AGREEMENT AND PLAN OF MERGER
DATED AS OF FEBRUARY 11, 2001
BY AND AMONG
WORLD ACQUISITION CORPORATION,
STARBASE CORPORATION
AND
XXXXXXXX.XXX, INC.
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ARTICLE I GENERAL................................................................................................2
1.1 The Merger..........................................................................................2
1.2 The Closing and Effective Time......................................................................2
1.3 Effect of the Merger................................................................................3
1.4 Certificate of Incorporation; Bylaws................................................................3
1.5 Directors and Officers..............................................................................3
1.6 Conversion of Securities; Issuance..................................................................4
1.7 Payment of Certain Liabilities......................................................................8
1.8 Closing of Transfer Books...........................................................................8
1.9 Surrender of Certificates...........................................................................8
1.10 Escrow Amount.....................................................................................12
1.11 Net Asset Adjustment..............................................................................13
ARTICLE II REPRESENTATIONS AND WARRANTIES OF COMPANY............................................................15
2.1 Organization, Standing and Power...................................................................16
2.2 Capitalization.....................................................................................17
2.3 Interests in Other Entities........................................................................19
2.4 Authority..........................................................................................19
2.5 Noncontravention...................................................................................20
2.6 Litigation.........................................................................................21
2.7 Compliance with Law................................................................................21
2.8 Financial Statements; Books and Records............................................................22
2.9 Accounts Receivables...............................................................................23
2.10 Properties........................................................................................23
2.11 Intellectual Property.............................................................................24
2.12 Systems and Software..............................................................................25
2.13 Insurance.........................................................................................26
2.14 Tax Matters.......................................................................................26
2.15 Employee Arrangements.............................................................................28
2.16 Certain Business Matters and Practices............................................................32
2.17 Certain Contracts.................................................................................32
2.18 Customers and Suppliers...........................................................................33
2.19 Approvals/Consents................................................................................34
2.20 Transactions with Affiliated Parties..............................................................34
2.21 Restricted Securities.............................................................................34
2.22 Legends...........................................................................................35
2.23 Information as to Company.........................................................................35
2.24 Conduct of the Business Since December 31, 2000...................................................35
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB.............................................37
3.1 Organization.......................................................................................37
3.2 Authority..........................................................................................37
3.3 Noncontravention...................................................................................38
3.4 Consents and Approvals.............................................................................39
3.5 Intentionally Omitted..............................................................................39
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3.6 Capitalization.....................................................................................39
3.7 Merger Consideration...............................................................................40
3.8 Securities and Exchange Commission Filings; Financials.............................................40
3.9 Full Disclosure....................................................................................41
3.10 Litigation........................................................................................41
3.11 Material Changes..................................................................................41
3.12 Representations Relating to Qualification of the Merger as a Tax-Free Reorganization..............41
ARTICLE IV COVENANTS............................................................................................43
4.1 Exclusivity........................................................................................43
4.2 Cooperation/Further Assurances.....................................................................44
4.3 Employee Matters...................................................................................44
4.4 Conduct of Business of Company.....................................................................45
4.5 Debts and Obligations..............................................................................49
4.6 Company Stockholders' Consent......................................................................49
4.7 Breach of Representations, Warranties, Agreements and Covenants....................................49
4.8 Consents...........................................................................................50
4.9 Indemnification....................................................................................50
4.10 Listing of Merger Shares..........................................................................51
4.11 Preparation of Information Statement..............................................................51
4.12 Tax-Free Reorganization...........................................................................52
ARTICLE V CONDITIONS OF CLOSING.................................................................................52
5.1 Conditions to Each Party's Obligation to Effect the Merger.........................................52
5.2 Conditions to the Obligation of Company to Effect the Merger.......................................54
5.3 Conditions to Obligations of Parent and Merger Sub to Effect the Merger............................55
ARTICLE VI TERMINATION OF AGREEMENT.............................................................................58
6.1 Termination of Agreement...........................................................................59
6.2 Effect of Termination..............................................................................59
ARTICLE VII INDEMNIFICATION.....................................................................................59
7.1 Survival; Right to Indemnification Not Affected By Knowledge.......................................59
7.2 Indemnification and Payment of Damages.............................................................60
7.3 Limitations on Amount..............................................................................62
7.4 Procedure for Indemnification - Third-Party Claims.................................................62
7.5 Procedure for Indemnification Other Claims.........................................................65
ARTICLE VIII MISCELLANEOUS......................................................................................65
8.1 Further Actions....................................................................................65
8.2 Expenses...........................................................................................65
8.3 Entire Agreement...................................................................................66
8.4 Descriptive Headings...............................................................................66
8.5 Notices............................................................................................66
8.6 Governing Law......................................................................................67
8.7 Assignability......................................................................................68
8.8 Waivers and Amendments.............................................................................68
8.9 Third Party Rights.................................................................................68
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8.10 Public Announcements..............................................................................69
8.11 Severability......................................................................................69
8.12 Restrictive Legends...............................................................................69
8.13 Counterparts......................................................................................70
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger is made and entered into as
of February 11, 2001 ("Agreement"), by and among STARBASE CORPORATION, a
Delaware corporation ("Parent"), WORLD ACQUISITION CORPORATION, a Delaware
corporation ("Merger Sub") and xxxxxxxx.xxx, Inc., a Delaware corporation (the
"Company").
Capitalized terms not otherwise defined in this Agreement are
defined in Appendix A hereto.
RECITALS:
WHEREAS, the Boards of Directors of each of the Company,
Parent and Merger Sub believe it is in the best interests of each company and
their respective stockholders that Parent acquire the Company through the
statutory merger of the Merger Sub with and into the Company (the "Merger") upon
the terms and conditions set forth herein, and in furtherance thereof, have
approved the Merger;
WHEREAS, the Company, Parent and Merger Sub desire to make
certain representations and warranties and other agreements in connection with
the Merger;
WHEREAS, for Federal income tax purposes, it is intended that
the Merger qualify as a reorganization under the provisions of Section 368 of
the Internal Revenue Code of 1986, as amended; and
WHEREAS, the Merger described herein is subject to the
approval of the stockholders of the Company and satisfaction of certain other
conditions described in this Agreement.
NOW, THEREFORE, in consideration of the mutual benefits to be
derived and the representations and warranties, conditions and promises herein
contained, and intending to be legally bound hereby, the parties hereto hereby
agree as follows:
ARTICLE I
GENERAL
1.1 The Merger. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement and the
applicable provisions of the Delaware General Corporation Law ("Delaware Law"),
Merger Sub shall be merged with and into the Company, the separate corporate
existence of Merger Sub shall cease, and the Company shall continue as the
surviving corporation and as a wholly-owned subsidiary of Parent. The Company as
the surviving corporation after the Merger is hereinafter sometimes referred to
as the "Surviving Corporation."
1.2 The Closing and Effective Time. Unless this Agreement is earlier
terminated pursuant to Article VI hereof, and subject to the satisfaction or
waiver of each of the conditions set forth in Article V, the closing of the
Merger (the "Closing") shall take place one business day following the
completion of all closing conditions or waiver thereof but not later than
February 20, 2001, at the offices of Jenkens & Xxxxxxxxx Xxxxxx Xxxxxx LLP, The
Chrysler Building, 000 Xxxxxxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000 unless another
place or time is agreed to by Parent and the Company. The date upon which the
Closing actually occurs is herein referred to as the "Closing Date." Upon
complete satisfaction or satisfactory waiver of all conditions set forth in
Article V, on the Closing Date, the parties hereto shall cause the Merger to be
consummated by filing a Certificate of Merger with the Secretary of State of the
State of Delaware (the "Certificate of Merger"), the time of confirmation of
such filing by the Secretary of State of the State of
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Delaware (the "Certificate of Merger"), the time of confirmation of such filing
by the Secretary of State of the State of Delaware being referred to herein as
the "Effective Time".
1.3 Effect of the Merger. At the Effective Time, the effect of the
Merger shall be as provided in the applicable provisions of Delaware Law.
Without limiting the generality of the foregoing, and subject thereto, and
except as otherwise provided in this Agreement, at the Effective Time, all the
property, rights, privileges, powers and franchises of the Company and Merger
Sub shall vest in the Surviving Corporation, and all debts, liabilities and
duties of the Company and Merger Sub shall become the debts, liabilities and
duties of the Surviving Corporation.
1.4 Certificate of Incorporation; Bylaws.
(a) Unless otherwise determined by Parent prior to the Effective Time,
as of the Effective Time, the Certificate of Incorporation of the Surviving
Corporation, in the form attached hereto as Exhibit A, shall be the Certificate
of Incorporation of the Surviving Corporation until thereafter amended as
provided by law and such Certificate of Incorporation.
(b) Unless otherwise determined by Parent, the Bylaws of Merger Sub, as
in effect immediately prior to the Effective Time, shall be the Bylaws of the
Surviving Corporation until thereafter amended.
1.5 Directors and Officers. The director(s) of Merger Sub immediately
prior to the Effective Time shall be the initial director(s) of the Surviving
Corporation, to hold office in accordance with the Certificate of Incorporation
and Bylaws of the Surviving Corporation. The officer(s) of Merger Sub
immediately prior to the Effective Time shall be the initial officer(s) of the
Surviving Corporation, each to hold office in accordance with the Bylaws of the
Surviving Corporation.
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1.6 Conversion of Securities; Issuance.
(a) Subject to the escrow provisions set forth in Section 1.10 hereof,
except as otherwise provided in Section 1.6(f), at the Effective Time, by virtue
of the Merger and without any action on the part of Parent, Merger Sub, the
Company or any holder of any shares of capital stock of the Company.
(i) each share of Company Common Stock issued and outstanding
immediately prior to the Effective Time, other than Dissenting Stock shall be
converted automatically into the right to receive $0.03 per share in cash;
(ii) each share of Series B Preferred issued and outstanding
immediately prior to the Effective Time shall be converted automatically into
the right to receive a number of shares of Parent Common Stock equal to the
Series B Exchange Ratio;
(iii) each share of Series A Preferred issued and outstanding
immediately prior to the Effective Time shall be converted automatically into
the right to receive a number of shares of Parent Common Stock equal to the
Series A Exchange Ratio;
(iv) each share of Company Common Stock and Preferred Stock
(collectively, "Company Capital Stock") held in treasury by the Company
immediately prior to the Effective Time, if any, shall be canceled and
extinguished at the Effective Time without further consideration; and
(v) each share of the capital stock of Merger Sub issued and
outstanding at the Effective Time shall be converted into the right to receive
one (1) validly issued, fully paid and non-assessable share of common stock of
the Surviving Corporation.
(b) For purposes of this Agreement, the following terms shall have the
meaning stated herein:
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"Company Common Stock" means the Common Stock, $0.01 par value
per share, of the Company prior to the Effective Time.
"Merger Consideration" shall mean (x) with respect to each
share of the Series B Preferred, a number of shares of Parent Common Stock equal
to the Series B Exchange Ratio, (y) with respect to each share of the Series A
Preferred, a number of shares of Parent Common Stock equal to the Series A
Exchange Ratio, and (z) with respect to each share of the Company Common Stock,
$0.03 per share in cash.
"Preferred Stock" means the Series A Preferred and the Series
B Preferred.
"Parent Common Stock" shall mean the Common Stock of Parent,
$0.01 par value per share.
"Parent Market Price" shall be deemed to be $3.614458.
"Series B Exchange Ratio" means (i) 5,910,926 divided by (ii)
13,888,659 (the number of issued and outstanding shares of Series B Preferred).
"Series A Exchange Ratio" means (i) 51,856 divided by (ii)
6,247,680 (the number of outstanding shares of Series A Preferred).
"Series A Preferred" means the Series A Convertible Preferred
Stock, $0.01 par value per share, of the Company prior to the Effective Time.
"Series B Preferred" means the Series B Convertible Preferred
Stock, $0.01 par value per share, of the Company prior to the Effective Time.
(c) If between December 31, 2000 and the Effective Time any outstanding
shares of Parent Common Stock shall have been changed into a different number of
shares or a different class, by reason of any stock dividend, subdivision,
reclassification, recapitalization, split, combination or exchange of shares,
the values calculated pursuant to Section 1.6(b) and the
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number of shares issuable pursuant to Section 1.7 shall be correspondingly
adjusted to reflect such stock dividend, subdivision, reclassification,
recapitalization, split, combination or exchange of shares.
(d) Prior to the Effective Time, the Company shall take any and all
actions the Company has authority to take to (i) terminate any and all warrants,
options or other right exercisable or exchangeable into shares of Company
Capital Stock and outstanding as of the Effective Time, including any shares
held in the treasury of the Company, and (ii) cause each such warrant, option or
other right exercisable or exchangeable into shares of Company Capital Stock to
be surrendered, canceled and extinguished by the Company without any conversion
or exercise, no payment to be made, and Parent and Merger Sub to have no
liability or obligation whatsoever with respect thereto. Prior to the Effective
Time, to the extent permitted by the terms of the Company's stock option plans
and agreements, the Company shall terminate any and all options exercisable or
exchangeable into shares of Company Capital Stock outstanding as of the
Effective Time. The Company warrants that as of the Effective Time there shall
be no options, warrants or other rights exercisable or exchangeable into shares
of Company Capital Stock.
(e) Prior to the Effective Time, the Company shall take all necessary
actions, including without limitation, obtaining the approval of its Board of
Directors, to terminate all stock option plans, including without limitation the
Company's Amended and Restated 1997 Incentive Stock Option Plan and the Amended
and Restated 1998 Stock Option Plan and all other stock or equity-related plans
of the Company.
(f) No fractional shares of Parent Common Stock shall be issued in
connection with the Merger but, in lieu thereof, each holder of Preferred Stock
who would otherwise be entitled to a fraction of a share of Parent Common Stock
(after aggregating all
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fractional shares of Parent Common Stock to be received by such holder) will be
entitled to receive from Parent an amount of cash (rounded to the nearest whole
US $0.01) equal to the product of (i) such fraction of a share multiplied by
(ii) the Parent Market Price.
(g) From and after the Effective Time, except as otherwise provided in
Section 1.6(h), the holders of certificates which prior to the Effective Time
evidenced ownership of Company Capital Stock shall cease to have any rights with
respect to such stock, except the right to the receive the Merger Consideration,
if any, provided for under Section 1.6(a).
