EXHIBIT 2.1
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AGREEMENT AND PLAN OF MERGER
DATED AS OF OCTOBER 11, 1996
AMONG
CUC INTERNATIONAL INC.,
KA ACQUISITION CORP.
AND
KNOWLEDGE ADVENTURE, INC.
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TABLE OF CONTENTS
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ARTICLE 1.................................................................. 2
SECTION 1.1. The Merger.............................................. 2
SECTION 1.2. Effective Time.......................................... 2
SECTION 1.3. Closing of the Merger................................... 2
SECTION 1.4. Effects of the Merger................................... 2
SECTION 1.5. Certificate of Incorporation and Bylaws................. 2
SECTION 1.6. Directors............................................... 3
SECTION 1.7. Officers................................................ 3
SECTION 1.8. Conversion of Company Shares............................ 3
SECTION 1.9. Shares of Dissenting Holders............................ 5
SECTION 1.10. Exchange of Certificates................................ 6
SECTION 1.11. Company Stock Options................................... 8
SECTION 1.12. Indemnification; Escrowed Parent Common Stock........... 9
ARTICLE 2.................................................................. 12
SECTION 2.1. Organization and Qualification.......................... 12
SECTION 2.2. Capitalization of the Company........................... 13
SECTION 2.3. Authority Relative to this Agreement and Merger;
Consents and Approvals................................. 14
SECTION 2.4. Financial Statements; Net Assets........................ 15
SECTION 2.5. Information Supplied by the Company..................... 16
SECTION 2.6. Consents and Approvals; No Violations................... 17
SECTION 2.7. No Default.............................................. 17
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SECTION 2.8. No Undisclosed Liabilities; Absence of Changes.......... 18
SECTION 2.9 Litigation.............................................. 18
SECTION 2.10. Compliance with Applicable Law.......................... 18
SECTION 2.11. Employee Benefit Plan Matters........................... 19
SECTION 2.12. Environmental Laws and Regulations...................... 20
SECTION 2.13. Labor and Employment Matters............................ 20
SECTION 2.14. Tax Matters............................................. 21
SECTION 2.15. Properties and Inventories.............................. 24
SECTION 2.16. Insurance............................................... 24
SECTION 2.17. Returns................................................. 24
SECTION 2.18. Intellectual Property................................... 25
SECTION 2.19. Opinion of Financial Adviser............................ 26
SECTION 2.20. Accounting Matters...................................... 26
SECTION 2.21. Material Contracts...................................... 27
SECTION 2.22. Related Party Transactions.............................. 28
SECTION 2.23. Brokers................................................. 28
SECTION 2.24. Disclosure.............................................. 28
ARTICLE 3.................................................................. 29
SECTION 3.1. Organization............................................ 29
SECTION 3.2. Capitalization of Parent................................ 29
SECTION 3.3. Authority Relative to this Agreement.................... 30
SECTION 3.4. SEC Reports; Financial Statements....................... 30
SECTION 3.5. Information Supplied by Parent.......................... 31
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SECTION 3.6. Consents and Approvals; No Violations................... 31
SECTION 3.7. No Undisclosed Liabilities.............................. 32
SECTION 3.8. No Prior Activities..................................... 32
SECTION 3.9. Brokers................................................. 32
SECTION 3.10. Accounting Matters...................................... 32
SECTION 3.11. Litigation.............................................. 33
SECTION 3.12. Disclosure.............................................. 33
ARTICLE 4.................................................................. 33
SECTION 4.1. Conduct of Business of the Company...................... 33
SECTION 4.2. Exemption from Registration or Securities Act
Registration........................................... 35
SECTION 4.3. Stockholders' Meeting; Proxy Statement/Information
Statement.............................................. 36
SECTION 4.4. Other Potential Acquirors............................... 37
SECTION 4.5. Access to Information................................... 37
SECTION 4.6. Additional Agreements; Reasonable Efforts............... 38
SECTION 4.7. Consents................................................ 39
SECTION 4.8. Public Announcements.................................... 39
SECTION 4.9. Directors' and Officers' Indemnification................ 39
SECTION 4.10. Notification of Certain Matters......................... 39
SECTION 4.11. Pooling................................................. 40
SECTION 4.12. Tax-Free Reorganization Treatment....................... 40
SECTION 4.13. Taxes................................................... 40
SECTION 4.14. Employment and Non-Competition Agreements............... 41
SECTION 4.15. Company Affiliates...................................... 41
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SECTION 4.16. Parent Stock Option and Employee Bonus Pool.............. 41
SECTION 4.17. Consent and Waiver....................................... 42
SECTION 4.18. Stock Exchange Listing................................... 42
SECTION 4.19. SEC Filings.............................................. 43
SECTION 4.20. Exercise of Company Stock Options........................ 43
SECTION 4.21. Certain Filing by Parent................................. 43
SECTION 4.22. Termination of Certain Side Letters...................... 43
SECTION 4.23. Delivery of Certified Financial Statements............... 43
SECTION 4.24. Defaults Under the Silicon Loan Documents................ 43
ARTICLE 5................................................................... 44
SECTION 5.1. Conditions to Each Party's Obligations to Effect the
Merger.................................................. 44
SECTION 5.2. Conditions to the Obligations of the Company............. 44
SECTION 5.3. Conditions to the Obligations of Parent and Acquisition.. 45
ARTICLE 6................................................................... 48
SECTION 6.1. Termination.............................................. 48
SECTION 6.2. Effect of Termination.................................... 49
SECTION 6.3. Expenses................................................. 50
SECTION 6.4. Amendment................................................ 50
SECTION 6.5. Extension; Waiver........................................ 50
ARTICLE 7................................................................... 51
SECTION 7.1. Survival of Representations and Warranties............... 51
SECTION 7.2. Entire Agreement; Assignment............................. 51
SECTION 7.3. Validity................................................. 51
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SECTION 7.4. Notices................................................. 51
SECTION 7.5. Governing Law............................................ 52
SECTION 7.6. Headings; Construction................................... 52
SECTION 7.7. Parties in Interest...................................... 52
SECTION 7.8. Specific Performance..................................... 53
SECTION 7.9. Brokers.................................................. 53
SECTION 7.10. Counterparts............................................ 53
SECTION 7.11. Definition of Knowledge................................. 53
SECTION 7.12. Recapitalization........................................ 53
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EXHIBITS
Exhibit A - Form of Certificate of Merger
Exhibit B - Directors of Surviving Corporation at the Effective Time
Exhibit C - Officers of Surviving Corporation at the Effective Time
Exhibit D - Form of Escrow Agreement
Exhibit E - Certificate to be delivered by Parent and Acquisition in
Connection with Tax Opinion of Company Counsel
Exhibit F - Form of Amended and Restated Employment Agreement of
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Exhibit G-1 - Form of Non-Competition Agreement of ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Exhibit G-2 - Form of Non-Competition Agreement of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Exhibit H - Form of Consent and Waiver
Exhibit I - Form of Internet Domain Name Assignment
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of October 11, 1996 (this
"Agreement"), is among KNOWLEDGE ADVENTURE, INC., a Delaware corporation (the
"Company"), CUC INTERNATIONAL INC., a Delaware corporation ("Parent"), and KA
ACQUISITION CORP., a Delaware corporation and a direct wholly owned subsidiary
of Parent ("Acquisition").
WHEREAS, the Boards of Directors of the Company, Parent and
Acquisition each have, in light of and subject to the terms and conditions set
forth herein, (i) determined that the Merger (as defined in Section 1.1) is fair
to their respective stockholders and in the best interests of such stockholders
and (ii) approved the Merger in accordance with this Agreement;
WHEREAS, for federal income tax purposes, it is intended that the
Merger shall qualify as a reorganization within the meaning of Section 368(a) of
the Internal Revenue Code of 1986, as amended (the "Code");
WHEREAS, it is intended that the Merger shall be recorded for
accounting purposes as a "pooling-of-interests";
WHEREAS, the Company has delivered to Parent a letter identifying all
persons (each, a "Company Affiliate") who are, on the date hereof, "affiliates"
of the Company as defined for purposes of paragraphs (c) and (d) of Rule 145
under the Securities Act of 1933, as amended (the "Securities Act"), and each
Company Affiliate (other than those identified herein) has delivered to Parent a
letter (each, an "Affiliate Letter") relating to (i) the transfer, prior to the
Effective Time (as defined in Section 1.2), of the Company Shares (as defined in
Section 1.8) beneficially owned by such Company Affiliate on the date hereof and
(ii) the transfer of the shares of Parent Common Stock (as defined in Section
1.8(a)(i)) to be received by such Company Affiliate in and pursuant to the
Merger; and
WHEREAS, in contemplation of the consummation of the Merger, Parent
has agreed to loan to the Company, on the terms and subject to the conditions
set forth in a Loan Agreement dated of even date herewith (the "Loan Agreement")
between Parent and the Company, and the loan documents executed and delivered in
connection therewith (together with the Loan Agreement, the "Loan Documents"),
up to a maximum of $3.0 million to repay certain outstanding indebtedness of the
Company and to fund the business operations of the Company in the ordinary
course.
NOW, THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements herein contained, and
intending to be legally bound hereby, the Company, Parent and Acquisition hereby
agree as follows:
ARTICLE 1
THE MERGER
SECTION 1.1. The Merger. At the Effective Time and upon the
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terms and subject to the conditions of this Agreement and in accordance with the
Delaware General Corporation Law (the "DGCL"), Acquisition shall be merged with
and into the Company (the "Merger"). Following the Merger, the Company shall
continue as the surviving corporation (the "Surviving Corporation") and the
separate corporate existence of Acquisition shall cease.
SECTION 1.2. Effective Time. Subject to the terms and conditions
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set forth in this Agreement, the certificate of merger to be filed with the
Secretary of State of the State of Delaware in the form attached as Exhibit A
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(the "Certificate of Merger") shall be duly executed and acknowledged
by Acquisition and the Company and thereafter delivered to the Secretary of
State of the State of Delaware for filing pursuant to the DGCL on the Closing
Date (as defined in Section 1.3). The Merger shall become effective at such
time as a properly executed and certified copy of the Certificate of Merger is
duly filed by the Secretary of State of the State of Delaware in accordance with
the DGCL or at such time as is provided in the Certificate of Merger (the time
the Merger becomes effective being referred to herein as the "Effective Time").
SECTION 1.3. Closing of the Merger. The closing of the Merger
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(the "Closing") will take place at a time and on a date to be specified by the
parties (the "Closing Date"), which date shall occur on the second business day
after satisfaction (or waiver) of the latest to occur of the conditions set
forth in Article 5 but in any case no earlier than December 31, 1996 (unless
otherwise agreed by Parent), at the offices of ▇▇▇▇▇▇, ▇▇▇▇ & ▇▇▇▇▇▇▇▇, ▇▇▇
▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, unless another time, date or
place is agreed to in writing by the parties.
SECTION 1.4. Effects of the Merger. The Merger shall have the
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effects set forth in the DGCL. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time, all the properties,
rights, privileges, powers and franchises of the Company and Acquisition shall
vest in the Surviving Corporation, and all debts, liabilities and duties of the
Company and Acquisition shall become the debts, liabilities and duties of the
Surviving Corporation.
SECTION 1.5. Certificate of Incorporation and Bylaws. The
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Certificate of Incorporation of the Company in effect at the Effective Time
shall be the Certificate of Incorporation of the Surviving Corporation until
amended in accordance with applicable law. The Bylaws of the Company in effect
at the Effective Time shall be the Bylaws of the Surviving Corporation until
amended in accordance with applicable law.
SECTION 1.6. Directors. The directors of Acquisition at the
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Effective Time shall be the persons identified in Exhibit B, and such persons
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shall be the initial directors of the Surviving Corporation, each to hold office
in accordance with the Certificate of Incorporation and Bylaws of the Surviving
Corporation until such director's successor is duly elected or appointed and
qualified.
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SECTION 1.7. Officers. The officers of the Company at the
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Effective Time shall be the persons identified in Exhibit C, and such persons
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shall be the initial officers of the Surviving Corporation, each to hold office
in accordance with the Certificate of Incorporation and Bylaws of the Surviving
Corporation until such officer's successor is duly elected or appointed and
qualified.
SECTION 1.8. Conversion of Company Shares.
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(a) At the Effective Time, by virtue of the Merger and without any
action on the part of the Company, Parent, Acquisition or the holder of any of
the Company Shares (other than (x) Company Shares held by Parent, Acquisition or
any other subsidiary of Parent, (y) Company Dissenting Shares (as defined in
Section 1.9) and (z) Company Shares held in the Company's treasury), all of the
shares of:
(i) Common Stock, par value $.0001 per share, of the Company ("Company
Common Stock");
(ii) Series A Convertible Preferred Stock, par value $.0001 per share,
of the Company ("Series A Preferred Stock");
(iii) Series B Convertible Preferred Stock, par value $.0001 per
share, of the Company ("Series B Preferred Stock");
(iv) Series C Convertible Preferred Stock, par value $.0001 per share,
of the Company ("Series C Preferred Stock");
(v) Series D Convertible Preferred Stock, par value $.0001 per share,
of the Company ("Series D Preferred Stock");
(vi) Series E Convertible Preferred Stock, par value $.0001 per share,
of the Company ("Series E Preferred Stock"); and
(vii) Series F Convertible Preferred Stock, par value $.0001 per
share, of the Company ("Series F Preferred Stock");
issued and outstanding immediately prior to the Effective Time shall be
converted into the right to receive, in the aggregate, the total of (a)
2,277,747 fully paid and nonassessable shares of common stock, $.01 par value
per share, of Parent ("Parent Common Stock"), minus (b) a number of fully paid
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and nonassessable shares of Parent Common Stock determined by dividing the Gross
Option Spread (as defined below) by $36.22, minus (c) the Preferred Option
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Consideration (as defined in Section 1.8(b)), plus, (d) if and only if the
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Effective Time does not occur prior to December 1, 1996, an additional 499.232
fully paid and nonassessable shares of Parent Common Stock for each calendar day
after December 1, 1996 and prior to the Closing Date, in each case subject to
the indemnification and escrow provisions of Section 1.12 and the Escrow
Agreement (as defined below) (the total of clause (a), minus clause (b), minus
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clause (c) and plus clause (d), subject to such indemnification and escrow
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provisions, being hereinafter
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referred to as the "Merger Consideration"). Each share of Company Common Stock,
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock, Series E Preferred Stock and Series F Preferred Stock
shall be converted into the right to receive that portion of the Merger
Consideration to which such share is entitled under, and in accordance with,
Article IV, Section 2 of the Restated Certificate of Incorporation of the
Company. For the purposes of this Section 1.8, the term "Gross Option Spread"
shall mean the positive number, if any, obtained by subtracting (a) the
aggregate exercise price under all Parent Replacement Options (as defined in
Section 1.11(a)) issued in exchange for Company Stock Options pursuant to
Section 1.11 from (b) the product of $36.22 multiplied by the aggregate number
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of full shares of Parent Common Stock deemed purchasable (as determined under
Section 1.11) following the Merger pursuant to all such Parent Replacement
Options.
Issued and outstanding shares of Company Common Stock and issued and
outstanding shares of Series A Preferred Stock, Series B Preferred Stock, Series
C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Series
F Preferred Stock (collectively, "Company Preferred Stock") are referred to
herein collectively as the "Company Shares."
(b) If, as of the Effective Time, there remain outstanding and
unexercised any options, warrants or similar securities, whether vested or
unvested, entitling the holders thereof to acquire any shares of Company
Preferred Stock (as defined below) ("Preferred Options"), then, at the Effective
Time, by virtue of the Merger and without any action on the part of the Company,
Parent, Acquisition or the holder of any Preferred Options, all Preferred
Options that remain outstanding and unexercised as of the Effective Time shall
be converted into the right to receive, in the aggregate, a number of fully paid
and nonassessable shares of Parent Common Stock (such number of shares of Parent
Common Stock being referred to herein as the "Preferred Option Consideration")
determined by:
(i) multiplying (A) the number of shares of Company Preferred Stock
purchasable upon the exercise of the Preferred Options that remain
outstanding and unexercised as of the Effective Time, times (B) the number
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of shares of Parent Common Stock, or a fraction thereof, that a person
holding the number of shares of Company Preferred Stock into which such
Preferred Options were exercisable would have been entitled to receive in
the Merger pursuant to the last sentence of the immediately succeeding
paragraph (without taking into account whether such Preferred Options were
in fact exercisable and without adjusting the allocation of the Merger
Consideration among the Company Shares to give effect to any deemed
exercise of Preferred Options), and
(ii) subtracting from the product determined under clause (i) above a
number of shares of Parent Common Stock determined by dividing (A) the
aggregate exercise prices of all Preferred Options that remain outstanding
and unexercised as of the Effective Time by (B) $36.22;
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in each case, subject to the indemnification and escrow provisions of Section
1.12 and the Escrow Agreement, to be divided among the holders of Preferred
Options pro rata in accordance with the
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respective liquidation preferences of the shares of Company Preferred Stock
theretofore purchasable on exercise of such Preferred Options.
(c) At the Effective Time, each outstanding share of the common stock,
par value $0.01 per share, of Acquisition shall be converted into one share of
common stock, par value $0.0001 per share, of the Surviving Corporation.
