EXHIBIT 2
EXECUTION VERSION
---------------------------------
AGREEMENT AND PLAN OF MERGER
---------------------------------
AMONG
SMARTDISK CORPORATION,
VST ACQUISITION, INC.,
AND
VST TECHNOLOGIES, INC.
FEBRUARY 23, 2000
TABLE OF CONTENTS
PAGE
ARTICLE I. - THE MERGER.....................................................................................1
1.1 The Merger.....................................................................................1
1.2 Effective Time.................................................................................1
1.3 Effects of the Merger..........................................................................2
1.4 Certificate of Incorporation and Bylaws........................................................2
1.5 Directors......................................................................................2
1.6 Officers.......................................................................................2
1.7 Effect on Capital Stock........................................................................2
1.8 Company Stock Options and Warrants.............................................................3
1.9 Exchange of Certificates.......................................................................4
1.10 No Fractional Securities.......................................................................5
1.11 Escrow Agreement...............................................................................5
1.12 Adjustment of Cash Merger Consideration........................................................6
ARTICLE II. - CLOSING........................................................................................6
2.1 Closing........................................................................................6
2.2 Deliveries by the Company......................................................................6
2.3 Deliveries by Buyer............................................................................7
2.4 Termination in Absence of Closing..............................................................7
ARTICLE III. - REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDERS.............................8
3.1 Corporate Existence and Qualification..........................................................8
3.2 Authority, Approval and Enforceability.........................................................8
3.3 Capitalization and Corporate Records...........................................................8
3.4 Subsidiaries...................................................................................9
3.5 No Company Defaults or Consents................................................................9
3.6 No Proceedings................................................................................10
3.7 Employee Benefit Matters......................................................................10
3.8 Financial Statements; Liabilities; Accounts Receivable; Inventories...........................12
3.9 Absence of Certain Changes....................................................................13
3.10 Compliance with Laws..........................................................................14
3.11 Litigation....................................................................................15
3.12 Real Property.................................................................................15
3.13 Commitments...................................................................................16
3.14 Insurance.....................................................................................16
3.15 Intangible Rights.............................................................................17
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3.16 Equipment and Other Tangible Property.........................................................17
3.17 Permits; Environmental Matters................................................................17
3.18 Banks.........................................................................................18
3.19 Suppliers and Customers.......................................................................18
3.20 Absence of Certain Business Practices.........................................................18
3.21 Products, Services and Authorizations.........................................................19
3.22 Transactions With Affiliates..................................................................19
3.23 Other Information.............................................................................20
3.24 Representations and Warranties of the Shareholders............................................20
ARTICLE IV. -REPRESENTATIONS AND WARRANTIES OF BUYER............................................................22
4.1 Corporate Existence and Qualification.........................................................22
4.2 Authority, Approval and Enforceability........................................................22
4.3 No Default or Consents........................................................................22
4.4 No Proceedings................................................................................23
4.5 SEC Reports and Financial Statements..........................................................23
4.6 Capitalization................................................................................23
4.7 Absence of Material Adverse Change............................................................23
4.8 Interim Operations of the Acquisition Sub.....................................................23
4.9 Litigation....................................................................................23
4.10 Other Information.............................................................................23
4.11 Representations Relating to Qualification of the Merger as a Tax-Free Reorganization..........24
ARTICLE V. - OBLIGATIONS PRIOR TO CLOSING..................................................................24
5.1 Buyer's Access to Information and Properties..................................................24
5.2 Company's Conduct of Business and Operations..................................................24
5.3 General Restrictions..........................................................................25
5.4 Notice Regarding Changes......................................................................26
5.5 Preferential Purchase Rights..................................................................26
5.6 Ensure Conditions Met.........................................................................26
5.7 Termination of Insurance Policies.............................................................27
5.8 Stockholder Approval..........................................................................27
5.9 Employee Matters..............................................................................28
5.10 Capitalization Update.........................................................................28
5.11 Environmental Assessment......................................................................28
5.12 Survey........................................................................................28
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5.13 Payoff and Estoppel Letters...................................................................29
5.14 No Shop.......................................................................................29
ARTICLE VI. - CONDITIONS TO COMPANY'S AND BUYER'S OBLIGATIONS...............................................29
6.1 Conditions to Obligations of the Company......................................................29
6.2 Conditions to Obligations of Buyer and Acquisition Sub........................................30
ARTICLE VII. - POST-CLOSING OBLIGATIONS......................................................................32
7.1 Further Assurances............................................................................32
7.2 Publicity.....................................................................................32
7.3 Post-Closing Indemnity........................................................................33
7.4 Non-Solicitation and Non-Disclosure...........................................................33
7.5 Certain Employee Benefit Matters..............................................................34
7.6 Indemnification of Directors and Officers.....................................................34
7.7 Registration Rights Agreement.................................................................34
7.8 Tax-Related Covenants.........................................................................35
ARTICLE VIII. - TAX MATTERS...................................................................................35
8.1 Representations and Obligations Regarding Taxes...............................................35
8.2 Indemnification for Taxes.....................................................................37
ARTICLE IX. - MISCELLANEOUS.................................................................................38
9.1 Limitation on Liability.......................................................................38
9.2 Confidentiality...............................................................................39
9.3 Brokers.......................................................................................40
9.4 Costs and Expenses............................................................................40
9.5 Notices.......................................................................................40
9.6 Governing Law.................................................................................41
9.7 Representations and Warranties................................................................41
9.8 Entire Agreement; Amendments and Waivers......................................................41
9.9 Binding Effect and Assignment.................................................................42
9.10 Remedies......................................................................................42
9.11 Cancellation of Escrow Stock..................................................................42
9.12 Exhibits and Schedules........................................................................42
9.13 Multiple Counterparts.........................................................................42
9.14 References and Construction...................................................................42
9.15 Survival......................................................................................43
9.16 Attorneys' Fees...............................................................................43
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9.17 Risk of Loss..................................................................................43
9.18 Shareholders' Representative..................................................................43
ARTICLE X. - DEFINITIONS...................................................................................44
10.1 Affiliate.....................................................................................44
10.2 Collateral Agreements.........................................................................44
10.3 Confidential Information......................................................................44
10.4 Contracts.....................................................................................44
10.5 Damages.......................................................................................45
10.6 Designated Executives.........................................................................45
10.7 Financial Statements..........................................................................45
10.8 Funded Indebtedness...........................................................................45
10.9 GAAP..........................................................................................45
10.10 Governmental Authorities......................................................................45
10.11 Hazardous Material............................................................................45
10.12 Inventory.....................................................................................45
10.13 Key Employees.................................................................................45
10.14 Knowledge of the Company......................................................................46
10.15 Legal Requirements............................................................................46
10.16 Permits.......................................................................................46
10.17 Person........................................................................................46
10.18 Product.......................................................................................46
10.19 Properties....................................................................................46
10.20 Proportionate Share...........................................................................46
10.21 Real Property.................................................................................46
10.22 Regulations...................................................................................46
10.23 Specified Advisory Agreements.................................................................46
10.24 Specified Price...............................................................................46
10.25 Subsidiary....................................................................................46
10.26 Trade Secrets.................................................................................46
10.27 Used..........................................................................................47
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LIST OF SCHEDULES
Schedule 3.1.....................Qualifications as Foreign Corporation
Schedule 3.3.....................Outstanding Capital Stock, Options and Warrants
Schedule 3.4.....................Subsidiaries
Schedule 3.5.....................Company Defaults or Consents
Schedule 3.7(a)..................Employee Arrangements
Schedule 3.7(c)..................Benefit Plan Liabilities
Schedule 3.7(e)..................Current Employees
Schedule 3.8(a)..................Financial Statements
Schedule 3.8(b)..................Scheduled Liabilities
Schedule 3.8(c)..................Accounts Receivable
Schedule 3.8(d)..................Inventory Condition
Schedule 3.8(e)..................Encumbrances
Schedule 3.9(a)..................Certain Changes
Schedule 3.9(b)..................Certain Actions
Schedule 3.10(1).................Compliance with Law
Schedule 3.10(2).................Citations
Schedule 3.11....................Litigation
Schedule 3.12(b).................Leased Premises
Schedule 3.13....................Commitments
Schedule 3.13(c).................Non-Arm's Length Contracts
Schedule 3.14....................Insurance
Schedule 3.15....................Intangible Rights
Schedule 3.16....................Tangible Assets Condition
Schedule 3.17(a).................Permits
Schedule 3.17(b).................Environmental Claims
Schedule 3.17(c).................Storage of Hazardous Materials
Schedule 3.17(d).................Noncompliance with Environmental Laws
Schedule 3.18....................Banks, Accounts and Authorized Signatories
Schedule 3.19....................Suppliers and Customers
Schedule 3.21(a).................Product Listing
Schedule 3.21(b).................Recalls
Schedule 3.21(e).................Other Person Authorizations
Schedule 3.22....................Affiliate Transactions
Schedule 8.1.....................Tax Matters
(v)
LIST OF EXHIBITS
Exhibit A - Form of Option Substitution Agreement............................A-1
Exhibit B - Management Registration Rights Agreement.........................B-1
Exhibit C - Non-Management Registration Rights Agreement.....................C-1
Exhibit D - Opinion of Company Counsel.......................................D-1
Exhibit E - Form of Employment Agreements:
Exhibit E-1 (Xxxxxx).......................................E-1
Exhibit E-2 (Xxxxxxxx).....................................E-2
Exhibit E-3 (Xxxxxxx)......................................E-3
Exhibit E-4 (Xxxxxx).......................................E-4
Exhibit E-5 (Xxxxxxxxxx)...................................E-5
Exhibit E-6 (Xxxxxx).......................................E-6
Exhibit F - Form of Employee Confidentiality, Non-Competition and Invention
Assignment Agreement.............................................F-1
Exhibit G - Escrow Agreement.................................................F-1
(vi)
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (the "AGREEMENT") is made and entered
into as of the 23rd day of February, 2000, by and among (i) SmartDisk
Corporation, a Delaware corporation (the "BUYER"), (ii) VST Acquisition, Inc., a
Delaware corporation and wholly owned subsidiary of Buyer ("ACQUISITION SUB"),
(iii) VST Technologies, Inc., a Delaware corporation (individually and
collectively with its Subsidiaries, the "COMPANY"), and (iv) each of the
individuals and entities listed on the signature pages to this Agreement under
the caption "Shareholders" (collectively the "SHAREHOLDERS" and each
individually a "SHAREHOLDER").
RECITALS
A. The Boards of Directors of Buyer and Acquisition Sub deem it
advisable and in the best interest of said corporations and their respective
shareholders that the Company merge (the "MERGER") with and into Acquisition Sub
as provided herein and have approved and adopted the form, terms and provisions
of this Agreement and the Merger.
B. The Board of Directors of the Company deems the Merger advisable and
in the best interest of said corporation and its shareholders and the Board of
Directors of the Company has approved and adopted the form, terms and provisions
of this Agreement and the Merger.
C. The Shareholders are the principal stockholders of the Company, and
are entering into this Agreement as an inducement to Buyer.
D. The parties intend that the Merger qualify as a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code").
AGREEMENT
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants contained herein, the parties agree as follows:
ARTICLE I. - THE MERGER
1.1 THE MERGER. Upon the terms and subject to the conditions set forth
in this Agreement, and in accordance with the General Corporation Law of the
State of Delaware (the "CORPORATION LAW"), the Company shall be merged with and
into Acquisition Sub at the Effective Time (as defined below). Following the
Effective Time, the separate corporate existence of the Company shall cease and
Acquisition Sub shall continue as the surviving corporation (the "SURVIVING
CORPORATION") and shall succeed to and assume all the rights and obligations of
the Company in accordance with the Corporation Law. At the election of Buyer,
any direct wholly owned Subsidiary of Buyer may be substituted for Acquisition
Sub as a constituent corporation in the Merger. In such event, the parties agree
to execute an appropriate amendment to this Agreement in order to reflect the
foregoing.