(h) Shares of the Company Common Stock with respect to which appraisal
rights have been demanded and perfected (the "Dissenting Stock") in accordance
with Section 262 of Delaware Law shall not be converted into the right to
receive any portion of the Merger Consideration at or after the Effective Time,
and the holder thereof shall be entitled only to such rights as are granted by
Delaware Law. Notwithstanding the preceding sentence, if any holder of shares of
Company Capital Stock who demands appraisal of such shares under the Delaware
Law shall effectively withdraw such holder's demand for such appraisal (in
accordance with the Delaware Law) or becomes ineligible for such appraisal
(through failure to perfect or otherwise) then, as of the Effective Time or the
occurrence of such event, whichever is the last to occur, such holder's
Dissenting Stock shall cease to be Dissenting Stock and shall be converted into
and represent the right to receive such portion of the Merger Consideration, if
any, without interest thereon, as provided in this Section 1.6.
(i) The Parent Common Stock to be issued in connection with the Merger
and the other transactions contemplated hereby will be issued in a transaction
exempt from registration under the Securities Act of 1933, as amended and under
applicable state securities laws. The shares of Parent Common Stock issued
pursuant to this Agreement shall have certain
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registration rights as provided in the Registration Rights Agreement attached
hereto as Exhibit 1.6(i).
1.7 Payment of Certain Liabilities. (a) For the full satisfaction of
the Company's obligations under the notes (the "Notes") issued pursuant to the
Note and Warrant Agreement dated as of September 6, 2000, at the Effective Time,
Parent shall issue to Worldweb Investors, LLC, a limited liability company
organized under the laws of Delaware (the "LLC"), as the sole holder of the
Notes, 1,271,360 shares of Parent Common Stock (equal to $4,595,277 (the
original principal amount plus interest through February 14, 2001) divided by
the Parent Market Price).
(b) In consideration of the assumption by the LLC of certain severance
and other contractual liabilities payable by the Company in connection with
consummation of the Merger to certain executive officers of the Company as set
forth on Schedule 1.7 valued at an aggregate of $3,852,500, at the Effective
Time, Parent shall issue to the LLC 1,065,858 shares of Parent Common Stock
(equal to $3,852,500 divided by the Parent Market Price).
1.8 Closing of Transfer Books. At the Effective Time, the stock
transfer books of Company shall be closed and there shall be no further
registration of transfers of any shares of the capital stock of Company
thereafter on its records.
1.9 Surrender of Certificates.
(a) Exchange Agent. Parent or its designee shall act as exchange agent
(the "Exchange Agent") in connection with the Merger.
(b) Parent to Provide Common Stock. As promptly as practicable, but no
later than five (5) business days after the Effective Time, Parent shall make,
or cause Surviving Corporation to make available to the Exchange Agent for
exchange in accordance with this
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Article I, the aggregate number of shares of Parent Common Stock issuable
pursuant to Section 1.6, any cash paid for fractional shares in exchange for
outstanding shares of Company Capital Stock and any cash paid pursuant to
Section 1.6; provided that, before the close of business one trading day prior
to the Closing Date and on behalf of the holders of Company Capital Stock, the
Company shall deliver to Parent Schedule 1.9(b), which Schedule shall contain
the name and address of each holder of Company Capital Stock of record at the
close of business on such date, the number of shares of Company Capital Stock
owned of record by such stockholder, the number of shares of Parent Common stock
issuable to such stockholder based upon the Merger Consideration per share set
forth in Section 1.6. Parent shall deposit into an escrow account 2,086,974
shares of Parent Common Stock.
(c) Exchange Procedures. Promptly after the Effective Time and in no
event later than ten (10) business days after the Effective Time, the Parent
shall cause to be mailed to each holder of record of a certificate or
certificates (the "Certificates") which immediately prior to the Effective Time
represented outstanding shares of Company Capital Stock and which shares were
converted into the right to receive shares of Parent Common Stock or cash, as
the case may be, pursuant to Section 1.6, (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 or cash, as the case may be. Upon surrender of a Certificate or
affidavit of loss therefor for cancellation to the Exchange Agent, together with
such letter of transmittal, duly completed and validly executed in accordance
with the instructions thereto, the holder of such Certificate shall be
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entitled to receive in exchange therefor a certificate representing the number
of whole shares of Parent Common Stock, less the number of shares of Parent
Common Stock, if any, to be deposited in escrow on such holder's behalf pursuant
to Section 1.10 hereof, plus cash in lieu of fractional shares in accordance
with Section 1.6, to which such holder is entitled pursuant to Section 1.6 or
cash, as the case may be, and the Certificate so surrendered shall forthwith be
canceled. As soon as practicable after the Effective Time, and subject to and in
accordance with the provisions of Section 1.10 hereof, Parent shall cause to be
distributed to the Escrow Agent (as defined in Section 1.10) a certificate or
certificates representing the number of shares of Parent Common Stock equal to
the escrow amounts set forth in Section 1.10, which certificate shall be
registered in the name of the Escrow Agent. Such shares shall be beneficially
owned by the holders on whose behalf such shares were deposited in the escrow
fund and shall be available to compensate Parent as provided in Section 1.10.
Until so surrendered, each outstanding Certificate that, prior to the Effective
Time, represented shares of Company Capital Stock will be deemed from and after
the Effective Time, for all corporate purposes, other than the payment of
dividends, to evidence the ownership of the number of full shares of Parent
Common Stock into which such shares of Company Capital Stock shall have been so
converted and the right to receive an amount in cash in lieu of the issuance of
any fractional shares in accordance with Section 1.6; provided that nothing in
this Section 1.9 shall require Parent to exchange Parent Common Stock to any
holder of Company Capital Stock who shall fail to surrender a Certificate
representing such shares or the certification and indemnities relating to a lost
Certificate.
(d) Distributions with Respect to Unexchanged Shares. No dividends or
other distributions with respect to Parent Common Stock declared or made after
the Effective Time and with a record date after the Effective Time will be paid
to the holder of any unsurrendered
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Certificate with respect to the shares of Parent Common Stock represented
thereby until the holder of record of such Certificate shall surrender such
Certificate. Subject to applicable law, following surrender of any such
Certificate, there shall be paid to the record holder of the certificates
representing whole shares of Parent Common Stock issued in exchange therefor,
without interest, at the time of such surrender, the amount of dividends or
other distributions with a record date after the Effective Time theretofore
payable with respect to such whole shares of Parent Common Stock. Promptly
following the date that is six (6) months after the Closing Date, the Exchange
Agent shall return to the Parent all shares of Parent Common Stock in its
possession relating to the transactions described by this Agreement and any
dividend or distribution in respect thereof, and the Exchange Agent's duties
shall terminate. Thereafter, each holder of a certificate may surrender such
certificate of the Parent and (subject to applicable abandoned property, escheat
and similar laws) receive in exchange therefore the shares of Parent Common
Stock, any cash in lieu of fractional shares and any dividend or distribution in
respect thereof to which such holder is entitled thereto.
(e) Transfers of Ownership. If any certificate for shares of Parent
Common Stock is to be issued in a name other than that in which the Certificate
surrendered in exchange therefor is registered, it will be a condition of the
issuance thereof that the Certificate so surrendered will be properly endorsed
and otherwise in proper form for transfer and that the person requesting such
exchange will have paid to Parent or any agent designated by it any transfer or
other taxes required by reason of the issuance of a certificate for shares of
Parent Common Stock in any name other than that of the registered holder of the
Certificate surrendered, or established to the satisfaction of Parent or any
agent designated by it that such tax has been paid or is not payable.
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(f) No Liability. Notwithstanding anything to the contrary in this
Section 1.9, none of the Exchange Agent, the Parent or any party hereto shall be
liable to a holder of shares of Parent Common Stock or Company Capital Stock for
any amount properly paid to a public official pursuant to any applicable
abandoned property, escheat or similar law.
1.10 Escrow Amount. 2,086,974 shares of Parent Common Stock shall be
held in escrow with Greater Bay Trust Company (the "Escrow Agent") as the sole
and exclusive source of funds for the indemnification obligations of the Company
pursuant to Section 7.2(a)(i), (ii) and (iii) of this Agreement ("Indemnity
Escrow Shares"), except with respect to any claim based upon fraud which shall
not be limited to the Indemnity Escrow Shares. For purposes of such escrow, the
Indemnity Escrow Shares shall be valued at the Parent Market Price. Subject to
the terms and conditions of an escrow agreement ("Escrow Agreement") in the form
attached hereto as Exhibit 1.10, the Indemnity Escrow Shares shall be released
from escrow and delivered as may be directed by the designee of WorldWeb
Investors, LLC (the sole holder of Preferred Stock as of the Closing Date), who
shall initially be Xx. Xxxxx Xxxx (the "Designee"), as follows: (i) 1,192,556 of
the Indemnity Escrow Shares shall be released upon the expiration of six months
after the Closing Date (the "First Escrow Release"), provided, that if there are
then any pending indemnification claims made by Parent, which actually or
potentially may exceed the value (as determined above) represented by such First
Escrow Release, such shares to be released shall be reduced by such number of
Indemnity Escrow Shares necessary for the total escrowed shares equal in value
to the maximum amount of any and all pending indemnity claim(s), and, (ii) upon
the fourteen (14) month anniversary of the Closing Date, the remainder of the
Indemnity Escrow Shares held in escrow shall be released (the "Final Release"),
provided, that if there are then pending indemnification claims made by Parent,
which actually or potentially may exceed the
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value represented by the shares then remaining in the escrow, the Final Release
shall be reduced by such number of Indemnity Escrow Shares equal in value to the
maximum amount of any and all such claims. The determination as to the maximum
amount of any such claim or claims shall be as mutually agreed between the
Parent and the Designee. The Indemnity Escrow Shares shall be withheld from the
shares of Parent Common Stock to be received by the LLC upon exchange of its
securities.
1.11 Net Asset Adjustment.
(a) Exhibit 1.11 sets forth the balance sheet of Company as at December
31, 2000 for purposes of determining the Net Asset Benchmark (as defined
herein).
(b) Within sixty (60) days following the Closing, Parent shall cause
the balance sheet of Company as at December 31, 2000 to be audited by Deloitte &
Touche, its certified public accountants (the "Auditors"), in accordance with
GAAP, which audited balance sheet of Company as at December 31, 2000 (the
"Audited Balance Sheet") shall be used for purposes of determining the Audited
Net Asset Benchmark. Parent shall deliver the Audited Balance Sheet to the
Designee promptly upon its receipt. The Designee shall have thirty (30) days
after receipt of the Audited Balance Sheet (the "Dispute Period") to dispute any
item, calculation or amount, or the method of calculation of any item or amount,
reflected therein (a "Dispute"). If the Designee does not give written notice of
a Dispute (a "Dispute Notice") to Parent within the Dispute Period, the Audited
Balance Sheet shall be deemed to have been accepted by the Designee in the form
in which it was delivered by Parent. In the event that the Designee does not
agree with any entry, calculation or amount, or the method of calculation of any
entry or amount, reflected on the Audited Balance Sheet, the Designee shall give
Parent notice within the Dispute Period, setting forth the basis of its
disagreement (the "Dispute
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Notice"), and Designee and Parent shall, within thirty (30) days after receipt
by Parent of such Dispute Notice, attempt to resolve such Dispute and agree in
writing upon the Audited Balance Sheet. In the event that the Designee and
Parent are unable to resolve any such Dispute within such resolution period,
then the national office of a nationally recognized certified public accounting
firm as may be mutually agreed upon by the Designee and Parent (the
"Arbitrator") shall be employed as arbitrator hereunder to settle such Dispute
as soon as reasonably practicable. If the Designee and Parent are unable to
mutually agree upon the selection of a nationally recognized certified public
accounting firm, then the parties agree to the appointment of a nationally
recognized certified public accounting firm to act as Arbitrator by the American
Arbitration Association ("AAA"). The parties agree that the Arbitrator shall
decide only the matters involved in the Dispute and not any other matters, and
shall have no other authority hereunder. Any arbitration pursuant to this
Section shall be conducted by the national office of the Arbitrator or in a
location to be mutually agreed upon in accordance with the Commercial
Arbitration Rules of the AAA then existing. The Arbitrator's determination with
respect to any Dispute shall be final and binding on all parties and not subject
to appeal on any ground, and judgment on the arbitration award may be enforced
in any court having jurisdiction over the subject matter of the controversy. The
LLC and Parent shall each pay one-half of the fees and expenses of the
Arbitrator for the services of the Arbitrator in the arbitration.
(c) If the Audited Net Asset Benchmark is less than the Net Asset
Benchmark by an amount in excess of $50,000, then the number of Indemnity Escrow
Shares held in escrow under the Escrow Agreement shall be reduced by that number
of shares of Parent Common Stock (the "Returned Escrowed Shares") equal to the
quotient of (1) the difference of (i) the Net Asset Benchmark minus (ii) the
Audited Net Asset Benchmark divided by (2) the Parent Market Price
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(the "Net Asset Shortfall"). The number of any Returned Escrowed Shares shall,
within ten (10) business days of delivery of the Final Audited Balance Sheet to
the Escrow Agent, be returned by the Escrow Agent to Parent.
(d) As used in this Section, "Net Asset Benchmark" shall mean the
Company's current assets minus the Company's current liabilities plus long-term
debt (excluding Notes), as reflected on Exhibit 1.11.
As used in this Section, "Audited Net Asset Benchmark" shall mean the
Company's current assets minus the Company's current liabilities plus long-term
debt (excluding Notes), as reflected on the Final Audited Balance Sheet
determined in accordance with GAAP.