(d) At the Effective Time, each Company Share, if any, held by Parent,
Acquisition or any subsidiary of Parent or Acquisition immediately prior to the
Effective Time shall, by virtue of the Merger and without any action on the part
of Parent, Acquisition or such subsidiary, be canceled, retired and cease to
exist, and no payment shall be made with respect thereto.
(e) At the Effective Time, each Company Share held in the Company's
treasury immediately prior to the Effective Time shall be canceled, retired and
cease to exist, and no payment shall be made with respect thereto.
SECTION 1.9. Shares of Dissenting Holders.
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(a) Notwithstanding anything to the contrary contained in this
Agreement, any holder of Company Shares issued and outstanding immediately prior
to the Effective Time with respect to which dissenters' rights, if any, are
granted by reason of the Merger under the DGCL and who does not vote in favor of
the Merger and who otherwise complies with Section 262 of the DGCL and, if
applicable, Chapter 13 of the California General Corporation Law ("CGCL")
("Company Dissenting Shares") shall not be entitled to receive shares of Parent
Common Stock pursuant to Section 1.8, unless such holder fails to perfect,
effectively withdraws or loses his right to dissent from the Merger under the
DGCL or the CGCL. Such holder shall be entitled to receive only such rights as
are granted by Section 262 of the DGCL and/or Chapter 13 of the CGCL. If any
such holder so fails to perfect, effectively withdraws or loses his or her
dissenters' rights under the DGCL or the CGCL, his or her Company Dissenting
Shares shall thereupon be deemed to have been converted, as of the Effective
Time, into the right to receive shares of Parent Common Stock pursuant to
Section 1.8 based upon the class of equity security comprising such Company
Dissenting Shares.
(b) Any payments relating to Company Dissenting Shares shall be made
solely by the Surviving Corporation and no funds or other property have been or
will be provided by Acquisition or any of Parent's other direct or indirect
subsidiaries for such payment.
SECTION 1.10. Exchange of Certificates.
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(a) As of the Effective Time, Parent shall deposit with The Bank of
Boston, or another bank or trust company designated by Parent and reasonably
acceptable to the Company (the "Exchange Agent"), for the benefit of the holders
of Company Shares, for exchange in accordance with this Article 1, through the
Exchange Agent: (i) certificates representing the appropriate number of shares
of Parent Common Stock into which the Company Shares held by the stockholders of
the Company immediately prior to the Effective Time shall become convertible
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pursuant to Section 1.8 (rounded down to the nearest whole share), less the
number of shares of Escrowed Common Stock (as defined below) (rounded up to the
nearest whole share) to be deposited into the escrow account pursuant to Section
1.12(b) and the Escrow Agreement, and (ii) cash to be paid in lieu of fractional
shares of Parent Common Stock (such shares of Parent Common Stock and such cash
are hereinafter referred to as the "Exchange Fund") issuable pursuant to
Sections 1.8 and 1.10(f) in exchange for outstanding Company Shares.
(b) As soon as practicable but no later than thirty (30) days after
the Effective Time, the Exchange Agent shall mail to each holder of record of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding Company Shares (the "Certificates") whose Company Shares
were converted into the right to receive shares of Parent Common Stock pursuant
to Section 1.8 and whose shares are not Company Dissenting Shares: (i) a letter
of transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent and shall be in such form and have such other
provisions as Parent may reasonably specify) and (ii) instructions for use in
effecting the surrender of the Certificates in exchange for certificates
representing shares of Parent Common Stock. Promptly following the surrender of
a Certificate for cancellation to the Exchange Agent or to such other agent or
agents as may be appointed by Parent and Acquisition, together with such letter
of transmittal, duly executed, the Exchange Agent shall deliver to the holder of
such Certificate a certificate representing that number of whole shares of
Parent Common Stock, less the number of shares of Escrowed Parent Common Stock,
and, if applicable, a check representing the cash consideration to which such
holder may be entitled on account of a fractional share of Parent Common Stock
pursuant to Section 1.10(f), which such holder has the right to receive pursuant
to the provisions of this Article 1, and the Certificate so surrendered shall
forthwith be canceled. In the event of a transfer of ownership of Company
Shares which is not registered in the transfer records of the Company, a
certificate representing the proper number of shares of Parent Common Stock may
be issued to a transferee if the Certificate representing such Company Shares is
presented to the Exchange Agent, accompanied by all documents required to
evidence and effect such transfer and by evidence that any applicable stock
transfer taxes have been paid. Until surrendered as contemplated by this
Section 1.10, each Certificate shall be deemed at any time after the Effective
Time to represent only the right to receive upon such surrender the certificate
representing shares of Parent Common Stock, subject to the indemnification and
escrow provisions of Section 1.12 and the Escrow Agreement, and cash in lieu of
any fractional shares of Parent Common Stock to which the holder may be entitled
as contemplated by this Section 1.10.
(c) No dividends or other distributions declared or made after the
Effective Time with respect to Parent Common Stock with a record date after the
Effective Time shall be paid to the holder of any unsurrendered Certificate with
respect to any whole shares of Parent Common Stock represented thereby until the
holder of record of such Certificate shall surrender such Certificate. Subject
to the effect of applicable laws, following surrender of such Certificate, there
shall be paid to the record holder of the certificates representing whole shares
of Parent Common Stock issued in exchange therefor, without interest, (i) at the
time of such surrender, the amount of any dividends or other distributions with
a record date after the Effective Time theretofore paid
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prior to surrender with respect to such whole shares of Parent Common Stock, and
(ii) at the appropriate payment date, the amount of dividends or other
distributions with a record date after the Effective Time but prior to surrender
and a payment date subsequent to surrender payable with respect to such whole
shares of Parent Common Stock.
(d) In the event that any Certificate for Company Shares shall have
been lost, stolen or destroyed, the Exchange Agent shall issue in exchange
therefor, upon the making of an affidavit of that fact by the holder thereof,
such shares of Parent Common Stock and cash in lieu of fractional shares, if
any, as may be required pursuant to this Agreement; provided, however, that
Parent may, in its discretion, require the delivery of a bond or indemnity of a
type that is usual and customary in transactions of this nature.
(e) All shares of Parent Common Stock issued upon the surrender for
exchange of Company Shares in accordance with the terms hereof (including the
Escrowed Parent Common Stock and any cash paid pursuant to Section 1.10(c) or
1.10(f)) shall be deemed to have been issued in full satisfaction of all rights
pertaining to such Company Shares, and there shall be no further registration of
transfers on the stock transfer books of the Surviving Corporation of the
Company Shares which were outstanding immediately prior to the Effective Time.
If, after the Effective Time, Certificates are presented to the Surviving
Corporation for any reason, they shall be canceled and exchanged as provided in
this Article 1.
(f) No fractions of a share of Parent Common Stock shall be issued in
the Merger, but in lieu thereof each holder of Company Shares otherwise entitled
to a fraction of a share of Parent Common Stock shall, upon surrender of his or
her Certificate or Certificates, be entitled to receive an amount of cash
(without interest) determined by multiplying the closing price per share for
Parent Common Stock as reported on the NYSE (as defined below) on the day
immediately preceding the date of the Effective Time by the fractional share
interest to which such holder would otherwise be entitled. The parties
acknowledge that payment of the cash consideration in lieu of issuing fractional
shares was not separately bargained for consideration but merely represents a
mechanical rounding off for purposes of simplifying the corporate and accounting
problems which would otherwise be caused by the issuance of fractional shares.
(g) Any portion of the Exchange Fund which remains undistributed to
the stockholders of the Company for six (6) months after the Effective Time
shall be delivered to Parent, upon demand, and any stockholders of the Company
who have not theretofore complied with this Article 1 shall thereafter look only
to Parent for payment of their claim for Parent Common Stock, any cash in lieu
of fractional shares of Parent Common Stock and/or any dividends or
distributions with respect to Parent Common Stock.
(h) Neither Parent nor the Company shall be liable to any holder of
Company Shares, or Parent Common Stock, as the case may be, for such shares (or
dividends or other distributions with respect thereto) or cash from the Exchange
Fund delivered to a public official pursuant to any applicable abandoned
property, escheat or similar law.
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SECTION 1.11. Company Stock Options.
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(a) At the Effective Time, each outstanding option, warrant or similar
security, whether vested or unvested, to acquire any Company Common Stock,
whether issued pursuant to the Company's 1991 Stock Option Plan or the Company's
1993 Stock Option Plan (collectively, the "Company Plans") or otherwise
(individually, a "Company Stock Option," and, collectively, "Company Stock
Options"), shall be cancelled and, in lieu thereof, Parent shall issue to each
holder of a Company Stock Option an option (each, a "Parent Replacement Option")
to acquire, on substantially the same terms and conditions as were applicable
under such Company Stock Option, the number of shares of Parent Common Stock
that a person holding the number of shares of Company Common Stock into which
such Company Stock Option was exercisable would have been entitled to receive
pursuant to the Merger (without taking into account whether such option was in
fact exercisable at such time and without adjusting the allocation of the Merger
Consideration among the Company Shares to give effect to any deemed exercise of
the Company Stock Options), at a price per share equal to (i) the aggregate
exercise price for the shares of Company Common Stock subject to such Company
Stock Option divided by (ii) the number of full shares of Parent Common Stock
deemed purchasable pursuant to such Company Stock Option as described above;
provided, however, that (A) the number of Parent Replacement Options, and the
number of shares of Parent Common Stock that may be purchased upon the exercise
of such Parent Replacement Options, shall be subject to the indemnification
provisions of Section 1.12 and (B) the number of shares of Parent Common Stock
that may be purchased upon exercise of such Parent Replacement Option shall not
include any fractional share and, upon exercise of the Parent Replacement
Option, any fractional share shall be rounded up to the nearest whole share.
The term "Closing Price" shall mean, on any day, the last reported sale price of
one share of Parent Common Stock on the New York Stock Exchange (the "NYSE")
Composite Transactions.
(b) No less than twenty (20) business days prior to the Effective
Time, the Company shall deliver a notice to each holder of any Company Stock
Options, at the address of such holder shown on the Company's records, notifying
such holder (i) of the right of such holder to exercise such Company Stock
Options in accordance with their terms prior to the Effective Time and (ii) that
any of such holder's Company Stock Options that remain unexercised as of the
Effective Time will be cancelled and exchanged for Parent Replacement Options
pursuant to Section 1.11(a).
(c) Parent shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of Parent Common Stock for delivery upon
exercise of the Parent Replacement Options. Parent shall use its best efforts
to cause there to be effective as of the Effective Time, or as soon as
practicable thereafter, a registration statement on Form S-8 (or any successor
form) or another appropriate form with respect to the Parent Common Stock
subject to any Parent Replacement Options held by persons who are or were
directors, officers, employees or consultants (subject to the rules of such
form) of the Company, and shall use its best efforts to maintain the
effectiveness of such registration statement or registration statements (and
maintain
8
the current status of the prospectus or prospectuses contained therein) for so
long as such Parent Replacement Options remain outstanding.
(d) The Company shall not assign to Parent, Acquisition or the
Surviving Corporation any rights of the Company under certain stock purchase
agreements between the Company and certain employees and other persons to
repurchase Company Common Stock acquired upon the exercise of Company Stock
Options.
SECTION 1.12. Indemnification; Escrowed Parent Common Stock .
---------------------------------------------
(a) The stockholders of the Company immediately prior to the Effective
Time (including for all purposes in this Section 1.12, all holders of Preferred
Options that remain outstanding and unexercised immediately prior to the
Effective Time) and all holders of Parent Replacement Options shall indemnify,
defend and hold harmless, jointly and severally, Parent, Acquisition and, after
the Effective Time, the Surviving Corporation, and each of their respective
affiliates, successors, assigns, agents and representatives (collectively, the
"Affiliated Parties"), against and in respect of any and all claims, demands,
losses, costs, expenses, obligations, liabilities, damages, remedies and
penalties (including, without limitation, interest, penalties, settlement costs
and any legal, accounting or other fees and expenses for investigating or
defending any claims or threatened actions) (collectively, "Losses") that
Parent, Acquisition, the Surviving Corporation or any of their respective
Affiliated Parties actually incur or suffer in connection with:
(i) any breach of any of the representations or warranties made by the
Company in this Agreement or in any certificate, instrument or other
document delivered pursuant hereto;
(ii) any breach of any covenant of the Company contained in this
Agreement;
(iii) the restatement, if any, by Price Waterhouse LLP, the Company's
auditors, of the financial statements of the Company identified in Sections
2.4(a)(i) or (ii), provided that, in respect of this clause (iii), such
indemnification shall be limited to Losses that are actually incurred or
suffered as a result of a claim or demand made by any person against
Parent, Acquisition, the Surviving Corporation or any of their respective
Affiliated Parties, whether for Taxes or otherwise; or
(iv) any default under or violation of the Loan and Security Agreement
dated February 2, 1994, between the Company and Silicon Valley Bank,
including all exhibits and schedules thereto and all related agreements,
instruments and other documents (in each case as supplemented, amended or
otherwise modified from time to time, the "Silicon Loan Documents"),
whether in existence on the date hereof or arising after the date hereof
and prior to the Effective Time;
provided, however, that no claim, demand, suit or cause of action shall be
brought against the stockholders of the Company or holders of Parent Replacement
Options under Section 1.12(a)(i)
9
or (ii) unless and until the aggregate amount of claims under this Section
1.12(a) exceeds, on a cumulative basis, $250,000, in which event Parent,
Acquisition, the Surviving Corporation and any of their respective Affiliated
Parties shall be entitled to indemnification from the stockholders of the
Company or holders of Parent Replacement Options for all claims under Section
1.12(a)(i) or (ii) relating back to the first dollar.
(b) At the Closing, certificates representing nine percent (9%) of the
number of shares of Parent Common Stock (rounded up to the nearest whole share)
issued in the Merger pursuant to Section 1.8 (the "Escrowed Parent Common
Stock") shall be deposited into an escrow account and held pursuant to the terms
of an Escrow Agreement among Parent, the Surviving Corporation, the Escrow
Committee (as defined therein) and the escrow agent, in substantially the form
of Exhibit D (the "Escrow Agreement"). The Escrowed Parent Common Stock shall
---------
be withheld pro rata from the number of shares of Parent Common Stock to be
received by each stockholder of the Company in the Merger. To the extent that
Parent, Acquisition, the Surviving Corporation or any of their respective
Affiliated Parties shall have any claims for indemnification pursuant to Section
1.12(a), it or they may seek recourse against the Escrowed Parent Common Stock
in seeking satisfaction of such claims. The Escrowed Parent Common Stock, less
----
the number of shares of Escrowed Parent Common Stock having a fair market value
most nearly equal to the aggregate amount of all indemnification claims made by
Parent, Acquisition, the Surviving Corporation or their respective Affiliated
Parties under Section 1.12(a) (for such purposes, the fair market value of one
share of Escrowed Parent Common Stock shall be equal to $36.22), shall be
released to the stockholders of the Company pursuant to the Escrow Agreement on
the earlier to occur (the "Escrow Release Date") of (i) the four (4) month
anniversary of the Closing and (ii) the date upon which audited consolidated
financial statements of Parent, which include the results of operations of the
Surviving Corporation, shall have been completed and Parent shall have received
a signed opinion of Ernst & Young LLP ("E&Y"), its independent auditors, with
respect to such financial statements. Upon the approval by the stockholders of
the Company of the Merger Agreement and the Merger, such stockholders shall be
deemed to have irrevocably appointed an escrow committee consisting of ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇ and ▇▇▇ ▇▇▇▇▇▇ (the "Escrow Committee") to act as their attorney-in-
fact on behalf of such stockholders and the holders, if any, of Preferred
Options to consent to, contest, settle, compromise or otherwise dispose of any
claim made by Parent or any other Affiliated Party in accordance with Section
1.12(a) and the Escrow Agreement. No further documentation shall be required to
evidence such appointment, and such power of attorney shall be coupled with an
interest, thereby confirming such appointment as irrevocable. The Escrow
Committee shall be empowered to act by majority vote with respect to all matters
arising under Section 1.12(a) and the Escrow Agreement. If any member of the
Escrow Committee shall die, become disabled or otherwise be unable or unwilling
to fulfill his responsibilities hereunder, each the remaining members of the
Escrow Committee shall select a replacement member. Such remaining members of
the Escrow Committee shall notify Parent and the Escrow Agent in writing of any
change in the composition of the Escrow Committee.
