedure or prevent either such party from pursuing the
Dispute in a court of competent jurisdiction; provided that, if the Indemnifying
Party and the Indemnified Party agree to pursue an ADR Procedure, neither the
Indemnifying Party nor the Indemnified Party may commence litigation or seek
other remedies with respect to the Dispute prior to the completion of such ADR
Procedure. Any ADR Procedure undertaken by the Indemnifying Party and the
Indemnified Party shall be considered a compromise negotiation for purposes of
federal and state rules of evidence, and all statements, offers, opinions and
disclosures (whether written or oral) made in the course of the ADR Procedure by
or on behalf of the Indemnifying Party, the Indemnified Party or the ADR Service
shall be treated as confidential and, where appropriate, as privileged work
product. Such statements, offers, opinions and disclosures shall not be
discoverable or admissible for any purposes in any litigation or other
proceeding relating to the Dispute (provided that this sentence shall not be
construed to exclude from discovery or admission any matter that is otherwise
discoverable or admissible). The fees and
-43-
49
expenses of any ADR Service used by the Indemnifying Party and the Indemnified
Party shall be shared equally by the Indemnifying Party and the Indemnified
Party. If the Indemnified Party is the Buyer, the Indemnifying Party and the
Indemnified Party shall deliver to the Escrow Agent, promptly following the
resolution of the Dispute (whether by mutual agreement, pursuant to an ADR
Procedure, as a result of a judicial decision or otherwise), a written notice
executed by both parties instructing the Escrow Agent as to what (if any)
portion of the Escrow Shares shall be distributed to the Buyer and/or the
Indemnifying Stockholders (which notice shall be consistent with the terms of
the resolution of the Dispute).
(e) Notwithstanding the other provisions of this Section 6.3,
if a third party asserts (other than by means of a lawsuit) that an Indemnified
Party is liable to such third party for a monetary or other obligation which may
constitute or result in Damages for which such Indemnified Party may be entitled
to indemnification pursuant to this Article VI, and such Indemnified Party
reasonably determines that it has a valid business reason to fulfill such
obligation, then (i) such Indemnified Party shall be entitled to satisfy such
obligation, without prior notice to or consent from the Indemnifying Party, (ii)
such Indemnified Party may subsequently make a claim for indemnification in
accordance with the provisions of this Article VI, and (iii) such Indemnified
Party shall be reimbursed, in accordance with the provisions of this Article VI,
for any such Damages for which it is entitled to indemnification pursuant to
this Article VI (subject to the right of the Indemnifying Party to dispute the
Indemnified Party's entitlement to indemnification, or the amount for which it
is entitled to indemnification, under the terms of this Article VI).
(f) For purposes of this Section 6.3 and the last two
sentences of Section 6.4, (i) if the Indemnifying Stockholders comprise the
Indemnifying Party, any references to the Indemnifying Party (except provisions
relating to an obligation to make or a right to receive any payments provided
for in Section 6.3 or Section 6.4) shall be deemed to refer to the
Indemnification Representatives, and (ii) if the Indemnifying Stockholders
comprise the Indemnified Party, any references to the Indemnified Party (except
provisions relating to an obligation to make or a right to receive any payments
provided for in Section 6.3 or Section 6.4) shall be deemed to refer to the
Indemnification Representatives. The Indemnification Representatives shall have
full power and authority on behalf of each Indemnifying Stockholder to take any
and all actions on behalf of, execute any and all instruments on behalf of, and
execute or waive any and all rights of, the Indemnifying Stockholders under this
Article VI. The Indemnification Representatives shall have no liability to any
Indemnifying Stockholder for any action taken or omitted on behalf of the
Indemnifying Stockholders pursuant to this Article VI.