As used in this Section, the term "Final Audited Balance Sheet" shall
mean the Audited Balance Sheet, as accepted by the Designee, or if there is a
Dispute, as adjusted, if any adjustment is required, after resolution of any
such Dispute by negotiation or resolution pursuant to this Section, determined
in accordance with GAAP.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF COMPANY
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Company represents and warrants to Parent and Merger Sub that the
statements contained in this Article 2 are correct and complete as of the date
of this Agreement and as of the Closing, except as set forth in the Disclosure
Schedule accompanying this Agreement and initialed by the parties (the
"Disclosure Schedule"). The Disclosure Schedule will be arranged in paragraphs
corresponding to the lettered and numbered paragraphs contained in this Article
II and the disclosures in any paragraph of a Disclosure Schedule shall qualify
other paragraphs in this Article II to the extent that the disclosure is
applicable to such other paragraphs. The term "Knowledge" of the Company or
statements about facts or circumstances recognized by the
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Company shall refer to the actual knowledge of Company's current officers, and
directors including, without limitation, Xxxxx Xxxx, Xxxxx Xxxx, Xxxxx Xxxxxxxxx
and Xxx Xxxxxxxxx, and what such officers and directors reasonably should have
known after investigation customary for transactions of this type and
examination of the Company's records and inquiries of Company management. The
term "Material" shall refer to any liability, payment or other obligation of the
Company or potential liability, payment or other obligation of the Company which
exceeds $10,000.
2.1 Organization, Standing and Power. Company is a corporation duly
organized and validly existing under the laws of the state of Delaware, with
full corporate power and authority to own, lease and operate its properties and
to carry on business as presently conducted by it. Xxxxxxxx.xxx Europe,
Inc.("Subsidiary") is a wholly-owned subsidiary of the Company, is a corporation
duly organized and validly existing under the laws of the state of Delaware, and
has full corporate power and authority to own, lease and operate its properties
and to carry on business as presently conducted by it. Except as set forth on
Schedule 2.1, each of Company and Subsidiary is duly qualified and is in good
standing as a foreign corporation in all states or jurisdictions in which the
character and location of any of the properties owned or leased by Company or
Subsidiary, respectively, or the conduct of its business, makes it necessary for
it to qualify to do business as a foreign corporation, except for those
jurisdictions in which the failure to so qualify would not have a Material
Adverse Effect (as defined in Section 2.5 hereof). Copies of the Certificate of
Incorporation of each of Company and Subsidiary and all amendments thereof and
the By-laws of each Company and Subsidiary, as amended to date, have been made
available to Parent and are complete and correct. The minute books of each of
Company and Subsidiary heretofore made available to Parent contain complete and
accurate
-16-
records of all meetings and other corporate actions of its stockholders and
board of directors (including committees of its Board of Directors).
2.2 Capitalization.
(a) The authorized capital stock of Company consists of 55,124,924
shares of common stock, $.01 par value per share (the "Company Common Stock")
and 98,636,338 shares of preferred stock, $.01 par value (the "Preferred
Stock"), of which 6,247,680 shares are designated Series A Convertible Preferred
Stock, 13,888,658 shares are designated Series B Convertible Preferred Stock,
and 78,500,000 shares are designated Series C Convertible Preferred Stock. As of
the date of this Agreement, there were issued and outstanding 18,564,582 shares
of Company Common Stock, 6,247,680 shares of Series A Convertible Preferred
Stock, 13,888,658 shares of Series B Convertible Preferred Stock, and no shares
of Series C Convertible Preferred Stock. The authorized capital stock of
Subsidiary consists of 1,000 shares of common stock, $.01 par value per share
(the "Subsidiary Common Stock"), of which 1,000 shares are issued and
outstanding and owned by the Company. There are no outstanding options, warrants
or other rights or equity interests exchangeable or convertible into shares of
Subsidiary Common Stock. Schedule 2.2(a) contains a complete and accurate list
of, and the number of shares owned of record , the holders of outstanding
Company Capital Stock and their address. All issued and outstanding shares of
Company Capital Stock and Subsidiary Common Stock were issued in compliance with
applicable federal and state securities laws.
(b) As of the date of this Agreement, there were 4,623,907 shares of
Company Common Stock reserved for issuance upon the exercise of outstanding
options to purchase shares of Company Common Stock (the "Company Options").
Schedule 2.2(b) sets forth a true and complete list of the holders of all
outstanding Company Options, their last known address, the
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vesting schedule applicable thereto, the exercise price per share, and the
change of control provisions applicable thereto.
(c) Except as listed on Schedule 2.2(b), there are (a) no options,
warrants or other rights, agreements, arrangements or commitments of any
character obligating Company to issue or sell any shares of capital stock of or
other equity interests in Company, (b) no outstanding contractual obligations or
other commitments or arrangements of Company to: (i) repurchase, redeem or
otherwise acquire any shares of the capital stock of Company (or any interest
therein) or (ii) provide funds to or make any investment (in the form of a loan,
capital contribution or otherwise) in any other entity, or (iii) issue or
distribute to any person any capital stock of Company, or (iv) issue or
distribute to holders of any of the capital stock of Company any evidences of
indebtedness or assets of Company, and (c) no preemptive rights, right-of-first
refusal or similar catch-up rights, or other restriction on transfer applicable
to any shares of Company Capital Stock, except for any restrictions imposed by
applicable state and federal securities laws.
(d) All outstanding shares of Company Common Stock are, and any shares
of Company Common Stock issued upon exercise of any Company Options will be
(upon issuance in accordance with their terms), duly authorized, validly issued,
fully paid and non-assessable and not subject to preemptive rights created by
statute, Company's Certificate of Incorporation or Bylaws, or any agreement to
which Company is a party or by which Company may be bound. All outstanding
common stock have been issued in compliance with applicable federal and state
securities laws.
(e) Except as listed on Schedule 2.2(e), Company is not a party or
subject to any agreement or understanding, and there is no agreement or
understanding between or among
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any persons that affects or relates to the voting or giving of written consent
with respect to any outstanding security of Company.
2.3 Interests in Other Entities. Except as listed on Schedule 2.3, each
of Company and Subsidiary does not: (a) own, directly or indirectly, of record
or beneficially, any shares of voting stock or other equity securities of any
other entity; (b) have any ownership interest, direct or indirect, of record or
beneficially, in any unincorporated entity; or (c) have any obligation, direct
or indirect, present or contingent, (i) to purchase or subscribe for any
interest in, advance or loan moneys to, or in any way make investments in, any
person or entity, or (ii) to share any profits or capital investments or both
from any entity.
2.4 Authority.
(a) The execution and delivery by Company of this Agreement and of all
of the agreements to be executed and delivered by it pursuant hereto (the
"Company Documents"), the performance by Company of its obligations hereunder
and thereunder, and the consummation of the transactions contemplated hereby and
thereby, have been duly and validly authorized by Company's Board of Directors
and no other corporate proceedings on the part of Company, other than the
approval of its stockholders, are necessary to authorize the execution and
delivery of this Agreement by Company or the consummation of the transactions
contemplated hereby.
(b) This Agreement and the Company Documents are the legal, valid and
binding obligation of Company and are enforceable against it in accordance with
their respective terms, subject to the effect of applicable bankruptcy,
reorganization, insolvency, moratorium and other similar laws of general
application relating to, limiting or affecting the enforcement of creditors'
rights generally and general principles of equity that may limit the
enforceability of the
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remedies, covenants or other provisions of this Agreement or the Company
Documents and the availability of injunctive relief or other equitable remedies.
2.5 Noncontravention. Except as set forth on Schedule 2.5, neither the
execution and delivery by Company of this Agreement or the Company Documents
pursuant hereto, nor the consummation of any of the transactions contemplated
hereby or thereby, nor the performance by Company of its obligations hereunder
or thereunder and the exchange ratios set forth in Section 1.6(b), will (nor
with the giving of notice or the lapse of time or both would): (a) conflict with
or result in a breach of any provision of the Certificate of Incorporation or
By-laws of Company; or (b) in any manner that would materially affect the
ability of Company to consummate or perform the transactions contemplated hereby
or have a material adverse effect on the business, assets, liabilities,
properties, results of operations or financial condition of Company and
Subsidiary (hereinafter, a "Material Adverse Effect"), (i) give rise to a
default, or any right of termination, cancellation or acceleration, or otherwise
be in conflict with or result in a loss of contractual benefits to Company or
its Subsidiary under any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, license, agreement or other instrument or obligation
to which Company or its Subsidiary is a party or by which Company or its
Subsidiary may be bound or to which Company or its Subsidiary may be subject, or
require any consent, approval or notice under the terms of any such document or
instrument, or (ii) violate any order, writ, injunction, decree, law, statute,
rule or regulation of any court or governmental authority which is applicable to
Company or its Subsidiary or (iii) result in the creation or imposition of any
lien, adverse claim, security interest, pledge, mortgage, charge or encumbrance,
of any nature whatsoever (a "Lien"), upon any of the properties or assets of
Company or its Subsidiary; or (c) interfere with or otherwise adversely affect
the ability of the Surviving Corporation to
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carry on the business of the Company or its Subsidiary after the Effective Time
on substantially the same basis as it is now conducted; or (d) require the
consent, waiver, approval, authorization, license, certificate or franchise, of
any third party or any filing by Company or its Subsidiary (collectively,
"Consents").
2.6 Litigation. Except as set forth on Schedule 2.6, there are no suits
or actions, or administrative, arbitration or other proceedings or governmental
investigations, pending or to the Company's Knowledge threatened, against or
relating to Company or its Subsidiary. There are no judgments, orders,
stipulations, injunctions, decrees or awards in effect which relate to Company
or its Subsidiary or the operation of Company or its Subsidiary, which if
decided against Company or its Subsidiary would have a Material Adverse Effect.
There has been no products liability claim made or, to the Company's Knowledge,
threatened against Company or its Subsidiary.
2.7 Compliance with Law. Company or its Subsidiary is not engaging in
any activity or omitting to take any action as a result of which it is in
violation of any law, rule, regulation, zoning or other ordinance, statute,
order, injunction or decree, or any other requirement of any court or
governmental or administrative body or agency, applicable to Company, its
business or its assets or Subsidiary ("Laws"), which Laws include, but are not
limited to, those relating to: the use, storage, handling, transport or disposal
of pollutants, contaminants, pesticides, petroleum or petroleum product,
asbestos, hazardous or toxic materials or wastes, or any substance, whether
solid, liquid or gaseous, that is listed, defined or regulated as a "hazardous
substance", "hazardous waste" or "solid waste" or otherwise classified as
hazardous or toxic, in or pursuant to any Environmental Law (as defined herein),
causing or posing a threat to cause contamination or adverse effect to the
environment ("Hazardous
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Substances"); occupational safety and health; business practices and operations;
labor practices; employee benefits; and zoning and other land use. For purposes
hereof, "Environmental Laws" means all federal, state and local laws, rules,
regulations, permits, orders, judgments, injunctions and decrees relating to
Hazardous Substances applicable to the business and the facilities of Company or
its Subsidiary (whether or not owned by them).
2.8 Financial Statements; Books and Records.
(a) Company has delivered or made available to Parent audited
consolidated balance sheets at December 31, 1997, December 31, 1998 and December
31, 1999, and the related consolidated audited statements of operations and cash
flows for the periods then ended (collectively, "Financial Statements"), and an
unaudited consolidated balance sheet at December 31, 2000 and the related
unaudited consolidated statements of cash flow and income for the twelve month
periods then ended, as set forth on Exhibit 1.11 (the "Internal Financial
Statement"). The Internal Financial Statements and Financial Statements together
may hereinafter be referred to as the "Company Reports".
(b) The Company Reports, together with the notes thereto, have been
prepared in accordance with generally accepted accounting principles ("GAAP"),
except as disclosed therein or on Schedule 2.8(b), and present fairly the
financial condition, results of operations and cash flows of Company and its
Subsidiary in all material respects as of and for the periods presented.
(c) Except as disclosed on Schedule 2.8(c), there are no debts,
liabilities or claims against the Company or its Subsidiary that are not
currently disclosed on the Internal Financial Statements, contingent or
otherwise, which are or would be of a nature required to be
-22-
reflected or disclosed in a balance sheet prepared in accordance with GAAP and
which individually exceed $10,000, or in the aggregate exceed $50,000.
(d) The books and records of Company and its Subsidiary are materially
complete and correct, have been maintained in accordance with good business
practices, and accurately reflect the basis for the financial condition, results
of operations and cash flow of Company and its Subsidiary as set forth in the
financial statements contained in the Company Reports.
2.9 Accounts Receivables. The accounts receivable, net of the allowance
for doubtful accounts applicable thereto (which allowance is established on a
basis consistent with GAAP) included in the consolidated balance sheet attached
hereto as Exhibit 1.11, represent bona fide transactions made in the ordinary
course of business of Company and its Subsidiary and, in the aggregate, to
Company's Knowledge, are collectible in the ordinary course of business
consistent with past practices of Company, subject to applicable reserves. To
Company's Knowledge, Company and its Subsidiary have performed all Material
obligations with respect thereto which it was obligated to perform to the date
hereof.
2.10 Properties. Except as disclosed on Schedule 2.10, Company and its
Subsidiary has good and valid title to all of the properties and assets that are
necessary for the conduct of its business free and clear of any and all Liens
(including liens for current Taxes (as defined in Section 2.14(b) hereof)), of
any nature whatsoever. All plants, structures and equipment which are utilized
in the business, or are material to the condition (financial or otherwise) of
Company are owned or leased by Company. Schedule 2.10 sets forth all (1) real
property which is owned, leased (whether as lessor or lessee) or subject to
contract or commitment of purchase or sale or lease (whether as lessor or
lessee) by Company or its
-23-
Subsidiary, or which is subject to a title retention or conditional sales
agreement or other security device, and (2) tangible personal property which is
owned, leased (whether as lessor or lessee) or subject to contract or commitment
of purchase or sale or lease (whether as lessor or lessee) by Company or its
Subsidiary.
2.11 Intellectual Property.
(a) Schedule 2.11 identifies (by a summary description) the
Intellectual Property (as defined below) of Company and its Subsidiary which
Schedule encompasses: (i) all registered United States and foreign patents,
material trademark and trade name registrations, material trademarks and
tradenames, material brandmarks and brand name registrations, material
servicemarks and servicemark registrations, assumed names and copyrights
material to the Company and copyright registrations, owned in whole or in part
or used by Company or its Subsidiary, and all applications therefore, (ii) all
material inventions, discoveries, improvements, processes, formulae, technology,
know-how, processes and other intellectual property, proprietary rights and
trade secrets owned in whole or in part or used by the Company or its Subsidiary
and (iii) all licenses and other agreements (the "Licenses") to which Company or
its Subsidiary is a party or otherwise bound which relate to any of the
Intellectual Property or the use thereof by Company or its Subsidiary
(collectively, the "Intellectual Property"). No violations of the material terms
of any of the aforesaid licenses and/or agreements have occurred. It is
understood that the term "Intellectual Property" shall not include Systems (as
defined in section 2.12) and that no representations or warranties are made in
this Section 2.11 with respect to Systems.