(c) The sole and exclusive remedy of Parent, Acquisition, the
Surviving Corporation and their respective Affiliated Parties against the
stockholders of the Company for any
10
indemnification claim brought under Section 1.12(a) following the Effective Time
shall be the return of shares of Escrowed Parent Common Stock pursuant to the
Escrow Agreement. If, and to the extent that, there are Company Stock Options
that remain outstanding and unexercised immediately prior to the Effective Time,
Parent, Acquisition, the Surviving Corporation and any of their respective
Affiliated Parties will be entitled to have recourse against the holders of
Parent Replacement Options issued in the Merger in exchange for such Company
Stock Options in seeking satisfaction of any indemnification claims, which
recourse shall only be available prior to the Escrow Release Date and shall be
limited solely to the right to demand the return (or cancellation) of a number
of Parent Replacement Options, or Parent Common Stock if such Parent Replacement
Options have theretofore been exercised, having a fair market value most
nearly equal to the aggregate amount of all indemnification claims; provided,
however, that such indemnified parties shall only be entitled pursuant to this
sentence to demand the return (or cancellation) of Parent Replacement Options,
or Parent Common Stock, having a fair market value that does not exceed 9% of
the fair market value of the Parent Replacement Options, or Parent Common Stock,
as applicable, received by such holders in exchange for their Company Stock
Options (for all such purposes, the fair market value of one share of Parent
Common Stock shall be equal to $36.22). Notwithstanding anything to the
contrary, nothing contained in this Section 1.12 shall in any way limit any
claim, cause of action or remedy that may be available to Parent, Acquisition,
the Surviving Corporation or any of their respective Affiliated Parties against
(i) any stockholder of the Company or any holder of options to acquire capital
stock of the Company, whether at law or in equity, for willful or intentional
fraud or in connection with the execution and/or delivery by such stockholder or
optionholder of its Affiliate Letter or any certificate, instrument or agreement
executed and/or delivered by such stockholder or optionholder or (ii) the
Company for breach of any representation, warranty, covenant or agreement
contained herein or in any other certificate, instrument or agreement (including
any Affiliate Letter) executed and delivered in connection with the Merger.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to each of Parent and
Acquisition as follows:
SECTION 2.1. Organization and Qualification.
------------------------------
(a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the jurisdiction of its incorporation and has
all requisite corporate power and authority to own, lease and operate its
properties and to carry on its businesses as now being conducted, except where
the failure to be so organized, existing and in good standing or to have such
power and authority would not have a Material Adverse Effect (as defined below)
on the Company. When used in connection with the Company, the term "Material
Adverse Effect" means any change or effect that (i) is or is reasonably likely
to be materially adverse to the properties, business, results of operations or
condition (financial or otherwise) of the Company, or
11
(ii) may materially impair the ability of the Company to consummate the
transactions contemplated hereby.
(b) Except as disclosed in Section 2.1 of the Company Disclosure
Schedule dated October 11, 1996, previously delivered by the Company to Parent
(the "Company Disclosure Schedule"), the Company does not own any equity or
other interest, or right to acquire any equity or other interest, in any
corporation, partnership, joint venture, limited liability company or similar
entity other than (i) 997,407 shares of common stock of Worlds, Inc., a Delaware
corporation ("Worlds"), which, to the knowledge of the Company, represents
17.85% of the outstanding common stock of Worlds and (ii) 28,498 shares of
series A preferred stock of Worlds. To the knowledge of the Company, the
outstanding common stock and series A preferred stock of Worlds held by the
Company represents approximately 12.45% of the total outstanding capital stock
of Worlds on a fully diluted basis.
(c) Except as set forth in Section 2.1 of the Company Disclosure
Schedule, the Company is duly qualified or licensed and in good standing to do
business in each jurisdiction in which the property owned, leased or operated by
it or the nature of the business conducted by it makes such qualification or
licensing necessary, except in such jurisdictions where the failure to be so
duly qualified or licensed and in good standing would not, individually or in
the aggregate, have a Material Adverse Effect on the Company.
(d) The Company has heretofore delivered to Parent copies of the
Restated Certificate of Incorporation and Bylaws of the Company, in each case as
currently in effect, which copies are true, correct and complete except as set
forth in Section 2.1 of the Company Disclosure Schedule.
SECTION 2.2. Capitalization of the Company.
-----------------------------
(a) The authorized capital stock of the Company consists of:
(i) 50,000,000 shares of Company Common Stock, of which
8,725,381 are issued and outstanding as of the date hereof;
(ii) 5,000,000 shares of Series A Preferred Stock, of which
3,253,754 are issued and outstanding as of the date hereof;
(iii) 2,764,096 shares of Series B Preferred Stock, all of which
are issued and outstanding as of the date hereof;
(iv) 3,634,412 shares of Series C Preferred Stock, all of which
are issued and outstanding as of the date hereof;
(v) 321,942 shares of Series D Preferred Stock, all of which
are issued and outstanding as of the date hereof;
(vi) 2,186,053 shares of Series E Preferred Stock, all of which
are issued and outstanding as of the date hereof; and
12
(vii) 800,000 shares of Series F Preferred Stock, of which 748,683
shares are issued and outstanding as of the date hereof.
All of the Company Shares have been validly issued, and are fully
paid, nonassessable and free of preemptive rights. As of August 31, 1996,
3,426,149 shares of Company Common Stock were reserved for issuance and issuable
upon or otherwise deliverable in connection with the exercise of outstanding
Company Stock Options, and 275,000 shares of Series A Preferred Stock were
reserved for issuance and issuable upon or otherwise deliverable in connection
with the outstanding Preferred Options. Section 2.2 of the Company Disclosure
Schedule sets forth a true, correct and complete list, as of August 31, 1996, of
Company Stock Options and Preferred Options, including, for each such Company
Stock Option and Preferred Option, the date of grant, the Company Plan under
which it was granted, if applicable, the number of shares of Company capital
stock which may be purchased and the exercise price. The Company has previously
delivered to Parent copies of all forms of stock option agreements, notes and
stock pledge agreements used by the Company in connection with the grant and
exercise of Company Stock Options and Preferred Options. All Company Stock
Options and Preferred Options that are not exercised prior to the Effective Time
will terminate by their terms unless assumed by Parent pursuant to Section 1.11.
Since August 31, 1996, no shares of the Company's capital stock have been issued
other than pursuant to the exercise of Company Stock Options and Preferred
Options in existence on such date and no additional Company Stock Options or
Preferred Options have been granted. Except as set forth above, as of the date
hereof, there are outstanding no (i) shares of capital stock or other voting
securities of the Company, (ii) securities of the Company convertible into or
exchangeable for shares of capital stock or voting securities of the Company,
(iii) except as set forth in Section 2.2 of the Company Disclosure Schedule,
options, warrants or other rights to acquire from the Company, and no
obligations of the Company to issue, any capital stock, voting securities or
securities convertible into or exchangeable for capital stock or voting
securities of the Company, and (iv) equity equivalents or other similar rights
(collectively, "Company Securities").
(b) There are no outstanding obligations of the Company to repurchase,
redeem or otherwise acquire any Company Securities. Other than the Restated
Investors Rights Agreement referred to in Section 5.3(j), there are no
stockholder agreements, voting trusts or other agreements or understandings to
which the Company is a party or to which it is bound relating to the voting or
registration of any Company Securities. Section 2.2 of the Company Disclosure
Schedule sets forth a true, correct and complete list, as of August 31, 1996, of
all record holders of Company Shares, including the names of such holders and
the number and type(s) of Company Shares held.
(c) All of the outstanding shares of capital stock of Worlds owned by
the Company are held directly by the Company, free and clear of any Lien (as
defined below) or any other limitation or restriction (including any restriction
on the right to vote or sell the same, except as may be provided as a matter of
law). For purposes of this Agreement, "Lien" means, with respect to any asset
(including, without limitation, any security), any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset.
13
(d) None of the Company Securities are registered or required to be
registered under the Securities Exchange Act of 1934, as amended (the "Exchange
Act").
SECTION 2.3. Authority Relative to this Agreement and Merger;
------------------------------------------------
Consents and Approvals.
-----------------------
(a) The Company has all necessary corporate power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly and validly
authorized by the Board of Directors of the Company (the "Company Board"), and
no other corporate proceedings on the part of the Company are necessary to
authorize this Agreement or to consummate the transactions contemplated hereby
other than as provided in Section 2.3(c). This Agreement has been duly and
validly executed and delivered by the Company and constitutes a valid, legal and
binding agreement of the Company, enforceable against the Company in accordance
with its terms, except as the same may be limited by applicable bankruptcy,
insolvency, moratorium or similar laws of general application relating to or
affecting creditors' rights, including, without limitation, the effect of
statutory or other laws regarding fraudulent conveyances and preferential
transfers, and by the limitations imposed by general principles of equity.
(b) The Company Board, at a meeting duly called and held, has, by
unanimous vote of the members of the Company Board present at such meeting, duly
and validly approved, and taken all corporate actions required to be taken by
the Company Board for the consummation of, the Merger and the other transactions
contemplated hereby. Without limiting the generality of the foregoing, the
Company Board has (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 DGCL 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 the Company approve and adopt
this Agreement and the Merger. No state takeover statute or similar statute or
regulation applies or purports to apply to this Agreement, the Merger or any of
the transactions contemplated hereby or thereby.
(c) The affirmative votes of the holders of at least (i) a majority of
all of the outstanding Company Common Stock voting together as a class with all
of the outstanding Company Preferred Stock (with each share of Company Preferred
Stock being entitled to the number of votes equal to the number of shares of
Company Common Stock into which such shares of Company Preferred Stock may be
converted at such time), and (ii) 66-2/3% of the outstanding shares of Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E
Preferred Stock and Series F Preferred Stock voting as a single class (with each
such share of Company Preferred Stock being entitled to the number of votes
equal to the number of shares of Company Common Stock into which such shares of
Company Preferred Stock may be converted at such time, provided that each share
of Series D Preferred Stock shall be deemed to be convertible at such time into
six shares of Company Common Stock), are the only votes of the holders of any
class or series of the Company Securities necessary to approve and adopt this
Agreement, the Merger and the Articles Amendment (as defined in Section 4.3(a)).
14
SECTION 2.4. Financial Statements; Net Assets.
--------------------------------
(a) The consolidated financial statements of the Company, which consist of
(i) the audited consolidated balance sheets of the Company and the notes thereto
as of March 31, 1995 and 1996 and the audited consolidated statements of income,
stockholder's equity and cash flow and the notes thereto for the three fiscal
years ended March 31, 1996, certified by Price Waterhouse LLP whose reports
thereon are included therewith, and (ii) the unaudited consolidated balance
sheet of the Company as of August 31, 1996 (the "Company Balance Sheet") and
unaudited consolidated statements of income and cash flow for the five (5)
months then ended, true and correct copies of which Company Balance Sheet and
unaudited consolidated statements of income and cash flow were previously
delivered to Parent, were prepared in accordance with generally accepted
accounting principles ("GAAP") applied on a consistent basis with respect to
prior periods and present fairly the consolidated financial position of the
Company and the results of its operations as of the relevant dates thereof and
for the periods covered thereby, except that the unaudited financial statements
are subject to normal year-end audit adjustments. The unaudited consolidated
balance sheet and the unaudited consolidated statements of income and cash flow
referred to above were prepared in accordance with GAAP on a basis consistent
with prior interim periods and include all adjustments (consisting only of
normal recurring accruals but subject to normal year-end audit adjustments)
necessary for a fair presentation of the results of operations for such periods.
Except as set forth in Section 2.4 of the Company Disclosure Schedule, (A) all
of the accounts receivable reflected on the Company Balance Sheet and all
accounts receivable incurred since the date of the Company Balance Sheet are
fully collectible in the normal course of business and there are no known or
asserted claims or other rights of set-off against any thereof, except for any
reserves established on the Company Balance Sheet for sales returns or
uncollectible accounts, and (B) as of August 31, 1996, there is (w) no account
debtor delinquent in its payment by more than ninety (90) days, (x) no account
debtor that has refused (or, to the knowledge of the Company, threatened to
refuse) to pay its obligations for any reason, (y) to the knowledge of the
Company, no account debtor that is insolvent or bankrupt, and (z) no account
receivable which is pledged to any third party by the Company.
(b) The "Net Assets" of the Company as of the Closing shall be not less
than $100,000. For purposes of this Agreement, "Net Assets" means the excess of
(i) the sum of the Company's cash, cash equivalents, collectible receivables,
saleable inventory, fixed assets, prepaid expenses and marketable securities
over (ii) all of the Company's liabilities, including, without limitation, all
liabilities with respect to Taxes, in each case as determined in accordance with
GAAP in conformity with the practices consistently applied by the Company with
respect to prior periods.
SECTION 2.5. Information Supplied by the Company.
------------------------------------
(a) None of the information supplied or to be supplied by the Company for
inclusion or incorporation by reference in (i) the Hearing Documents (as defined
in Section 4.2(a)) to be filed with the Commissioner of Corporations of the
State of California (the "California Commissioner of Corporations") contains or
will contain, at the time such information is supplied,
15
at the time such Hearing Documents are filed or at the time the Fairness Hearing
(as defined in Section 4.2(a)) is held, or (ii) the proxy statement furnished by
the Company to its stockholders relating to the meeting of the Company's
stockholders to be held in connection with the Merger or the information
statement to be furnished to the Company's stockholders in the event the Company
solicits consents of its stockholders to approve the Merger in lieu of a meeting
of the Company's stockholders (the "Proxy Statement/Information Statement")
contains or will contain, at the time such information is supplied, on the date
such Proxy Statement/Information Statement is mailed to stockholders, at the
time the Fairness Hearing is held or at the times of such meeting or meetings of
stockholders, any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading.
(b) In the event that the parties prepare, and Parent files with the
Securities and Exchange Commission (the "SEC"), a registration statement on Form
S-4 (the "S-4") in connection with the issuance of shares of Parent Common Stock
in the Merger as contemplated by Section 4.2(b), none of the information
supplied or to be supplied by the Company for inclusion or incorporation by
reference in the S-4 contains or will contain, at the time the information is
supplied, at the time the S-4 is filed with the SEC or at the time it becomes
effective under the Securities Act, any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading.
(c) The Proxy Statement/Information Statement will comply in all material
respects with the requirements of the DGCL and, to the extent applicable, the
CGCL. The S-4, if filed, will comply as to form in all material respects with
the provisions of the Exchange Act or the Securities Act, as the case may be,
and the rules and regulations promulgated thereunder.
SECTION 2.6 Consents and Approvals; No Violations. Except for filings,
-------------------------------------
permits, authorizations, consents and approvals as may be required under, and
other applicable requirements of, the Securities Act, the California Corporate
Securities Law of 1968, as amended (the "California Securities Law") and other
state securities or blue sky laws, the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements
Act of 1976, as amended (the "HSR Act"), and the filing and recordation of the
Certificate of Merger as provided by the DGCL, no filing with or notice to, and
no permit, authorization, consent or approval of, any court or tribunal or
administrative, governmental or regulatory body, agency or authority (a
"Governmental Entity") is necessary for the execution and delivery by the
Company of this Agreement or the consummation by the Company of the transactions
contemplated hereby, except where the failure to obtain such permits,
authorizations, consents or approvals or to make such filings or give such
notice would not have a Material Adverse Effect on the Company. Neither the
execution, delivery and performance of this Agreement or the Certificate of
Merger by the Company nor the consummation by the Company of the transactions
contemplated hereby or thereby will (a) conflict with or result in any breach of
any provision of the Certificate of Incorporation or Bylaws (or similar
governing documents) of the Company, (b) except as set forth in Section 2.6 of
the Company Disclosure Schedule, result in a violation or breach of, or
constitute (with or
16
without due notice or lapse of time or both) a default (or give rise to any
right of termination, amendment, cancellation, acceleration or Lien) under, any
of the terms, conditions or provisions of any note, bond, mortgage, indenture,
lease, license, contract, agreement or other instrument or obligation to which
the Company is a party or by which it or any of its properties or assets may be
bound, or (c) except as set forth in Section 2.6 of the Company Disclosure
Schedule, violate any order, writ, injunction, decree, law, statute, rule or
regulation applicable to the Company or any of its properties or assets, except,
in the case of clauses (b) and (c), for violations, breaches or defaults which
would not have a Material Adverse Effect on the Company.
SECTION 2.7. No Default. Except as set forth in Section 2.7 of the
----------
Company Disclosure Schedule, the Company is not in default or violation (and no
event has occurred which with notice or the lapse of time or both would
constitute a default or violation) of any term, condition or provision of (a)
its Certificate of Incorporation or Bylaws, (b) any note, bond, mortgage,
indenture, lease, license, contract, agreement or other instrument or obligation
to which the Company is now a party or by which it or any of its properties or
assets may be bound, except for defaults or breaches that would not have a
Material Adverse Effect on the Company, or (c) any order, writ, injunction,
decree, law, statute, rule or regulation applicable to the Company or any of its
properties or assets.
SECTION 2.8. No Undisclosed Liabilities; Absence of Changes. Except as
----------------------------------------------
set forth in Section 2.8 of the Company Disclosure Schedule, as of August 31,
1996, the Company did not have any liabilities or obligations of any nature,
whether or not accrued, contingent or otherwise, and whether due or to become
due or asserted or unasserted, which would be required by GAAP to be reflected
in, reserved against or otherwise described in the consolidated balance sheet of
the Company (including the notes thereto) as of such date or which, individually
or in the aggregate, could have a Material Adverse Effect on the Company. Since
August 31, 1996, the business of the Company has been carried on in the ordinary
and usual course, the Company has not incurred any liabilities of any nature,
whether or not accrued, contingent or otherwise, which could have, and there
have been no events, changes or effects with respect to the Company having, or
which could have, individually or in the aggregate, a Material Adverse Effect on
the Company.
SECTION 2.9. Litigation. Except as set forth in Section 2.9 of the
----------
Company Disclosure Schedule, there is no suit, claim, action, proceeding or
investigation pending or, to the knowledge of the Company, threatened against
the Company or any of its properties or assets which, individually or in the
aggregate, (a) could reasonably be expected to have a Material Adverse Effect on
the Company or (b) questions the validity of this Agreement or any action to be
taken by the Company in connection with the consummation of the transaction
contemplated hereby or could otherwise prevent or delay the consummation of the
transactions contemplated by this Agreement. The Company is not subject to any
outstanding order, writ, injunction or decree which, insofar as can be
reasonably foreseen in the future, could have a Material Adverse Effect on the
Company or could prevent or delay the consummation of the transactions
contemplated hereby.