6.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties contained in this Agreement, the Company
Certificate or the Buyer Certificate shall (a) survive the Closing and any
investigation at any time made by or on behalf of an Indemnified Party and (b)
shall expire on the earlier to occur of the first anniversary of the Closing
Date or the issuance of the first independent audit report on the Buyer's
financial statements after the Closing, which financial
-44-
50
statements include the financial results of the Company. If an Indemnified Party
delivers to an Indemnifying Party, before expiration of a representation or
warranty, either a Claim Notice based upon a breach of such representation or
warranty, or a notice that, as a result a legal proceeding instituted by or
written claim made by a third party, the Indemnified Party reasonably expects to
incur Damages as a result of a breach of such representation or warranty (an
"Expected Claim Notice"), then such representation or warranty shall survive
until, but only for purposes of, the resolution of the matter covered by such
notice. If the legal proceeding or written claim with respect to which an
Expected Claim Notice has been given is definitively withdrawn or resolved in
favor of the Indemnified Party, the Indemnified Party shall promptly so notify
the Indemnifying Party; and if the Indemnified Party has delivered a copy of the
Expected Claim Notice to the Escrow Agent and Escrow Shares have been retained
in escrow after the Termination Date (as defined in the Escrow Agreement) with
respect to such Expected Claim Notice, the Indemnifying Party and the
Indemnified Party shall promptly deliver to the Escrow Agent a written notice
executed by both parties instructing the Escrow Agent to distribute such
retained Escrow Shares to the Indemnifying Stockholders in accordance with the
terms of the Escrow Agreement.
6.5 LIMITATIONS.
(a) Neither the Indemnifying Stockholders nor the Buyer shall
be liable under this Article VI unless and until the aggregate Damages for which
they or it would otherwise be liable exceed $250,000 (at which point the
Indemnifying Stockholders and the Buyer, as the case may be, shall become liable
for the aggregate Damages up to the maximum set forth in the next sentence, and
not just amounts in excess of $250,000). Except as otherwise set forth herein,
the aggregate liability of the Indemnifying Stockholders, on the one hand, and
the Buyer, on the other hand, for Damages under this Article VI shall not exceed
an amount equal to the Escrow Amount.
(b) The Escrow Agreement is intended to secure the
indemnification obligations of the Indemnifying Stockholders under this
Agreement and shall be the sole source of recovery for Damages to the Buyer
arising from any claim hereunder (other than Damages due to fraud or willful
misrepresentation).
(c) Except with respect to claims based on fraud or willful
misrepresentation, after the Closing, the rights of the Indemnified Parties
under this Article VI and the Escrow Agreement shall be the exclusive remedy of
the Indemnified Parties with respect to claims resulting from or relating to any
misrepresentation, breach of warranty or failure to perform any covenant or
agreement contained in this Agreement.
(d) No Indemnifying Stockholder shall have any right of
contribution against the Company or the Surviving Corporation with respect to
any breach by the Company of any of its representations, warranties, covenants
or agreements.
-45-
51
ARTICLE VII
REGISTRATION RIGHTS
7.1 REGISTRATION OF SHARES. The Buyer shall file with the SEC
within 120 days after the Closing Date a registration statement on Form S-1
covering the resale to the public by the Company Stockholders of up to 50% of
the Merger Shares (the "Stockholder Registration Statement"). The Buyer shall
use its Reasonable Best Efforts to cause the Stockholder Registration Statement
to be declared effective by the SEC upon the earlier of the 180th day after the
effective date of the Buyer's prospectus for its initial public offering or such
date as any of Xxxxxxx X. Xxxxx, Xx., Xxxx Xxxxxxxxxx, Greylock IX Limited
Partnership, or the Princeton Review, L.L.C. shall sell (other than in an
underwritten secondary offering of Buyer Common Stock) greater than 1% of the
then outstanding shares of capital stock of the Buyer. The Buyer shall use its
Reasonable Best Efforts to cause the Stockholder Registration Statement to
remain effective until the date 12 months after the Closing Date or such earlier
time as all of the Merger Shares covered by the Stockholder Registration
Statement have been sold pursuant thereto.