(b) Except as disclosed on Schedule 2.11, (i) Company owns or is
authorized to use all of the Intellectual Property; (ii) no proceedings have
been instituted, are pending, or to
-24-
Company's Knowledge, are threatened which challenge the rights of Company with
respect to the Intellectual Property or its use thereof in connection with the
assets and properties of Company or the validity thereof and, there is no valid
basis for any such proceedings; (iii) to Company's Knowledge, Company's
ownership of the Intellectual Property nor its use thereof in connection with
the assets and properties of Company does not violate any Laws, or, to the
Company's Knowledge, has at any time infringed upon or violated any rights of
others or is being infringed by others; (iv) none of the Intellectual Property,
or use thereof by Company in connection with the assets and properties of
Company is subject to any outstanding order, decree, judgment, stipulation or
any Lien except as set forth on Schedule 2.11; (v) no "freeware" that is subject
to a GNU Public License or other similar arrangement has been incorporated into
any Company software code; and (vi) Company has not granted any exclusive
license to third parties with regard to the Intellectual Property or any other
license to third parties other than those non-exclusive licenses granted in the
ordinary course of business.
2.12 Systems and Software. Company owns or has the right to use
pursuant to lease, license, sublicense, agreement, or permission all computer
hardware, software and information systems necessary for the operation of the
business of Company as presently conducted (collectively, "Systems"), all of
which is listed on Schedule 2.12. Each System owned by Company immediately prior
to the Effective Time will be owned by Company on identical terms and conditions
immediately subsequent to the Effective Time. With respect to each System owned
by a third party and used by Company pursuant to lease, license, sublicense,
agreement or permission: (a) the lease, license, sublicense agreement or
permission covering the System is legal, valid, binding, enforceable, and in
full force and effect with regard to Company, and to Company's Knowledge with
regard to the other party thereto; (b) the lease, license,
-25-
sublicense, agreement or permission will continue to be legal, valid, binding,
enforceable, and in full force and effect on substantially the same terms
following the Effective Time with regard to Company, and to the Company's
Knowledge with regard to the other party thereto; (c) neither Company nor to
Company's Knowledge any party to any such lease, license, sublicense, agreement
or permission is in breach or default, and no event has occurred which with
notice or lapse of time would constitute a breach or default, and permit
termination, modification or acceleration thereunder; (d) neither Company nor to
Company's Knowledge any party or any such lease, license, sublicense, agreement
or permission has repudiated any provision thereof; (e) Company has not granted
any sublicense, sublease or similar right with respect to any such lease,
license, sublicense, agreement or permission; and (f) to Company's Knowledge,
Company's use and continued use by Company of such System does not and will not
interfere with, infringe upon, misappropriate, or otherwise come into conflict
with, any intellectual property rights of third parties as a result of the
continued operation of the business.
2.13 Insurance. Schedule 2.13 is a complete and correct list and
summary description of all material policies of insurance in which Company is an
insured party, beneficiary or loss payable payee, including without limitation
any products liability insurance. Such policies are in full force and effect,
all premiums due and payable with respect thereto have been paid, and no notice
of cancellation or termination has been received by Company with respect to any
such policy.
2.14 Tax Matters.
(a) Except as set forth in Schedule 2.14:
(i) Company and its Subsidiary has (A) duly and timely filed
or caused to be filed with the appropriate branch, office, department, agency or
other
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instrumentality engaged in the monitoring, collection and enforcement of Taxes
(as defined in (b) below) (the "Tax Authority") each return, declaration or
statement, and any amendment thereto (the "Tax Return") that is required to be
filed by or on behalf of the Company and its Subsidiary or that includes or
relates to Company's and its Subsidiary's income, sales, payroll, assets or
business, which Tax Return is true, correct and complete in all material
respects and (B) duly and timely paid in full, caused to be paid in full, all
Taxes due and payable in respect of all Tax periods up to and including the date
of this Agreement;
(ii) Company and its Subsidiary has complied in all respects
with all applicable material laws relating to the payment, collection or
withholding of any Tax, and the remittance thereof to any and all Tax
Authorities;
(iii) There is no Lien for Taxes upon any of the assets or
properties of Company or its Subsidiary;
(iv) Company and its Subsidiary has received no notice from
any Tax Authority that any Tax Return filed by or on behalf of Company and its
Subsidiary has ever been examined or audited by any Tax Authority;
(v) No audit, examination, investigation, reassessment or
other administrative or court proceeding is pending, or to the Knowledge of
Company, proposed or threatened with regard to any Tax or Tax Return or the
payment, collection or withholding of any Tax;
(vi) Neither Company nor its Subsidiary has received a ruling
from any Tax Authority or signed an agreement with any Tax Authority or has
requested a ruling from or an agreement with any Tax Authority, and there is no
outstanding subpoena or request for information or documents from any Tax
Authority, with respect to any Tax for which Company
-27-
or its Subsidiary is or may be liable or with respect to Company's or its
Subsidiary's income, sales, assets or business; and
(vii) Schedule 2.14 sets forth a list of all jurisdictions
(both foreign and domestic) in which any Tax Returns have been filed by or on
behalf of Company or its Subsidiary or with respect to Company's or its
Subsidiary's income, sales, assets or business and Company and its Subsidiary
has provided to Purchaser (A) a copy of all Tax Returns for the past five (5)
years, and (B) all audit reports, closing agreements, letter rulings, or
technical advice memoranda issued to Company or its Subsidiary relating to any
Tax for which Company or its Subsidiary is or may be liable with respect to
Company's or its Subsidiary's income, sales, assets or business. The Company has
no liability for any Taxes of any person (other than the Company or its
Subsidiary) as a result of Treasury Regulation ss.1.1502-6 or any similar
provision of applicable law, or as a result of any tax sharing or similar
agreement, or as a transferee (including, without limitation, under ss. 6901 of
the Code or any similar provision of applicable law).
(b) For purposes hereof, "Code" or "IRC" shall mean the Internal
Revenue Code of 1986, as amended, and "Tax" or "Taxes" shall mean any tax,
charge, fee, levy, deficiency or other assessment of whatever kind or nature
including, without limitation, any net income, gross income, profits, gross
receipts, excise, real or personal property, sales, ad valorem, withholding,
social security, retirement, excise, employment, unemployment, minimum,
estimated, severance, stamp, property, occupation, environmental, windfall
profits, use, service, net worth, payroll, franchise, license, gains, customs,
transfer, recording and other tax, customs duty, fee assessment or charge of any
kind whatsoever, imposed by any Tax Authority.
2.15 Employee Arrangements.
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(a) Except as disclosed on Schedule 2.15(a), Neither Company nor its
Subsidiary has an outstanding employment agreement with any officer or employee
of Company or its Subsidiary or any bonus, incentive compensation, deferred
compensation, profit sharing, stock option, stock bonus, stock purchase,
savings, severance, salary continuation (other than benefits that are required
to be provided pursuant to Consolidated Omnibus Budget Reconciliation act of
1985 ("COBRA")), consulting, retirement (including health and life insurance
benefits provided after retirement) or pension plan (including Employee Benefit
Plans as defined in Section 2.15(b) hereof) or arrangement with or for the
benefit of any officer, employee or other person, or for the benefit of any
group of officers, employees or other persons. Except as disclosed on Schedule
2.15(a), neither Company nor its Subsidiary made, or entered into any agreement
to make, any payment that becomes payable as a result of the consummation of
this transaction which would be treated as an "excess parachute payment" as
defined in Section 280G of the Code. Except as set forth in Schedule 2.15(a),
there are no such agreements, plans or other arrangements entered into with or
provided for any independent contractors for Company or its Subsidiary.
(b) Set forth on Schedule 2.15(b) are all of the employee benefit plans
as defined in Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), but without regard to whether any such plan is in
fact subject to ERISA, that is sponsored, or is being maintained or contributed
to, by Company or its Subsidiary (the "Employee Benefit Plan"). None of the
Employee Benefit Plans are "multiemployer plans" as defined in Section 3(37) of
ERISA. Company has furnished to Parent and Merger Sub (i) a true and complete
copy of the plan document and summary plan description for each Employee Benefit
Plan, (ii) a true and complete copy of the most recently filed Form 5500
(including the
-29-
related schedules) with respect to each Employee Benefit Plan for which such
form is required to be filed, (iii) a true and complete copy of any trust
agreement, insurance contract or other agreement or arrangement serving as
source of funding any benefits payable under any Employee Benefit Plan, and (iv)
the most recently issued financial statement and actuarial report, if any, for
each Employee Benefit Plan. No "prohibited transactions" (as such term is
defined in Section 4975 of the IRC, or in Part 4 of Subtitle B of Title I of
ERISA) have occurred with respect to any Employee Benefit Plan that could result
in the imposition of Material taxes or penalties payable by Company or its
Subsidiary. With respect to each Employee Benefit Plan that is intended to
qualify for favorable income tax treatment under Section 401(a) of the IRC, (x)
the Internal Revenue Service ("IRS") has issued a favorable determination letter
with respect to such plan; (y) except as set forth on Schedule 2.15, Company has
furnished Purchaser with a copy of the determination letter most recently issued
by the IRS with respect to such plan and the application filed with the IRS for
such determination letter; and (z) to the Knowledge of Company, no event has
occurred from the date of each such favorable determination letter that would
adversely affect the tax-qualified status of the plan in question. Each Employee
Benefit Plan has been administered in compliance with the applicable
requirements of ERISA and the IRC, and in compliance with all other applicable
provisions of law, except where such failure to comply would not have a Material
Adverse Effect. With respect to each Employee Benefit Plan, neither Company nor
its Subsidiary has incurred Material liabilities as a result of the violation of
or the failure to comply with any applicable provision of ERISA, the IRC, the
continuation coverage rules of COBRA, any other applicable provision of law, or
any provision of such plan. None of the Employee Benefit Plans which is an
"employee pension benefit plan", as that term is defined in Section 3(2) of
ERISA (a "Company Employee Pension Benefit Plan"), has not incurred an
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"accumulated funding deficiency," within the meaning of Section 302 of ERISA or
Section 412 of the IRC. Company has not failed to make any contribution to, or
to make any payment under, any Employee Benefit Plan that it was required to
make pursuant to the terms of the plan or pursuant to applicable law in any
amount. No "reportable events," with respect to which a notice must be filed
with the Pension Benefit Guaranty Corporation ("PBGC"), has occurred with
respect to any Employee Pension Benefit Plan subject to Title IV of the ERISA.
No proceedings by the PBGC to terminate any Employee Pension Benefit Plan
pursuant to Subtitle C of Title IV of ERISA have been instituted or threatened.
Company (1) has not incurred any liability to the PBGC in connection with any
Employee Pension Benefit Plan, including any liability under Section 4069 of
ERISA and any penalty imposed under Section 4071 of ERISA, (2) has not
terminated any Employee Pension Benefit Plan, or ceased operations at any
facility or withdrawn from any Employee Pension Benefit Plan, in a manner that
could subject it to liability or any liens under Section 4062, 4063, 4064 or
4068 of ERISA or (3) has no Knowledge as to the existence of any state of facts,
or as to the occurrence of any transactions, that might reasonably be
anticipated to result in any Material liability of Company to the PBGC under any
other provision of Title IV of ERISA. There is no pending or, to the Knowledge
of Company, threatened legal action, proceeding or investigation against or
involving any Employee Benefit Plan which might reasonably be expected to result
in Material liabilities to the Plan or Company. Except as disclosed on Schedule
2.15, the present value of accrued benefits of each Employee Benefit that is a
defined benefit plan as defined in Section 3(35) of ERISA does not exceed the
value of the assets of such plan available to pay such benefits.
(c) There are no pending or threatened labor negotiations, work
stoppages or work slowdowns involving or affecting the Company's business, and
no union representation
-31-
questions exist, and there are no organizing activities, in respect of any of
the employees of Company.
(d) Company has satisfied (or obtained a valid waiver of) all severance
obligations due at Closing including, without limitation, those set forth on
Schedule 2.15(d). All severance obligations payable in cash do not exceed
$400,000.
2.16 Certain Business Matters and Practices. (a) (a) Except as set
forth on Schedule 2.16(a), Company or its Subsidiary (i) is not a party to or
bound by any material distributorship, dealership, sales agency, franchise or
similar agreement and (ii) has not provided any warranties on its products and
has no greater obligations than to replace the product sold or as is otherwise
customary in the industry.
(b) Set forth on Schedule 2.16(b) is a description of (i) the rebate
and volume discount practices and obligations of Company, (ii) the allowance and
customer return practices and obligations of Company, (iii) the co-op
advertising and other promotional practices of Company, (iv) price protection
agreements, and (v) return policies and historical return rates, as each of the
foregoing relate to the customers and suppliers of Company.
2.17 Certain Contracts.
(a) Set forth on Schedule 2.17 is a complete and correct list of all
material contracts, commitments, obligations and understandings to which Company
or its Subsidiary is a party or otherwise bound, except for each of those which
(a) was made in the ordinary course of business, and (b) either (i) is
terminable by Company or its Subsidiary without liability, expense or other
obligation in excess of $10,000 on thirty (30) days' notice or less, or (ii) may
be anticipated to involve aggregate payments to or by Company or its Subsidiary
of $10,000 (or the equivalent) or less calculated over the full term thereof,
and (c) is not otherwise material to the
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Company's business. Except as set forth in the immediately preceding sentence,
there are no agreements or arrangements in effect entered into by Company or its
Subsidiary with any independent salesperson, distributor, sublicensor or other
remarketer or sales organization.