SECTION 2.10. Compliance with Applicable Law. Section 2.10 of the Company
------------------------------
Disclosure Schedule sets forth a list of all permits, licenses, variances,
exemptions, orders and
17
approvals of all Governmental Entities (the "Company Permits") used by the
Company in the conduct of its businesses. The Company holds all permits,
licenses, variances, exemptions, orders and approvals of all Governmental
Entities necessary for the lawful conduct of their respective businesses, except
for failures to hold such permits, licenses, variances, exemptions, orders and
approvals which, individually or in the aggregate, could not have a Material
Adverse Effect on the Company. The Company is in compliance with the terms of
the Company Permits, except where the failure so to comply could not have a
Material Adverse Effect on the Company. Except as set forth in Section 2.10 of
the Company Disclosure Schedule, the business of the Company is not being
conducted in violation of any law, ordinance or regulation of any Governmental
Entity, except that no representation or warranty is made in this Section 2.10
with respect to Environmental Laws (as defined in Section 2.12(a)) and except
for violations or possible violations which do not, and, insofar as reasonably
can be foreseen, in the future would not, individually or in the aggregate, have
a Material Adverse Effect on the Company. No investigation or review by any
Governmental Entity with respect to the Company is pending or, to the knowledge
of the Company, threatened, nor, to the knowledge of the Company, has any
Governmental Entity indicated an intention to conduct the same.
SECTION 2.11. Employee Benefit Plan Matters.
-----------------------------
(a) Section 2.11 of the Company Disclosure Schedule sets forth each
employee pension, retirement, profit sharing, stock bonus, stock option, stock
purchase, incentive, deferred compensation, hospitalization, medical, dental,
vision, life insurance, sick pay, disability, severance, golden parachute or
other plan, fund, program, policy, contract or arrangement providing employee
benefits maintained or contributed to by the Company in which any employee of
the Company has participated or under which any employee has accrued and remains
entitled to any benefits (the "Benefit Plans"). The Company has delivered to
Parent true, complete and correct copies of (i) each Benefit Plan (or, in the
case of any unwritten Benefit Plans, descriptions thereof), (ii) the most recent
annual report on Form 5500 filed with the Internal Revenue Service ("IRS") with
respect to each Benefit Plan (if any such report was required), (iii) the most
recent summary plan description for each Benefit Plan for which such a summary
plan description is required, and (iv) each trust agreement and group annuity
contract relating to any Benefit Plan.
(b) The Benefit Plans maintained or contributed to, or formerly maintained
or contributed to, by the Company have been maintained, operated and
administered in all material respects in accordance with their terms and with
all provisions of the Employee Retirement Income Security Act of 1974, as
amended (including the rules and regulations thereunder) ("ERISA") and other
applicable laws. All accrued obligations of the Company applicable to its
employees whether arising by operation of law, by contract, by past custom or
otherwise, for payments by the Company to any Benefit Plan or to any
governmental agency, with respect to unemployment compensation benefits, social
security benefits or any other benefits for its employees with respect to
employment, or to said employees through the date hereof have been paid or will
be paid in the ordinary course within sixty (60) days.
18
(c) There are no "pension benefit plans" as defined by Section 3(2) of
ERISA that are defined benefit plans (including a multiemployer plan) that at
any time have been established, maintained or contributed to by the Company.
(d) No Benefit Plan that is an employee welfare benefit plan (as defined in
Section 3(1) of ERISA) provides retiree medical benefits to any employees of the
Company except as required under the provisions of the Consolidated Omnibus
Budget Reconciliation Act of 1985, as amended, as set forth in Section 4980B of
the Code and Part 6 of Title I of ERISA ("COBRA").
(e) Except as set forth in Section 2.11 of the Company Disclosure Schedule,
no employee of the Company will accrue or receive severance benefits or
additional benefits, service or accelerated rights to payment of benefits under
any Benefit Plan maintained by the Company, including, without limitation, the
right to receive any parachute payment, as a result of the transactions
contemplated by this Agreement. There are no material claims or lawsuits (other
than routine claims for benefits) which have been asserted or instituted in
respect of any of the Benefit Plans maintained or contributed to by the Company
and, to the knowledge of the Company, no basis for any such claim or lawsuit
exists.
(f) Section 2.11 of the Company Disclosure Schedule sets forth a true,
complete and correct list of all loans and advances made by the Company to any
of its directors, officers or employees or other persons, whether or not made in
connection with the acquisition of Company Securities or pursuant to the
exercise of any Company Stock Options, and indicating whether such director,
officer, employee or other person is a current employee of the Company. To the
knowledge of the Company, all loans or advances made by the Company to any of
its directors, officers or employees or other persons in connection with the
acquisition of Company Securities or pursuant to the exercise of any Company
Stock Options were made in accordance with all applicable laws, rules and
regulations.
SECTION 2.12. Environmental Laws and Regulations.
----------------------------------
(a) Except as set forth in Section 2.12 of the Company Disclosure Schedule,
(i) to the knowledge of the Company, the Company is in compliance in all
material respects with all applicable federal, state and local laws and
regulations relating to pollution or protection of human health or the
environment (including, without limitation, ambient air, surface water, ground
water, land surface or subsurface strata) (collectively, "Environmental Laws"),
which compliance includes, without limitation, the possession by the Company of
all permits and other governmental authorizations required under applicable
Environmental Laws, and compliance with the terms and conditions thereof, except
where the failure to possess such permits and other governmental authorizations
could not have a Material Adverse Effect on the Company; (ii) the Company has
not received written notice of, or, to the knowledge of the Company, is not the
subject of, any action, cause of action, claim, investigation, demand, notice or
Lien by any person or entity alleging liability under or non-compliance with any
Environmental Law (an "Environmental Claim"); and (iii) to the knowledge of the
Company, there are no circumstances that are reasonably likely to prevent or
interfere with such material compliance in the future.
19
(b) There are no Environmental Claims against the Company that are pending
or, to the knowledge of the Company, threatened against the Company or against
any person or entity whose liability for any Environmental Claim the Company has
or may have retained or assumed either contractually or by operation of law.
SECTION 2.13. Labor and Employment Matters. Except as set forth in
----------------------------
Section 2.13 of the Company Disclosure Schedule, there is no collective
bargaining agreement or other labor agreement to which the Company is a party or
by which the Company is bound. The Company has complied in all material respects
with all applicable laws, rules and regulations relating to the employment of
the employees of the Company, including, without limitation, those related to
wages, hours, collective bargaining and the payment and withholding of taxes and
other sums as required by appropriate governmental authorities and have withheld
and paid to the appropriate governmental authorities, or are holding for payment
not yet due to such authorities, all amounts required to be withheld from the
employees of the Company and are not liable for any arrears of wages, taxes,
penalties or other sums for failure to comply with any of the foregoing. There
is no: (a) unfair labor practice complaint against the Company pending before
the National Labor Relations Board or any state or local agency; (b) pending
labor strike or other material labor trouble affecting the Company; (c) material
labor grievance pending against the Company; (d) pending representation question
respecting the employees of the Company; (e) pending arbitration proceedings
arising out of or under any collective bargaining agreement to which the Company
is a party or by which it is bound; or (f) to the knowledge of the Company, any
basis for which a claim may be made under any collective bargaining agreement
listed in Section 2.13 of the Company Disclosure Schedule.
SECTION 2.14. Tax Matters.
-----------
(a) For purposes of this Agreement:
(i) the term "Tax" (including with correlative meaning, the terms
"Taxes" and "Taxable") means (A) all federal, state, local, foreign and
other net income, gross income, gross receipts, sales, use, ad valorem,
transfer, franchise, profits, license, lease, service, service use,
withholding, payroll, employment, excise, severance, stamp, occupation,
premium, property, windfall profits, customs, duties or other taxes, fees,
assessments or charges of any kind whatsoever, together with any interest
and any penalties, additions to tax or additional amounts with respect
thereto, (B) any liability for payment of amounts described in clause (A)
whether as a result of transferee liability, of being a member of an
affiliated, consolidated, combined or unitary group for any period, or
otherwise through operation of law and (C) any liability for the payment of
amounts described in clauses (A) or (B) as a result of any tax sharing, tax
indemnity or tax allocation agreement or any other express or implied
agreement to indemnify any other person; and
(ii) the term "Tax Return" means any return, declaration, report,
statement, information statement and other document required to be filed
with respect to Taxes.
20
(b) The Company has prepared and timely filed all Tax Returns required to
be filed. Such Tax Returns are accurate and correct in all material respects
and do not contain a disclosure statement under Section 6662 of the Code (or any
predecessor provision or comparable provision of state, local or foreign law).
(c) As of the taxable year ended March 31, 1996, to the knowledge of the
Company based upon the advice of its independent public accountants, the Company
had approximately $18,541,000 and $9,271,000 of net operating loss carryovers
for federal and California Tax purposes, respectively. To the knowledge of the
Company based upon the advice of its independent public accountants, the Company
has not experienced an "ownership change" within the meaning of Section 382(g)
of the Code other than the "ownership change" that occurred on December 6, 1993
or that will occur as a result of the transactions contemplated by this
Agreement.
(d) (i) No claim has been made by any Taxing authority in any jurisdiction
where the Company does not file Tax Returns that the Company is or may be
subject to Tax by that jurisdiction, and (ii) no extensions or waivers of
statutes of limitations with respect to the Tax Returns have been given by or
requested from the Company other than with respect to periods for which the
statute of limitations on the assessment and collection of Taxes has now
expired.
(e) Section 2.14 of the Company Disclosure Schedule sets forth:
(i) the taxable years of the Company as to which the applicable
statutes of limitations on the assessment and collection of Taxes have not
expired;
(ii) those years for which examinations by the Taxing authorities have
been completed;
(iii) those years for which examinations by Taxing authorities are
presently being conducted;
(iv) those years for which notice of pending or threatened examination
or adjustment has been received; and
(v) those years for which required income Tax Returns have not yet
been filed.
(f) All deficiencies asserted or assessments made as a result of any
examinations by any Taxing authority have been fully paid, or are fully
reflected as a liability in the Company Balance Sheet.
(g) There are no liens for Taxes (other than for current Taxes not yet due
and payable) upon the assets of the Company.
(h) Except as set forth in Section 2.14 of the Company Disclosure Schedule,
the Company is not a party to or bound by any Tax indemnity, Tax sharing or Tax
allocation agreement.
21
(i) The Company is not a party to or bound by any closing agreement or
offer in compromise with any Taxing authority.
(j) (i) The Company has not been a member of an affiliated group of
corporations, within the meaning of Section 1504 of the Code, or a member of
combined, consolidated or unitary group for state, local or foreign Tax purposes
(other than a group the common parent of which is the Company), (ii) the Company
has not had any liability for Taxes of any person (other than the Company) under
Treasury Regulations Section 1.1502-6 (or any corresponding provision of state,
local or foreign income Tax law), as transferee or successor, by contract, or
otherwise; (iii) the Company has not filed a consent pursuant to the collapsible
corporation provisions of Section 341(f) of the Code (or any corresponding
provision of state, local or foreign income Tax law) or agreed to have Section
341(f)(2) of the Code (or any corresponding provision of state, local or foreign
income Tax law) apply to any disposition of any asset owned by any of them; (iv)
the Company has not made a consent dividend election under Section 565 of the
Code; (v) the Company has not been a personal holding company under Section 542
of the Code; and (vi) the Company has not participated in an international
boycott within the meaning of Section 999 of the Code.
(k) None of the assets of the Company is property that the Company is
required to treat as being owned by any other person pursuant to the so-called
"safe harbor lease" provisions of former Section 168(f)(8) of the Internal
Revenue Code of 1954, as amended; none of the assets of the Company secures,
directly or indirectly, any debt the interest on which is tax exempt under
Section 103(a) of the Code; none of the assets of the Company is "tax-exempt use
property" within the meaning of Section 168(h) of the Code.
(l) The Company has not agreed to make, nor is it required to make, any
adjustment under Section 481(a) (or any change in the manner in which the
Company applies Section 263A) of the Code or any comparable provision of state
or foreign Tax laws by reason of a change in accounting method or otherwise.
The Company has not taken action which is not in accordance with past practice
that could defer a liability for Taxes of the Company from any taxable period
ending on or before the Closing Date to any taxable period ending after such
date.
(m) Except as set forth in Section 2.14 of the Company Disclosure Schedule,
the Company is not a party to any agreement, contract, arrangement or plan that
has resulted or could result, separately or in the aggregate, in connection with
this Agreement or any change of control of the Company, in the payment of any
"excess parachute payments" within the meaning of Section 280G of the Code.
(n) Except as set forth in Section 2.14 of the Company Disclosure Schedule,
the Company does not have, or has not had, a permanent establishment in any
foreign country, as defined in any applicable Tax treaty or convention between
the United States and such foreign country, and the Company has not engaged in a
trade or business within, or derived any income from, any foreign country.
22
(o) To the knowledge of the Company, the Company is not a party to any
joint venture, partnership, or other arrangement or contract which could be
treated as a partnership for federal income Tax purposes.
(p) No material election with respect to Taxes of the Company will be made
after the date of this Agreement without the prior written consent of Parent.
(q) The provisions for Taxes currently payable on the Company Balance Sheet
are at least equal, as of the date thereof, to all unpaid Taxes of the Company,
whether or not disputed.
(r) Except as may result as a consequence of the transactions contemplated
by this Agreement, none of the income recognized, for federal, state, local or
foreign income Tax purposes, by the Company during the period commencing on the
date hereof and ending on the Closing Date will be derived other than in the
ordinary course of business, and all Taxes that are due prior to the Closing
Date shall be paid on or prior to the date such Taxes are due.
(s) The Company is not, and has not been, a "United States real property
holding corporation" (as defined in Section 897(c)(2)(2) of the Code) during the
applicable period specified in Section 897(c)(1)(A)(ii) of the Code (or any
corresponding Tax provision).
SECTION 2.15. Properties and Inventories.
--------------------------
(a) The Company has good title to, valid leasehold interests in or other
valid and enforceable rights to use all of the tangible assets used in its
operations or necessary for the conduct of its businesses, including, without
limitation, the assets reflected on the Company Balance Sheet, free and clear of
any Liens except as set forth in Section 2.15 of the Company Disclosure
Schedule, material restrictions or adverse claims, except for such imperfections
of title and Liens, if any, which are not substantial in character, amount or
extent, and which do not and are not reasonable likely to materially detract
from the value, or interfere with the present use, of the property subject
thereto or affected thereby. All of such assets are in good operating
condition, normal wear and tear excepted, and are adequate and suitable for the
purposes for which they are presently being used.
(b) Since the date of the Company Balance Sheet, there has not occurred any
transfer of title other than in the ordinary course of business or any
abandonment, any pilferage or any other material loss with respect to, any of
its property, plant or equipment, except where the occurrence of any such
abandonment, pilferage or other material loss could not have a Material Adverse
Effect on the Company.
(c) The Company does not own any real property. Section 2.15 of the
Company Disclosure Schedule also sets forth a true, correct and complete list of
all real property leases to which the Company is a party or by which it is
bound. All improvements on leased property used in the business of the Company
and the present uses thereof are in compliance with all applicable laws, rules
and regulations, except where the failure to be in compliance could not have a
Material Adverse Effect on the Company.
23
SECTION 2.16. Insurance. Section 2.16 of the Company Disclosure Schedule
---------
sets forth a true, complete and correct list of the insurance policies held by
the Company and providing coverage for the Company. The Company is in
compliance with each of such policies such that none of the coverage provided
under such policies has been invalidated. The Company reasonably believes that
such policies provide adequate coverage for the operations conducted by the
Company.
SECTION 2.17. Returns. The Company has not had any of its products
-------
returned by a purchaser or user thereof, other than for minor, nonrecurring
warranty problems, stock balancing, overstock and version changes and upgrades.
The Company is not aware of any pending warranty claims against it other than
those that arise in the ordinary course of business and which are not expected
to require a bulk recall of products currently sold to customers or in the
distribution channel.
SECTION 2.18. Intellectual Property.
---------------------
(a) Section 2.18 of the Company Disclosure Schedule contains a true,
complete and correct list of all patents, patent applications, trademarks,
trademark applications, copyrights, copyright applications, servicemarks,
servicemark applications and trade names owned by or licensed to the Company and
used in its business. Except as set forth in Section 2.18 of the Company
Disclosure Schedule, the Company owns, licenses or otherwise has lawful rights
to use all patents, patent rights, trademarks, trademark rights, copyrights,
servicemarks, servicemark rights, trade names, trade name rights, trade secrets,
know-how and other proprietary rights and information (collectively,
"Intellectual Property Rights") necessary or required for the conduct of its
businesses as presently conducted, free and clear of any Liens other than Liens
created by the license agreements set forth in Section 2.18 of the Company
Disclosure Schedule, and such ownership or other rights to use, sell or license
are sufficient for such conduct of its businesses (provided, however, that this
sentence shall not be deemed to be a representation or warranty by the Company
regarding any infringement by the Company on the intellectual property rights of
others). To the knowledge of the Company and except as set forth in Section
2.18 of the Company Disclosure Schedule, all Intellectual Property Rights used
in its businesses as now conducted (i) do not infringe on the rights of others
and (ii) are valid, subsisting, unexpired, enforceable and have not been
abandoned.