7.2 LIMITATIONS ON REGISTRATION RIGHTS.
(a) The Buyer may, by written notice to the Company
Stockholders, (i) delay the filing or effectiveness of the Stockholder
Registration Statement or (ii) suspend the Stockholder Registration Statement
after effectiveness and require that the Company Stockholders immediately cease
sales of shares pursuant to the Stockholder Registration Statement, in the event
that (A) the Buyer determines that information required to be included in the
financial statements comprising a portion of the Registration Statement is not
yet available, or (B) the Buyer is engaged in any activity or transaction or
preparations or negotiations for any activity or transaction that the Buyer
desires to keep confidential for business reasons, if the Buyer determines in
good faith that the public disclosure requirements imposed on the Buyer under
the Securities Act in connection with the Stockholder Registration Statement
would require disclosure of such activity, transaction, preparations or
negotiations. In no event shall Buyer suspend the Stockholder Registration
Statement or delay the filing or effectiveness of the Stockholder Registration
Statement in accordance with the foregoing provisions (a) for periods in excess
of 90 days in the aggregate and (b) unless the members of the Board of Directors
of Buyer on the date thereof, agree not to sell, hypothecate or otherwise
dispose of, either directly or indirectly, any of their shares of capital stock
of Buyer during the period of suspension or delay. In such event, Buyer agrees
that it will suspend any secondary offering it may be engaged in until any such
delay or suspension has ended. In addition, if at any time during the 12-month
period following the Closing Date, the Buyer offers to the Company Stockholders
the opportunity to include their Merger Shares in any underwritten secondary
offering of Buyer Common Stock on a pro rata basis with other stockholders
including shares of Buyer Common Stock therein (which, if such offer is accepted
by a Company Stockholder, shall be Merger Shares in excess of the 50% thereof
referred to in Section 7.1), then the Buyer's obligations to file and/or
maintain the effectiveness of the Stockholder Registration Statement shall be
suspended until the expiration of the underwriters' lock-up period imposed with
respect to such underwritten secondary offering.
-46-
52
(b) If the Buyer delays or suspends the Stockholder
Registration Statement or requires the Company Stockholders to cease sales of
shares pursuant to paragraph (a) above, the Buyer shall, as promptly as
practicable following the termination of the circumstance which entitled the
Buyer to do so, notify the Company Stockholders of such termination and take
such actions as may be necessary to file or reinstate the effectiveness of the
Stockholder Registration Statement and/or give written notice to all Company
Stockholders authorizing them to resume sales pursuant to the Stockholder
Registration Statement. If as a result thereof the prospectus included in the
Stockholder Registration Statement has been amended to comply with the
requirements of the Securities Act, the Buyer shall enclose such revised
prospectus with the notice to Company Stockholders given pursuant to this
paragraph (b), and the Company Stockholders shall make no offers or sales of
shares pursuant to the Stockholder Registration Statement other than by means of
such revised prospectus. Moreover, if the Buyer delays or suspends the
Stockholder Registration Statement or requires the Company Stockholders to cease
sales of shares pursuant to clause (i) of paragraph (a) above, the Buyer shall
permit each Company Stockholder to include in a registration statement filed by
the Buyer during such period any Merger Shares that would have been included in
the Stockholder Registration Statement, subject to the right of the Buyer to
limit the number of Merger Shares to be included in a registration statement
relating to a underwritten offering of securities of the Buyer if the managing
underwriter of such offering determines that the inclusion of such shares in
such offering would adversely affect the marketability of such offering.
7.3 REGISTRATION PROCEDURES.
(a) In connection with the filing by the Buyer of the
Stockholder Registration Statement, the Buyer shall furnish to each Company
Stockholder a copy of the prospectus, including a preliminary prospectus, in
conformity with the requirements of the Securities Act.
(b) The Buyer shall use its best efforts to register or
qualify the Merger Shares covered by the Stockholder Registration Statement
under the securities laws of each state of the United States; PROVIDED, HOWEVER,
that the Buyer shall not be required in connection with this paragraph (b) to
qualify as a foreign corporation or execute a general consent to service of
process in any jurisdiction.
(c) If the Buyer has delivered preliminary or final
prospectuses to the Company Stockholders and after having done so the prospectus
is amended or supplemented to comply with the requirements of the Securities
Act, the Buyer shall promptly notify the Company Stockholders and, if requested
by the Buyer, the Company Stockholders shall immediately cease making offers or
sales of shares under the Stockholder Registration Statement and return all
prospectuses to the Buyer. The Buyer shall promptly provide the Company
Stockholders with revised or supplemented prospectuses and, following receipt of
the revised or supplemented
-47-
53
prospectuses, the Company Stockholders shall be free to resume making offers and
sales under the Stockholder Registration Statement.