(b) Complete and correct copies of all contracts, commitments,
obligations and undertakings set forth on any of the Schedules delivered
pursuant to this Agreement have been furnished or made available by Company to
Purchaser, and except as set forth on any of such Schedules (i) each of them is
in full force and effect, no person or entity which is a party thereto or
otherwise bound thereby is in default thereunder, and no event, occurrence,
condition or act exists which does (or which with the giving of notice or the
lapse of time or both would) give rise to a default or right of cancellation,
acceleration or loss of contractual benefits thereunder; (ii) to the Company's
Knowledge, there has been no threatened cancellations thereof, and (iii) there
are no outstanding disputes thereunder.
2.18 Customers and Suppliers.
(a) Schedule 2.18(a) sets forth a complete and correct list, as of
November 30, 2000, of (i) the 10 largest customers of the Company and the amount
for which each such customer is invoiced during the prior twelve (12) month
period, and (ii) the 10 largest suppliers of the Company and the amount of goods
and services purchased from each such supplier during the prior twelve (12)
month period.
(b) Except as set forth on Schedule 2.18(b), Company has not received
any notice that any of the suppliers or customers listed on Schedule 2.18(a)
have any disputes with Company or intend to cease selling or rendering services
to, or dealing with, Company on substantially the same basis as of the date
hereof, nor has any information been brought to its attention which might
reasonably lead it to believe any such suppliers or customers intend to
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alter in any material respect the amount of sales or services or the extent of
dealings with Company, or would alter in any material respect the sales or
services or dealings in the event of the consummation of the sale under this
Agreement. Company has no information which might reasonably indicate, nor has
any information been brought to its attention which might reasonably lead it to
believe, that any supplier of Company will not be able to fulfill outstanding or
currently anticipated purchase orders placed by, or service obligations to,
Company.
2.19 Approvals/Consents. Except as set forth on Schedule 2.19, (i) no
governmental, administrative or third-party consents, permits, appointments,
approvals, licenses, certificates or franchises are necessary for the operation
of Company's business (the "Permits") and (ii) all such Permits are in full
force and effect. No material violations of the terms thereof have heretofore
occurred or are known by Company to exist as of the date hereof. There are no
proceedings pending or, to the Knowledge of Company, threatened, or any basis
therefore, seeking to cancel, terminate or limit such Permits.
2.20 Transactions with Affiliated Parties. Schedule 2.20 sets forth a
true and complete list and description of all transactions engaged in between
Company and any director, officer, employee, 5% stockholder, partner or
consultant of Company, or any of their respective spouses or children, any trust
of which any such person is the grantor, trustee or beneficiary, any corporation
of which any such person or party is a 5% stockholder, employee, officer or
director, or any partnership or other person in which any such person or party
owns an interest (each such person, trust, corporation and partnership, an
"Affiliated Party"). No Affiliated Party is a party to any agreement, contract
or commitment with Company except as set forth in Schedule 2.20.
2.21 Restricted Securities. Company has advised each stockholder of
Company that the securities such stockholder will acquire pursuant to the Merger
are characterized as
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"restricted securities" under the federal securities laws inasmuch as they are
being acquired from Parent in a transaction not involving a public offering and
that under such laws and applicable regulations such securities may be sold
without registration under the Act only in certain limited circumstances and in
accordance with the terms and conditions set forth in the legend described in
Section 2.22 below.
2.22 Legends. It is understood that the certificates evidencing
Parent's Common Stock will bear the following legend:
"These securities have not been registered under
the Securities Act of 1933, as amended. They may
not be sold, offered for sale, pledged or
hypothecated in the absence of a registration
statement in effect with respect to the securities
under such Act or an opinion of counsel
satisfactory to the company that such registration
is not required or unless sold pursuant to Rule 144
of such Act."
2.23 Information as to Company. None of the representations or
warranties made by Company or Subsidiary in this Agreement or in any agreement
executed and delivered by or on behalf of it pursuant hereto contain any untrue
statement of a material fact, or omit to state any material fact necessary in
order to make the statements therein contained, in light of the circumstances
under which they were made, not misleading.
2.24 Conduct of the Business Since December 31, 2000. Except as set
forth on Schedule 2.24 and as contemplated in the Merger Agreement, since
December 31, 2000:
(a) The Company has conducted its business only in the ordinary course
and consistent with past practice;
(b) Company has not (i) amended its Certificate of Incorporation or
By-Laws, (ii) changed the number of authorized, issued or outstanding shares of
Company Capital Stock,
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other than through the conversion of the Preferred Stock into Company Common
Stock, (iii) declared, set aside or paid any dividend or other distribution or
payment in cash, stock or property in respect of shares of its capital stock,
(iv) made any direct or indirect redemption, retirement, purchase or other
acquisition of any of its capital stock, or (v) split, combined or reclassified
its outstanding shares of capital stock;
(c) Company has not, directly or indirectly, (i) issued, granted, sold
or pledged or agreed or proposed to issue, grant, sell or pledge any shares of,
or rights of any kind to acquire any shares of the capital stock of Company,
(ii) incurred any indebtedness for borrowed money, (iii) waived, released,
granted or transferred any rights of Material value, or (iv) transferred,
leased, licensed, sold, mortgaged, pledged, disposed of or encumbered any
Material assets of Company;
(d) There has been no change in any of Company's material personnel or
business relationships;
(e) Company has not, directly or indirectly made any loan or advance
to, or entered into any written contract, lease or commitment with, any officer,
director or employee of Company;
(f) Company has not, directly or indirectly, assumed, guaranteed,
endorsed or otherwise become responsible for any obligations of any other
individual, firm or corporation or made any loans or advances to any individual,
firm or corporation;
(g) Company has not made any investment of a capital nature by purchase
of stock or securities, contributions to capital, property transfers, Material
acquisition or Material financing of equipment, the purchase of any property or
assets of any other individual, firm or corporation, or otherwise;
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(h) Company has not taken any action, other than reasonable and usual
actions in the ordinary course of business and consistent with past practice,
with respect to accounting policies or procedures;
(i) Company has not entered into any agreement or arrangement to do any
of the foregoing actions.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
-------------------------------------------------------
Parent and Merger Sub hereby represent and warrant to Company as
follows:
3.1 Organization. Parent is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. Merger
Sub is a corporation duly organized, validly existing and in good standing under
the laws of the State of Delaware. Each of Parent and Merger Sub has the
corporate power and authority to enter into and perform this Agreement, has full
corporate power and authority to own, lease and operate its properties and to
carry on business as presently conducted by it, and is duly qualified to do
business as a foreign corporation in each jurisdiction in which the failure to
be so qualified would have a Material Adverse Effect on Parent and Merger Sub as
a whole.
3.2 Authority.
(a) The execution and delivery by Parent and Merger Sub of this
Agreement and of all of the agreements to be executed and delivered by it
pursuant hereto (the "Parent and Merger Sub Documents"), the performance by
Parent and Merger Sub of its obligations hereunder and thereunder, and the
consummation of the transactions contemplated hereby and thereby, have been duly
and validly authorized by each of Parent and Merger Sub's Board of Directors and
no other corporate or other proceedings on the part of Parent and Merger Sub are
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necessary to authorize the execution and delivery of this Agreement by Parent
and Merger Sub or the consummation of the transactions contemplated hereby.
(b) This Agreement and the Parent and Merger Sub Documents are the
legal, valid and binding obligation of Parent and Merger Sub and are enforceable
against each in accordance with their respective terms, subject to the effect of
applicable bankruptcy, reorganization, insolvency, moratorium and other similar
laws of general application relating to, limiting or affecting the enforcement
of creditors' rights generally and general principles of equity that may limit
the enforceability of the remedies, covenants or other provisions of this
Agreement or the Parent and Merger Sub Documents and the availability of
injunctive relief or other equitable remedies.
3.3 Noncontravention. Neither the execution and delivery by Parent or
Merger Sub of this Agreement or the Parent or Merger Sub Documents pursuant
hereto, nor the consummation of any of the transactions contemplated hereby or
thereby, nor the performance by Parent or Merger Sub of its obligations
hereunder or thereunder will (nor with the giving of notice or the lapse of time
or both would): (a) conflict with or result in a breach of any provision of the
Certificate of Incorporation or By-laws of Parent or Merger Sub; or (b) in any
manner that would materially affect the ability of Parent or Merger Sub to
consummate or perform the transactions contemplated hereby or have a material
adverse effect on the business, assets, liabilities, properties, results of
operations or financial condition of Parent or Merger Sub (hereinafter, a
"Material Adverse Effect"), (i) give rise to a default, or any right of
termination, cancellation or acceleration, or otherwise be in conflict with or
result in a loss of contractual benefits to Parent or Merger Sub under any of
the terms, conditions or provisions of any note, bond, mortgage, indenture,
license, agreement or other instrument or obligation to which Parent
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or Merger Sub is a party or by which Parent or Merger Sub may be bound or to
which Parent or Merger Sub may be subject, or require any consent, approval or
notice under the terms of any such document or instrument, or (ii) violate any
order, writ, injunction, decree, law, statute, rule or regulation of any court
or governmental authority which is applicable to Parent or Merger Sub or (iii)
result in the creation or imposition of any lien, adverse claim, security
interest, pledge, mortgage, charge or encumbrance, of any nature whatsoever (a
"Lien"), upon any of the properties or assets of Parent or Merger Sub; or (c)
interfere with or otherwise adversely affect the ability of the Surviving
Corporation to carry on the business of the Parent or Merger Sub after the
Effective Time on substantially the same basis as it is now conducted; or (d)
require the consent, waiver, approval, authorization, license, certificate or
franchise, of any third party or any filing by Parent or Merger Sub.
3.4 Consents and Approvals. Except for those filings listed on Schedule
3.4 hereto, no consent, approval or authorization of, or declaration, filing or
registration with, any Governmental Entity or any third party is required to be
made or obtained by Parent or Merger Sub in connection with the execution,
delivery and performance by Parent or Merger Sub of this Agreement and the
consummation of the transactions contemplated hereby.
3.5 Intentionally Omitted.
3.6 Capitalization. The authorized capital stock of Parent consists of
100,000,000 shares of Parent Common Stock, $.01 par value and 10,000,000 shares
of preferred stock, par value of $.01 per share. As of December 31, 2000: (1)
50,374,052 shares of Parent Common Stock are issued and outstanding, all of
which are duly authorized, validly issued, fully paid and non-assessable; (2)
14,216,365 shares of Parent Common Stock are reserved for future issuance upon
exercise of options granted by Parent; (3) 906,246 shares of Parent Common
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Stock are reserved for future issuance upon exercise of warrants granted by
Parent; and (4) no shares of preferred stock outstanding.
3.7 Merger Consideration. The Parent Common Stock, when issued and
delivered in accordance with the terms and provisions of this Agreement, will be
duly authorized and validly issued, fully paid and non-assessable, free and
clear of any Liens (except for those arising under this Agreement, including,
without limitation Indemnity Escrow Shares and the Registration Rights Agreement
), and based in part on the representations of the Company with respect to the
holders of Company Capital Stock, issued in compliance with all applicable
federal and state securities laws.
3.8 Securities and Exchange Commission Filings; Financials.
(a) Since January 1, 1999, Parent has timely filed on XXXXX all forms,
reports, statements and documents required to be filed with the SEC
(collectively, the "Parent SEC Reports"), each of which has complied in form in
all material respects with the applicable requirements of the Securities Act or
the Exchange Act, as applicable, each as in effect on the date so filed.
(b) As of the date hereof, Parent meets the "registrant eligibility"
requirements set forth in the general instructions applicable to registration
statements on Form S-3 covering the resale of the Parent Common Stock issuable
pursuant to this Agreement.
(c) Each of the financial statements contained in the Parent SEC
Reports has been prepared in accordance with GAAP applied on a consistent basis
throughout the periods involved (except as may otherwise be indicated in the
notes thereto) and each presents fairly, in all material respects, the financial
position of Parent as at the respective dates thereof and the results of its
operations and cash flow position for the periods indicated.
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(d) Except as and to the extent set forth on the balance sheet of
Parent as at September 30, 2000, Parent does not have any liabilities or
obligations, whether or not accrued, contingent or otherwise, that would be
required to be included on a balance sheet prepared in accordance to GAAP,
except for liabilities or obligations incurred in the ordinary course of
business since September 30, 2000 none of which would have a Material Adverse
Effect on Parent.
3.9 Full Disclosure. The information contained in the Parent SEC
Reports does not contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements so made, in
light of the circumstances under which they were made, not misleading.
3.10 Litigation. There are no suits or actions, or administrative,
arbitration or other proceedings or governmental investigations, pending or to
the Parent's knowledge threatened, against or relating to Parent. There are no
judgments, orders, stipulations, injunctions, decrees or awards in effect which
relate to Parent or the operation of Parent, which if decided against Parent
would have a Material Adverse Effect. There has been no products liability claim
made or threatened against Parent.
3.11 Material Changes. There has been no Material Adverse Change in
Parent's business or financial condition since the filing of its quarterly
report on Form 10-Q as filed with the SEC for the period ended September 30,
2000 and there has not occurred any change or event that has had a Material
Adverse Effect on Parent.
3.12 Representations Relating to Qualification of the Merger as a
Tax-Free Reorganization.
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(a) The Parent (i) is not an "investment company" as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code; (ii) has no present plan or intention to
liquidate the Surviving Corporation or to merge the Surviving Corporation with
or into any other corporation or entity, or to sell or otherwise dispose of the
stock of the Surviving Corporation which Parent will acquire in the Merger, or
to cause the Surviving Corporation to sell or otherwise dispose of its assets,
all except in the ordinary course of business or if such liquidation, merger,
disposition is described in Section 368(a)(2)(C) or Section 1.368-2(k); (iii)
has no present plan or intention, following the Merger, to issue any additional
shares of stock of the Surviving Corporation or to create any new class of stock
of the Surviving Corporation.
(b) The Merger Sub is a wholly-owned subsidiary of the Parent, formed
solely for the purpose of engaging in the Merger, and will carry on no business
prior to the Merger.
(c) Immediately prior to the Merger, the Parent will be in control of
Merger Sub within the meaning of Section 368(c) of the Code.
(d) Immediately following the Merger, the Surviving Corporation will
hold at least 90% of the fair market value of the net assets and at least 70% of
the fair market value of the gross assets held by the Merger Sub immediately
prior to the Merger (for purposes of this representation, amounts used by the
Merger Sub to pay reorganization expenses, if any, will be included as assets of
the Merger Sub held immediately prior to the Merger).