1.2 EFFECTIVE TIME. Subject to the provisions of this Agreement, as
soon as practicable on or after the Closing Date (as defined below), the parties
shall file a certificate of merger or other appropriate documents (in any such
case, the "CERTIFICATE OF MERGER") executed in accordance with the relevant
provisions of the Corporation Law and shall make all other filings or recordings
required under the Corporation Law. The Merger shall become effective at such
time as the Certificate of Merger is duly filed with the Delaware Secretary of
State, or at such other time as Acquisition Sub and the Company shall agree
should be specified in the Certificate of Merger (the time the Merger becomes
effective being referred to herein as the "EFFECTIVE TIME").
1.3 EFFECTS OF THE MERGER. The Merger shall have the effects set forth
in the applicable provisions of this Agreement, the Certificate of Merger and
the Corporation Law.
1.4 CERTIFICATE OF INCORPORATION AND BYLAWS.
(a) The Certificate of Incorporation of Acquisition Sub as in
effect immediately prior to the Effective Time shall be the certificate of
incorporation of the Surviving Corporation until thereafter changed or amended
as provided therein or by applicable law; provided that Article I thereof shall
be amended at the Effective Time to provide that the corporate name of the
Surviving Corporation is "SmartDisk Personal Storage Systems Corporation."
(b) The bylaws of Acquisition Sub as in effect immediately prior to
the Effective Time shall be the bylaws of the Surviving Corporation until
thereafter changed or amended as provided therein or by applicable law.
1.5 DIRECTORS. The directors of Acquisition Sub immediately prior to
the Effective Time shall be the directors of the Surviving Corporation until the
earlier of their resignation or removal or until their respective successors are
duly elected and qualified, as the case may be.
1.6 OFFICERS. The officers of the Company immediately prior to the
Effective Time and such other persons as Buyer shall designate shall be the
officers of the Surviving Corporation until the earlier of their resignation or
removal or until their respective successors are duly elected and qualified, as
the case may be.
1.7 EFFECT ON CAPITAL STOCK. As of the Effective Time, by virtue of the
Merger and without any action on the part of the holder of any shares of the
outstanding capital stock of the Company or Acquisition Sub:
(a) Each issued and outstanding share of common stock of
Acquisition Sub shall be converted into and become one fully paid and
nonassessable share of Common Stock, par value $.001 per share, of the Surviving
Corporation.
(b) Each share of the Company's common stock, par value $.01 per
share, Series A redeemable convertible preferred stock, par value $.01 per
share, Series B redeemable convertible preferred stock, par value $.01 per
share, and Series C redeemable convertible preferred stock, par value $.01 per
share (collectively the "COMPANY STOCK") that is held in the treasury of the
Company or by any wholly owned subsidiary of the Company shall automatically be
cancelled and retired and shall cease to exist and no consideration shall be
delivered in exchange therefor.
(c) Each share of Company Stock that is owned by Buyer, Acquisition
Sub or any other subsidiary of Buyer shall automatically be canceled and retired
and shall cease to exist, and no consideration shall be delivered in exchange
therefor.
(d) Subject to Section 1.7(e) hereof, each share of Company Stock
issued and outstanding (other than shares of Company Stock to be canceled in
accordance with Sections 1.7(b) and 1.7(c) hereof) shall be converted into the
right to receive from the Buyer .8984 shares of Buyer's common stock par value
$.001 per share ("BUYER COMMON STOCK"), subject to equitable adjustment in the
event of any stock split, stock dividend, reverse stock split or similar event
affecting the Buyer Common Stock between the date hereof and the Effective Time,
and, subject to adjustment as provided in Section 1.12 hereof, $9.733 in cash
(collectively with the Buyer Common Stock, the "MERGER CONSIDERATION"). As of
the Effective Time, all such shares of Company Stock shall no longer be
outstanding and shall automatically be canceled and retired and shall cease to
exist, and each holder of a certificate representing any such shares of Company
Stock shall cease to have any rights with respect thereto, except the right to
receive the Merger Consideration, without interest. Stockholders of record of
the Company immediately prior to the Effective Time shall be entitled to
receive, in the manner contemplated by Section 1.9 hereof, eighty-
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five percent (85%) of the shares of Buyer Common Stock into which their Company
Stock was converted pursuant to this Section 1.7(d), rounded down to the nearest
whole number (the "INITIAL SHARES"); the remaining fifteen percent (15%) of the
shares of Buyer Common Stock into which their Company Stock was converted
pursuant to this Section 1.7(d), rounded up to the nearest whole number (the
"ESCROW SHARES"), shall be deposited in escrow pursuant to Section 1.11 hereof
and shall be held and disposed of in accordance with the terms of the Escrow
Agreement (as hereinafter defined). The Initial Shares and the Escrow Shares
shall together be referred to herein as the "MERGER SHARES."
(e) Notwithstanding anything in this Agreement to the contrary, any
issued and outstanding shares of Company Stock held by a person (a "DISSENTING
SHAREHOLDER") who shall not have voted in favor of the Merger or consented
thereto in writing and who shall have properly demanded appraisal in accordance
with the provisions of Section 262 of the Corporation Law concerning the right
of holders of Company Stock to dissent from the Merger and require appraisal of
their Shares ("DISSENTING SHARES") shall not be converted as described in
Section 1.7(d) but shall become the right to receive such consideration as may
be determined to be due to such Dissenting Shareholder pursuant to Section 262
of the Corporation Law. If, after the Effective Time, such Dissenting
Shareholder withdraws his demand for appraisal or fails to perfect or otherwise
loses his right of appraisal, in any case pursuant to the Corporation Law, his
Dissenting Shares shall be deemed to be converted as of the Effective Time into
the right to receive the Merger Consideration. The Company shall give Buyer (i)
prompt notice of any demands for appraisal of shares received by the Company,
and (ii) the opportunity to participate in all negotiations and proceedings with
respect to any such demands. The Company will not voluntarily make any payment
with respect to any demands for appraisal and will not, except with the prior
written consent of Buyer, settle or offer to settle any such demands.
1.8 COMPANY STOCK OPTIONS AND WARRANTS.
(a) The Company shall use all reasonable efforts to promptly cause
each holder of an outstanding Company Option (as hereinafter defined), whether
or not exercisable or vested, to enter into an Option Substitution Agreement, in
substantially the form attached hereto as EXHIBIT A (the "OPTION SUBSTITUTION
AGREEMENT"), pursuant to which (i) each Company Option owned by such holder and
outstanding as of the Closing Date will be cancelled as of the Closing Date and,
in substitution therefor, such holder will receive, for each share of Company
Stock subject thereto, and subject to adjustment as provided in Section 1.12
hereof, $9.733 in cash and a fully exercisable option (each a "BUYER STOCK
OPTION") to purchase .8984 shares of Buyer Common Stock, rounded down to the
nearest whole number of shares, and (iii) a portion of each Buyer Stock Option
and the shares of Buyer Common Stock Issuable upon exercise thereof will be
subject to forfeiture and/or cancellation in accordance with the Escrow
Agreement. The per share exercise price of each Buyer Stock Option shall be the
quotient obtained by dividing (x) the per share exercise price of the Company
Option exchanged therefor, BY (y) .8984. The shares of Buyer Common Stock
subject to Buyer Stock Options granted to the Designated Executives (other than
Xx Xxxxxx) will be subject to repurchase by Buyer at cost upon certain
terminations of employment, which forfeiture provisions will lapse as to 25% of
such Buyer Common Stock on each six-month anniversary of the Closing, all as set
forth in the Restricted Stock Agreement attached as an exhibit to the Option
Substitution Agreements to which the Designated Executives are parties.
Notwithstanding anything herein or in the Option Substitution Agreement to the
contrary, Buyer shall not be required to grant Buyer Stock Options with respect
to, when added to any options granted to such holder pursuant to any employment
agreement with Buyer (if applicable), more than an aggregate of 100,000 shares
of Buyer Common Stock to any one individual pursuant to Buyer's 1999 Incentive
Compensation Plan; if any holder of Company Options would otherwise be entitled
to receive Buyer Stock Options with respect to more than 100,000 shares, the
"excess" Buyer Stock Options (the "EXCESS OPTIONS") shall be granted pursuant to
a separate Buyer option plan or arrangement that provides the optionee with
substantially the same rights.
(b) Pursuant to Section 16(a)(ii) of the Company Option Plan (as
hereafter defined), the Company shall cause each Company Option owned by a
holder who does not execute an Option Substitution Agreement to be cancelled
immediately prior to the Effective Time.
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(c) Each Shareholder hereby severally agrees to exercise all
Company Warrants (as hereinafter defined) held by it prior to the Closing Date,
and the Company and each Shareholder severally agrees to use all reasonable
efforts to cause each other holder of Company Warrants to exercise such Company
Warrants prior to the Closing Date. Each Company Warrant that is not exercised
prior to the Effective Time shall, pursuant to the Merger and the terms of such
Company Warrant, be automatically adjusted, pursuant to its terms, into a
substitute warrant (each a "SUBSTITUTE WARRANT") which, when exercised, will
entitled the holder to receive $9.733 in cash and .8984 shares of Buyer Common
Stock for each share of Company Stock that was subject to the applicable
converted Company Warrant.
(d) Except as contemplated by the Option Substitution Agreements or
as may otherwise be agreed by Buyer and the Company in writing, all Company
Options shall terminate as of the Closing, and no holder of Company Options or
Company Warrants or any participant in any Company stock option (or other
benefit) plan shall have any rights thereunder to acquire any equity securities
of the Company, the Surviving Corporation or any Subsidiary thereof.
(e) Except for the Substitute Warrants and as may otherwise be
agreed by Buyer and the Company in writing, all plans, programs or arrangements
providing for the issuance or grant of any other interest in respect to the
capital stock of the Company or any of the Company's Subsidiaries shall
terminate as of the Closing, and no participant in any such plans, programs or
arrangements shall have any rights thereunder to acquire any equity securities
of the Company, the Surviving Corporation or any Subsidiary thereof.
(f) As soon as practicable after the Effective Time, the Buyer
shall deliver to each Person who has entered into an Option Substitution
Agreement an agreement evidencing the Buyer Stock Option(s) to which such Person
is entitled.
(g) The Buyer shall take all corporate action necessary to reserve
for issuance a sufficient number of shares of Buyer Common Stock for delivery
upon exercise of the Buyer Stock Options granted pursuant to the Option
Substitution Agreements. Promptly after the Effective Time, the Buyer shall file
a Registration Statement on Form S-8 (or any successor form) under the
Securities Act of 1933 (as amended, the "SECURITIES ACT") with respect to all
shares of Buyer Common Stock subject to such Buyer Stock Options (including the
Excess Options) that may be registered on a Form S-8, and shall use all
reasonable efforts to maintain the effectiveness of such Registration Statement
for so long as such Buyer Stock Options remain outstanding. In addition, Buyer
shall use all reasonable efforts to cause the Buyer Common Stock subject to such
Buyer Stock Options to be listed on the Nasdaq National Market.
1.9 EXCHANGE OF CERTIFICATES.
(a) Buyer, Buyer's transfer agent or any other Person reasonably
acceptable to the Company shall act as paying agent in the Merger (the "PAYING
AGENT"), and, from time to time on, prior to or after the Effective Time, Buyer
shall make available to the Paying Agent funds and/or securities in amounts and
at the times necessary for the payment of the Merger Consideration upon
surrender of certificates representing the shares of Company Stock (collectively
the "SHARES") converted into the right to receive Merger Consideration pursuant
to Section 1.7 (it being understood that any and all interest earned on funds
made available to the Paying Agent pursuant to this Agreement shall be turned
over to Buyer).