(d) The Buyer shall pay the expenses incurred by it in
complying with its obligations under this Article VII, including all
registration and filing fees, exchange listing fees, fees and expenses of
counsel for the Buyer, and fees and expenses of accountants for the Buyer, but
excluding (i) any brokerage fees, selling commissions or underwriting discounts
incurred by the Company Stockholders in connection with sales under the
Stockholder Registration Statement and (ii) the fees and expenses of any counsel
retained by Company Stockholders.
7.4 REQUIREMENTS OF COMPANY STOCKHOLDERS. The Buyer shall not be
required to include any Merger Shares in the Stockholder Registration Statement
unless:
(a) the Company Stockholder owning such shares furnishes
to the Buyer in writing such information regarding such Company Stockholder and
the proposed sale of Merger Shares by such Company Stockholder as the Buyer may
reasonably request in writing in connection with the Stockholder Registration
Statement or as shall be required in connection therewith by the SEC or any
state securities law authorities;
(b) such Company Stockholder shall have provided to the
Buyer its written agreement:
(i) to indemnify the Buyer and each of its
directors and officers against, and hold the Buyer and each of its directors and
officers harmless from, any losses, claims, damages, expenses or liabilities
(including reasonable attorneys fees) to which the Buyer or such directors and
officers may become subject by reason of any statement or omission in the
Stockholder Registration Statement made in reliance upon, or in conformity with,
a written statement by such Company Stockholder furnished pursuant to this
Section 7.4; and
(ii) to report to the Buyer sales made pursuant
to the Stockholder Registration Statement.
7.5 INDEMNIFICATION. The Buyer agrees to indemnify and hold
harmless each Company Stockholder whose shares are included in the Stockholder
Registration Statement against any losses, claims, damages, expenses or
liabilities to which such Company Stockholder may become subject by reason of
any untrue statement of a material fact contained in the Stockholder
Registration Statement or any omission to state therein a fact required to be
stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages, expenses or liabilities arise
out of or are based upon information furnished to the Buyer by or on behalf of a
Company Stockholder for use in the Stockholder Registration Statement. The Buyer
shall have the right to assume the defense and settlement of any claim or
-48-
54
suit for which the Buyer may be responsible for indemnification under this
Section 7.5.
7.6 ASSIGNMENT OF RIGHTS. A Company Stockholder may not assign any
of its rights under this Article VII except in connection with the transfer of
some or all of his, her or its Merger Shares to a child or spouse, or trust for
their benefit or, in the case of a partnership, to the partners of such
partnership pursuant to a pro rata distribution, PROVIDED each such transferee
agrees in a written instrument delivered to the Buyer to be bound by the
provisions of this Article VII.
ARTICLE VIII
TERMINATION
8.1 TERMINATION OF AGREEMENT. The Parties may terminate this
Agreement prior to the Effective Time (whether before or after Requisite
Stockholder Approval), as provided below:
(a) the Parties may terminate this Agreement by mutual
written consent;
(b) the Buyer may terminate this Agreement by giving written
notice to the Company in the event the Company is in breach of any
representation, warranty or covenant contained in this Agreement, and such
breach, individually or in combination with any other such breach, (i) would
cause the conditions set forth in clauses (c) or (d) of Section 5.2 not to be
satisfied and (ii) is not cured within 20 days following delivery by the Buyer
to the Company of written notice of such breach;
(c) the Company may terminate this Agreement by giving written
notice to the Buyer in the event the Buyer or the Transitory Subsidiary is in
breach of any representation, warranty or covenant contained in this Agreement,
and such breach, individually or in combination with any other such breach, (i)
would cause the conditions set forth in clauses (c) or (d) of Section 5.3 not to
be satisfied and (ii) is not cured within 20 days following delivery by the
Company to the Buyer of written notice of such breach;
(d) the Buyer may terminate this Agreement by giving written
notice to the Company if the Closing shall not have occurred on or before July
15, 1999 by reason of the failure of any condition precedent under Section 5.1
or 5.2 hereof (unless the failure results primarily from a breach by the Buyer
or the Transitory Subsidiary of any representation, warranty or covenant
contained in this Agreement); or
(e) the Company may terminate this Agreement by giving written
notice to the Buyer and the Transitory Subsidiary if the Closing shall not have
occurred on or before July 15, 1999 by reason of the failure of any condition
precedent under Section 5.1 or 5.3 hereof (unless the failure results primarily
from a
-49-
55
breach by the Company of any representation, warranty or covenant contained in
this Agreement).