(b) Except as set forth in Section 2.18 of the Company Disclosure Schedule,
the execution, delivery and performance of this Agreement and the consummation
of the transactions contemplated hereby will not constitute a breach of any
instrument or agreement to which the Company is a party or by which it is bound
governing any Intellectual Property Right, will not cause the forfeiture or
termination or give rise to a right of forfeiture or termination of any
Intellectual Property Right or materially impair the right of the Company to
use, sell or license any Intellectual Property Right or portion thereof.
(c) Except as set forth in Section 2.18 of the Company Disclosure Schedule,
neither the development, manufacture, marketing, license, sale or intended use
of any product currently or within the previous five (5) years licensed or sold
by the Company or currently under
24
development by the Company violates any license or agreement between the Company
and any third party or, to the knowledge of the Company, infringes any
Intellectual Property Right of any other party, and there is no pending or, to
the knowledge of the Company, threatened claim or litigation contesting or
materially impacting the validity, ownership or right to use, sell, license or
dispose of any Intellectual Property Right or alleging the violation by the
Company of any obligation of confidentiality or nondisclosure, nor, to the
knowledge of the Company, is there any basis for any such claim, nor has the
Company received any notice asserting that any Intellectual Property Right or
the proposed use, sale, license or disposition thereof conflicts or will
conflict with the rights of any other party, nor, to the knowledge of the
Company, is there any basis for any such assertion.
(d) The Company has taken reasonable steps designed to safeguard and
maintain the secrecy and confidentiality of, and their proprietary rights in,
all Intellectual Property Rights, except where the failure to take such steps
could not reasonably be expected to have a Material Adverse Effect on the
Company. The Company has not breached any confidentiality, non-disclosure or
other agreement covering any information of third parties as to which there
exists an obligation of confidentiality on the part of the Company. Except as
set forth in Section 2.18 of the Company Disclosure Schedule, all former and
current officers, employees, independent contractors and consultants of the
Company have executed and delivered to the Company a written agreement regarding
the protection of proprietary information and the assignment to the Company of
all Intellectual Property Rights arising from the services performed for the
Company by such persons. No current or former officers, employees or
consultants of the Company claim an ownership interest in any Intellectual
Property Rights as a result of having been involved in the development of such
property while employed by or consulting to the Company or otherwise.
SECTION 2.19. Opinion of Financial Adviser. ▇▇▇▇▇ ▇▇▇▇▇▇▇, Inc. (the
----------------------------
"Financial Adviser") has delivered to the Company Board its written opinion,
dated the date of this Agreement, to the effect that, as of such date, the
Merger Consideration is fair to the holders of all of the Company Shares from a
financial point of view. A signed, true, correct and complete copy of such
opinion has been delivered to Parent, and such opinion has not been modified in
any material respect or withdrawn.
SECTION 2.20. Accounting Matters.
------------------
(a) Neither the Company nor, to the knowledge of the Company, any of its
affiliates or stockholders (including, without limitation, the Company
Affiliates) has taken or agreed to take any of the following actions in
contemplation of, or for purposes of effecting, any reorganization, merger,
consolidation, combination or similar transaction (collectively, "Pooling
Prevention Events") during the two (2) year period immediately prior to the date
hereof: (i) changed the equity interests of any shares of Company Common Stock;
(ii) reacquired any shares of Company Common Stock; (iii) made any distributions
to the stockholders of the Company or issued, exchanged or retired any of the
Company's securities; or (iv) deprived or restricted the voting rights of any
holder of Company Common Stock.
25
(b) In addition to the representations and warranties set forth in Section
2.20(a), to the knowledge of the Company, neither the Company nor any of its
affiliates or stockholders (including, without limitation, the Company
Affiliates) has taken or agreed to take any other action that could prevent
Parent from accounting for the business combination to be effected by the Merger
as a "pooling-of-interests."
(c) The Company has not failed to bring to the attention of Parent any
actions, or agreements or understandings, whether written or oral, to act that,
to the knowledge of the Company, could be reasonably likely to prevent Parent
from accounting for the Merger as a "pooling-of-interests."
SECTION 2.21. Material Contracts.
------------------
(a) The Company has delivered or otherwise made available to Parent true,
correct and complete copies of the following contracts and agreements (and all
amendments, modifications and supplements thereto and all side letters to which
the Company is a party affecting the obligations of any party thereunder) to
which the Company is a party or by which any of its properties or assets are
bound:
(i) any agreement presently in effect for the purchase of inventory,
supplies, equipment or other real or personal property, or the procurement
of services, except individual purchase orders or aggregate purchase orders
to a single vendor involving payments of less than $100,000;
(ii) any lease presently in effect or ownership of equipment,
machinery or other personal property involving aggregate annual payments in
excess of $100,000;
(iii) any agreement presently in effect for the sale or lease of
products or furnishing of its services, except individual purchase orders
or aggregate purchase orders from a single customer involving payments of
less than $100,000;
(iv) any joint venture, partnership or other contract or arrangement
presently in effect involving the sharing of profits other than license
agreements;
(v) any agreement presently in effect relating to the purchase or
acquisition, by merger or otherwise, of a significant portion of its
business, assets or securities by any other person, or of any other person
by it, other than as contemplated herein;
(vi) any agreement presently in effect containing a covenant or
covenants which purport to limit its ability or right to engage in any
lawful business activity material to it or to compete with any person or
entity in a business material to it;
(vii) any agreement presently in effect pursuant to which it has
appointed any organization or person to act as its distributor or sales
agent or pursuant to which it has been appointed a distributor or sales
agent by any third party;
26
(viii) any agreement presently in effect with any of its officers,
directors or affiliates;
(ix) any agreement presently in effect for the license of any patent,
copyright, trade secret or other proprietary information agreements
involving the payment by or to the Company in excess of $25,000;
(x) any agreement presently in effect involving payments to or
obligations of it in excess of $100,000, not otherwise described in this
Section 2.21; or
(xi) any agreement of indebtedness or capital equipment leases
presently in effect in excess of $100,000 (collectively, together with any
such contracts entered into in accordance with Section 4.1, the
"Contracts").
(b) Except as set forth in Section 2.21 of the Company Disclosure Schedule:
(i) There is no default under any Contract either by the Company or,
to the knowledge of the Company, by any other party thereto, and no event
has occurred that with the lapse of time or the giving of notice or both
could constitute a default thereunder by the Company or, to the knowledge
of the Company, any other party, in any such case, individually or in the
aggregate, in which such default or event could reasonably be expected to
have a Material Adverse Effect on the Company;
(ii) No party to any such Contract has given notice to the Company
of or made a claim against the Company with respect to any breach or
default thereunder, in any such case in which such breach or default could
reasonably be expected to have a Material Adverse Effect on the Company;
and
(iii) To the knowledge of the Company, no party to any such Contract
intends to cancel, withdraw, modify or amend any such Contract.
SECTION 2.22. Related Party Transactions. Except as set forth in Section
--------------------------
2.22 of the Company Disclosure Schedule, (a) no current or former employee,
officer or director of the Company, or member of his or her immediate family, is
indebted to the Company, nor is the Company indebted (or committed to make loans
or extend or guarantee credit) to any of them, and (b) none of such persons has
any direct or indirect ownership interest in any firm or corporation with which
the Company is affiliated or with which the Company has a business relationship,
or any firm or corporation that competes with the Company, except that such
employees, officers or directors, and members of their immediate families, may
own stock in publicly traded companies that may compete with the Company. No
member of the immediate family of any former or current officer or director of
the Company is directly interested in any material contract with the Company.
SECTION 2.23. Brokers. No broker, finder or investment banker (other than
-------
the Financial Adviser, a true and correct copy of whose engagement agreements
have been provided
27
to Parent) is entitled to any brokerage, finder's or other fee or commission or
expense reimbursement in connection with the transactions contemplated by this
Agreement based upon arrangements made by and on behalf of the Company or any of
its affiliates or stockholders (including the Company Affiliates). The Company
shall be responsible for all such fees and expenses, except that, as of the
Effective Time, the Surviving Corporation shall assume the Company's obligation
to pay the Financial Adviser any amounts owing under the terms of the engagement
agreements previously provided to Parent.
SECTION 2.24. Disclosure. None of this Agreement or any certificate
----------
delivered by the Company to Parent or Acquisition, or any item of information
set forth in the Company Disclosure Schedule or otherwise supplied by or on
behalf of the Company to Parent or Acquisition, contains or will contain any
untrue statement of a material fact or omits to state a material fact necessary
to make the statements contained herein or therein not misleading when taken
together in light of the circumstances in which they were made. Except as set
forth in Section 2.24 of the Company Disclosure Schedule, the Company does not
know of any facts which now or in the future are reasonably likely to cause a
Material Adverse Effect on the Company.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
OF PARENT AND ACQUISITION
Parent and Acquisition hereby represent and warrant to the Company as
follows:
SECTION 3.1. Organization.
------------
(a) Each of Parent and Acquisition is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation and has all requisite corporate power and authority to own, lease
and operate its properties and to carry on its businesses as now being
conducted, except where the failure to be so organized, existing and in good
standing or to have such power and authority would not have a Material Adverse
Effect (as defined below) on Parent. When used in connection with Parent or
Acquisition, the term "Material Adverse Effect" means any change or effect that
(i) is or is reasonably likely to be materially adverse to the properties,
business, results of operations or condition (financial or otherwise) of Parent
and its subsidiaries, taken as a whole, or (ii) may materially impair the
ability of Parent and/or Acquisition to consummate the transactions contemplated
hereby.
(b) Parent has heretofore delivered to the Company accurate and complete
copies of the certificates of incorporation and bylaws, as currently in effect,
of Parent and Acquisition. Each of Parent and Acquisition is duly qualified or
licensed and in good standing to do business in each jurisdiction in which the
property owned, leased or operated by it or the nature of the business conducted
by it makes such qualification or licensing necessary, except in such
jurisdictions where the failure to be so duly qualified or licensed and in good
standing would not, individually or in the aggregate, have a Material Adverse
Effect on Parent.
28
SECTION 3.2. Capitalization of Parent. The authorized capital stock of
------------------------
Parent consists of (a) 600,000,000 shares of Parent Common Stock, of which, as
of August 31, 1996, approximately 264,000,000 shares of Parent Common Stock were
issued and outstanding and approximately 4,000,000 shares of Parent Common Stock
were held in treasury, and (b) 1,000,000 shares of preferred stock, $.01 par
value per share, none of which is issued or outstanding. All of the shares of
Parent Common Stock have been validly issued, and are fully paid, nonassessable
and free of preemptive rights. As of August 31, 1996, approximately 45,000,000
shares of Parent Common Stock were reserved for issuance and issuable upon or
otherwise deliverable in connection with the exercise of outstanding stock
options and otherwise. Except (i) as described in the Parent SEC Reports (as
defined in Section 3.4), (ii) for stock options granted from time to time
pursuant to the Parent Stock Option Plan (as defined in Section 4.16) or any
other stock incentive plan of Parent or any capital stock issued or issuable
from time to time upon the exercise of such stock options and (iii) for
issuances of capital stock of Parent from time to time in connection with
acquisition transactions that are not, individually or in the aggregate,
material to Parent, as of the date hereof, there are outstanding no (A) shares
of capital stock or other voting securities of Parent, (B) securities of Parent
convertible into or exchangeable for shares of capital stock or voting
securities of Parent, (C) options or other rights to acquire from Parent, and no
obligations of Parent to issue, any capital stock, voting securities or
securities convertible into or exchangeable for capital stock or voting
securities of Parent, or (D) equity equivalents of Parent or other similar
rights (collectively, "Parent Securities"). Except as described in the Parent
SEC Reports, there are no outstanding obligations of Parent to repurchase,
redeem or otherwise acquire any Parent Securities.
SECTION 3.3. Authority Relative to this Agreement. Each of Parent and
------------------------------------
Acquisition has all necessary corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by the
boards of directors of Parent and Acquisition and by Parent as the sole
stockholder of Acquisition, and no other corporate proceedings on the part of
Parent or Acquisition are necessary to authorize this Agreement or to consummate
the transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by each of Parent and Acquisition and constitutes a
valid, legal and binding agreement of each of Parent and Acquisition,
enforceable against each of Parent and Acquisition in accordance with its terms,
except as the same may be limited by applicable bankruptcy, insolvency,
moratorium or similar laws of general application relating to or affecting
creditors' rights, including, without limitation, the effect of statutory or
other laws regarding fraudulent conveyances and preferential transfers, and by
the limitations imposed by general principles of equity.
SECTION 3.4. SEC Reports; Financial Statements. Parent has filed all
---------------------------------
required forms, reports and documents with the SEC since February 1, 1994, each
of which has complied in all material respects with all applicable requirements
of the Securities Act and the Exchange Act, each as in effect on the dates such
forms, reports and documents were filed. Parent has heretofore delivered to the
Company, in the form filed with the SEC (including any amendments thereto), (i)
its Annual Reports on Form 10-K for each of the fiscal years ended January 31,
1994,
29
1995 and 1996, (ii) all definitive proxy statements relating to Parent's
meetings of stockholders (whether annual or special) held since February 1, 1994
and (iii) all other Exchange Act reports filed by Parent with the SEC since
February 1, 1994 (the "Parent SEC Reports"). None of such forms, reports or
documents, including, without limitation, any financial statements or schedules
included or incorporated by reference therein, contained, when filed, any untrue
statement of a material fact or omitted to state a material fact required to be
stated or incorporated by reference therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The consolidated financial statements of Parent included in the
Parent SEC Reports complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto and fairly present, in conformity with GAAP applied on a
consistent basis (except as may be indicated in the notes thereto), the
consolidated financial position of Parent and its subsidiaries as of the dates
thereof and their consolidated results of operations and changes in financial
position for the periods then ended (subject, in the case of the unaudited
interim financial statements, to normal year-end adjustments and except that, in
the case of financial statements included therein which were later restated to
account for one or more business combinations accounted for as poolings-of-
interests, such original financial statements do not reflect such restatements).
SECTION 3.5. Information Supplied by Parent.
------------------------------
(a) None of the information supplied or to be supplied by Parent for
inclusion or incorporation by reference in (i) the Hearing Documents to be filed
with the California Commissioner of Corporations contains or will contain, at
the time such information is supplied, at the time such Hearing Documents are
filed or at the time the Fairness Hearing is held, or (ii) the Proxy
Statement/Information Statement contains or will contain, at the time such
information is supplied, on the date such Proxy Statement/Information Statement
is mailed to stockholders, at the time the Fairness Hearing is held or at the
times of such meeting or meetings of the Company's stockholders, any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading.
(b) In the event that the parties prepare and file with the SEC the S-4 in
connection with the issuance of shares of Parent Common Stock in the Merger as
contemplated by Section 4.2(b), none of the information supplied or to be
supplied by Parent for inclusion or incorporation by reference in the S-4
contains or will contain, at the time the information is supplied, at the time
the S-4 is filed with the SEC or at the time it becomes effective under the
Securities Act, any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading.
(c) The S-4, if filed, will comply as to form in all material respects with
the provisions of the Exchange Act or the Securities Act, as the case may be,
and the rules and regulations promulgated thereunder.
SECTION 3.6. Consents and Approvals; No Violations. Except for filings,
-------------------------------------
permits, authorizations, consents and approvals as may be required under, and
other applicable
30
requirements of, the Securities Act, the Exchange Act, the California Securities
Law and other state securities or blue sky laws, the HSR Act, and the filing and
recordation of the Certificate of Merger as provided by the DGCL, no filing with
or notice to, and no permit, authorization, consent or approval of, any
Governmental Entity is necessary for the execution and delivery by Parent or
Acquisition of this Agreement or the consummation by Parent or Acquisition of
the transactions contemplated hereby, except where the failure to obtain such
permits, authorizations, consents or approvals or to make such filings or give
such notice would not have a Material Adverse Effect on Parent. Neither the
execution, delivery and performance of this Agreement by Parent or Acquisition
nor the consummation by Parent or Acquisition of the transactions contemplated
hereby will (a) conflict with or result in any breach of any provision of the
respective certificates of incorporation or bylaws (or similar governing
documents) of Parent or Acquisition, (b) result in a violation or breach of, or
constitute (with or without due notice or lapse of time or both) a default (or
give rise to any right of termination, amendment, cancellation, acceleration or
Lien) under, any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, lease, license, contract, agreement or other instrument or
obligation to which Parent or Acquisition is a party or by which any of them or
any of their respective properties or assets may be bound or (c) violate any
order, writ, injunction, decree, law, statute, rule or regulation applicable to
Parent or Acquisition or any of their respective properties or assets, except in
the case of (b) or (c) for violations, breaches or defaults which would not have
a Material Adverse Effect on Parent.
SECTION 3.7. No Undisclosed Liabilities. Except as and to the extent
--------------------------
publicly disclosed by Parent, as of July 31, 1996, none of Parent or its
subsidiaries had any liabilities or obligations of any nature, whether or not
accrued, contingent or otherwise, and whether due or to become due or asserted
or unasserted, which would be required by GAAP to be reflected in, reserved
against or otherwise described in the consolidated balance sheet of Parent and
its subsidiaries (including the notes thereto) as of such date or which would
reasonably be expected to have a Material Adverse Effect on Parent.