(b) Prior to the Effective Time the Buyer shall provide to the
Company, and as soon as reasonably practicable after the Effective Time, the
Paying Agent shall mail to each holder of record of a certificate or
certificates which immediately prior to the Effective Time represented Shares
(the "CERTIFICATES"), (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 Paying Agent and shall be in
a form and have such other provisions as Buyer may reasonably specify) and (ii)
instructions for use in effecting the surrender of the Certificates in exchange
for the Merger Consideration. Upon surrender of a Certificate for cancellation
to the Paying Agent or to such other agent or agents as may be appointed by
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Buyer, together with such letter of transmittal, duly executed, and such other
documents as may reasonably be required by the Paying Agent, the holder of such
Certificate shall be entitled to receive in exchange therefor, subject to the
delivery of certain shares of Buyer Common Stock pursuant to Section 1.11
hereof, the amount of Merger Consideration which the Shares theretofore
represented by such Certificate shall have been converted pursuant to Section
1.7 (plus any dividends or distributions made with respect to Buyer Common Stock
subsequent to the Effective Time and prior to the surrender of the Certificates
in exchange for the Merger Consideration), and the Certificate so surrendered
shall forthwith be canceled. In the event of a transfer of ownership of Shares
that is not registered in the transfer records of the Company, payment may be
made to a person other than the person in whose name the Certificate so
surrendered is registered, if such Certificate shall be properly endorsed or
otherwise be in proper form for transfer and the person requesting such payment
shall pay any transfer or other taxes required by reason of the payment to a
person other than the registered holder of such Certificate or establish to the
satisfaction of the Surviving Corporation that such tax has been paid or is not
applicable. Until surrendered as contemplated by this Section 1.9, each
Certificate shall be deemed at any time after the Effective Time to represent
only the right to receive upon such surrender the amount of Merger
Consideration, without interest, into which the Shares theretofore represented
by such Certificate shall have been converted pursuant to Section 1.7 hereof. No
interest will be paid or will accrue on the cash payable upon the surrender of
any Certificate. In the event any Certificate shall have been lost, stolen or
destroyed, Buyer may, in its discretion and as a condition precedent to the
payment of the Merger Consideration in respect of the Shares represented by such
Certificate, require the owner of such lost, stolen or destroyed Certificate to
deliver a bond in such sum as it may reasonably direct as indemnity against any
claim that may be made against Buyer, the Surviving Corporation or the Paying
Agent.
(c) All Merger Consideration paid upon the surrender of
Certificates in accordance with the terms of this Section 1.9 shall be deemed to
have been paid in full satisfaction of all rights pertaining to the Shares
theretofore represented by such Certificates. At the Effective Time, the stock
transfer books of the Company shall be closed, and there shall be no further
registration of transfers on the stock transfer books of the Surviving
Corporation of the Shares that were outstanding immediately prior to the
Effective Time. If, after the Effective Time, Certificates are presented to the
Surviving Corporation or the Paying Agent for any reason, they shall be canceled
and exchanged as provided in this Section 1.9.
(d) At any time following the expiration of one year after the
Effective Time, the Buyer shall be entitled to require the Paying Agent to
deliver to it any funds (including any interest received with respect thereto)
which had been made available to the Paying Agent and which have not been
disbursed to holders of Certificates, and thereafter such holders shall be
entitled to look to Buyer (subject to any applicable abandoned property, escheat
or similar law) only as general creditors thereof with respect to the Merger
Consideration payable upon due surrender of their Certificates, without any
interest thereon. Notwithstanding the foregoing, none of Buyer, Acquisition Sub,
the Company or the Paying Agent shall be liable to any person in respect of any
cash delivered to a public official pursuant to any applicable abandoned
property, escheat or similar law.
1.10 NO FRACTIONAL SECURITIES. No certificates or scrip representing
fractional shares of Buyer Common Stock shall be issued upon the surrender or
exchange of Certificates pursuant to this Article I and no dividend, stock split
or other change in the capital structure of Buyer shall relate to any fractional
security, and such fractional interests shall not entitle the owner thereof to
vote or to any rights of a security holder. In lieu of any such fractional
securities, each holder of Shares who would otherwise have been entitled to a
fraction of a share of Buyer Common Stock upon surrender of Certificates for
exchange pursuant to Section 1.8 shall be paid cash upon such surrender in an
amount equal to the product of such fraction multiplied by the Specified Price.
1.11 ESCROW AGREEMENT.
(a) On the Closing Date, the Buyer shall deliver to State Street
Bank and Trust Company (or any other independent Person reasonably acceptable to
Buyer and the Company), as escrow agent (the "ESCROW AGENT"), a certificate
(issued in the name of the Escrow Agent or its nominee)
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representing the Escrow Shares, as described in Section 1.7(d) hereof, for the
purpose of securing the indemnification obligations of the Company's
stockholders and the holders of Buyer Stock Options set forth in this Agreement.
From and after the Closing Date, upon the exercise of Buyer Stock Options, the
Buyer shall deliver to the Escrow Agent a certificate or certificates (issued in
the name of the Escrow Agent or its nominee) representing additional Escrow
Shares to the extent set forth in the Escrow Agreement.
(b) The Escrow Shares shall be held by the Escrow Agent under the
Escrow Agreement pursuant to the terms thereof. The Escrow Shares shall be held
as a trust fund and shall not be subject to any lien, attachment, trustee
process or any other judicial process of any creditor of any party, and shall be
held and disbursed solely for the purposes and in accordance with the terms of
the Escrow Agreement.
(c) The adoption of this Agreement and the approval of the Merger
by the Company's stockholders shall constitute approval of the Escrow Agreement
and of all of the arrangements relating thereto, including without limitation,
the placement of the Escrow Shares in escrow and the appointment of the
Shareholder' Representative (as hereinafter defined).
1.12 ADJUSTMENT OF CASH MERGER CONSIDERATION Notwithstanding anything
herein to the contrary, the $9.733 per share cash payment otherwise required to
be paid to the Company's stockholders and the holders of Company Options, as
well as the $9.733 per share cash payment otherwise required to be made upon
exercise of Substitute Warrants, shall be reduced by the quotient, rounded up to
the nearest tenth of a cent ($0.001), obtained by dividing (x) the excess, if
any, of the aggregate fees and related expenses in excess of $75,000 payable (by
reason of the transactions contemplated hereby) pursuant to the Specified
Advisory Agreements OVER $2,139,000, by (y) the sum of (i) the aggregate number
of shares of Company Stock outstanding as of Closing, plus (ii) the aggregate
number of shares of Company Stock issuable upon exercise of Company Options and
Company Warrants outstanding as of Closing.
ARTICLE II. - CLOSING
2.1 CLOSING. Subject to the conditions stated in Article VI of this
Agreement, the closing of the transactions contemplated hereby (the "CLOSING")
shall be held at 9:00 a.m., Miami time, on the tenth (10th) business day after
the date of this Agreement, or, if the conditions set forth in Section 6.2 have
not been satisfied or waived on such date, on such mutually agreeable later date
as soon as practicable (but in no event later than the fifth (5th) business day)
after all such conditions shall have been satisfied or waived, at the offices of
Xxxxxxxxx Xxxxxxx, LLP, 0000 Xxxxxxxx Xxxxxx, Xxxxx, Xxxxxxx 00000. The date
upon which the Closing occurs is hereinafter referred to as the "CLOSING DATE."
The Closing shall be deemed completed as of 12:01 a.m. Miami time on the morning
of the Closing Date.
2.2 DELIVERIES BY THE COMPANY. At or prior to the Closing, the Company
shall deliver to Buyer:
(i) the Certificate of Merger, duly executed by the Company;
(ii) the resignations of all the directors of the Company;
(iii) the stock book, stock ledger, minute books and corporate seal
of the Company;
(iv) a certificate executed by the Company to the effect that the
conditions set forth in Sections 6.2(b) and 6.2(e) have been satisfied; and
6
(v) evidence reasonably satisfactory to Buyer that Buyer's
designees shall be the only authorized signatories with respect to the Company's
various accounts, credit lines, safe deposit boxes or vaults set forth or
required to be set forth in Schedule 3.18.
2.3 DELIVERIES BY BUYER. At or prior to the Closing, Buyer shall
deliver (i) to the Company a certificate executed by the Buyer to the effect
that the conditions set forth in Section 6.1(b) have been satisfied, (ii) to the
Escrow Agent the Escrow Shares, and (iii) to the Paying Agent the cash and
certificates evidencing Buyer Common Stock that constitute the remainder of the
Merger Consideration.
2.4 TERMINATION IN ABSENCE OF CLOSING.
(a) Subject to the provisions of Section 2.4(b), if by the close of
business on March 31, 2000, the Closing has not occurred, then either Buyer or
the Company may thereafter terminate this Agreement by written notice to such
effect, to the other parties hereto, without liability of or to any party to
this Agreement or any shareholder, director, officer, employee or representative
of such party unless the reason for Closing having not occurred is (i) such
terminating party's material breach of the provisions of this Agreement, or (ii)
if all of the conditions to such terminating party's obligations set forth in
Article VI have been satisfied or waived in writing by the date scheduled for
the Closing pursuant to Section 2.1, the failure of such party to perform its
obligations under this Article II on such date; provided, however, that the
provisions of Sections 9.2 through 9.6 shall survive any such termination; and
provided further, however, that any termination pursuant to this Section 2.4
shall not relieve any party hereto who was responsible for Closing having not
occurred as described in clauses (i) or (ii) above of any liability for (x) such
party's material breach of the provisions of this Agreement, or (y) if all of
the conditions to such party's obligations set forth in Article VI have been
satisfied or waived in writing by the date scheduled for the Closing pursuant to
Section 2.1, the failure of such party to perform its obligations under this
Article II on such date.
(b) This Agreement and the transactions contemplated herein may be
terminated and abandoned at any time on or prior to the Closing Date by the
Company if:
(i) any representation or warranty made herein for the benefit
of Company, or any certificate, schedule or document furnished to the Company
pursuant to this Agreement is untrue in any material respect; or
(ii) Buyer or Acquisition Sub shall have defaulted in any
material respect in the performance of any material obligation under this
Agreement, and such default continues uncured for 15 days after notice from the
Company.
(c) This Agreement and the transactions contemplated herein may be
terminated and abandoned at any time on or prior to the Closing Date by the
Buyer if:
(i) any representation or warranty made herein for the benefit
of Buyer, or any certificate, schedule or document furnished to Buyer pursuant
to this Agreement is untrue in any material respect; or
(ii) The Company or the Shareholders shall have defaulted in
any material respect in the performance of any material obligation under this
Agreement and such default continues uncured for 15 days after notice from the
Buyer.
(d) This Agreement and the transactions contemplated herein may be
terminated and abandoned at any time prior to the Closing by written agreement
of the Buyer and the Company.
7
ARTICLE III. - REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE SHAREHOLDERS
The Company (and, solely as provided in Section 3.24 hereof, the
Shareholders) hereby represent and warrant to Buyer that:
3.1 CORPORATE EXISTENCE AND QUALIFICATION. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware; the Company has the corporate power to own, manage, lease and
hold its Properties and to carry on its business as and where such Properties
are presently located and such business is presently conducted; and neither the
character of the Company's Properties nor the nature of the Company's business
requires the Company to be duly qualified to do business as a foreign
corporation in any jurisdiction outside those identified in Schedule 3.1
attached hereto, except where the failure to be so qualified would not, in the
aggregate, have a material adverse effect on the business, operations,
prospects, Properties or financial condition of the Company. The Company is
qualified as a foreign corporation and in good standing in each jurisdiction
listed on Schedule 3.1.