8.2 EFFECT OF TERMINATION. If any Party terminates this Agreement
pursuant to Section 8.1, all obligations of the Parties hereunder shall
terminate (except those created pursuant to Section 4.5(c) hereof) without any
liability of any Party to any other Party (except for any liability of any Party
for willful breaches of this Agreement).
ARTICLE IX
DEFINITIONS
For purposes of this Agreement, each of the following defined terms is
defined in the Section of this Agreement indicated below.
Defined Term Section
------------ -------
ADR Procedure 6.3(d)
ADR Service 6.3(d)
Affiliate 2.15(a)(vi)
Affiliate Agreement 4.10
Agreed Amount 6.3(c)
Buyer Introduction
Buyer Certificate 5.3(f)
Buyer Common Stock 1.5(a)
Buyer Material Adverse Effect 3.1
Buyer Reports 3.5
CERCLA 2.23(a)
Certificates 1.7(a)
Certificate of Merger 1.1
Claim Notice 6.3(b)
Claimed Amount 6.3(b)
Closing 1.2
Closing Date 1.2
Code 1.12
Common Conversion Ratio 1.5(c)
Common Shares 1.5(a)
Company Introduction
Company Certificate 5.2(f)
Company Intellectual Property 2.13(a)
Company Material Adverse Effect 2.1
Company Shares 1.5(b)
Company Stockholder 1.5(c)
Confidential Information 4.5(c)
Controlling Party 6.3(a)
Customer Deliverables 2.13(a)
-50-
56
Damages 6.1
Disclosure Schedule Article II
Disclosure Statement 4.3(a)
Disposition 1.13
Dispute 6.3(c)
Dissenting Shares 1.6(a)
Effective Time 1.1
Employee Benefit Plan 2.22(a)(i)
Environmental Law 2.23(a)
ERISA 2.22(a)(ii)
ERISA Affiliate 2.22(a)(iii)
Escrow Agreement 1.3
Escrow Agent 1.3
Escrow Shares 1.5(c)
Expected Claim Notice 6.4
Exchange Act 2.15(a)(vi)
Exchange Agent 1.3
Financial Statements 2.6
GAAP 2.6
Governmental Entity 2.4
Indemnification Representatives 1.3
Indemnified Party 6.3(a)
Indemnifying Party 6.3(a)
Indemnifying Stockholders 6.1
Initial Shares 1.5(c)
Intellectual Property 2.13(a)
Intended Uses 2.11(a)
Internal Systems 2.13(a)
Legal Proceeding 2.19
Lock-up Period 1.13
Lock-up Securities 1.13
Materials of Environmental Concern 2.23(b)
Merger 1.1
Merger Shares 1.5(c)
Most Recent Balance Sheet 2.8
Most Recent Balance Sheet Date 2.6
Non-controlling Party 6.3(a)
Options 1.9(a)
Ordinary Course of Business 2.4
Parties Introduction
Permits 2.26
Preferred Conversion Ratio 1.5(c)
Preferred Shares 1.5(b)
Promissory Note 4.10
Reasonable Best Efforts 4.1
Registration Statement 1.13
Response 6.3(c)
-51-
57
Requisite Stockholder Approval 2.3
SEC 3.5
SEC Documents 3.5
Securities Act 1.9(c)
Security Interest 2.4
Software 2.13(e)
Stockholder Registration Statement 7.1
Subsidiary 2.5(a)
Surviving Corporation 1.1
Taxes 2.9(a)(i)
Tax Returns 2.9(a)(ii)
Transitory Subsidiary Introduction
Value 6.3(c)
Warrants 1.9(d)
Year 2000 Compliant 2.13(h)
ARTICLE X
MISCELLANEOUS
10.1 PRESS RELEASES AND ANNOUNCEMENTS. No Party shall issue any
press release or public announcement relating to the subject matter of this
Agreement without the prior written approval of the other Parties; PROVIDED,
HOWEVER, that any Party may make any public disclosure it believes in good faith
is required by applicable law or stock market regulation (in which case the
disclosing Party shall use reasonable efforts to advise the other Parties and
provide them with a copy of the proposed disclosure prior to making the
disclosure).