SECTION 3.8. No Prior Activities. Except for obligations incurred in
-------------------
connection with its incorporation or organization or the negotiation and
consummation of this Agreement and the transactions contemplated hereby,
Acquisition has neither incurred any obligation or liability nor engaged in any
business or activity of any type or kind whatsoever or entered into any
agreement or arrangement with any person or entity.
SECTION 3.9. Brokers. No broker, finder or investment banker is entitled
-------
to any brokerage, finder's or other fee or commission or expense reimbursement
in connection with the transactions contemplated by this Agreement based upon
arrangements made by and on behalf of Parent or Acquisition.
SECTION 3.10. Accounting Matters. Neither Parent nor Acquisition has
------------------
taken or agreed to take any action that could prevent Parent from accounting for
the business combination to be effected by the Merger as a "pooling-of-
interests." Neither Parent nor Acquisition has failed to bring to the attention
of the Company any actions, or agreements or understandings, whether
31
written or oral, to act that, to the knowledge of Parent, could be reasonably
likely to prevent Parent from accounting for the Merger as a "pooling-of-
interests."
SECTION 3.11. Litigation. Except as publicly disclosed by Parent, there
----------
is no suit, claim, action, proceeding or investigation pending or, to the
knowledge of Parent, threatened against Parent or any of its properties or
assets which, individually or in the aggregate, (a) could reasonably be expected
to have a Material Adverse Effect on Parent or (b) questions the validity of
this Agreement or any action to be taken by Parent in connection with the
consummation of the transaction contemplated hereby or could otherwise prevent
or delay the consummation of the transactions contemplated by this Agreement.
Parent is not subject to any outstanding order, writ, injunction or decree
which, insofar as can be reasonably foreseen in the future, could have a
Material Adverse Effect on Parent or could prevent or delay the consummation of
the transactions contemplated hereby.
SECTION 3.12. Disclosure. None of this Agreement or any certificate
----------
delivered by Parent or Acquisition to the Company, or any item of information
supplied by or on behalf of Parent or Acquisition to the Company, contains or
will contain any untrue statement of a material fact or omits to state a
material fact necessary to make the statements contained herein or therein not
misleading when taken together in light of the circumstances in which they were
made. Neither Parent nor Acquisition knows of any facts which now or in the
future are reasonably likely to cause a Material Adverse Effect on Parent.
ARTICLE 4
COVENANTS
SECTION 4.1. Conduct of Business of the Company. Except as otherwise
----------------------------------
contemplated by this Agreement or the Loan Documents, during the period from the
date hereof to the Effective Time, the Company will conduct its operations in
the ordinary course of business consistent with past practice and, to the extent
consistent therewith, use its reasonable efforts to (a) preserve intact its
current business organizations, (b) keep available the service of its current
officers and employees and (c) preserve its relationships with customers,
suppliers and others having business dealings with it to the end that goodwill
and ongoing businesses shall be unimpaired at the Effective Time. Without
limiting the generality of the foregoing, and except as otherwise expressly
provided in this Agreement, prior to the Effective Time, the Company will not,
without the prior written consent of Parent:
(i) amend its certificate of incorporation or bylaws;
(ii) authorize for issuance, issue, sell, deliver or agree or commit to
issue, sell or deliver (whether through the issuance or granting of options,
warrants, commitments, subscriptions, rights to purchase or otherwise) any
capital stock of any class or any other securities or equity equivalents
(including, without limitation, any stock options or stock appreciation rights);
provided, however, that the Company shall be permitted to issue shares of
Company Common Stock pursuant to any outstanding Company Stock Options and to
grant to
32
newly-hired employees and to its existing employees in the ordinary course of
business options to acquire up to 150,000 shares of Company Common Stock so long
as the grant of any such options does not adversely affect or otherwise
jeopardize the "pooling of interests" treatment of the Merger and, provided
further, however, that the Company shall be permitted to issue shares of Company
Common Stock on conversion of outstanding shares of Company Preferred Stock
pursuant to the terms of the Restated Certificate of Incorporation of the
Company as in effect on the date hereof;
(iii) 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,
make any other actual, constructive or deemed distribution in respect of any
shares of its capital stock or otherwise make any payments to stockholders in
their capacity as such, or redeem or otherwise acquire any of its securities or
any securities of its subsidiary;
(iv) adopt a plan of complete or partial liquidation, dissolution, merger,
consolidation, restructuring, recapitalization or other reorganization of the
Company (other than the Merger);
(v) alter through merger, liquidation, reorganization, restructuring or in
any other fashion the corporate structure or ownership of any subsidiary;
(vi) (A) incur or assume any long-term or short-term indebtedness or issue
any debt securities, except for borrowings under the Loan Agreement; (B) assume,
guarantee, endorse or otherwise become liable or responsible (whether directly,
contingently or otherwise) for the obligations of any other person except in the
ordinary course of business consistent with past practice and in amounts not
material to the Company; (C) except with respect to the issuance of Company
Common Stock or Company Stock Options pursuant to clause (ii) above, make any
loans, advances or capital contributions to, or investments in, any other person
(other than advances to employees in the ordinary course of business consistent
with past practice and in amounts not material to the maker of such loan or
advance); (D) pledge or otherwise encumber shares of capital stock of the
Company; or (E) mortgage or pledge any of its material assets, tangible or
intangible, or create any material Lien thereupon;
(vii) except as may be required by law or as contemplated by this
Agreement, enter into, adopt or amend or terminate any bonus, profit sharing,
compensation, severance, termination, stock option, stock appreciation right,
restricted stock, performance unit, stock equivalent, stock purchase agreement,
pension, retirement, deferred compensation, employment, severance or other
employee benefit agreement, trust, plan, fund, award or other arrangement for
the benefit or welfare of any director, officer or employee in any manner, or
increase in any manner the compensation or fringe benefits of any director,
officer or employee or pay any benefit not required by any plan and arrangement
as in effect as of the date hereof (including, without limitation, the granting
of stock appreciation rights or performance units), except for normal increases
in the ordinary course of business consistent with past practice that, in the
aggregate, do not result in a material increase in benefits or compensation
expense to the Company;
33
(viii) acquire, sell, lease or dispose of any assets outside the ordinary
course of business or any assets which in the aggregate are material to the
Company, or enter into any commitment or transaction outside the ordinary course
of business consistent with past practice;
(ix) except as may be required as a result of a change in law or in
generally accepted accounting principles, change any of the accounting
principles or practices used by it;
(x) revalue any of its assets, including, without limitation, writing down
the value of inventory or writing-off notes or accounts receivable other than in
the ordinary course of business;
(xi) (i) acquire (by merger, consolidation, or acquisition of stock or
assets) any corporation, partnership or other business organization or division
thereof or any equity interest therein; (ii) enter into any contract or
agreement other than in the ordinary course of business consistent with past
practice which would be material to the Company; (iii) authorize any new capital
expenditure or expenditures which, individually, is in excess of $100,000 or, in
the aggregate, are in excess of $100,000; or (iv) enter into or amend any
contract, agreement, commitment or arrangement providing for the taking of any
action that would be prohibited hereunder;
(xii) make or revoke any material Tax election or settle or compromise any
Tax liability material to the Company (or make a request to any Taxing authority
to change) any material aspect of its method of accounting for Tax purposes;
(xiii) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
the payment, discharge or satisfaction in the ordinary course of business of
liabilities reflected or reserved against in, or contemplated by, the
consolidated financial statements (or the notes thereto) of the Company or
incurred in the ordinary course of business consistent with past practice;
(xiv) settle or compromise any pending or threatened suit, action or claim
relating to the transactions contemplated hereby; or
(xv) take, propose to any person other than Parent, Acquisition or any
affiliate thereof (a "Third Party") to take or agree in writing or otherwise to
take, any of the actions described in Sections 4.1(i) through 4.1(xiv).
SECTION 4.2. Exemption from Registration or Securities Act Registration.
----------------------------------------------------------
(a) As soon as practicable following the execution of this Agreement, the
parties (i) shall (A) file with the California Commissioner of Corporations an
Application for Qualification of Securities by Permit under Section 25121 of the
California Securities Law, including a related notice of hearing, the proxy
statement of the Company and related disclosure materials (collectively, the
"Hearing Documents"), to qualify the shares of Parent Common Stock, and (B) hold
a fairness hearing (the "Fairness Hearing") to enable the California
Commissioner of Corporations to determine the fairness of the terms and
conditions of the Merger pursuant to
34
Section 25142 of the California Securities Law, and (ii) except as otherwise
provided in Section 4.2(b), Parent shall thereby issue the Parent Common Stock
to the stockholders of the Company in the Merger in reliance upon the exemption
under Section 3(a)(10) of the Securities Act from the registration requirements
thereunder.
(b) In the event that the exemption under Section 3(a)(10) of the
Securities Act is not available to the parties or, after holding a Fairness
Hearing, the California Commissioner of Corporations does not determine that the
terms and conditions of the Merger are fair, then, the parties shall defer the
timing of the Effective Time and prepare, and Parent shall file as soon as
practicable with the SEC, the S-4 with respect to the shares of Parent Common
Stock to be issued to the stockholders of the Company in the Merger. The
parties will use their reasonable best efforts to cause the S-4 to be declared
effective as soon as practicable after the date of such filing.
SECTION 4.3. Stockholders' Meeting; Proxy Statement/Information Statement.
------------------------------------------------------------
(a) The Company shall (i) call, give notice of, convene and hold a special
meeting of the stockholders of the Company to be held for the purpose of voting
upon (A) this Agreement, the Merger and related matters and (B) an amendment to
the Restated Certificate of Incorporation of the Company to clarify that the
Merger Consideration shall be valued on the Closing Date under Article IV,
Section 2(f) for the purposes of determining the liquidation preferences of the
holders of Company Shares under Article IV, Section 2 of the Restated
Certificate of Incorporation of the Company (the "Articles Amendment") or (ii)
solicit written consents to approve this Agreement, the Merger and related
matters and the Articles Amendment for a period of at least thirty (30) days.
The Company, Parent and Acquisition shall coordinate and cooperate with respect
to the timing of such meeting, provided that the Company shall use its best
efforts to call, give notice of, convene and hold such meeting, or solicit such
written consents, as soon as practicable after the Fairness Hearing or, if
applicable, after the S-4 has been declared effective by the SEC.
(b) The Company shall prepare, with the cooperation of Parent and
Acquisition, the Proxy Statement/Information Statement for the stockholders of
the Company (i) to approve this Agreement, the Merger and the transactions
contemplated hereby and (ii) the Articles Amendment, and Parent shall have a
reasonable opportunity to review the form and content of the Proxy
Statement/Information Statement and approve the same prior to its mailing to the
Company's stockholders, which approval shall not be unreasonably withheld. Each
of Parent, Acquisition and the Company agrees to provide promptly to the other
such information concerning its business and financial statements and affairs as
may be reasonably required or appropriate for inclusion in the Proxy
Statement/Information Statement or, if applicable, the S-4, or in any amendments
or supplements thereto, and to cause its counsel and auditors to cooperate with
the other's counsel and auditors in the preparation of the same.
(c) The Company shall include in the Proxy Statement/Information Statement
the recommendation of the Company Board that the stockholders of the Company
vote in favor of this Agreement and the approval of the Merger and the Articles
Amendment, and shall use its best
35
efforts to obtain the requisite stockholder approvals. If, at any time prior to
the Effective Time, any event with respect to the Company, its officers and
directors or any of its subsidiaries should occur which is required to be
described in an amendment of, or a supplement to, the Hearing Documents, the S-4
or the Proxy Statement/Information Statement, as applicable, the Company shall
promptly so advise Parent and Acquisition and such event shall be so described,
and such amendment or supplement (which Parent and Acquisition shall have a
reasonable opportunity to review) shall be promptly filed with the California
Commissioner of Corporations or the SEC, as applicable, and, if required by law,
disseminated to the stockholders of the Company.
SECTION 4.4. Other Potential Acquirors. The Company, its affiliates and
-------------------------
their respective officers, directors, employees, representatives and agents
shall immediately cease any existing discussions or negotiations, if any, with
any parties conducted heretofore with respect to any acquisition of all or any
material portion of the assets of, or any equity interest in, the Company or any
business combination with the Company. The Company Board shall (a) provide a
copy of any such written proposal and a summary of any oral proposal to Parent
and Acquisition immediately after receipt thereof (and shall specify the
material terms and conditions of such proposal and identify the person making
such proposal), (b) afford Parent and Acquisition a reasonable opportunity to
respond to such proposal and (c) keep Parent and Acquisition promptly advised of
any development with respect thereto. Neither the Company nor any of its
affiliates shall, nor shall the Company authorize or permit any of its or their
respective officers, directors, employees, representatives or agents to directly
or indirectly, encourage, solicit, participate in or initiate discussions or
negotiations with, or provide any information to, any corporation, partnership,
person or other entity or group (other than Parent and Acquisition, any
affiliate or associate of Parent and Acquisition or any designees of Parent and
Acquisition) concerning any merger, sale of assets, sale of shares of capital
stock or similar transaction involving the Company or any division of the
Company.
SECTION 4.5. Access to Information.
---------------------
(a) Between the date hereof and the Effective Time, the Company will give
Parent and Acquisition and their authorized representatives reasonable access to
all employees, plants, offices, warehouses and other facilities and to all books
and records of the Company, will permit Parent and Acquisition to make such
inspections as Parent and Acquisition may reasonably request and will cause the
Company's officers to furnish Parent and Acquisition with such financial and
operating data and other information with respect to the business, properties
and personnel of the Company as Parent or Acquisition may from time to time
reasonably request, provided that no investigation pursuant to this Section
4.5(a) shall affect or be deemed to modify any of the representations or
warranties made by the Company.
(b) Between the date hereof and the Effective Time, Parent will cause its
officers to furnish to the Company, as the Company may reasonably request from
time to time, such financial and operating data and other information with
respect to the business, properties and personnel of Parent and Acquisition as
may be included in the Parent SEC Reports or is otherwise publicly available,
provided that no investigation pursuant to this Section 4.5(b) shall affect or
be deemed to modify any of the representations or warranties of Parent or
Acquisition.
36
(c) Between the date hereof and the Effective Time, the Company shall
furnish to Parent and Acquisition within twenty (20) business days after the end
of each calendar month (commencing with September 30, 1996), an unaudited
balance sheet of the Company as of the end of such month and the related
statements of earnings, stockholders' equity (deficit) and, within twenty (20)
business days after the end of each calendar quarter, cash flows for the quarter
then ended, each prepared in accordance with GAAP in conformity with the
practices consistently applied by the Company with respect to its monthly
financial statements. All the foregoing shall be in accordance with the books
and records of the Company and fairly present the financial position of the
Company (taking into account the differences between the monthly and quarterly
statements prepared by the Company in conformity with its past practices) as of
the last day of the period then ended.
(d) Each of Parent and Acquisition will hold and will cause its consultants
and advisors to hold in confidence all documents and information concerning the
Company furnished to Parent or Acquisition in connection with the transactions
contemplated by this Agreement pursuant to the terms of that certain
Confidentiality Agreement dated July 16, 1996, entered into among the Company,
Parent and Davidson & Associates, Inc. The Company will hold and will cause its
consultants and advisors to hold in confidence all documents and information
concerning Parent and its subsidiaries furnished to the Company in connection
with the transactions contemplated hereby pursuant to the terms of that certain
Confidentiality Agreement dated August 26, 1996, between Parent and the Company.
SECTION 4.6. Additional Agreements; Reasonable Efforts. Subject to the
-----------------------------------------
terms and conditions herein provided, each of the parties agrees to use its best
efforts to take, or cause to be taken, all action, and to do, or cause to be
done, all things reasonably necessary, proper or advisable under applicable laws
and regulations to consummate and make effective the transactions contemplated
by this Agreement, including, without limitation, (a) cooperation in the
preparation and filing of the Hearing Documents, the Proxy Statement/Information
Statement and, if filed, the S-4, any filings that may be required under the HSR
Act, and any amendments or supplements thereto, and in the holding of the
Fairness Hearing, (b) the taking of all action reasonably necessary, proper or
advisable to secure any necessary consents under existing obligations of the
Company or amend any agreements relating thereto to the extent required by such
agreements; (c) contesting any legal proceeding relating to the Merger; and (d)
the execution and delivery of any additional instruments, including the
Certificate of Merger, necessary to consummate the transactions contemplated
hereby. Subject to the terms and conditions of this Agreement, Parent and
Acquisition agree to use all reasonable efforts to cause the Effective Time to
occur as soon as practicable after the stockholder vote with respect to the
Merger. In case at any time after the Effective Time any further action is
necessary to carry out the purposes of this Agreement, the proper officers and
directors of each party shall take all such necessary action.
SECTION 4.7. Consents. Each of Parent, Acquisition and the Company will
--------
use all reasonable efforts to obtain consents of all third parties and
Governmental Entities necessary, proper or advisable for the consummation of the
transactions contemplated by this Agreement.
37
SECTION 4.8. Public Announcements. Parent, Acquisition and the Company,
--------------------
as the case may be, will consult with one another before issuing any press
release or otherwise making any public statements with respect to the
transactions contemplated by this Agreement, including, without limitation, the
Merger, and shall not issue any such press release or make any such public
statement prior to such consultation, except, in the case of Parent or
Acquisition, as may be required by applicable law or by obligations pursuant to
any listing agreement with the NYSE as determined by Parent in its sole
discretion.