3.2 AUTHORITY, APPROVAL AND ENFORCEABILITY. This Agreement has been
duly executed and delivered by the Company, and the Company has all requisite
corporate power and legal authority to (i) execute and deliver this Agreement
and all Collateral Agreements executed and delivered or to be executed and
delivered by it in connection with the transactions provided for hereby, and
(ii) subject to the Company Stockholder Approval (as hereinafter defined),
consummate the transactions contemplated hereby and by the Collateral Agreements
and perform its obligations hereunder and under the Collateral Agreements. The
execution, delivery and performance of this Agreement and the consummation by
the Company of the Merger and of the other transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of the
Company (including approval of the Company's Board of Directors but excluding
the Company Stockholder Approval) and, subject to the Company Stockholder
Approval, no other corporate proceedings on the part of the Company are
necessary to authorize this Agreement or to consummate the transactions
contemplated hereby. This Agreement and each Collateral Agreement to which the
Company is a party constitutes, or upon execution and delivery by the Company
will constitute, the legal, valid and binding obligation of such party,
enforceable against it in accordance with its terms, except as such enforcement
may be limited by general equitable principles or by applicable bankruptcy,
insolvency, moratorium, or similar laws and judicial decisions from time to time
in effect which affect creditors' rights generally. The affirmative vote of (i)
the holders of a majority of the outstanding shares of Company Stock, and (ii)
the holders of at least a majority of the outstanding shares of the Company's
Series A, Series B and Series C redeemable convertible preferred stock, voting
together as a single class, are the only votes of the holders of any class of
capital stock of the Company necessary to approve this Agreement and the Merger
(the "COMPANY STOCKHOLDER APPROVAL").
3.3 CAPITALIZATION AND CORPORATE RECORDS.
(a) The Company's authorized capital stock consists solely of (i)
2,813,708 shares of common stock, par value $.01 per share, of which 101,037
shares are issued and outstanding as of the date hereof, (ii) 248,840 shares of
Series A redeemable convertible preferred stock, par value $.01 par value per
share, of which 214,949 shares are issued and outstanding as of the date hereof,
(iii) 243,440 shares of Series B redeemable convertible preferred stock, par
value $.01 per share, of which 135,114 shares are issued and outstanding as of
the date hereof, and (iv) 560,092 shares of Series C redeemable convertible
preferred stock, par value $.01 per share, of which 553,744 shares are issued
and outstanding as of the date hereof. Schedule 3.3 sets forth a true and
complete summary of the Company's outstanding Shares as of the date hereof,
including the name and state of domicile of each shareholder and the number and
class and/or series of Company capital stock held of record by such shareholder.
All issued and outstanding shares of the Company's capital stock are owned of
record (and, to the Knowledge of the Company, beneficially) by the Shareholders
and other Persons listed on Schedule 3.3. To the Knowledge of the Company, all
such Shares are held free and clear of any and all liens, mortgages, adverse
claims, charges, security interests, encumbrances or other restrictions or
limitations whatsoever. No shares of capital stock are held in the Company's
treasury. All of the
8
outstanding Shares are duly authorized, validly issued, fully paid and
non-assessable and were not issued in violation of (i) any preemptive or other
rights of any Person to acquire securities of the Company, or (ii) any
applicable federal or state securities laws, and the rules and regulations
promulgated thereunder (collectively, the "SECURITIES LAWS"). Except for (i)
options (collectively the "COMPANY OPTIONS") to purchase an aggregate of 493,435
shares of the Company's common stock issued pursuant to the Company's 1995 Stock
Option Plan (the "COMPANY OPTION PLAN"), and (ii) warrants (collectively the
"COMPANY WARRANTS") to purchase an aggregate of 196,991 shares of Company Stock,
the Company has granted (and, to the Knowledge of the Company, there are) no
outstanding subscriptions, options, convertible securities, warrants, calls or
similar agreements relating to any shares of capital stock of the Company.
Schedule 3.3 sets forth a true, complete and correct list of all Company Options
and Company Warrants, including with respect to each such security, (i) the name
of the holder thereof, (ii) the number and class and/or series of shares of the
Company's capital stock subject thereto, (iii) the per share exercise price,
(iv) the date of grant, (v) the expiration date, and (vi) any applicable
exercise vesting schedule. Upon filing of the Certificate of Merger with the
Secretary of State of the State of Delaware (and assuming that the Buyer owns
100% of Acquisition Sub's outstanding capital stock), the Buyer will own 100% of
the Surviving Corporation and no holder of Company securities will have any
right to acquire any securities of the Surviving Corporation.
(b) The copies of the Certificate of Incorporation and Bylaws of
the Company provided to Buyer are true, accurate, and complete and reflect all
amendments made through the date of this Agreement. The Company's stock and
minute books made available to Buyer for review were correct and complete as of
the date of such review, no further entries have been made through the date of
this Agreement which have not been heretofore delivered to Buyer, and such
minute books contain an accurate record of all shareholder and corporate actions
of the shareholders and directors of the Company taken by written consent or at
a meeting since January 1, 1996. All material corporate actions taken by the
Company which require board and/or stockholder approval have been duly
authorized or ratified.
3.4 SUBSIDIARIES. Except for the subsidiaries of the Company listed on
Schedule 3.4, the Company does not own, directly or indirectly, any securities
of or in any other corporation, partnership, joint venture or other business
entity. Schedule 3.4 hereto sets forth the name of each Subsidiary of the
Company, and, with respect to each Subsidiary, the jurisdiction in which it is
incorporated or organized, the number of shares of its authorized capital stock,
the number and class of shares thereof duly issued and outstanding, the names of
all stockholders or other equity owners and the number of shares of stock owned
by each stockholder or the amount of equity owned by each equity owner. The
outstanding shares of capital stock or equity interests of each Subsidiary are
validly issued, fully paid and non-assessable, and all such shares or other
equity interests represented as being owned by Company or another Subsidiary of
the Company are owned by it free and clear of any and all liens, pledges,
encumbrances, charges, agreements or claims of any kind whatsoever, except as
set forth in Schedule 3.4 hereto. No shares of capital stock are held by any
Subsidiary as treasury stock. There is no existing option, warrant, call,
commitment or agreement to which any Subsidiary is a party requiring, and there
are no convertible securities of any Subsidiary outstanding which upon
conversion would require, the issuance of any additional shares of capital stock
or other equity interests of any Subsidiary or other securities convertible into
shares of capital stock or other equity interests of any Subsidiary or other
equity security of any Subsidiary. Each Subsidiary is a duly organized and
validly existing corporation or other entity in good standing under the laws of
the jurisdiction of its organization and is duly qualified to do business and is
in good standing under the laws of each jurisdiction in which the conduct of its
business or the ownership of its assets requires such qualification, except
where the failure to be so qualified would not, in the aggregate, have a
material adverse effect on the business, operations, prospects, Properties or
financial condition of the Company. Each Subsidiary has all requisite corporate
power and authority to own its Properties and carry on its business as presently
conducted.
3.5 NO COMPANY DEFAULTS OR CONSENTS. Except as otherwise set forth in
Schedule 3.5 attached hereto and subject to the filing of the Certificate of
Merger and receipt of the Company Stockholder Approval, neither the execution
and delivery of this Agreement nor the carrying out of any of the transactions
contemplated hereby by the Company will:
9
(i) violate or conflict with any of the terms, conditions or
provisions of the charter or bylaws of the Company;
(ii) violate any Legal Requirements applicable to the Company;
(iii) violate, conflict with, result in a breach of, constitute
a default under (whether with or without notice or the lapse of time or both),
or accelerate or permit the acceleration of the performance required by, or give
any other party the right to terminate, any Contract or Permit binding upon or
applicable to the Company;
(iv) result in the creation of any lien, charge or other
encumbrance on any Properties of the Company; or
(v) require the Company to obtain or make any waiver, consent,
action, approval or authorization of, or registration, declaration, notice or
filing with, any private non-governmental third party or any Governmental
Authority.
3.6 NO PROCEEDINGS. No suit, action or other proceeding is pending or,
to the Knowledge of the Company, threatened before any Governmental Authority
seeking to restrain the Company from entering into or prohibit its entry into
this Agreement or prohibit the Closing, or seeking damages against the Company
or its Properties as a result of the consummation of this Agreement.
3.7 EMPLOYEE BENEFIT MATTERS.
(a) Schedule 3.7(a) provides a true, correct and complete list of
each of the following, if any, which either (x) is sponsored, maintained or
contributed to by the Company for the benefit of the employees or agents of the
Company, or (y) has been so sponsored, maintained or contributed to at any time
during the Company's existence and with respect to which the Company has or
could reasonably be expected to have any actual or contingent liability:
(i) each "employee benefit plan," as such term is defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974 ("ERISA")
(including, but not limited to, employee benefit plans, such as foreign plans,
which are not subject to the provisions of ERISA) ("PLAN"); and,
(ii) each personnel policy, employee manual or other written
statements of rules or policies concerning employment, stock option plan,
collective bargaining agreement, bonus plan or arrangement, incentive award plan
or arrangement, vacation and sick leave policy, severance pay policy or
agreement, deferred compensation agreement or arrangement, consulting agreement,
employment contract and each other employee benefit plan, agreement,
arrangement, program, practice or understanding which is not described in
Section 3.7(a)(i) ("BENEFIT PROGRAM OR AGREEMENT").
(b) True, correct and complete copies of each of the Plans (if
any), and related trusts, if applicable, including all amendments thereto, have
been furnished or made available to Buyer. There has also been furnished to
Buyer, with respect to each Plan required to file such report and description,
the three most recent reports on Form 5500 and the summary plan description.
True, correct and complete copies or descriptions of all Benefit Programs or
Agreements have also been furnished or made available to Buyer.
(c) Except as otherwise set forth in Schedule 3.7(c),
(i) The Company does not contribute to or have an obligation to
contribute to, and the Company has not at any time contributed to or had an
obligation to contribute to, and the Company does not have any actual or
contingent liability under a multiemployer plan within the meaning of Section
3(37) of ERISA ("MULTIEMPLOYER Plan") or a multiple employer plan within the
meaning of Section 413(b) and (c) of the Code.