10.2 NO THIRD PARTY BENEFICIARIES. This Agreement shall not confer
any rights or remedies upon any person other than the Parties and their
respective successors and permitted assigns; PROVIDED, HOWEVER, that (a) the
provisions in Article I concerning issuance of the Merger Shares, Article VI
concerning indemnification are intended for the benefit of the Company
Stockholders and (b) the provisions in Section 4.9 concerning indemnification
are intended for the benefit of the individuals specified therein and their
successors and assigns and (c) notwithstanding anything to the contrary set
forth herein, the provisions contained in Article VII concerning registration
rights may not be amended following the Effective Time without the written
consent of the holders of a majority of the Merger Shares issued in the Merger.
10.3 ENTIRE AGREEMENT. This Agreement (including the documents
referred to herein) constitutes the entire agreement among the Parties and
supersedes any prior understandings, agreements or representations by or among
the Parties, written or oral, with respect to the subject matter hereof;
provided that the Mutual Non-disclosure Agreement dated February 4, 1999 between
the Buyer and the Company shall remain in effect in accordance with its terms.
-52-
58
10.4 SUCCESSION AND ASSIGNMENT. This Agreement shall be binding
upon and inure to the benefit of the Parties named herein and their respective
successors and permitted assigns. No Party may assign either this Agreement or
any of its rights, interests or obligations hereunder without the prior written
approval of the other Parties; provided that the Transitory Subsidiary may
assign its rights, interests and obligations hereunder to an Affiliate of the
Buyer.
10.5 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument. This Agreement may be
executed by facsimile signature.
10.6 HEADINGS. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
10.7 NOTICES. All notices, requests, demands, claims, and other
communications hereunder shall be in writing. Any notice, request, demand, claim
or other communication hereunder shall be deemed duly delivered two business
days after it is sent by registered or certified mail, return receipt requested,
postage prepaid, or one business day after it is sent via a reputable nationwide
overnight courier service, in each case to the intended recipient as set forth
below:
If to the Company: Copy to:
------------------ --------
University Netcasting, Inc. Xxxxxxx, Xxxxxxx & Xxxxxxxx LLP
0000 Xxxxx Xxx Xxxx, Xxxxx 000 000 Xxxx X Xxxxxx, Xxxxx 0000
Xxxxxxxx, XX 00000 Xxx Xxxxx, XX 00000
Attn: Xx. Xxxxxxx Xxxxxx Attn: Xxxx X. Xxxxxxxxx, Esq.
If to the Buyer or
------------------
the Transitory Subsidiary: Copy To:
-------------------------- --------
Student Advantage, Inc. Xxxx and Xxxx LLP
000 Xxxxxx Xxxxxx 00 Xxxxx Xxxxxx
Xxxxxx, XX 00000 Xxxxxx, XX 00000
Attn: Xx. Xxxxxxx Xxxxx Attn: Xxxx X. Xxxxxx, Esq.
Any Party may give any notice, request, demand, claim or other communication
hereunder using any other means (including personal delivery, expedited courier,
messenger service, telecopy, telex, ordinary mail or electronic mail), but no
such notice, request, demand, claim or other communication shall be deemed to
have been duly given unless and until it actually is received by the party for
whom it is intended. Any Party may change the address to which notices,
requests, demands, claims, and other communications hereunder are to be
delivered by giving the other Parties notice in the manner herein set forth.
-53-
59
10.8 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Delaware without
giving effect to any choice or conflict of law provision or rule (whether of the
State of Delaware or any other jurisdiction) that would cause the application of
laws of any jurisdictions other than those of the State of Delaware.