(e) The Parent has no present plan or intention to reacquire any of the
Merger Shares.
(f) The Merger Sub will have no liabilities assumed by the Surviving
Corporation and will not transfer to the Surviving Corporation any assets
subject to liabilities in the Merger.
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(g) Following the Merger, the Surviving Corporation will continue the
Company's historic business or use a significant portion of the Company's
historic business assets in a business as required by Section 368 of the Code
and the Treasury Regulation Section 1.368-1(d).
(h) To the knowledge of the Parent, neither the Parent nor any of its
Affiliates has through the date of this Agreement taken or agreed to take any
action that would prevent the Merger from constituting a transaction qualifying
as a reorganization under Section 368(a) of the Code.
ARTICLE IV
COVENANTS
---------
4.1 Exclusivity.
(a) During the period from the date of this Agreement to the earlier of
the termination of this Agreement or the Effective Time of the Merger, Company
shall not knowingly cause or permit or take any action to, directly or
indirectly, encourage, initiate or engage in discussions or negotiations with,
or provide any information to, any Person, other than Parent, concerning any
purchase of the Company Common Stock or any merger, sale of substantial assets
or similar transaction involving Company.
(b) In the event Company receives prior to termination of this
Agreement any offer or indication of interest from any third party relating to
any acquisition or purchase of all or any substantial portion of the assets of,
or any equity interest in, Company or any merger, consolidation or business
combination with Company, Company shall promptly notify Parent in writing, and
shall in any such notice, set forth in reasonable detail the identity of the
third party,
-43-
the terms and conditions of any proposal and any other information requested of
it by the third party or in connection therewith.
(c) Company shall immediately cease and cause to be terminated any
existing activities, discussions or negotiations with any third party conducted
prior to the date of this Agreement with respect to any of the foregoing.
4.2 Cooperation/Further Assurances.
(a) Each of the parties hereto hereby agrees to fully cooperate with
the other parties hereto in preparing and filing any notices, applications,
reports and other instruments and documents which are required by, or which are
desirable in the reasonable opinion of any of the parties hereto, or their
respective legal counsel, in respect of, any statute, rule, regulation or order
of any governmental or administrative body in connection with the transactions
contemplated by this Agreement.
(b) Each of the parties hereto hereby further agrees to execute,
acknowledge, deliver, file and/or record, or cause such other parties to the
extent permitted by law to execute, acknowledge, deliver, file and/or record
such other documents as may be required by this Agreement and as Parent, Merger
Sub or Company may reasonably require in order to document and carry out the
transactions contemplated by this Agreement.
4.3 Employee Matters. Prior to Closing, the Company shall terminate the
employment of the persons set forth on Schedule 2.15(d) under the heading "Other
Employees". The Company shall offer each such person a severance payment in an
amount equal to eight weeks of such person's base salary provided that such
person executes a release and waiver agreement in the form attached as Exhibit
B. The Company acknowledges and agrees that it has reviewed Schedule 2.15(d) and
has determined, in its reasonable judgment, based on the
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demographic profiles of the persons whose employment shall be terminated
hereunder, that such termination of employment does not constitute an act or
acts of discrimination in violation of any federal, state or local law.
4.4 Conduct of Business of Company. During the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement or the Effective Time of the Merger, Company shall carry on its
business in the usual, regular and ordinary course in substantially the same
manner as conducted prior to the date of this Agreement and, to the extent
consistent with such business, use reasonable efforts to preserve intact its
present business organizations, keep available the services of its present
service providers, and preserve its relationships with customers, suppliers,
distributors, licensors, licensees and others having business dealings with it,
to the end that its goodwill and ongoing businesses shall be unimpaired at the
Effective Time of the Merger. Company shall promptly notify Parent of any event
or occurrence not in the ordinary course of business of Company and any event
which could have a material adverse effect on the business condition of Company.
Except as expressly contemplated by this Agreement, Company, without the prior
written consent of Parent or Merger Sub (which consent shall not be unreasonably
withheld), shall not:
(a) Accelerate, amend or change the period of exercisability of
options, warrants, stock or purchase rights or authorize cash payments in
exchange therefor;
(b) Enter into any commitment or transaction not in the ordinary course
of business to be performed over a period longer than six (6) months in
duration, or, except as in accordance with its existing capital budget
previously disclosed to Parent, to purchase fixed assets with an aggregate
purchase price exceeding $20,000;
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(c) Grant any severance or termination pay to any service provider
except as required by Parent pursuant to this Agreement;
(d) Transfer to any person or entity any rights to Company intellectual
property rights, except licenses of intellectual property rights in connection
with the sale of Company products in the ordinary course of business consistent
with past practice;
(e) Enter into or amend any agreements pursuant to which any other
party is granted marketing or other similar rights of any type or scope with
respect to any products of Company;
(f) Except in the ordinary course of business with prior notice to
Parent, violate, amend or otherwise modify the terms of any material contract;
(g) Except with prior consultation with Parent, commence a lawsuit
other than for the routine collection of bills;
(h) Declare or pay any dividends on or make any other distributions
(whether in cash, stock or property) in respect of any Company common stock, or
split, combine or reclassify any of its common stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of Company common stock, or repurchase or otherwise acquire, directly
or indirectly, any shares of Company common stock;
(i) Issue, deliver or sell or authorize or propose the issuance,
delivery or sale of, or authorization of, the purchase of any shares of Company
Capital Stock or securities convertible into, or subscriptions, rights, warrants
or options to acquire, or other agreements or commitments of any character
obligating it to issue any such shares or other convertible securities, other
than the issuance of shares of Company common stock upon the exercise of Company
Options;
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(j) Cause or permit any amendments to Company's Certificate of
Incorporation or Bylaws;
(k) Acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial portion of the assets of, or by any other manner, any
business or any corporation, partnership, association or other business
organization or division thereof, or otherwise acquire or agree to acquire any
assets which are material, individually or in the aggregate, to the business
condition of Company;
(l) Sell, lease, license or otherwise dispose of any of its properties
or assets except in the ordinary course of business;
(m) Incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities or guarantee any debt
securities of others.
(n) Adopt or amend any plan, or enter into any employment contract, pay
any special bonus or special remuneration to any service provider, or increase
the salaries or wage rates of its employees other than pursuant to scheduled
employee reviews under Company's normal employee review cycle or pursuant to
Company's existing bonus plans, as the case may be, or in connection with the
hiring of employees other than officers in the ordinary course of business, in
all cases consistent with past practice, or otherwise increase or modify the
compensation or benefits payable or to become payable by Company to any of its
service providers, except for changes pursuant to employment agreements in
effect as of the date hereof or changes in position;
(o) Revalue any of its assets, including, without limitation, writing
down the value of inventory or accounts receivable;
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(p) Except as set forth on Schedule 4.4, pay, discharge or satisfy in
an amount in excess of $10,000 in any one case any claim, liability or
obligation (absolute, accrued, asserted or unasserted, contingent or otherwise),
other than the payment, discharge or satisfaction in the ordinary course of
business consistent with past practice of liabilities reflected or reserved
against in Company's Financial Statements or incurred subsequent to January 1,
2000 in the ordinary course of business;
(q) Make any material Tax election other than in the ordinary course of
business and consistent with past practice, change any material Tax election,
adopt any material Tax accounting method other than in the ordinary course of
business and consistent with past practice, change any material Tax accounting
method, file any material Tax return (other than any estimated tax returns,
payroll tax returns or sales tax returns) or any amendment to a material Tax
return, enter into any closing agreement, settle any Tax claim or assessment or
consent to any Tax claim or assessment;
(r) Engage in any activities or transactions that are outside the
ordinary course of its business consistent with past practice;
(s) Fail to pay or otherwise satisfy its material monetary obligations
as they become due or consistent with past practice, except such as are being
contested in good faith;
(t) Waive or commit to waive any rights of substantial value;
(u) Cancel, amend or, other than in the ordinary course upon expiration
of a policy term, renew any material insurance policy;
(v) Alter, or enter into any commitment to materially alter, its
interest in any corporation, association, joint venture, partnership or business
entity in which Company directly or indirectly holds any interest on the date
hereof; or
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(w) Take, or agree (in writing or otherwise) to take, any of the
actions described in this Section 4.4 or any action which would make any of the
representations or warranties or covenants of Company, contained in this
Agreement materially untrue or incorrect.
4.5 Debts and Obligations. Except as set forth on Schedule 4.5, Company
has paid, or will pay, all material debts, including any which arise out of or
as a result of the transactions contemplated by this Agreement, and performed or
will perform all material obligations required according to their terms to have
been paid or performed as of the Effective Date of the Merger under the terms of
all contracts, whether written or oral.
4.6 Company Stockholders' Consent. Company shall solicit the vote or
consent of its stockholders in accordance with Delaware law as promptly as
practicable after the date hereof for the purpose of obtaining the stockholders'
approval required in connection with the transactions contemplated hereby and
shall use its reasonable efforts to obtain such approval. If Company obtains
such stockholders' approval by written consent in lieu of a meeting and such
written consent is not unanimous, simultaneous with the Closing Company shall
properly send written notice of such approval to all stockholders who did not
consent in writing, which notice shall set forth the action taken by
stockholders, shall be in compliance with Delaware law and shall be in a form
and substance satisfactory to Parent.
4.7 Breach of Representations, Warranties, Agreements and Covenants.
Each of Parent, Merger Sub and Company shall not take any action, or fail to
take any reasonable action which from the date hereof through the Effective Time
of the Merger would knowingly cause or constitute a breach of any of its
respective representations, warranties, agreements and covenants set forth in
this Agreement. In the event of, and promptly after becoming aware of, the
actual, pending or threatened occurrence of any event which would cause or
constitute such a
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breach or inaccuracy, Parent, Merger Sub or Company, as applicable, shall give
detailed written notice thereof to the other parties and shall use its
reasonable efforts to prevent or promptly remedy such breach or inaccuracy.
4.8 Consents. Each of Parent and Company shall promptly apply for or
otherwise seek, and use its reasonable efforts to obtain, all consents and
approvals required to be obtained by it for the consummation of the Merger, and
Company shall use its reasonable efforts to obtain all necessary consents,
waivers and approvals under any of Company's agreements, contracts, licenses or
leases in connection with the Merger.
4.9 Indemnification.
(a) At the Closing Date, Parent shall pay the premium for a "tail"
policy as hereinafter described and, for a period of six (6) years after the
Effective Time, the Surviving Corporation shall use its best efforts to maintain
in effect such "tail" policy with respect to directors' and officers' liability
insurance maintained by the Company as of the date hereof, for the benefit of
those persons who are covered by the Company's directors' and officers'
liability insurance policy as of the date hereof, providing coverage with
respect to matters occurring prior to the Effective Time. Subject to the
provisions set forth in Section 4.9(b) below, and solely to the extent not
advanced or paid by National Union Fire Insurance Company of Pittsburgh, PA
under Policy Number 000-00-00 (the "Policy"), Parent shall advance funds or pay,
as the case may be, for the benefit of those directors and officers of the
Company who are covered under the Policy with respect to matters occurring prior
to the Effective Time, the following: (i) Defense Costs (as defined under Clause
2(b) of the Policy) in accordance with the Policy, (ii) up to a maximum amount
of $50,000 retention amount in accordance with Clause 5 of the Policy and (iii)
Loss (as defined in Clause 2(d) of the Policy) up to a maximum amount of five
percent
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(5.0%) of Loss in excess of the retention amount in accordance with
Coinsurance Clause 7 of the Policy.
(b) Notwithstanding anything to the contrary set forth in Section
4.9(a) above, any funds advanced by Parent under items (i), (ii) or (iii) above
shall be refunded to Parent as follows: (i) first, payments shall be made to
Parent from the Indemnity Escrow Shares under the Escrow Agreement, (ii) second,
to the extent the Indemnity Escrow Shares are insufficient to pay for any
amounts owed, the LLC shall pay Parent such amounts in cash and, to the extent
cash is not available, in shares of Parent Common Stock owned by the LLC, and
the LLC shall reserve cash or shares sufficient to cover claims for which the
LLC may be liable under Section 4.9(b)(ii). Nothing in this Section 4.9 shall
modify, alter or change in any manner any right Parent may have under the Policy
or applicable law to seek recovery or indemnification from the directors and
officers of the Company for any amounts not paid to Parent under items (i) and
(ii) above.
4.10 Listing of Merger Shares. The Parent shall use its reasonable
efforts to list the Merger Shares on the Nasdaq National Market as required by
the Nasdaq rules and regulations.
4.11 Preparation of Information Statement. As soon as is reasonably
practicable after the execution and delivery of this Agreement, Company shall
begin the preparation of an information statement to obtain the consent of
Company's stockholders (the "Information Statement") to approve the transactions
contemplated hereby, including, without limitation, the Merger, and to select
Xxxxx Xxxx as the designee to act as representative of the Preferred
Stockholders in connection with the transactions contemplated hereby. The
drafting of the Information Statement shall be the responsibility of Company.
Company shall submit the
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Information Statement to Parent for review by Parent and Parent's legal counsel
prior to its distribution to Company's stockholders and prior to the Closing.
4.12 Tax-Free Reorganization. Parent, Merger Sub and Company each
acknowledge and agree that it intends that the Merger constitute a
reorganization within the meaning of Section 368 of the Code. No party shall
take any action either prior to or after the Closing Date that results in the
Merger failing to qualify as a "reorganization" under Section 368 of the Code:
provided, however, that no action taken by a party that is contemplated by this
Agreement or the transactions contemplated herein shall constitute a breach of
this Section.
ARTICLE V
CONDITIONS OF CLOSING
---------------------
5.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of the parties hereto to effect the Merger shall be
subject to the fulfillment at or prior to the Effective Time of the following
conditions:
(a) Litigation. Except for any action pursuant to dissenters rights in
connection with this transaction properly exercised in accordance with Delaware
law, no order of any court or administrative agency shall be in effect which
restrains or prohibits the transactions contemplated hereby, and no claim, suit,
action, inquiry, investigation or proceeding in which it will be, or it is,
sought to restrain, prohibit or change the terms of or obtain damages or other
relief in connection with this Agreement or any of the transactions contemplated
hereby, shall have been instituted or threatened by any person or entity, and
which, upon the advice of counsel to any of the parties hereto (based on the
reasonable likelihood of success and material consequences of such claim, suit,
action, inquiry or proceeding), makes it inadvisable to proceed with the
consummation of such transactions.