10
(ii) The Company has substantially performed all obligations,
whether arising by operation of law or by contract, required to be performed by
it in connection with the Plans and the Benefit Programs and Agreements, and to
the Knowledge of the Company, there have been no defaults or violations by any
other party to the Plans or Benefit Programs or Agreements;
(iii) All reports and disclosures relating to the Plans
required to be filed with or furnished to governmental agencies, Plan
participants or Plan beneficiaries have been filed or furnished in accordance
with applicable law in a timely manner, and each Plan and each Benefit Program
or Agreement has been administered in substantial compliance with its governing
documents;
(iv) Each of the Plans intended to be qualified under Section
401 of the Code satisfies the requirements of such Section in all material
respects and has received a favorable determination letter from the Internal
Revenue Service regarding such qualified status and has not, since receipt of
the most recent favorable determination letter, been amended or operated in a
way which could adversely affect such qualified status;
(v) There are no actions, suits or claims pending (other than
routine claims for benefits) or, to the Knowledge of the Company, threatened
against, or with respect to, any of the Plans or Benefit Programs or Agreements
or their assets;
(vi) All contributions required to be made to the Plans
pursuant to their terms and provisions and applicable law have been made timely;
(vii) As to any Plan subject to Title IV of ERISA, there has
been no event or condition which presents the material risk of Plan termination,
no accumulated funding deficiency, whether or not waived, within the meaning of
Section 302 of ERISA or Section 412 of the Code has been incurred, no reportable
event within the meaning of Section 4043 of ERISA (for which the disclosure
requirements of Regulation Section 2615.3 promulgated by the Pension Benefit
Guaranty Corporation ("PBGC") have not been waived) has occurred, no notice of
intent to terminate the Plan has been given under Section 4041 of ERISA, no
proceeding has been instituted under Section 4042 of ERISA to terminate the
Plan, there has been no termination or partial termination of the Plan within
the meaning of Section 411(d)(3) of the Code, no liability to the PBGC has been
incurred, and the assets of the Plan equal or exceed the aggregate present value
of the benefit liabilities (within the meaning of Section 4001(a)(16) of ERISA)
under the Plan, computed on a "plan termination basis" based upon reasonable
actuarial assumptions and the asset valuation principles established by the
PBGC;
(viii) None of the Plans nor any trust created thereunder or
with respect thereto has engaged in any "prohibited transaction" or
"party-in-interest transaction" as such terms are defined in Section 4975 of the
Code and Section 406 of ERISA which could subject any Plan, the Shareholders or
any officer, director or employee thereof to a tax or penalty on prohibited
transactions or party-in-interest transactions pursuant to Section 4975 of the
Code or Section 502(i) of ERISA;
(ix) To the Knowledge of the Company, there is no matter
pending (other than routine qualification determination filings) with respect to
any of the Plans or Benefit Programs or Agreements before the Internal Revenue
Service, the Department of Labor or the PBGC;
(x) Each trust funding a Plan, which trust is intended to be
exempt from federal income taxation pursuant to Section 501(c)(9) of the Code,
satisfies the requirements of such section and has received a favorable
determination letter from the Internal Revenue Service regarding such exempt
status and has not, since receipt of the most recent favorable determination
letter, been amended or operated in a way which would adversely affect such
exempt status.
(xi) The Company does not have any obligation to provide health
benefits or death benefits to former employees, except as specifically required
by law;
11
(xii) Neither the execution and delivery of this Agreement nor
the consummation of any or all of the transactions contemplated hereby will: (A)
entitle any current or former employee of the Company to severance pay,
unemployment compensation or any similar payment, (B) accelerate the time of
payment or vesting or increase the amount of any compensation due to any such
employee or former employee, or (C) directly or indirectly result in any payment
made to or on behalf of any person to constitute a "parachute payment" within
the meaning of Section 280G of the Code;
(xiii) The Company has not incurred any liability or taken any
action, and no action or event has occurred that could cause the Company to
incur any liability (A) under Section 412 of the Code or Title IV of ERISA with
respect to any "single-employer plan" within the meaning of Section 4001(a)(15)
of ERISA that is not a Plan, or (B) to any Multiemployer Plan, including without
limitation an account of a partial or complete withdrawal within the meaning of
Sections 4203 and 4205 of ERISA.
(xiv) Since January 1, 1996, there have not been any (i) work
stoppages, labor disputes or other significant controversies between the Company
and its employees, (ii) labor union grievances or organizational efforts, or
(iii) unfair labor practice or labor arbitration proceedings pending or
threatened.
(d) Except as set forth in Schedule 3.7(a), the Company is not a
party to any agreement, and has not established any policy or practice,
requiring the Company to make a payment or provide any other form or
compensation or benefit to any person performing services for the Company upon
termination of such services which would not be payable or provided in the
absence of the consummation of the transactions contemplated by this Agreement.
(e) Schedule 3.7(e) sets forth by number and employment
classification the approximate numbers of employees employed by the Company as
of the date of this Agreement, and, except as set forth therein, none of said
employees are subject to union or collective bargaining agreements with the
Company.
3.8 FINANCIAL STATEMENTS; LIABILITIES; ACCOUNTS RECEIVABLE;
INVENTORIES.
(a) The Company has delivered to Buyer true and complete copies of
Financial Statements with respect to the Company as of and for the years ended
December 31, 1997, 1998 and 1999 (the "FINANCIAL STATEMENTS"), and said
Financial Statements are attached hereto as Schedule 3.8(a). All of such
Financial Statements present fairly in all material respects the financial
condition and results of operations of the Company for the dates or periods
indicated thereon. All of such Financial Statements have been prepared in
accordance with generally accepted accounting principles ("GAAP") applied on a
consistent basis throughout the periods indicated except as indicated in the
notes thereto and, in the case of the 1999 Financial Statements, the absence of
notes.
(b) Except for (i) the liabilities reflected or reserved against on
the Company's December 31, 1999 balance sheet included with the Financial
Statements attached as Schedule 3.8(a), (ii) trade payables, accrued expenses
and other liabilities incurred since December 31, 1999 (the "BALANCE SHEET
DATE") in the ordinary course of business, none of which are material, (iii)
executory contract obligations under (x) Contracts listed on Schedule 3.13,
and/or (y) Contracts not required to be listed on Schedule 3.13, and (iv) the
liabilities set forth in Schedule 3.8(b) attached hereto, the Company does not
have any liabilities or obligations of any kind or nature whatsoever (whether
accrued, absolute, contingent, known, unknown or otherwise, and whether or not
of a nature required to be reflected or reserved against in a balance sheet in
accordance with GAAP).
(c) Except as otherwise set forth in Schedule 3.8(c), the accounts
receivable reflected on the December 31, 1999 balance sheet included in the
Financial Statements referenced in Section 3.8(a) and all of the Company's
accounts receivable arising since the Balance Sheet Date arose from bona fide
transactions in the ordinary course of business, and the goods and services
involved have been sold, delivered and performed to the account obligors, and no
further filings (with governmental agencies, insurers or others) are required to
be made, no further goods are required to be provided and
12
no further services are required to be rendered in order to complete the sales
and fully render the services and to entitle the Company to collect the accounts
receivable in full. Except as set forth in Schedule 3.8(c), no such account has
been assigned or pledged to any other person, firm or corporation, and, except
only to the extent fully reserved against as set forth in the December 31, 1999
balance sheet included in such Financial Statements, no defense or set-off to
any such account has been asserted by the account obligor or, to the Knowledge
of the Company, otherwise exists.
(d) Except as otherwise set forth in Schedule 3.8(d), the Inventory
of the Company as of the Balance Sheet Date consisted of items of a quality,
condition and quantity consistent with normal seasonally-adjusted Inventory
levels of the Company and was usable and saleable in the ordinary and usual
course of business for the purposes for which intended, except to the extent
written down or reserved against on the balance sheet included with the 1999
Financial Statements. Except as otherwise set forth in Schedule 3.8(d), the
Company's Inventory is valued on the Company's books of account in accordance
with GAAP at the lower of cost (first in first out) or market, and the value of
obsolete materials, materials below standard quality and slow-moving materials
have been written down in accordance with GAAP.
(e) Except as provided under the provisions of the agreements
described in Schedule 3.8(e), the Company has and will have as of the Closing
Date legal and beneficial ownership of its Properties, free and clear of any and
all liens, mortgages, pledges, adverse claims, encumbrances or other
restrictions or limitations whatsoever ("LIENS").
3.9 ABSENCE OF CERTAIN CHANGES.
(a) Except as otherwise set forth in Schedule 3.9(a) attached
hereto, since the Balance Sheet Date through the date hereof, there has not
been:
(i) any event, circumstance or change that had or could
reasonably be expected to have, individually or in the aggregate, a material
adverse effect on the business, operations, prospects, Properties, financial
condition or working capital of the Company;
(ii) any damage, destruction or loss (whether or not covered by
insurance) that had or could reasonably be expected to have, individually or in
the aggregate, a material adverse effect on the business, operations, prospects,
Properties or financial condition of the Company; or
(iii) any material adverse change in the Company's sales
patterns, pricing policies, accounts receivable or accounts payable.
(b) Except as otherwise set forth in Schedule 3.9(b) attached
hereto, since the Balance Sheet Date, the Company has not done any of the
following:
(i) merged into or with or consolidated with, any other
corporation or acquired the business or assets of any Person;
(ii) purchased any securities of any Person;
(iii) created, incurred, assumed, guaranteed or otherwise
become liable or obligated with respect to any Funded Indebtedness, or made any
loan or advance to, or any investment in, any person, except in each case in the
ordinary course of business;
(iv) made any change in any existing election, or made any new
election, with respect to any tax law in any jurisdiction which election has had
or could reasonably be expected to have an effect on the tax treatment of the
Company or the Company's business operations;
13
(v) entered into, amended or terminated any Contract listed or
required to be listed on Schedule 3.13;
(vi) sold, transferred, leased, mortgaged, encumbered or
otherwise disposed of, or agreed to sell, transfer, lease, mortgage, encumber or
otherwise dispose of, any Properties except (i) in the ordinary course of
business, or (ii) pursuant to any agreement specified in Schedule 3.13;
(vii) settled any claim or litigation, or filed any motions,
orders, briefs or settlement agreements in any proceeding before any
Governmental Authority or any arbitrator;
(viii) incurred or approved, or entered into any agreement or
commitment to make, any expenditures in excess of $25,000 (other than those
arising in the ordinary course of business or those required pursuant to any
agreement specified in Schedule 3.13);
(ix) maintained its books of account other than in the usual,
regular and ordinary manner in accordance with generally accepted accounting
principles and on a basis consistent with prior periods or made any change in
any of its accounting methods or practices that would be required to be
disclosed under generally accepted accounting principles;
(x) adopted any Plan or Benefit Program or Agreement, or
granted any increase in the compensation payable or to become payable to
directors, officers or employees (including, without limitation, any such
increase pursuant to any bonus, profit-sharing or other plan or commitment),
other than merit increases to non-officer employees in the ordinary course of
business and consistent with past practice;
(xi) suffered any extraordinary losses or waived any rights of
material value;
(xii) made any payment to any Affiliate or forgiven any
indebtedness due or owing from any Affiliate to the Company;
(xiii) (A) liquidated Inventory or accepted product returns
other than in the ordinary course, (B) accelerated receivables, (C) delayed
payables, or (D) changed in any material respect the Company's practices in
connection with the payment of payables and/or the collection of receivables;
(xiv) except as otherwise disclosed in any other Schedule to
this Agreement, engaged in any material activity or transaction outside the
ordinary course of business;
(xv) declared, set aside or paid any dividends, or made any
distributions or other payments in respect of its equity securities, or
repurchased, redeemed or otherwise acquired any such securities;
(xvi) amended its charter or bylaws;
(xvii) issued any capital stock or other securities, or
granted, or entered into any agreement to grant, any options, convertible
rights, other rights, warrants, calls or agreements relating to its capital
stock; or
(xviii) committed to do any of the foregoing.
3.10 COMPLIANCE WITH LAWS. Except as otherwise set forth in Schedule
3.10(1), the Company is and has since December 31, 1997 been in compliance in
all respects with any and all Legal Requirements applicable to the Company,
other than failures to so comply that would not have an adverse effect on the
business, operations, prospects, Properties or financial condition of the
Company. Except as otherwise set forth in Schedule 3.10(2), the Company (x) has
not received or entered into any
14
citations, complaints, consent orders, compliance schedules, or other similar
enforcement orders or received any written notice from any Governmental
Authority that would indicate that there is not currently compliance with all
such Legal Requirements, except for failures to so comply that would not have an
adverse effect on the business, operations, prospects, Properties or financial
condition of the Company, and (y) is not in default under, and no condition
exists (whether covered by insurance or not) that with or without notice or
lapse of time or both would constitute a default under, or breach or violation
of, any Legal Requirement or Permit applicable to the Company.
3.11 LITIGATION. Except as otherwise set forth in Schedule 3.11, there
are no claims, actions, suits, investigations or proceedings against the Company
pending or, to the Knowledge of the Company, threatened in any court or before
or by any Governmental Authority, or before any arbitrator, that could
reasonably be expected to have an adverse effect (whether covered by insurance
or not) on the business, operations, prospects, Properties or financial
condition of the Company and, to the Knowledge of the Company, there is no basis
for any such claim, action, suit, investigation or proceeding. Schedule 3.11
also includes a true and correct listing of all material actions, suits,
investigations, claims or proceedings that are currently pending or were settled
or adjudicated since December 31, 1997.