10.9 AMENDMENTS AND WAIVERS. The Parties may mutually amend any
provision of this Agreement at any time prior to the Effective Time; PROVIDED,
HOWEVER, that any amendment effected subsequent to the Requisite Stockholder
Approval shall be subject to any restrictions contained in the Delaware General
Corporation Law. No amendment of any provision of this Agreement shall be valid
unless the same shall be in writing and signed by all of the Parties. No waiver
of any right or remedy hereunder shall be valid unless the same shall be in
writing and signed by the Party giving such waiver. No waiver by any Party with
respect to any default, misrepresentation or breach of warranty or covenant
hereunder shall be deemed to extend to any prior or subsequent default,
misrepresentation or breach of warranty or covenant hereunder or affect in any
way any rights arising by virtue of any prior or subsequent such occurrence.
10.10 SEVERABILITY. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforce ability of the offending term or provision in any other
situation or in any other jurisdiction. If the final judgment of a court of
competent jurisdiction declares that any term or provision hereof is invalid or
unenforceable, the Parties agree that the court making the determination of
invalidity or unenforceability shall have the power to limit the term or
provision, to delete specific words or phrases, or to replace any invalid or
unenforceable term or provision with a term or provision that is valid and
enforceable and that comes closest to expressing the intention of the invalid or
unenforceable term or provision, and this Agreement shall be enforceable as so
modified.
10.11 SUBMISSION TO JURISDICTION. Each of the Parties (a) submits to
the jurisdiction of any state or federal court sitting in Boston, Massachusetts
in any action or proceeding arising out of or relating to this Agreement, (b)
agrees that all claims in respect of such action or proceeding may be heard and
determined in any such court, and (c) agrees not to bring any action or
proceeding arising out of or relating to this Agreement in any other court. Each
of the Parties waives any defense of inconvenient forum to the maintenance of
any action or proceeding so brought and waives any bond, surety or other
security that might be required of any other Party with respect thereto. Any
Party may make service on another Party by sending or delivering a copy of the
process to the Party to be served at the address and in the manner provided for
the giving of notices in Section 10.7. Nothing in this Section 10.11, however,
shall affect the right of any Party to serve legal process in any other manner
permitted by law.
-54-
60
10.12 CONSTRUCTION.
(a) The language used in this Agreement shall be deemed to be
the language chosen by the Parties to express their mutual intent, and no rule
of strict construction shall be applied against any Party.
(b) Any reference to any federal, state, local or foreign
statute or law shall be deemed also to refer to all rules and regulations
promulgated thereunder, unless the context requires otherwise.
-55-
61
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
date first above written.
Student Advantage, Inc.
By: /s/ Xxxxxxx X. Xxxxx, Xx.
------------------------------------------
Title: President and Chief Executive Officer
---------------------------------------
SA Acquisition I, Inc.
By: /s/ Xxxxxxx X. Xxxxx, Xx.
------------------------------------------
Title: President and Chief Executive Officer
---------------------------------------
University Netcasting, Inc.
By: /s/ Xxxxxxx Xxxxxx
------------------------------------------
Title: President and Chief Executive Officer
---------------------------------------
The undersigned, being the duly elected Secretary of the Transitory
Subsidiary, hereby certifies that this Agreement has been adopted by a majority
of the votes represented by the outstanding shares of capital stock of the
Transitory Subsidiary entitled to vote on this Agreement.
/s/ Xxxxxxxxxxx X. Xxxxxxx
----------------------------------------------
Xxxxxxxxxxx X. Xxxxxxx
The undersigned, being the duly elected Secretary of the Company,
hereby certifies that this Agreement has been adopted by a majority of the votes
represented by the outstanding Company Shares entitled to vote on this
Agreement.
----------------------------------------------
Xxxxx Xxxxxx
[1st Signature Page to the Student Advantage, Inc./
University Netcasting, Inc. Agreement and Plan of Merger]
62
Company Stockholders:
----------------------------------------------
[NAME]
----------------------------------------------
[NAME]
----------------------------------------------
[NAME]
[2nd Signature Page to the Student Advantage, Inc./
University Netcasting, Inc. Agreement and Plan of Merger]