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(b) Vote. The Merger contemplated hereby shall have been approved and
adopted by the holders of the outstanding shares of Company Capital Stock in
accordance with Delaware law and the Company's Certificate of Incorporation and
the ten (10) largest holders of the outstanding shares of Company Common Stock
shall have voted in favor of the Merger.
(c) Merger Certificate. Confirmation, in the form satisfactory to the
parties hereto, from the State of Delaware or a filing service (jointly chosen
by the parties hereto) that the Certificate of Merger of Merger Sub with and
into Company has been filed with the Secretary of State of the State of
Delaware, together with a copy of the executed form of the Certificate of Merger
or plan of merger, as applicable.
(d) Consents. Except for that certain consent from Waterfront I
Corporation ("Landlord") with respect to the Deed of Lease between Landlord and
Company dated January 28, 2000, all consents, waivers, approvals, licenses and
authorizations by third parties and governmental and administrative authorities
(and all amendments or modifications to existing agreements with third parties)
required as a precondition to the performance by either Parent, Merger Sub or
Company (as disclosed on Schedule 2.5) of their respective obligations hereunder
and under any agreement delivered pursuant hereto shall have been duly obtained
and shall be in full force and effect.
(e) Date of Consummation. The Merger shall have been consummated on or
prior to February 20, 2001, or such later date as the parties shall agree by a
written instrument signed by all of them.
(f) "Tail" Policy. At least one business day prior to the Closing, the
Parent shall cause the premium for the "tail" policy to be paid in accordance
with Section 4.9(a);
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provided, however that this condition shall not apply to the obligations of the
Parent if the Parent does not properly pay the premium.
(g) Amendment to Company Certificate of Incorporation. The amendment,
in the form attached hereto as Exhibit A, has been approved and adopted by
holders of Company Capital Stock under the laws of the State of Delaware and has
been filed with the Secretary of State of the State of Delaware.
5.2 Conditions to the Obligation of Company to Effect the Merger. The
obligation of Company to effect the Merger shall be subject to the fulfillment
at or prior to the Effective Time of the following additional conditions:
(a) Each of Parent and Merger Sub shall have performed in all material
respects its respective obligations under this Agreement required to be
performed by either or both of them on or prior to the Effective Time pursuant
to the terms hereof.
(b) All representations or warranties of Parent and Merger Sub in this
Agreement which are qualified with respect to a material adverse effect or
materiality shall be true and correct, and all such representations or
warranties that are not so qualified shall be true and correct in all material
respects, in each case as if such representation or warranty was made as of the
Effective Time, except to the extent that any such representation or warranty is
made as of a specified date, in which case such representation or warranty shall
have been true and correct as of such specified date.
(c) Since the date of this Agreement, there shall not have been any
material adverse change in the financial condition, results of operations,
assets, properties, liabilities, business or prospects of Parent.
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(d) Each of Parent and Merger Sub shall have delivered to Company a
certificate dated the Effective Time and executed by their respective Chairman
of the Board, President or Vice President to the effect set forth in paragraphs
(a), (b) and (c) of this Section 5.2.
(e) Each of Parent and Merger Sub shall have delivered to Company a
certificate of the secretary of such party, setting forth a copy of their
respective Certificates of Incorporation, resolutions adopted by the Board of
Directors approving the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby, together with a signature
and incumbency certificate.
(f) The Escrow Agreement among Parent, Merger Sub, and the LLC and
Greater Bay Trust Company shall be executed as of the Closing Date.
(g) Company shall have received from Jenkens & Xxxxxxxxx Xxxxxx Xxxxxx
LLP, counsel to the Parent, an opinion dated the Effective Time in substantially
the form attached hereto as Exhibit C.
(h) Parent shall have executed and delivered to Company a Registration
Rights Agreement in the form attached hereto as Exhibit G.
5.3 Conditions to Obligations of Parent and Merger Sub to Effect the
Merger. The obligations of Parent and Merger Sub to effect the Merger shall be
subject to the fulfillment at or prior to the Effective Time of the following
additional conditions:
(a) Company shall have performed in all material respects each of its
obligations under this Agreement required to be performed by it on or prior to
the Effective Time pursuant to the terms hereof.
(b) All representations or warranties of Company in this Agreement
which are qualified with respect to a Material Adverse Effect or materiality
shall be true and correct, and all
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representations or warranties that are not so qualified shall be true and
correct in all material respects, in each case as if such representation or
warranty were made as of the Effective Time except to the extent that any such
representation or warranty is made as of a specified date, in which case such
representation or warranty shall have been true and correct as of such specified
date.
(c) Since the date of this Agreement, there shall not have been any
material adverse change in the financial condition, results of operations,
assets, properties, liabilities or business of Company.
(d) Company shall have delivered to Parent and Merger Sub a certificate
of its Chairman of the Board, President or Vice President to the effect set
forth in paragraphs (a), (b) and (c) to this Section 5.3.
(e) Company shall have delivered to Parent and Merger Sub a certificate
of the secretary of Company, setting forth a copy of its Certificate of
Incorporation, By-laws and the resolutions having been adopted by the Board of
Directors approving the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby, together with a signature
and incumbency certificate.
(f) Parent shall have received from Xxxx and Xxxx LLP, counsel to
Company, an opinion dated the Effective Time in substantially the form attached
hereto as Exhibit D.
(g) Parent shall have received from Xxxxxxxx & Xxxxx, special counsel
to the LLC, an opinion dated the Effective Time in substantially the form
attached hereto as Exhibit E.
(h) Company shall have delivered to Parent a Certificate of Good
Standing for the Company issued by the Secretary of State of Delaware, and shall
use its reasonable best efforts to deliver a Certificate of Good Standing for
the Company by the Secretary of State of the
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Commonwealth of Virginia and such certificates shall, to the extent practicable,
contain evidence of tax clearance and Company shall use its reasonable best
efforts to ensure that such certificates shall be issued at a date not earlier
than two (2) days prior to the Closing Date but in no event later than five (5)
days prior to the Closing Date.
(i) The Parent shall have received all stock books, stock ledgers,
minute books and other relevant records for the Company.
(j) Parent shall have received copies of all Consents referenced in
Schedule 2.5 to complete the transaction contemplated hereby, except for that
certain consent from Waterfront I Corporation ("Landlord") with respect to the
Deed of Lease between Landlord and Company dated January 28, 2000.
(k) The Escrow Agreement among the Company, the Preferred Stockholders
and Greater Bay Trust Company shall be executed as of the Closing Date.
(l) Parent shall have received an executed employment agreement from
Xxxxx Xxxxx (the "Key Employee") in substantially the form attached hereto as
Exhibit F.
(m) Parent shall have received a copy of the opinion of Company's
financial advisors, Duff & Xxxxxx, in substantially the form attached hereto as
Exhibit H.
(n) There shall be no more than thirty-five (35) "unaccredited"
stockholders of Company, as defined in Rule 501 of Regulation D under the
Securities Act of 1933, as amended (the "1933 Act") receiving Parent Common
Stock pursuant to the Merger and the Merger transaction will comply with Rule
506 thereof.
(o) Company shall have received the approval of the Merger by each
stockholder holding at least 10% of the outstanding shares of Company Common
Stock.
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(p) All Company Preferred Stockholders shall have executed a
registration rights agreement in substantially the form attached hereto as
Exhibit H and those stockholders of the Company shall, in addition to trading
restrictions resulting from holding "restricted securities" as that term is
defined under Rule 144 of the Securities Act, be subject to trading restrictions
as set forth therein.
(q) Parent shall receive release and waiver agreements from: (i) each
holder of Notes as set forth on Schedule 1.7, (ii) each of Xxx Xxxxxxxxx, Xxxxx
Xxxxxxxxx, Xxxx Xxxx, Xxxxx Xxxxxxx and Xxxxx Xxxx and (iii) to the extent they
have been obtained prior to Closing, each Other Employee.
(r) The Parent shall have received investment representation letters in
substantially the form attached hereto as Exhibit I from each of the holders of
Company Preferred Stock and satisfactory evidence that all of the holders of
Company Preferred Stock have voted in favor of the Merger and agreed to waive
any dissenter's rights to the extent allowable under Delaware law and no
Preferred Stockholder has revoked its consent.
(s) The Parent shall receive written evidence of the proper transfer of
the Preferred Stock and Notes to the LLC.
(t) Parent shall receive evidence of the termination of the
satisfaction of any and all obligations to Xxxxxxxx, Xxxxxxxx and Xxxxxx,
including any fees owed in connection with the Merger pursuant to that certain
engagement letter dated June 17, 1999, as amended on April 4, 2000 and
cancellation and return of the warrant to purchase 593,333 shares of common
stock of the Company dated December 13, 1999.
ARTICLE VI
TERMINATION OF AGREEMENT
------------------------
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6.1 Termination of Agreement. This Agreement may be terminated and
abandoned at any time prior to the Closing:
(a) By mutual consent of Parent and the Company;
(b) By Parent or the Company if, without fault of such terminating
party, the Closing shall not have been consummated on or before February 20,
2001; or
(c) By Parent or the Company, if there has been a material breach of
any representation, warranty, covenant or agreement on the part of the
non-terminating party; provided that, subject to Section 6.2, such termination
is the sole and exclusive remedy for any such breach prior to Closing.
6.2 Effect of Termination. In the event of termination of this
Agreement as provided in Section 6.1, written notice thereof shall be promptly
given by the terminating party to the other parties and thereafter this
Agreement shall forthwith become void, and there shall be no liability or
obligation on the part of Parent, Merger Sub or Company or any of their
respective Affiliates, except that if either Parent or Company terminates this
Agreement pursuant to a breach of the representations by the other party, the
breaching party shall pay all third-party costs and expenses (excluding
attorney's fees) incurred by the non-breaching party and its Affiliates in
connection with this Agreement and the transactions contemplated hereunder.
ARTICLE VII
INDEMNIFICATION
---------------
7.1 Survival; Right to Indemnification Not Affected By Knowledge. All
representations, warranties, covenants, and obligations of Parent, Company or
Merger Sub in this Agreement, the Disclosure Schedule, and any certificate or
document delivered pursuant to this Agreement will survive the Closing for a
period of twelve (12) months after the Effective Time
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of the Merger. The right to indemnification, payment of Damages or other remedy
based on such representations, warranties, covenants, and obligations will not
be affected by any investigation conducted with respect to, or any knowledge
acquired (or capable of being acquired) at any time, whether before or after the
execution and delivery of this Agreement or the Closing Date, by Parent with
respect to the accuracy or inaccuracy of or compliance with, any such
representation, warranty, covenant, or obligation. Only the express written
waiver by Parent of any condition based on the accuracy of any representation or
warranty, or on the performance of or compliance with any covenant or
obligation, will affect the right to indemnification, payment of Damages, or
other remedy based on such representations, warranties, covenants, and
obligations.
7.2 Indemnification and Payment of Damages.
(a) The Company and other holders of Company Preferred Stock who
receive the Merger Consideration ("Company Indemnifying Parties" and, together
with Parent, "Indemnifying Parties") will indemnify, reimburse, defend and hold
harmless Parent, Merger Sub, the Surviving Corporation and to the extent that a
third party claim is brought against Parent, Merger Sub or the Surviving
Corporation, their respective directors and officers in connection with such
claim (the "Parent Indemnified Persons" and, together with Company, "Indemnified
Persons") against any and all losses, liabilities, claims, damages (including
incidental and consequential damages), demands, suits, actions, judgments,
assessments, costs and expense, including, without limitation, interest,
penalties, attorneys' fees, any and all expenses incurred in investigating,
preparing, and defending against any litigation, commenced or threatened, and
any claim whatsoever, and any and all amounts paid in settlement of any claim or
litigation (collectively, "Damages"), asserted against, resulting from, imposed
upon, or incurred or suffered, directly or indirectly by Parent, directly or
indirectly, as a result of or
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arising from or in connection with (i) any inaccuracy in, or breach or
nonfulfillment of, or noncompliance with any representation, warranty, covenant,
or obligation made by Company Indemnifying Parties in this Agreement, the
Disclosure Schedule, or any other certificate or document delivered by Company
pursuant to this Agreement, (ii) the perfection of dissenter's rights under
Delaware Law by any of the stockholders of Company or (iii) any and all claims,
liabilities or obligations in connection with options or warrants which remain
outstanding following the Closing. Nothing in this Agreement shall be construed
as limiting in any way the remedies that may be available to a party in the
event of fraud relating to the representations, warranties, agreements or
covenants made by any other party in this Agreement. Any inaccuracies in or
breaches or nonfulfillment of, or noncompliance with any representations,
warranties, covenants or obligations resulting in an adjustment to the number of
Indemnity Escrow Shares pursuant to Section 1.11 of this Agreement shall not
give rise to an indemnification obligation of the Company Indemnifying Parties
under Section 7.2(a)(i) solely to the extent that an item with respect to which
an adjustment is made pursuant to Section 1.11 of this Agreement is coextensive
with, and identical to, any item of Damage resulting under Section 7.2(a)(i) of
this Agreement.
(b) Parent will indemnify, reimburse, defend and hold harmless the
holders of Company Preferred Stock who vote in favor of the Merger and receive
Merger Consideration against any and all Damages asserted against, resulting
from, imposed upon, or incurred or suffered, directly or indirectly by such
holders as a result of or arising from or in connection with any inaccuracy in,
or breach or nonfulfillment of, or noncompliance with any representation,
warranty, agreement or covenant made by Parent or Merger Sub in this Agreement.
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7.3 Limitations on Amount. Indemnifying Parties will have no liability
under this Section 7 until the total of all Damages with respect to such matters
exceeds $50,000, after which Indemnified Persons may recover the amount of
damages from the first dollar of damages incurred by Indemnified Persons. Except
with respect to claims based on fraud, the total amount of indemnification
permitted under Section 7.2(a) shall be limited to the Indemnity Escrow Shares.