3.12 REAL PROPERTY.
(a) The Company does not own and has not at any time owned any real
property or any interest therein (including without limitation any option or
other right or obligation to purchase any real property or any interest
therein).
(b) Schedule 3.12(b) sets forth a list of all leases, licenses or
similar agreements relating to the Company's use or occupancy of real estate
owned by a third party ("LEASES"), true and correct copies of which have
previously been furnished to Buyer, in each case setting forth (i) the lessor
and lessee thereof and the commencement date, term and renewal rights under each
of the Leases, and (ii) the street address and legal description of each
property covered thereby (the "LEASED PREMISES"). The Leases and all guaranties
with respect thereto, are in full force and effect and, except as set forth on
Schedule 3.12(b), have not been amended in writing or otherwise. Neither the
Company nor, the Knowledge of the Company, any other party thereto is in default
or breach under any such Lease. No event has occurred which, with the passage of
time or the giving of notice or both, would cause a material breach of or
default under any of such Leases by the Company or, to the Knowledge of the
Company, any other party thereto. Neither the Company nor its agents or
employees have received written notice of any claimed abatements, offsets,
defenses or other bases for relief or adjustment under the Leases.
(c) With respect to each Leased Premises: (i) the Company has a
valid leasehold interest in the Leased Premises, free and clear of any Liens,
encumbrances, covenants and easements or title defects that have had or could
reasonably be expected to have a material adverse effect on the Company's use
and occupancy of the Owned Premises and the Leased Premises; (ii) the portions
of the buildings located on the Leased Premises that are used in the business of
the Company are each in good repair and condition, normal wear and tear
excepted, and are in the aggregate sufficient to satisfy the Company's current
and reasonably anticipated normal business activities as conducted thereon and,
to the Knowledge of the Company, there is no latent material defect in the
improvements on any Leased Premises, structural elements thereof, the mechanical
systems (including, without limitation, all heating, ventilating, air
conditioning, plumbing, electrical, utility and sprinkler systems) therein, the
utility system servicing each Leased Premises and the roofs which have not been
disclosed to Buyer in writing prior to the date of this Agreement; (iii) each of
the Leased Premises (a) has direct access to public roads or access to public
roads by means of a perpetual access easement, such access being sufficient to
satisfy the current transportation requirements of the business presently
conducted at such parcel; and (b) is served by all utilities in such quantity
and quality as are necessary and sufficient to satisfy the current normal
business activities conducted at such parcel; and (iv) the Company has not
received notice of (a) any condemnation, eminent domain or similar proceeding
affecting any portion of the Leased Premises or any access thereto, and, to the
Knowledge of the Company, no such proceedings are contemplated, (b) any special
assessment or pending improvement liens to be made by any governmental authority
which
15
may affect any of the Leased Premises, or (c) any violations of building codes
and/or zoning ordinances or other governmental regulations with respect to the
Leased Premises.
3.13 COMMITMENTS.
(a) Except as otherwise set forth in Schedule 3.13, the Company is
not a party to or bound by any of the following, whether written or oral:
(i) any Contract that cannot by its terms be terminated by the
Company with 90 days' or less notice without penalty;
(ii) contract or commitment for capital expenditures by the
Company in excess of $25,000;
(iii) lease or license with respect to any Properties, real or
personal, whether as landlord, tenant, licensor or licensee;
(iv) agreement, contract, indenture or other instrument
relating to Funded Indebtedness or the guarantee of any obligation;
(v) partnership agreement;
(vi) contract with any Affiliate of the Company or any
Shareholder relating to the provision of goods or services by or to the Company;
(vii) agreement for the sale of any assets that in the
aggregate have a net book value on the Company's books of greater than $25,000;
(viii) agreement that purports to limit the Company's freedom
to compete freely in any line of business or in any geographic area; or
(ix) preferential purchase right, right of first refusal, or
similar agreement.
(b) All of the Contracts listed or required to be listed in
Schedule 3.13 are valid, binding and in full force and effect, and the Company
has not been notified or advised by any party thereto of such party's intention
or desire to terminate or modify any such Contract in any respect, except as
disclosed in Schedule 3.13. Except as set forth on Schedule 3.13, neither the
Company nor, to the Knowledge of the Company, any other party is in breach of
any of the terms or covenants of any Contract listed or required to be listed in
Schedule 3.13. Following the Closing, and without regard to any requirement to
obtain any consents under such Contracts that are described on Schedule 3.5, the
Surviving Corporation will continue to be entitled to all of the benefits
currently held by the Company under each Contract listed or required to be
listed in Schedule 3.13.
3.14 INSURANCE. Schedule 3.14 hereto is a complete and correct list of
all insurance policies (including, without limitation, fire, liability, product
liability, workers' compensation and vehicular) presently in effect that relate
to the Company or its Properties, including the amounts of such insurance and
annual premiums with respect thereto, all of which have been in full force and
effect from and after the date(s) set forth on Schedule 3.14. Such policies are
sufficient for compliance by the Company with all applicable Legal Requirements
and all material Contracts. None of the insurance carriers has indicated to the
Company an intention to cancel any such policy or to materially increase any
insurance premiums (including, without limitation, workers' compensation
premiums), or that any insurance required to be listed on Schedule 3.14 will not
be available in the future on substantially the same terms as currently in
effect. The Company has no claim pending or anticipated against any of its
insurance carriers under any of such policies and, to the Knowledge of the
Company, there has been no actual or alleged occurrence of any kind which could
reasonably be expected to give rise to any such claim. During the prior three
16
years, all notices required to have been given by the Company to any insurance
company have been timely and duly given, and no insurance company has asserted
that any claim is not covered by the applicable policy relating to such claim.
3.15 INTANGIBLE RIGHTS. Set forth on Schedule 3.15 is a list and
description of all material foreign and domestic patents, patent rights,
trademarks, service marks, trade names, brands and registered copyrights (and,
if applicable, including pending applications for registration) owned, Used,
licensed or controlled by the Company. The Company owns or has the right to use
any and all information, know-how, trade secrets, patents, copyrights,
trademarks, trade names, software, formulae, methods, processes and other
intangible properties that are necessary or customarily Used by the Company for
the ownership, management or operation of its Properties ("INTANGIBLE RIGHTS")
including, but not limited to, the Intangible Rights listed on Schedule 3.15.
Except as set forth on Schedule 3.15, (i) the Company is the sole and exclusive
owner of all right, title and interest in and to all of the Intangible Rights
listed or required to be listed on Schedule 3.15, and has the exclusive right to
use and license the same, free and clear of any claim or conflict with the
Intangible Rights of others; (ii) no royalties, honorariums or fees are payable
by the Company to any person by reason of the ownership or use of any of the
Intangible Rights; (iii) there have been no claims made against the Company
asserting the invalidity, abuse, misuse, or unenforceability of any of the
Intangible Rights and, to the Knowledge of the Company, no grounds for any such
claims exist; (iv) the Company has not made any claim of any violation or
infringement by others of any of its Intangible Rights or interests therein and,
to the Knowledge of the Company, no grounds for any such claims exist; (v) the
Company has not received any notice that it is in conflict with or infringing
upon the asserted intellectual property rights of others in connection with the
Intangible Rights, and neither the use of the Intangible Rights nor the
operation of the Company's businesses is infringing or has infringed upon any
intellectual property rights of others; (vi) no interest in any of the Company's
Intangible Rights has been assigned, transferred, licensed or sublicensed by the
Company to any person other than the Buyer pursuant to this Agreement; (vii) to
the extent that any item constituting part of the Intangible Rights has been
registered with, filed in or issued by, any Governmental Authority, such
registrations, filings or issuances are listed on Schedule 3.15 and were duly
made and remain in full force and effect; (viii) to the Knowledge of the
Company, there has not been any act or failure to act by the Company or any of
its directors, officers, employees, attorneys or agents during the prosecution
or registration of, or any other proceeding relating to, any of the Intangible
Rights or of any other fact which could render invalid or unenforceable, or
negate the right to issuance of any of the Intangible Rights; and (ix) subject
to the receipt of any required license consents that are described on Schedule
3.5, all of the Company's current Intangible Rights will remain in full force
and effect following the Closing without alteration or impairment.
3.16 EQUIPMENT AND OTHER TANGIBLE PROPERTY. Except as otherwise set
forth on Schedule 3.16, the Company's equipment, furniture, machinery, vehicles,
structures, fixtures and other tangible property included in the Properties (the
"TANGIBLE COMPANY PROPERTIES"), other than Inventory, is suitable for the
purposes for which intended and in good operating condition and repair
consistent with normal industry standards, except for ordinary wear and tear,
and except for such Tangible Company Properties as shall have been taken out of
service on a temporary basis for repairs or replacement consistent with the
Company's prior practices and normal industry standards. To the Knowledge of the
Company, the Tangible Company Properties are free of any structural or
engineering defects, and since December 31, 1997, there has not been any
significant interruption of the Company's business due to inadequate maintenance
or obsolescence of the Tangible Company Properties.
3.17 PERMITS; ENVIRONMENTAL MATTERS.
(a) Except as otherwise set forth in Schedule 3.17(a), the Company
has all Permits necessary for the Company to own, operate, use and/or maintain
its Properties and to conduct its business and operations as presently
conducted. Except as otherwise set forth in Schedule 3.17(a), all such Permits
are in effect, no proceeding is pending or, to the Knowledge of the Company,
threatened to modify, suspend or revoke, withdraw, terminate, or otherwise limit
any such Permits, and no administrative or governmental actions have been taken
or, to the Knowledge of the Company, threatened in connection with the
expiration or renewal of such Permits which could reasonably be
17
expected to adversely affect the ability of the Company to own, operate, use or
maintain any of its Properties or to conduct its business and operations as
presently conducted.
(b) Except as set forth on Schedule 3.17(b), there are no claims,
liabilities, investigations, litigation, administrative proceedings, whether
pending or, to the Knowledge of the Company, threatened, or judgments or orders
relating to any Hazardous Materials (collectively called "ENVIRONMENTAL CLAIMS")
asserted or threatened against the Company or relating to any real property
currently or formerly owned, leased or otherwise Used by the Company. Neither
the Company nor, to the Knowledge of the Company, any prior owner, lessee or
operator of said real property, has caused or permitted any Hazardous Material
to be used, generated, reclaimed, transported, released, treated, stored or
disposed of in a manner which could form the basis for an Environmental Claim
against the Company or the Buyer. Except as set forth on Schedule 3.17(b), the
Company has not assumed any liability of any Person for cleanup, compliance or
required capital expenditures in connection with any Environmental Claim.
(c) Except as set forth on Schedule 3.17(c), no Hazardous Materials
are or were stored or otherwise located, and no underground storage tanks or
surface impoundments are or were located, on real property currently or formerly
owned, leased or Used by the Company or, to the Knowledge of the Company, on
adjacent parcels of real property, and no part of such real property or, to the
Knowledge of the Company, any part of such adjacent parcels of real property,
including the groundwater located thereon, is presently contaminated by
Hazardous Materials.
(d) Except as set forth on Schedule 3.17(d), the Company has been
and is currently in compliance with all applicable Environmental Laws, including
obtaining and maintaining in effect all Permits required by applicable
Environmental Laws.
3.18 BANKS. Schedule 3.18 sets forth (i) the name of each bank, trust
company or other financial institution and stock or other broker with which the
Company has an account, credit line or safe deposit box or vault, (ii) the names
of all persons authorized to draw thereon or to have access to any safe deposit
box or vault, (iii) the purpose of each such account, safe deposit box or vault,
and (iv) the names of all persons authorized by proxies, powers of attorney or
other like instrument to act on behalf of the Company in matters concerning any
of its business or affairs. Except as otherwise set forth in Schedule 3.18, no
such proxies, powers of attorney or other like instruments are irrevocable.