SECTION 4.9. Directors' and Officers' Indemnification. Parent and
----------------------------------------
Acquisition agree that all rights to indemnification or exculpation now existing
in favor of the directors, officers, employees and agents of the Company as
provided in the charter or bylaws of the Company, the indemnification agreements
of such persons with the Company or otherwise in effect as of the date hereof
with respect to matters (a) occurring prior to the Effective Time or (b) as a
result of any action taken by the Company Board in connection with the
consummation of the Merger shall survive the Merger and shall continue in full
force and effect for a period of five (5) years from the Effective Time;
provided, however, that all rights to indemnification in respect of any claim (a
"Claim") asserted or made within such period shall continue until the
disposition of such Claim. To the maximum extent permitted by the DGCL, such
indemnification shall be mandatory rather than permissive and the Surviving
Corporation shall advance expenses in connection with such indemnification to
the fullest extent permitted under applicable law, provided that the person to
whom expenses are advanced provides an undertaking to repay such advances if it
is ultimately determined that such person is not entitled to indemnification);
provided, however, the indemnification provided hereunder shall not be greater
than the indemnification permissible pursuant to the charter and bylaws of the
Company or such indemnification agreements as in effect as of the date hereof.
SECTION 4.10. Notification of Certain Matters. The Company shall give
-------------------------------
prompt notice to Parent and Acquisition, and Parent and Acquisition shall give
prompt notice to the Company, of (a) the occurrence or nonoccurrence of any
event the occurrence or nonoccurrence of which would be likely to cause any
representation or warranty contained in this Agreement to be untrue or
inaccurate in any material respect at or prior to the Effective Time, (b) any
material failure of the Company, Parent or Acquisition, as the case may be, to
comply with or satisfy any covenant, condition or agreement to be complied with
or satisfied by it hereunder, (c) any notice of, or other communication relating
to, a default or event which, with notice or lapse of time or both, would become
a default, received by it subsequent to the date of this Agreement and prior to
the Effective Time, under any contract or agreement material to the financial
condition, properties, businesses or results of operations of it to which it is
a party or is subject, (d) any notice or other communication from any third
party alleging that the consent of such third party is or may be required in
connection with the transactions contemplated by this Agreement, or (e) any
material adverse change in their respective financial condition, properties,
businesses, results of operations or prospects, taken as a whole, other than
changes resulting from general economic conditions; provided, however, that the
delivery of any notice pursuant to this Section 4.10 shall not cure such breach
or non-compliance or limit or otherwise affect the remedies available hereunder
to the party receiving such notice.
38
SECTION 4.11. Pooling. Each of the Company and Parent agrees that it (a)
-------
will not engage in, or take any action which might result in, any Pooling
Prevention Event and (b) will use its best efforts to refrain from taking any
other action which could prevent the Merger from being accounted for as a
"pooling-of-interests" for accounting purposes. The Company will bring to the
attention of Parent, and Parent will bring to the attention of the Company, any
actions, or agreements or understandings, whether written or oral, that could be
reasonably likely to prevent Parent from accounting for the Merger as a
"pooling-of-interests." Parent shall use commercially reasonable efforts to
cause E&Y to deliver to Parent a letter to the effect that pooling-of-interests
accounting is appropriate for the Merger if it is closed and consummated in
accordance with the terms of this Agreement, and the Company shall use
commercially reasonable efforts to cause Price Waterhouse LLP to cooperate fully
with E&Y (including, without limitation, sharing information, analysis and work
product, engaging in active discussions and delivering to Parent, the Company
and E&Y a letter substantially similar to E&Y's letter to Parent) in connection
with E&Y's delivery of such letter. The parties acknowledge that the receipt of
a letter from Price Waterhouse LLP regarding pooling matters substantially
similar to E&Y's letter to Parent is a precondition to E&Y's ability to deliver
its letter to Parent. The Company will cause Price Waterhouse LLP to inform all
Company Affiliates and other relevant employees as to those actions that should
or should not be taken by such persons so that the Merger will be accounted for
as a "pooling-of-interests."
SECTION 4.12. Tax-Free Reorganization Treatment. The Company, on the one
---------------------------------
hand, and Parent and Acquisition, on the other hand, shall execute and deliver
at the Closing to ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇▇,
LLP, counsel to the Company, certificates, in a form reasonably satisfactory to
Parent in the case of the Company and substantially in the form attached as
Exhibit E in the case of Parent, in connection with its delivery of an opinion
---------
with respect to the transactions contemplated hereby, and the Company and Parent
shall each provide a copy thereof to the other parties. Prior to the Effective
Time, none of the Company, Parent or Acquisition shall take or cause to be taken
any action which would cause to be untrue (or fail to take or cause not to be
taken any action which would cause to be untrue) any of their respective
representations in such form, in the case of the Company, or in the form of
Exhibit E, in the case of Parent and Acquisition.
---------
SECTION 4.13. Taxes. If any Tax Return is required to be filed on or
-----
prior to the Effective Time, the Company shall prepare and timely file such Tax
Return in a manner consistent with prior years and all applicable laws and
regulations; provided, however, that Parent shall be notified and given an
opportunity to review and to comment, prior to the filing thereof, on any such
Tax Return (a) which relates to a Tax which is based upon or measured by income,
(b) which is not regularly filed by the Company in connection with the conduct
of its business in the ordinary course, or (c) for which Parent requests such
opportunity, although neither Parent's approval nor consent shall be required
prior to the filing of any such Tax Return.
SECTION 4.14. Employment and Non-Competition Agreements.
-----------------------------------------
(a) The Company shall, as of or prior to the Effective Time, enter into an
employment agreement with ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, on substantially the terms set
forth in the form of
39
the Amended and Restated Employment Agreement attached as Exhibit F, and an
---------
employment agreement with ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, in form and substance acceptable
to Parent (such employment agreements being hereinafter referred to as the
"Employment Agreements").
(b) The Company shall, as of or prior to the Effective Time, enter into
non-competition agreements with ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, on
substantially the terms set forth in the forms of Non-Competition Agreement
attached as Exhibit G-1 and Exhibit G-2, respectively (the "Non-Competition
----------- -----------
Agreements").
SECTION 4.15. Company Affiliates. The Company has identified to Parent
------------------
each Company Affiliate, and each Company Affiliate (other than those identified
in Section 4.15 of the Company Disclosure Schedule) has delivered to Parent on
or prior to the date hereof, the Affiliate Letter providing, among other things,
that (i) such Company Affiliate will not sell, pledge, transfer or otherwise
dispose of any shares of Parent Common Stock issued to such Company Affiliate
pursuant to the Merger, except as permitted by, and in accordance with, Rule 145
promulgated under the Securities Act or an exemption from the registration
requirements of the Securities Act and (ii) until after such time as
consolidated financial statements covering at least thirty (30) days of post-
merger combined operations of Parent and the Company have been published by
Parent, such Company Affiliate will not sell or in any other way reduce such
Company Affiliate's risk relative to any shares of Parent Common Stock received
in the Merger (within the meaning of the SEC's Financial Reporting Release No.
1, "Codification of Financing Reporting Policies" (April 15, 1982), (S) 201.01
(Risk-Sharing Business Combinations Accounted for as Pooling-of-Interests)),
except as permitted by Staff Accounting Bulletin No. 76 issued by the SEC. The
Company will use its best efforts to cause each Company Affiliate identified in
Section 4.15 of the Company Disclosure Schedule to execute and deliver Affiliate
Letters in form and substance acceptable to Parent as promptly as practicable
and, in any event, by no later than October 18, 1996.
SECTION 4.16. Parent Stock Option and Employee Bonus Pool.
-------------------------------------------
(a) At the Closing, Parent will grant to certain employees of the Surviving
Corporation identified by the Chief Executive Officer of the Company and agreed
upon by Parent, options to acquire an aggregate of 300,000 shares of Parent
Common Stock ("Parent Stock Options") under the Parent's 1992 Employee Stock
Option Plan (the "Parent Stock Option Plan"). The exercise price of each such
Parent Stock Option will be equal to the closing price per share of Parent
Common Stock as reported on the NYSE on the business day immediately preceding
the Effective Time. Each Parent Stock Option will vest over a five (5) year
period in accordance with the custom and practice of grants made by Parent to
its own employees under the Parent Stock Option Plan.
(b) As an incentive to cause existing employees of the Company to remain in
the employment of the Surviving Corporation following the Merger, the Surviving
Corporation will establish a cash bonus pool of up to $1.538 million that will
be available for persons who are employees of the Company on the Closing Date
and who remain employees of the Surviving Corporation for a minimum of six
months following the Closing Date ("Remaining Employees").
40
On July 1, 1997, the Surviving Corporation will make cash bonus awards totaling
approximately 20% of the bonus pool in the aggregate to the Remaining Employees,
in specific amounts for each Remaining Employee as determined by the Board of
Directors of the Surviving Corporation (each such Remaining Employee's July 1,
1997 cash bonus being referred to as his or her "Base Award"). On each of
February 1, 1998, July 1, 1998, February 1, 1999 and July 1, 1999, the Surviving
Corporation will make cash bonus awards to each of the Remaining Employees who
remains in the employ of the Surviving Corporation as of such date in an amount
equal to each Remaining Employee's Base Award.
SECTION 4.17. Consent and Waiver. The Company shall obtain from ▇▇▇▇▇▇▇▇
------------------
▇. ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ and ▇▇▇ ▇▇▇▇▇▇▇
(collectively, the "Management Stockholders"), and shall use its best efforts to
obtain from each holder of outstanding Company Preferred Stock (the "Preferred
Stockholders"), a signed Consent and Waiver, in substantially the form of
Exhibit H (a "Consent and Waiver"), pursuant to which each Management
---------
Stockholder and each such holder shall acknowledge and consent to the
methodology adopted or to be adopted by the Company Board in connection with the
allocation among the stockholders of the Company of the Merger Consideration to
be received in the Merger pursuant to Section 1.8 and the Company's Restated
Certificate of Incorporation and shall agree to waive any rights, claims or
causes of action such holder may have against Parent, Acquisition, the Company,
the Surviving Corporation or any of their respective Affiliated Parties arising
out of or relating to the application of such methodology by the Company Board.
The Company shall include a form of Consent and Waiver in the Proxy
Statement/Information Statement.
SECTION 4.18. Stock Exchange Listing. Parent shall use its reasonable
----------------------
efforts to cause the shares of Parent Common Stock to be issued to the
stockholders of the Company in the Merger to be approved for listing on the
NYSE, subject to official notice of issuance, prior to the Effective Time.
SECTION 4.19. SEC Filings. Parent shall promptly furnish the Company with
-----------
copies of all filings made by Parent with the SEC or any other federal or state
Governmental Entity after the date of this Agreement and prior to the Effective
Time.
SECTION 4.20. Exercise of Company Stock Options. On the Closing Date, the
---------------------------------
Company will deliver to Parent an annotated copy of Section 2.2 of the Company
Disclosure Schedule, certified by an officer of the Company, showing (i) all
Company Stock Options that have been granted since the date of this Agreement,
(ii) all Company Stock Options that have been exercised since the date of this
Agreement and (iii) all Company Stock Options that shall be cancelled in
exchange for Parent Replacement Options pursuant to Section 1.11.
SECTION 4.21. Certain Filing by Parent. If the Closing Date shall occur
------------------------
at any time after December 31, 1996, Parent agrees to file with the SEC under
the Exchange Act, as soon as practicable (but no later than thirty (30) days)
after the results of the combined operations of Parent and the Surviving
Corporation for a full thirty (30)-day calendar month become available, a
Current Report on Form 8-K reporting such results of operations.
41
SECTION 4.22. Termination of Certain Side Letters. The Company entered
-----------------------------------
into a letter agreement dated June 8, 1994 with ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ and a letter
agreement dated August 19, 1994 with Random House, in each case with respect to,
among other things, the issuance of additional securities of the Company under
certain circumstances. The Company agrees to use its best efforts to cause the
termination of each such letter agreement on or prior to the Closing Date.
SECTION 4.23. Delivery of Certified Financial Statements. The Company
------------------------------------------
shall use its best efforts to deliver to Parent, as soon as practicable but in
any event no later than the Closing Date, the restatement, if any, of the
Company's financial statements identified in Section 2.4(a)(i), certified by
Price Waterhouse LLP; provided, however, that in no event shall any such
restatement or restatements, in the aggregate, result in a reduction of more
than $400,000 in the assets of the Company or the historic revenues or earnings
of the Company or an increase of more than $400,000 in the liabilities of the
Company.
SECTION 4.24. Defaults Under the Silicon Loan Documents. The Company
-----------------------------------------
shall use its best efforts to cure any defaults under or violations of the
Silicon Loan Documents and/or obtain a duly executed waiver by Silicon Valley
Bank of such defaults or violations, in form and substance satisfactory to
Parent.
ARTICLE 5
CONDITIONS TO CONSUMMATION OF THE MERGER
SECTION 5.1. Conditions to Each Party's Obligations to Effect the Merger.
-----------------------------------------------------------
The respective obligations of each party hereto to effect the Merger are subject
to the satisfaction at or prior to the Effective Time of the following
conditions:
(a) this Agreement shall have been approved and adopted by the requisite
vote or consent of the stockholders of the Company;
(b) no statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or enforced by any
United States court or United States governmental authority which prohibits,
restrains, enjoins or restricts the consummation of the Merger;
(c) any waiting period applicable to the Merger under the HSR Act shall
have terminated or expired, and any other governmental or regulatory notices or
approvals required with respect to the transactions contemplated hereby shall
have been either filed or received;
(d) the issuance of a favorable fairness determination from the California
Commissioner of Corporations in the Fairness Hearing (without the imposition of
any material conditions or changes to the terms of the Merger) and a permit to
issue the Parent Common Stock to the stockholders of the Company in the Merger
or, if a favorable fairness determination shall not have been so issued, the S-4
contemplated by Section 4.2(b) shall have been declared
42
effective under the Securities Act and shall not be the subject of any stop
order or proceedings seeking a stop order.
SECTION 5.2. Conditions to the Obligations of the Company. The
--------------------------------------------
obligation of the Company to effect the Merger is subject to the satisfaction at
or prior to the Effective Time of the following conditions:
(a) the aggregate effect of any inaccuracies in the representations and
warranties of Parent and Acquisition contained in this Agreement or in any other
document delivered pursuant hereto has not had at and as of the Effective Time,
and is not reasonably likely to have, a Material Adverse Effect on Parent and
its subsidiaries taken as a whole, and, at the Closing, Parent and Acquisition
shall have delivered to the Company a certificate to that effect;
(b) each of the obligations of Parent and Acquisition to be performed at or
before the Effective Time pursuant to the terms of this Agreement shall have
been duly performed in all material respects at or before the Effective Time and
at the Closing Parent and Acquisition shall have delivered to the Company a
certificate to that effect;
(c) the shares of Parent Common Stock issuable to the Company stockholders
pursuant to this Agreement and such other shares required to be reserved for
issuance in connection with the Merger shall have been authorized for listing on
the NYSE upon official notice of issuance;
(d) the opinions of (i) ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ and
▇▇▇▇▇▇▇▇▇, LLP, counsel to the Company, addressed to the Company and its
stockholders to the effect that the Merger will be treated for Federal income
tax purposes as a reorganization within the meaning of Section 368(a) of the
Code, and (ii) ▇▇▇▇▇▇ ▇▇▇▇▇▇, Esq., special counsel to Parent and Acquisition,
to the effect that the Parent Common Stock has been duly authorized and validly
issued and is fully paid and non-assessable, shall have been delivered, and such
opinions shall not have been withdrawn or modified in any material respect;
(e) Parent shall have granted to certain employees of the Surviving
Corporation identified by the Chief Executive Officer of the Company and agreed
upon by Parent the Parent Stock Options as contemplated by, and in accordance
with, Section 4.16; and
(f) there shall have been no events, changes or effects with respect to
Parent or Acquisition or any of their respective subsidiaries having or which
could reasonably be expected to have a Material Adverse Effect on Parent and, at
the Closing, Parent shall have delivered to the Company a certificate to that
effect.
SECTION 5.3. Conditions to the Obligations of Parent and Acquisition. The
-------------------------------------------------------
respective obligations of Parent and Acquisition to effect the Merger are
subject to the satisfaction at or prior to the Effective Time of the following
conditions:
43
(a) each of the representations and warranties of the Company contained in
this Agreement or in any other document delivered pursuant hereto is true and
correct in all material respects at and as of the Effective Time with the same
effect as if made at and as of the Effective Time and, at the Closing, the
Company shall have delivered to Parent and Acquisition a certificate to such
effect; provided, however, that for any representation or warranty other than
those contained in Sections 2.1, 2.2(b) or (d), 2.3, 2.5 or 2.9, it shall only
be a condition to closing that the aggregate effect of any inaccuracies in such
representations or warranties shall not have had, between the date hereof and
the Effective Time and at and as of the Effective Time, and shall not be
reasonably likely to have, a material adverse effect on the business,
operations, condition (financial or otherwise) or prospects of the Company, or
have resulted in, or be reasonably likely to result in, a decrease in the value
of the assets of the Company or an increase in the liabilities of the Company of
in excess of $5.0 million; and provided further, however, that, except as
otherwise provided in Section 1.12(c), notwithstanding the occurrence of the
Closing, neither Parent nor Acquisition shall be deemed to have waived or
otherwise limited its right to recover Losses pursuant to Section 1.12 or
otherwise for any breach of or inaccuracy in any such representations and
warranties of the Company.