Except with respect to claims based upon fraud, after the Closing the rights of
the Indemnified Persons under this Article VII and the Escrow Agreement shall be
the exclusive remedy of the Indemnified Persons with respect to claims resulting
from or relating to any inaccuracy in, or breach or nonfulfillment of or
noncompliance with any representation, warranty, covenant, obligation or
agreement contained in this Agreement.
7.4 Procedure for Indemnification - Third-Party Claims. (a) Promptly
after receipt by an Indemnified Party or holder of Company Preferred Stock of
notice of any Threatened Proceeding against it or the commencement of any
Proceeding against it, such Indemnified Party will, if a claim is to be made
against the Indemnifying Parties under this Article VII, give notice to the
Indemnifying Parties of the commencement of such claim, but the failure to
notify the Indemnifying Parties will not relieve the Indemnifying Parties of any
liability that it may have to any Indemnified Party or holder of Company
Preferred Stock, except to the extent that the Indemnifying Parties demonstrate
that the defense of such action is prejudiced by the Indemnified Parties' or
holder of Company Preferred Stock's failure to give such notice. A claim,
Proceeding, dispute, action, or other matter will be deemed to have been
"Threatened" if any demand or statement has been made (orally or in writing) or
any notice has been given (orally or in writing), or if any other event has
occurred or any other circumstances exist, that would lead a prudent person to
conclude that such a claim, Proceeding, dispute, action, or other
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matter is likely to be asserted, commenced, taken, or otherwise pursued in the
future. For purposes of this Agreement, "Proceeding" shall mean any action,
arbitration, audit, hearing, investigation, litigation, or suit (whether civil,
criminal, administrative, investigative, or informal) commenced, brought,
conducted, or heard by or before, or otherwise involving, any governmental body
or arbitrator.
(b) If any Proceeding referred to in Section 7.4(a) is brought against
an Indemnified Party or holder of Company's Preferred Stock and it gives notice
to the Indemnifying Parties of the commencement of such Proceeding, the
Indemnifying Parties will be entitled to participate in such Proceeding and, to
the extent that they wish (unless (i) the Indemnifying Parties are also parties
to such Proceeding and the Indemnified Party or holder of Company's Preferred
Stock determines in good faith that joint representation would be inappropriate,
or (ii) the Indemnifying Parties fail to provide reasonable assurance to the
Indemnified Party or holder of Company's Preferred Stock of its financial
capacity to defend such Proceeding and provide indemnification with respect to
such Proceeding), unless the claim involves Taxes, to assume the defense of such
Proceeding with counsel satisfactory to the Indemnified Party or holder of
Company's Preferred Stock and, after notice from the Indemnifying Parties to the
Indemnified Party or holder of Company's Preferred Stock of its election to
assume the defense of such Proceeding, the Indemnifying Parties will not, as
long as it diligently conducts such defense, be liable to the Indemnified Party
or holder of Company's Preferred Stock under this Section 7 for any fees of
other counsel or any other expenses with respect to the defense of such
Proceeding, in each case subsequently incurred by the Indemnified Party or
holder of Company's Preferred Stock of in connection with the defense of such
Proceeding, other than reasonable costs of investigation. If the Indemnifying
Parties assume the
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defense of a Proceeding, (i) it will be conclusively established for purposes of
this Agreement that the claims made in that Proceeding are within the scope of
and subject to indemnification; (ii) no compromise or settlement of such claims
may be effected by the Indemnifying Parties without the Indemnified Party's or
holder of Company's Preferred Stock consent unless (A) there is no finding or
admission of any violation of any law, regulation or statute or any violation of
the rights of any person or entity and no effect on any other claims that may be
made against the Indemnified Party or holder of Company's Preferred Stock, and
(B) the sole relief provided is monetary damages that are paid in full by the
Indemnifying Parties; and (iii) the Indemnified Party or holder of Company's
Preferred Stock will have no liability with respect to any compromise or
settlement of such claims effected without its consent. If notice is given to
the Indemnifying Parties of the commencement of any Proceeding and the
Indemnifying Parties do not, within ten business days after the Indemnified
Party's or holder of Company's Preferred Stock notice is given, give notice to
the Indemnified Party or holder of Company's Preferred Stock of their election
to assume the defense of such Proceeding, the Indemnifying Parties will be bound
by any determination made in such Proceeding or any compromise or settlement
effected by the Indemnified Party or holder of Company's Preferred Stock.
(c) Notwithstanding the foregoing, if an Indemnified Party or holder of
Company's Preferred Stock determines in good faith that there is a reasonable
probability that a Proceeding may adversely affect it or its affiliates other
than as a result of monetary damages for which it would be entitled to
indemnification under this Agreement, the Indemnified Party or holder of
Company's Preferred Stock may, by notice to the Indemnifying Parties, assume the
exclusive right to defend, compromise, or settle such Proceeding, but the
Indemnifying Parties
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will not be bound by any determination of a Proceeding so defended or any
compromise or settlement effected without their consent (which may not be
unreasonably withheld or delayed).
(d) Indemnifying Parties hereby consent to the non-exclusive
jurisdiction of any court in which a Proceeding is brought against any
Indemnified Person or holder of Company's Preferred Stock for purposes of any
claim that an Indemnified Person or holder of Company's Preferred Stock may have
under this Agreement with respect to such Proceeding or the matters alleged
therein, and agree that process may be served on Indemnifying Parties with
respect to such a claim anywhere in the world.
7.5 Procedure for Indemnification Other Claims. A claim for
indemnification for any matter not involving a third-party claim may be asserted
by notice to the Indemnifying Parties.
ARTICLE VIII
MISCELLANEOUS
-------------
8.1 Further Actions. From time to time, as and when requested by any
party hereto, each other party shall execute and deliver, or cause to be
executed and delivered, such documents and instruments and shall take, or cause
to be taken, such further or other actions as the requesting party may
reasonably deem necessary or desirable to carry out the intent and purposes of
this Agreement, to transfer, assign and deliver the Company Common Stock to
Merger Sub and its successors and assigns effective as of the Closing (or to
evidence the foregoing) and to consummate and give effect to the other
transactions, covenants and agreements contemplated hereby.
8.2 Expenses. Except as otherwise specifically provided herein,
Company, Parent and Merger Sub shall each bear their own legal fees and other
costs and expenses with
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respect to the negotiation, execution and delivery of this Agreement and the
consummation of the transactions contemplated hereunder. Except as otherwise set
forth in Section 1.8 above, Parent shall pay all sales, transfer and documentary
taxes and other expenses incident to the exchange of Company Preferred Stock or
Company Notes for Parent Common Stock. This Section shall not limit Parent's
right to allocate costs and expenses to the Surviving Corporation after the
Closing.
8.3 Entire Agreement. This Agreement, which includes the Appendix, the
Schedules and the Exhibits hereto and the other documents, agreements and
instruments executed and delivered pursuant to this Agreement, contains the
entire agreement between the parties hereto with respect to the transactions
contemplated by this Agreement and supersedes all prior arrangements or
understandings with respect thereto, including, without limitation, any and all
letters of intent among the parties hereto.
8.4 Descriptive Headings. The descriptive headings of this Agreement
are for convenience only and shall not control or affect the meaning or
construction of any provision of this Agreement.
8.5 Notices. All notices or other communications which are required or
permitted hereunder shall be in writing and shall be sufficiently given if (a)
delivered personally or (b) sent by registered or certified mail, postage
prepaid, or (c) sent by overnight courier with a nationally recognized courier,
or (d) sent via facsimile confirmed in writing in any of the foregoing manners,
as follows:
If to Company: xxxxxxxx.xxx, Inc.
00 Xxxxx Xxxxxx Xxxxx
Xxxxxxxxxx, Xx 00000
Attention: Chief Financial Officer
Facsimile: (000) 000-0000
With a copy to: Xxxx and Xxxx LLP
00000 Xxxxxxx Xxxxx
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Xxxxx 0000
Xxxxxx, XX 00000
Attention: Xxxxx Xxxxxxxxx, Esq.
Facsimile: (000) 000-0000
If to Parent Starbase Corporation
or Merger Sub: 0 Xxxxxx Xxxxxx Xxxxx
Xxxxx 000
Xxxxx Xxx, XX 00000
Attention: Chief Financial Officer and Corporate Counsel
Facsimile: (000) 000-0000
with a copy to: Jenkens & Xxxxxxxxx Xxxxxx Xxxxxx LLP
The Chrysler Building
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxx Xxxx Xxxxxxxx, Esq.
Facsimile: (000) 000-0000
If sent by mail, notice shall be considered delivered five (5) business days
after the date of mailing, and if sent by any other means set forth above,
notice shall be considered delivered upon receipt thereof. Any party may by
notice to the other parties change the address to which notice or other
communications to it are to be delivered or mailed.
8.6 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware (other than the choice of law
principles thereof). The parties agree that any action, suit or other proceeding
initiated by Company or Parent against any other party under or in connection
with this Agreement shall be brought in any Federal or state court in the State
of Delaware having jurisdiction over the subject matter thereof as the party
bringing such action, suit or proceeding shall elect. Company and Parent hereby
submit themselves to the jurisdiction of any such court and agree that service
of process on them in any such action, suit or proceeding may be effected by the
means by which notices are to be given to it under this Agreement.
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8.7 Assignability. This Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective successors and permitted
assigns. This Agreement shall not be assignable by any party without the written
consent of the other parties and any such purported assignment by any party
without such consent shall be void, except that:
(a) Any or all rights of Parent and Merger Sub to receive the
performance of the obligations of Company hereunder and rights to assert claims
against Company in respect of any inaccuracy in or breach of any
representations, warranties or covenants of Company hereunder, may be assigned
by Parent and Merger Sub to a direct or indirect subsidiary of Parent, and
(b) Parent and Merger Sub may assign to any bank, insurance company or
other financial institution providing financing or extending credit to Parent,
Merger Sub or Company any or all of its rights to assert claims against Company
in respect of any inaccuracy in or breach of representations, warranties or
covenants under this Agreement.
8.8 Waivers and Amendments. Any amendment or supplementation of this
Agreement shall be effective only if in writing signed by each of the parties
hereto. Any waiver of any term or condition of this Agreement shall be effective
only if in writing signed by the party giving the waiver. A waiver of any breach
or failure to enforce any of the terms or conditions of this Agreement shall not
in any way affect, limit or waive a party's rights hereunder at any time to
enforce strict compliance thereafter with every term or condition of this
Agreement, except to the extent such future rights are specifically included
within the scope of such written waiver.
8.9 Third Party Rights. Notwithstanding any other provision of this
Agreement, and except as expressly provided in Section 7 and Section 4.9 hereof
or as permitted
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pursuant to Section 8.7 hereof, this Agreement shall not create benefits on
behalf of any shareholder or employee of Parent, Merger Sub or Company, or any
other Person (including without limitation any broker or finder), and this
Agreement shall be effective only as between the parties hereto, their
successors and permitted assigns.
8.10 Public Announcements. Parent, Merger Sub and Company will consult
with each other before issuing any press release or otherwise making any public
statements with respect to the transactions contemplated by this Agreement, and
neither Parent, Merger Sub nor Company shall issue any such press release or
make any such public statement without the prior approval of the other parties
both as to the making of such release or statement and as to the form and
content thereof, except to the extent that such party is advised by counsel, in
good faith, that such release or statement is required as a matter of law,
provided, however, that Parent may make any public statement concerning the
Merger without Company's consent, after it has used reasonable efforts to obtain
Company's consent if, in the opinion of counsel for Parent, such statement or
announcement is required or advisable to comply with applicable law.
8.11 Severability. If any term or provision of this Agreement or the
application thereof to any circumstance shall, in any jurisdiction, be invalid
or unenforceable, such term or provision shall be ineffective as to such
jurisdiction to the extent of such invalidity or unenforceability without
invalidating or rendering unenforceable such term or provision in any other
jurisdiction, the remaining terms and provisions of this Agreement or the
application of such terms and provisions to circumstances other than those as to
which it is held invalid or unenforceable.
8.12 Restrictive Legends. Each certificate representing Indemnity
Escrow Shares shall be imprinted with a legend substantially in the following
form: THESE
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SECURITIES ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AND MAY NOT BE SOLD
OR TRANSFERRED EXCEPT IN ACCORDANCE WITH THAT CERTAIN ESCROW AGREEMENT DATED AS
OF THE DATE HEREOF BETWEEN THE ISSUER AND THE ORIGINAL ISSUE HEREOF, A COPY OF
WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THE ISSUER.
8.13 Counterparts. This Agreement may be executed in any number of
counterparts, and each such counterpart hereof shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement. Facsimile signatures shall be treated as if they were originals.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the undersigned have executed and
delivered this Agreement as of the date first above written.
WORLD ACQUISITION CORPORATION
By: /s/ Xxxxxx X. Xxxxxx
---------------------------------
Name: Xxxxxx X. Xxxxxx
Title: Executive Vice President
STARBASE CORPORATION
By: /s/ Xxxxxx X. Xxxxxx
---------------------------------
Name: Xxxxxx X. Xxxxxx
Title: Executive Vice President
XXXXXXXX.XXX, INC.
By: /s/ Xxxxxxx X. Xxxxxxxxx
---------------------------------
Name: Xxxxxxx X. Xxxxxxxxx
Title: Chief Executive Officer
APPENDIX A
CERTAIN DEFINITIONS
-------------------
Capitalized terms in this Agreement shall have the meanings
ascribed to them in this Appendix A unless such terms are defined elsewhere in
this Agreement:
Capital Lease: A contract for the lease of property which
possesses the characteristics of a purchase and is reflected as a capital lease
on the Financial Statements.
Governmental Entity: Any nation or any state, commonwealth,
territory, possession or tribe and any political subdivision, courts,
departments, commissions, boards, bureaus, agencies or other instrumentality of
any of the foregoing.
Person: An individual, corporation, partnership, joint
venture, trust or unincorporated organization or association or other form of
business enterprise or a Governmental Entity.
Subsidiary: With respect to any Person, any other Person whose
voting securities or other ownership interests directly or indirectly are owned
by such Person.