3.19 SUPPLIERS AND CUSTOMERS. Schedule 3.19 sets forth (i) the ten
principal suppliers of the Company during each of the years ended December 31,
1998 and 1999, together with the dollar amount of goods purchased by the Company
from each such supplier during each such period, and (ii) the ten principal
customers of the Company during each of the years ended December 31, 1998 and
1999, together with the dollar amount of goods and/or services sold by the
Company to each such customer during each such period. Except as otherwise set
forth in Schedule 3.19, the Company maintains good relations with all suppliers
and customers listed or required to be listed in Schedule 3.19, and since
December 31, 1997, no such party has canceled, terminated or made any threat to
the Company to cancel or otherwise terminate its relationship with the Company
or to materially decrease its services or supplies to the Company or its direct
or indirect purchase or usage of the products or services of the Company.
3.20 ABSENCE OF CERTAIN BUSINESS PRACTICES. Neither the Company nor any
Affiliate or agent of the Company, or any other person acting on behalf of or
associated with the Company, acting alone or together, has (a) received,
directly or indirectly, any rebates, payments, commissions, promotional
allowances or any other economic benefits, regardless of their nature or type,
from any customer, supplier, employee or agent of any customer or supplier; or
(b) directly or indirectly given or agreed to give any money, gift or similar
benefit to any customer, supplier, employee or agent of any customer or
supplier, any official or employee of any government (domestic or foreign), or
any political party or candidate for office (domestic or foreign), or other
person who was, is or may be in a position to help or hinder the business of the
Company (or assist the Company in connection with any actual or proposed
transaction), in each case which (i) could reasonably be expected to subject the
Company to any damage
18
or penalty in any civil, criminal or governmental litigation or proceeding, or
(ii) if not continued in the future, could reasonably be expected to adversely
affect the assets, business, operations or prospects of the Company.
3.21 PRODUCTS, SERVICES AND AUTHORIZATIONS.
(a) Each Product designed, manufactured, repaired or serviced by
the Company since December 31, 1997 has been designed, manufactured, repaired or
serviced in accordance with (i) the specifications under which the Product is
normally and has normally been manufactured, and (ii) the provisions of all
applicable laws, policies, guidelines and any other governmental requirements.
(b) Schedule 3.21(b) sets forth (i) a list of all Products which at
any time have been recalled, withdrawn or suspended by the Company, whether
voluntarily or otherwise, since December 31, 1997, including the date recalled,
withdrawn or suspended and a brief description of all completed or pending
proceedings seeking the recall, withdrawal, suspension or seizure of any
Product, (ii) a brief description of all completed or pending proceedings
seeking the recall, withdrawal, suspension or seizure of any Product, and (iii)
a list of all regulatory letters received by the Company or any of its agents
relating to any of the Products.
(c) To the Knowledge of the Company, there exists no set of facts
which could reasonably be expected to furnish a basis for the recall, withdrawal
or suspension of any product, product registration, product license,
manufacturing license, wholesale dealers license, export license or other
license, approval or consent of any governmental or regulatory authority with
respect to the Company or any of the Products.
(d) There are no claims existing or, to the Knowledge of the
Company, threatened under or pursuant to any warranty, whether express or
implied, on products or services sold by the Company. There are no claims
existing and there is no basis for any claim against the Company for injury to
persons, animals or property as a result of the sale, distribution or
manufacture of any product or performance of any service by the Company,
including, but not limited to, claims arising out of the defective or unsafe
nature of its products or services.
(e) Set forth on Schedule 3.21(e) is a list of all authorizations,
consents, approvals, franchises, licenses and permits required by any Person
(other than a Governmental Authority) for the operation of the business of the
Company as presently operated (the "OTHER PERSON AUTHORIZATIONS"). All of the
Other Person Authorizations have been duly issued or obtained and are in full
force and effect, and the Company is in compliance with the terms of all the
Other Person Authorizations. The Company does not have any knowledge of any
facts which could reasonably be expected to cause it to believe that the Other
Person Authorizations will not be renewed by the appropriate Person in the
ordinary course. Each of the Other Person Authorizations will continue in full
force and effect after the Closing, in each case without (i) the occurrence of
any breach, default or forfeiture of rights thereunder, or (ii) the consent,
approval, or act of, or the making of any filings with, any Person.
3.22 TRANSACTIONS WITH AFFILIATES. Except as set forth on Schedule 3.22
and except for normal advances to employees consistent with past practices,
payment of compensation for employment to employees consistent with past
practices, and participation in scheduled Plans or Benefit Programs and
Agreements by employees, since December 31, 1997, the Company has not purchased,
acquired or leased any property or services from, or sold, transferred or leased
any property or services to, or loaned or advanced any money to, or borrowed any
money from, or entered into or been subject to any management, consulting or
similar agreement with, or engaged in any other significant transaction with any
of the Shareholders or any other officer, director, shareholder or option holder
of the Company or any of their respective Affiliates. Except as set forth on
Schedule 3.22, none of the Shareholders nor any Affiliate of the Company is
indebted to the Company for money borrowed or other loans or advances, and,
except for accrued compensation to employees consistent with past practices, the
Company is not indebted to any such Affiliate.
19
3.23 OTHER INFORMATION. The information furnished by the Company to
Buyer pursuant to this Agreement (including, without limitation, information
contained in the exhibits hereto, the Schedules identified herein, the
instruments referred to in such Schedules and the certificates and other
documents to be executed or delivered pursuant hereto by the Shareholders and/or
the Company at or prior to the Closing), taken as a whole, is not, nor at the
Closing will be, false or misleading in any material respect, or contains, or at
the Closing will contain, any misstatement of material fact, or omits, or at the
Closing will omit, to state any material fact required to be stated in order to
make the statements therein not misleading.
3.24 REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS. In order to
induce the Buyer to enter into this Agreement, and to consummate the
transactions contemplated hereby, each Shareholder, severally and not jointly,
represents and warrants to the Buyer as follows:
(a) Such Shareholder has all requisite corporate, partnership or
other (as the case may be) right, power and authority to execute and deliver
this Agreement and each Collateral Agreement to which it is a party, to perform
its obligations under this Agreement and each such Collateral Agreement, and to
consummate the transactions contemplated by this Agreement and each such
Collateral Agreement. The execution, delivery and performance by such
Shareholder of this Agreement and each Collateral Agreement to which it is a
party and the consummation by it of the transactions contemplated hereby and
thereby have been duly and validly authorized by all necessary corporate,
partnership or other (as the case may be) action on the part of such
Shareholder.
(b) Such Shareholder owns of record and beneficially, and has the
full power to vote, all of the shares of Buyer capital set forth opposite such
Shareholder's name on Schedule 3.3 hereto.
(c) This Agreement and each Collateral Agreement to which such
Shareholder is a party is, or upon its execution and delivery will be, a valid
and binding obligation of the Shareholder, enforceable against such Shareholder
in accordance with the terms hereof or thereof.
(d) Neither the execution, delivery or performance by such
Shareholder of this Agreement or any Collateral Agreement to which such
Shareholder is a party, nor the consummation by such Shareholder of the
transactions contemplated hereby or thereby, nor compliance by such Shareholder
with any of the provisions hereof or thereof will (i) violate any law, statute,
rule or regulation or judgment, order, writ, injunction or decree of any
Authority, in each case applicable to such Shareholder or such Shareholder's
assets or properties, or (ii) with or without the passage of time or the giving
of notice or both, result in the breach of or constitute a default or require
any consent under, or result in the creation of any Lien upon any property or
assets of such Shareholder pursuant to any instrument or agreement to which such
Shareholder is a party or by which such Shareholder or such Shareholder's
properties may be bound or affected, except in each case where the violation,
conflict, breach or default could not reasonably be expected to delay or
otherwise significantly impair the ability of the parties to consummate the
transactions contemplated by this Agreement.
(e) No filing with, and no permit, authorization, consent or
approval of any Governmental Authority or any other Person is necessary for the
consummation by such Shareholder of the transactions contemplated hereby.
(f) In evaluating the suitability of an investment in the Buyer,
such Shareholder has not relied upon any representations or other information
(whether written or oral) from the Buyer, except as expressly set forth herein.
Such Shareholder also acknowledges that it has relied solely upon the
information contained herein and upon investigations made by it in making the
decision to invest in the Buyer.
(g) SUCH SHAREHOLDER IS AWARE THAT AN INVESTMENT IN THE BUYER
INVOLVES A HIGH DEGREE OF RISK AND HAS CAREFULLY CONSIDERED THE RISK FACTORS SET
FORTH IN BUYER'S PROSPECTUS, DATED OCTOBER 5, 1999, A COPY OF WHICH HAS BEEN
DELIVERED TO SUCH SHAREHOLDER.
20
(h) Such Shareholder recognizes that any information furnished by
the Buyer does not constitute investment, accounting, tax or legal advice.
Moreover, such Shareholder is not relying upon the Buyer with respect to such
Shareholder's tax and other economic circumstances in connection with its
investment in Buyer. In regard to the tax and other economic considerations
related to such investment, such Shareholder has relied on the advice of, or has
consulted with, only its own professional advisors.
(i) Such Shareholder is aware that the Buyer Common Stock being
issued in the Merger is being offered and sold by means of an exemption under
the Securities Act, as well as exemptions under certain state securities laws
for nonpublic offerings, and that it makes the representations, declarations and
warranties as contained in this Section 3.24 with the intent that the same shall
be relied upon in determining its suitability as a purchaser of such Buyer
Common Stock.
(j) Such Shareholder is an "Accredited Investor" as defined in Rule
501 of Regulation D and has such knowledge and experience in financial and
business matters that it is capable of evaluating the merits and risks of an
investment in the Buyer and of making an informed investment decision.
(k) Such Shareholder is aware that it cannot sell or otherwise
transfer the capital stock of Buyer without registration under applicable state
securities laws or without an exemption therefrom, and is aware that it will be
required to bear the financial risks of its purchase for an indefinite period of
time because, among other reasons, the issuance of Buyer Common Stock pursuant
to the Merger has not been registered with the Securities and Exchange
Commission (the "SEC") or any regulatory authority of any State and, therefore,
cannot be transferred or resold unless subsequently registered under applicable
securities laws or an exemption from such registration is available.
(l) Such Shareholder has at all times been given the opportunity to
obtain reasonably requested additional information, to verify the accuracy of
the information received and to ask questions of and receive answers from
representatives of the Buyer concerning the terms and conditions of such
Shareholder's investment in Buyer and the nature and prospects of the Buyer's
business.
(m) Such Shareholder is purchasing the capital stock of Buyer for
investment for its own account and, except as may be contemplated by the
Registration Rights Agreements referenced in Sections 6.1(e) and (f) hereof, not
with a view to or for sale in connection with any distribution of the capital
stock of Buyer to or for the accounts of others. Such Shareholder agrees that it
will not dispose of the capital stock of Buyer, or any portion thereof or
interest therein, unless and until counsel for the Buyer shall have determined
that the intended disposition is permissible and does not violate the Securities
Act or the rules and regulations of the Commission thereunder, or the provisions
of any applicable state securities laws, or any rules or regulations thereunder.
(n) Such Shareholder recognizes that the purchase of the capital
stock of Buyer is a speculative investment and any financial forecasts or other
estimates which may have been made by the Buyer and/or other Persons merely
represent predictions of future events which may or may not occur and are based
on assumptions which may or may not occur. As a consequence, such financial
forecasts or other estimates may not be relied upon to indicate the actual
results which might be attained.