(b) each of the obligations of the Company to be performed at or before the
Effective Time pursuant to the terms of this Agreement shall have been duly
performed in all material respects at or before the Effective Time and at the
Closing the Company shall have delivered to Parent and Acquisition a certificate
to that effect;
(c) each Company Affiliate shall have performed his or its obligations
under the applicable Affiliate Letter, and Parent shall have received a
certificate signed by each of them to such effect;
(d) Parent shall have received a letter from E&Y to the effect that
"pooling-of-interests" accounting is appropriate for the Merger if the Merger is
closed and consummated in accordance with the terms of this Agreement, and such
letter shall not have been withdrawn or modified in any material respect.
(e) the Company shall have obtained the consent or approval of each person
whose consent or approval shall be required in order to permit the succession by
the Surviving Corporation pursuant to the Merger to any obligation, right or
interest of the Company under any loan or credit agreement, note, mortgage,
indenture, lease or other agreement or instrument, except for those for which
failure to obtain such consents or approvals would not, in the reasonable
opinion of Parent, individually or in the aggregate, have a Material Adverse
Effect on the Company;
(f) the number of Company Dissenting Shares as of the Effective Time shall
not exceed 9% of the then issued and outstanding Company Shares (with each share
of Company Preferred Stock being converted into the number of shares of Company
Common Stock into which such share of Company Preferred Stock may be converted);
44
(g) the Escrow Agreement shall have been duly executed and delivered by the
Company, the Escrow Committee and The Bank of Boston, in its capacity as escrow
agent, and shall be in full force and effect;
(h) the Employment Agreement between the Company and ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
shall be in full force and effect, and ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ shall be in good
physical and mental health and capable of performing his obligations under such
Employment Agreement;
(i) the Non-Competition Agreements shall be in full force and effect;
(j) (i) the Restated Investors' Rights Agreement dated as of September 25,
1995, by and among the Company, the persons listed on Exhibit A thereto as
Investors, the persons listed on Exhibit A thereto as Founders, and ▇▇▇▇▇▇▇
▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇▇▇▇▇, as amended from time to time, and (ii) all registration
rights existing with respect to any Company Securities, shall have been
terminated, and Parent and Acquisition shall have received written evidence of
the same;
(k) the Articles Amendment shall have been approved and adopted by the
requisite vote or consent of the stockholders of the Company;
(l) all of the Management Stockholders, together with Preferred
Stockholders holding at least 90% of the Company Shares held by all Preferred
Stockholders, shall have executed and delivered to the Company a Consent and
Waiver as contemplated by Section 4.17, or each share of Company Preferred Stock
shall have been converted prior to the Effective Time into shares of Company
Common Stock pursuant to Article IV, Section 5(c)(i) of the Restated Certificate
of Incorporation of the Company;
(m) ▇▇▇▇▇▇▇ ▇▇▇▇▇ shall have executed and delivered to the Company an
internet domain assignment agreement, substantially in the form of Exhibit I,
---------
pursuant to which ▇▇. ▇▇▇▇▇ will assign the entire right, title and interest
held by him and/or certain entities owned or controlled (in whole or in part) by
him in the internet domain names and related intellectual property identified in
such form;
(n) each of the Company Affiliates identified in Section 4.15 of the
Company Disclosure Schedule shall have executed and delivered the Affiliate
Letter; and
(o) there shall have been no events, changes or effects with respect to the
Company having or which could reasonably be expected to have a Material Adverse
Effect on the Company and, at the Closing, the Company shall have delivered to
Parent and Acquisition a certificate to that effect.
45
ARTICLE 6
TERMINATION; AMENDMENT; WAIVER
SECTION 6.1. Termination. This Agreement may be terminated and the Merger
-----------
may be abandoned at any time, but prior to the Effective Time:
(a) by mutual written consent of Parent, Acquisition and the Company;
(b) by Parent and Acquisition or the Company if (i) any court of competent
jurisdiction in the United States or other United States governmental authority
shall have issued a final order, decree or ruling or taken any other final
action restraining, enjoining or otherwise prohibiting the Merger and such
order, decree, ruling or other action is or shall have become nonappealable or
(ii) the Merger has not been consummated by January 15, 1997, or as otherwise
extended by the parties or as contemplated by the penultimate paragraph of this
Section 6.1 (the "Termination Date"); provided that no party may terminate this
Agreement pursuant to this clause (ii) if such party's failure to fulfill any of
its obligations under this Agreement shall have directly resulted in the failure
of the Effective Time to occur on or before said date;
(c) by the Company if (i) there shall have been a breach of any
representation or warranty on the part of Parent or Acquisition set forth in
this Agreement, or if any representation or warranty of Parent or Acquisition
shall have become untrue, in either case such that the conditions set forth in
Section 5.2(a) would be incapable of being satisfied by the Termination Date,
(ii) there shall have been a breach by Parent or Acquisition of any of their
respective covenants or agreements hereunder having a Material Adverse Effect on
Parent or materially adversely affecting (or materially delaying) the
consummation of the Merger, and Parent or Acquisition, as the case may be, has
not cured such breach within twenty (20) business days after notice by the
Company thereof, provided that, with respect to clauses (i) and (ii) above, the
Company has not materially breached any of its obligations hereunder and has not
failed to timely cure such breach, or (iii) the Company shall have convened a
meeting of its stockholders to vote upon the Merger or solicited written
consents to approve the Merger for thirty (30) days and, in either case, shall
have failed to obtain the requisite vote or consent of its stockholders;
(d) by Parent and Acquisition if (i) there shall have been a breach of any
representation or warranty on the part of the Company set forth in this
Agreement, or if any representation or warranty of the Company shall have become
untrue, in either case such that the conditions set forth in Section 5.3(a)
would be incapable of being satisfied by the Termination Date, (ii) there shall
have been a breach by the Company of its covenants or agreements hereunder
having a Material Adverse Effect on the Company or materially adversely
affecting (or materially delaying) the consummation of the Merger, and the
Company has not cured such breach within twenty (20) business days after notice
by Parent or Acquisition thereof, provided that, with respect to clauses (i) or
(ii) above, neither Parent nor Acquisition has materially breached any of their
respective obligations hereunder and has not failed to timely cure such breach,
(iii) the Company Board shall have withdrawn, modified or changed its approval
or recommendation of this
46
Agreement or the Merger, or shall have recommended to the Company's stockholders
a Third Party Acquisition (as defined below) or a Significant Acquisition (as
defined below), or shall have failed to call, give notice of, convene or hold a
stockholders' meeting to vote upon the Merger or to solicit written consents to
approve the Merger, or shall have adopted any resolution to effect any of the
foregoing, or (iv) the Company shall have convened a meeting of its stockholders
to vote upon the Merger or solicited written consents to approve the Merger for
thirty (30) days and, in either case, shall have failed to obtain the requisite
vote or consent of its stockholders.
(e) by Parent and Acquisition if each of the Company Affiliates identified
in Section 4.15 of the Company Disclosure Schedule shall not have executed and
delivered Affiliate Letters in form and substance acceptable to Parent on or
before October 18, 1996.
Notwithstanding Section 6.1(b), in the event that the parties prepare, and
Parent files with the SEC, the S-4 as contemplated by Section 4.2(b), the
Termination Date shall be January 31, 1997, or as otherwise extended by the
parties, provided that if the S-4 is filed with the SEC and, as of January 31,
1997, (A) the S-4 shall not have been declared effective by the SEC, or (B) the
S-4 shall have been declared effective by the SEC but a sufficient period of
time has not transpired since the date the S-4 shall have been declared
effective to allow the Company to mail the Proxy Statement/Information Statement
to its stockholders, to solicit proxies to approve the Merger and the Articles
Amendment and to convene a special meeting of stockholders to vote on the
Merger, or (C) if the Company elects to solicit written consents to the Merger
and the Articles Amendment in lieu of holding a special meeting of stockholders,
the S-4 shall have been declared effective but sufficient consents of the
stockholders of the Company approving the Merger and the Articles Amendment
shall not have been received and the Company has not been able to solicit such
consents for at least thirty (30) days following the effective date of the S-4,
then, in any such case, the Termination Date shall be automatically extended to
a date which is sixty (60) days following the date upon which the S-4 shall have
been or is declared effective by the SEC.
The term "Third Party Acquisition" means the occurrence of any of the
following events: (i) the acquisition of the Company by merger or otherwise by
any person (which includes a "person" as such term is defined in Section
13(d)(3) of the Exchange Act) or entity other than Parent, Acquisition or any
affiliate thereof (a "Third Party"); (ii) the acquisition by a Third Party of
more than 30% of the total assets of the Company; or (iii) the acquisition by a
Third Party of 30% or more of the outstanding shares of Company Common Stock.
The term "Significant Acquisition" means the acquisition by the Company, by
merger, purchase of stock or assets, joint venture or otherwise, of a direct or
indirect ownership interest or investment in any business whose annual revenues,
net income or assets is equal to or greater than 40% of the annual revenues, net
income or assets of the Company.
SECTION 6.2. Effect of Termination. In the event of the termination and
---------------------
abandonment of this Agreement pursuant to Section 6.1, this Agreement shall
forthwith become void and have no effect, without any liability on the part of
any party hereto or its affiliates, directors, officers or stockholders, other
than the provisions of this Section 6.2 and Sections 4.5(c), 6.3, 7.5, 7.8 and
7.9. Nothing contained in this Section 6.2 shall relieve any party from
liability for any breach of this Agreement.
47
SECTION 6.3. Expenses.
--------
(a) Upon the termination of this Agreement pursuant to Section 6.1(c)(iii)
or Section 6.1(d), the Company shall reimburse Parent, Acquisition and their
affiliates (not later than ten (10) business days after submission of statements
therefor) for all actual documented out-of-pocket fees and expenses, not to
exceed $250,000, actually and reasonably incurred by any of them or on their
behalf in connection with the Merger and the consummation of all transactions
contemplated by this Agreement (including, without limitation, fees payable to
counsel to any of the foregoing, and accountants). If Parent or Acquisition
shall submit a request for reimbursement hereunder, Parent or Acquisition will
provide the Company in due course with invoices or other reasonable evidence of
such expenses upon request. The Company shall in any event pay the amount
requested (not to exceed $250,000) no later than ten (10) business days
following such request, subject to the Company's right to demand a return of any
portion as to which invoices are not received in due course.
(b) Upon the termination of this Agreement pursuant to Section 6.1(c)(i) or
(ii), Parent shall reimburse the Company and their affiliates (not later than
ten (10) business days after submission of statements therefor) for all actual
documented out-of-pocket fees and expenses, not to exceed $425,000, actually and
reasonably incurred by any of them or on their behalf in connection with the
Merger and the consummation of all transactions contemplated by this Agreement
(including, without limitation, fees payable to investment bankers, counsel to
any of the foregoing, and accountants). If the Company shall have submitted a
request for reimbursement hereunder, the Company will provide Parent in due
course with invoices or other reasonable evidence of such expenses upon request.
Parent shall in any event pay the amount requested (not to exceed $425,000) no
later than ten (10) business days following such request, subject to Parent's
right to demand a return of any portion as to which invoices are not received in
due course.
(c) Except as specifically provided in this Section 6.3, each party shall
bear its own expenses in connection with this Agreement and the transactions
contemplated hereby.
SECTION 6.4. Amendment. This Agreement may be amended by action taken
---------
by the Company, Parent and Acquisition at any time before or after approval of
the Merger by the stockholders of the Company (if required by applicable law)
but, after any such approval, no amendment shall be made which requires the
approval of such stockholders under applicable law without such approval. This
Agreement may not be amended except by an instrument in writing signed on behalf
of the parties.
SECTION 6.5. Extension; Waiver. At any time prior to the Effective Time,
-----------------
each party may (a) extend the time for the performance of any of the obligations
or other acts of the other party, (b) waive any inaccuracies in the
representations and warranties of the other party contained herein or in any
document, certificate or writing delivered pursuant hereto or (c) waive
compliance by the other party with any of the agreements or conditions contained
herein. Any agreement on the part of any party to any such extension or waiver
shall be valid only if set forth
48
in an instrument in writing signed on behalf of such party. The failure of any
party to assert any of its rights hereunder shall not constitute a waiver of
such rights.
ARTICLE 7
MISCELLANEOUS
SECTION 7.1. Survival of Representations and Warranties. The
------------------------------------------
representations and warranties made herein shall be deemed to have been made as
of the Effective Time and, for purposes of Section 1.12 and the Escrow
Agreement, survive the Effective Time and continue until the Escrow Release Date
(except to the extent that claims against the Escrowed Parent Common Stock shall
have been made during such period, in which case such survival period shall
continue until such claims have been resolved).
SECTION 7.2. Entire Agreement; Assignment. This Agreement, together with
----------------------------
the Loan Documents, and the Confidentiality Agreements referred to in Section
4.5(d), (a) constitute the entire agreement among the parties with respect to
the subject matter hereof and supersedes all other prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof, and (b) shall not be assigned by operation of law or
otherwise; provided, however, that Acquisition may assign any or all of its
rights and obligations under this Agreement to any subsidiary of Parent, but no
such assignment shall relieve Acquisition of its obligations hereunder if such
assignee does not perform such obligations.
SECTION 7.3. Validity. If any provision of this Agreement, or the
--------
application thereof to any person or circumstance, is held invalid or
unenforceable, the remainder of this Agreement, and the application of such
provision to other persons or circumstances, shall not be affected thereby, and
to such end, the provisions of this Agreement are agreed to be severable.
SECTION 7.4. Notices. All notices, requests, claims, demands and other
-------
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by cable,
telegram, facsimile or telex, or by registered or certified mail (postage
prepaid, return receipt requested), to the other party as follows:
if to Parent or Acquisition: CUC International Inc.
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with copies to: Davidson & Associates, Inc.
▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
49
▇▇▇▇▇▇, ▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇
Attention: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
if to the Company: Knowledge Adventure, Inc.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇. ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to: ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇▇, LLP
▇▇▇ ▇▇▇▇▇▇ ▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇. ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
or to such other address as the person to whom notice is given may have
previously furnished to the other in writing in the manner set forth above.
SECTION 7.5. Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of Delaware, without regard
to the principles of conflicts of law thereof.
SECTION 7.6. Headings; Construction. The descriptive headings herein are
----------------------
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement, Article, section,
exhibit, schedule, preamble, recital and party references are to this Agreement
unless otherwise stated. No party, nor its respective counsel, shall be deemed
the drafter of this Agreement for purposes of construing the provisions of this
Agreement, and all language in all parts of this Agreement shall be construed in
accordance with its fair meaning, and not strictly for or against any party.
SECTION 7.7. Parties in Interest. This Agreement shall be binding upon
-------------------
and inure solely to the benefit of each party hereto and its successors and
permitted assigns, and except as provided in Sections 4.9 and 7.2, nothing in
this Agreement, express or implied, is intended to or shall confer upon any
other person any rights, benefits or remedies of any nature whatsoever under or
by reason of this Agreement.
SECTION 7.8. Specific Performance. The parties acknowledge that
--------------------
irreparable damage would result if this Agreement were not specifically
enforced, and they therefore consent that the rights and obligations of the
parties under this Agreement may be enforced by a decree of specific performance
issued by a court of competent jurisdiction. Such remedy shall, however, not be
50
exclusive and shall be in addition to any other remedies which any party may
have under this Agreement or otherwise.
SECTION 7.9. Brokers. Except as otherwise provided in Section 6.3, the
-------
Company agrees to indemnify and hold harmless Parent and Acquisition from and
against any and all liability to which Parent and Acquisition may be subjected
by reason of any brokers, finders or similar fees or expenses with respect to
the transactions contemplated by this Agreement to the extent such similar fees
and expenses are attributable to any action undertaken by or on behalf of the
Company.
SECTION 7.10. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same instrument.
SECTION 7.11. Definition of Knowledge. When any fact is stated to be to
-----------------------
the "knowledge of the Company," such reference shall mean that one or more of
the members of the Company Board and/or any of the following executive officers
or employees of the Company knows or should have known in the normal course of
business of the existence or non-existence of such fact: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇,
▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇.
SECTION 7.12. Recapitalization. Whenever (a) the number of outstanding
----------------
shares of Parent Common Stock is changed after the date hereof by reason of a
subdivision or combination of shares, whether effected by reclassification of
shares or otherwise or (b) Parent pays a stock dividend or makes a similar stock
distribution on shares of Parent Common Stock, each specified number of shares
of Parent Common Stock referred to in this Agreement, the Escrow Agreement or
any other document or agreement executed and delivered in connection herewith
and each specified per share amount (other than par values) with respect to
shares of Parent Common Stock (including, without limitation, $36.22 wherever
such figure appears) referred to herein or therein shall be adjusted.
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IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
duly executed on its behalf as of the day and year first above written.
KNOWLEDGE ADVENTURE, INC.,
a Delaware corporation
By: /s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
--------------------------------
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
President
CUC INTERNATIONAL INC.,
a Delaware corporation
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
---------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Vice Chairman
KA ACQUISITION CORP.,
a Delaware corporation
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
---------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇
Vice President
52