(o) Such Shareholder understands and agrees that depending upon its
state of residence, a legend in substantially the following form may be placed
on all certificates evidencing the Buyer Common Stock being issued in the
Merger:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") NOR ANY APPLICABLE
STATE SECURITIES LAWS BY REASON OF SPECIFIC EXEMPTIONS THEREUNDER RELATING TO
THE LIMITED AVAILABILITY OF THE OFFERING. THESE SECURITIES CANNOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF TO ANY PERSON OR ENTITY UNLESS
21
SUBSEQUENTLY REGISTERED UNDER THE ACT AND THE [SPECIFIC STATE SECURITIES CODE],
IF SUCH REGISTRATION IS REQUIRED.
ARTICLE IV. - REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to the Company and the
Shareholders that:
4.1 CORPORATE EXISTENCE AND QUALIFICATION. Each of Buyer and
Acquisition Sub is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware; has the corporate power to
own, manage, lease and hold its properties and to carry on its business as and
where such properties are presently located and such business is presently
conducted; and is duly qualified to do business and is in good standing as a
foreign corporation in each of the jurisdictions where the character of its
properties or the nature of its business requires it to be so qualified, except
where the failure to be so qualified would not, in the aggregate, have a
material adverse effect on the business, operations, prospects, properties or
financial condition of Buyer (a "BUYER MATERIAL ADVERSE EFFECT").
4.2 AUTHORITY, APPROVAL AND ENFORCEABILITY. This Agreement has been
duly executed and delivered by Buyer and Acquisition Sub and each of Buyer and
Acquisition Sub has all requisite corporate power and legal authority to execute
and deliver this Agreement and all Collateral Agreements executed and delivered
or to be executed and delivered by it in connection with the transactions
provided for hereby, to consummate the transactions contemplated hereby and by
the Collateral Agreements, and to perform its obligations hereunder and under
the Collateral Agreements. The execution, delivery and performance of this
Agreement and the consummation by Buyer and Acquisition Sub of the Merger and of
the other transactions contemplated hereby have been duly authorized by all
necessary corporate action on the part of Buyer and Acquisition Sub. This
Agreement and each Collateral Agreement to which Buyer or Acquisition Sub is a
party constitutes, or upon execution and delivery by Buyer or Acquisition Sub
will constitute, the legal, valid and binding obligation of Buyer and
Acquisition Sub, as applicable, against them in accordance with its terms,
except as such enforcement may be limited by general equitable principles or by
applicable bankruptcy, insolvency, moratorium, or similar laws and judicial
decisions from time to time in effect which affect creditors' rights generally.
4.3 NO DEFAULT OR CONSENTS. Subject to the filing of the Certificate of
Merger and certain required filings with the SEC and the Nasdaq National Market,
neither the execution and delivery of this Agreement nor the carrying out of the
transactions contemplated hereby by Buyer and Acquisition Sub will:
(i) violate or conflict with any of the terms, conditions or
provisions of Buyer's or Acquisition Sub's Certificate of Incorporation or
bylaws;
(ii) violate any Legal Requirements applicable to Buyer or
Acquisition Sub;
(iii) violate, conflict with, result in a breach of, constitute
a default under (whether with or without notice or the lapse of time or both),
or accelerate or permit the acceleration of the performance required by, or give
any other party the right to terminate, any Contract or Permit applicable to
Buyer or Acquisition Sub;
(iv) result in the creation of any lien, charge or other
encumbrance on any property of Buyer or Acquisition Sub; or
(v) require Buyer or Acquisition Sub to obtain or make any
waiver, consent, action, approval or authorization of, or registration,
declaration, notice or filing with, any private non-governmental third party or
any Governmental Authority, in each case except to the extent that such
violation, default, breach or requirement could not reasonably be expected to
delay or otherwise significantly impair the ability of the parties to consummate
the transactions contemplated hereby.
22
4.4 NO PROCEEDINGS. No suit, action or other proceeding is pending or,
to Buyer's knowledge, threatened before any Governmental Authority seeking to
restrain Buyer or Acquisition from entering into or prohibit their entry into
this Agreement or prohibit the Closing, or seeking Damages against Buyer or its
properties as a result of the consummation of this Agreement.
4.5 SEC REPORTS AND FINANCIAL STATEMENTS. The Buyer has filed with the
SEC, and has heretofore made available to the Company true and complete copies
of, (i) Buyer's Registration Statement on Form S-1 (File No. 333-82793), and
(ii) all forms, reports, schedules, statements and other documents required to
be filed by the Buyer under the Securities Exchange Act of 1934 (the "EXCHANGE
ACT") or the Securities Act from and after October 5, 1999 (such registration
statement, forms, reports, schedules, statements and other documents, including
any financial statements or schedules included herein, are referred to as the
"BUYER SEC DOCUMENTS"). The Buyer SEC Documents, at the time filed, (a) did not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading and (b) complied in all material respects with the applicable
requirements of the Exchange Act and the Securities Act, as the case may be, and
the applicable rules and regulations of the SEC thereunder. The financial
statements of the Company included in the Buyer SEC Documents comply as to form
in all material respects with applicable accounting requirements and with the
published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis during the periods involved (expect as may be indicated in
the notes thereto or, in the case of the unaudited statements, as permitted by
Rule 10-01 of Regulation S-X promulgated by the SEC) and fairly present
(subject, in the case of the unaudited statements, to normal, recurring audit
adjustments, none of which will be material) the consolidated financial position
of the Buyer and its consolidated subsidiaries as of the dates thereof and the
consolidated results of their operations and cash flows for the periods then
ended.
4.6 CAPITALIZATION. The authorized capital stock of the Buyer consists
of (a) 60,000,000 shares of Buyer Common Stock, of which 16,072,399 shares were
issued and outstanding as of December 31, 1999, and (b) 5,000,000 shares of
Preferred Stock, $.001 par value share, of which no shares are issued or
outstanding. Except for options to purchase an aggregate of 1,136,750 shares of
Buyer Common Stock, as of December 31, 1999, there were no outstanding
subscriptions, options, convertible securities, rights (preemptive or
otherwise), warrants, calls or similar agreements relating to any shares of
capital stock of the Buyer. All of the issued and outstanding shares of Buyer
Common Stock are duly authorized, validly issued, fully paid, nonassessable and
free of all preemptive rights. All of the Merger Shares will be, when issued in
accordance with this Agreement, duly authorized, validly issued, fully paid,
nonassessable and free of all preemptive rights, and provided that the
representations of the Company and the Shareholders are true, and the Company
performs its covenants hereunder, shall be issued pursuant to an exemption from
the registration requirements of the Securities Act.
4.7 ABSENCE OF MATERIAL ADVERSE CHANGE. Since September 30, 1999 there
has occurred no event or development which has had or which could reasonably be
expected to have a Buyer Material Adverse Effect.
4.8 INTERIM OPERATIONS OF THE ACQUISITION SUB. The Acquisition Sub was
formed solely for the purpose of engaging in the transactions contemplated by
this Agreement and has engaged in no business activities other than as
contemplated by this Agreement.
4.9 LITIGATION. Except as disclosed in the Buyer SEC Documents, there
are no claims, actions, suits, investigations or proceedings against the Buyer
pending or, to the knowledge of the Buyer, threatened in any court or before or
by any Governmental Authority, or before any arbitrator, that could reasonably
be expected to have a Buyer Material Adverse Effect.
4.10 OTHER INFORMATION. The information furnished by the Buyer to the
Company pursuant to this Agreement (including, without limitation, the Buyer SEC
Documents and the other information contained in the exhibits hereto, the
schedules identified herein, the instruments referred to in such schedules and
the certificates and other documents to be executed or delivered pursuant hereto
by the
23
Buyer at or prior to the Closing), taken as a whole, is not false or misleading
in any material respect, and does not contain any misstatement of material fact
or omit to state any material fact required to be stated in order to make the
statements therein not misleading.
4.11 REPRESENTATIONS RELATING TO QUALIFICATION OF THE MERGER AS A
TAX-FREE REORGANIZATION.
(a) Buyer (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 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) of the Code or Section 1368-2(k) of the Treasury Regulations; and
(iii) has no present plan or intention, following the Merger, to cause the
Surviving Corporation to issue any additional shares of its stock or to create
any new class of stock of the Surviving Corporation.
(b) Acquisition Sub is a wholly owned subsidiary of Buyer, 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 Buyer will be in control
of Acquisition Sub within the meaning of Section 368(c) of the Code.
(d) Neither Buyer nor its Affiliates have a present plan or
intention to reacquire any of the Buyer Common Stock issued in the Merger.
(e) 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 Regulations promulgated thereunder.
ARTICLE V. - OBLIGATIONS PRIOR TO CLOSING
From the date of this Agreement through the Closing:
5.1 BUYER'S ACCESS TO INFORMATION AND PROPERTIES. The Company shall
permit Buyer and its authorized employees, agents, accountants, legal counsel
and other representatives to have access to the books, records, employees,
counsel, accountants, engineers and other representatives of the Company at all
times reasonably requested by Buyer for the purpose of conducting an
investigation of the Company's financial condition, corporate status,
operations, prospects, business and Properties. The Company shall make available
to Buyer for examination and reproduction all documents and data of every kind
and character relating to the Company in possession or control of, or subject to
reasonable access by, the Company, including, without limitation, all files,
records, data and information relating to the Properties (whether stored in
paper, magnetic or other storage media) and all agreements, instruments,
contracts, assignments, certificates, orders, and amendments thereto. Also, upon
the reasonable request of Buyer the Company shall allow Buyer access to, and the
right to inspect, the Properties, except to the extent that such Properties are
operated by an unaffiliated third-party operator, in which case the Company
shall use all reasonable efforts to cause the operator of such Properties to
allow Buyer access to, and the right to inspect, such Properties.
5.2 COMPANY'S CONDUCT OF BUSINESS AND OPERATIONS. The Company shall
keep Buyer advised as to all material operations and proposed material
operations relating to the Company. The Company shall (a) conduct its business
in the ordinary course, (b) use all reasonable efforts to keep available the
services of present employees, (c) maintain and operate its Properties in a good
and workmanlike manner, (d) pay or cause to be paid all costs and expenses
(including but not limited to insurance premiums) incurred in connection with
the maintenance and operation of its Properties in a
24
timely manner, (e) use reasonable efforts to keep all Contracts listed or
required to be listed on Schedule 3.13 in full force and effect, (f) comply in
all material respects with all of the covenants contained in all Contracts
listed or required to be listed on Schedule 3.13, (g) maintain in force until
the Closing Date insurance policies (subject to the provisions of Section 5.7)
equivalent to those in effect on the date hereof, (h) comply in all material
respects with all applicable Legal Requirements, and (i) except as otherwise
contemplated in this Agreement, use all reasonable efforts to preserve the
present relationships of the Company with persons having significant business
relations therewith.
5.3 GENERAL RESTRICTIONS. Except as otherwise expressly permitted in
this Agreement, without the prior written consent of Buyer, which consent shall
not be unreasonably withheld, the Company shall not:
(i) declare, set aside or pay any dividends, or make any
distributions or other payments in respect of its equity securities, or
repurchase, redeem or otherwise acquire any such securities;
(ii) merge into or with or consolidate with, any other
corporation or acquire the business or assets of any Person (other than
purchases of assets in the ordinary course of business consistent with past
practice);
(iii) purchase any securities of any person;
(iv) amend its charter or bylaws;
(v) issue any capital stock or other securities (other than
upon the exercise of presently outstanding Company Options or Company Warrants),
or grant, or enter into any agreement to grant, any options, convertibility
rights, warrants, calls or similar rights or agreements relating to its
securities;
(vi) create, incur, assume, guarantee or otherwise become
liable or obligated with respect to any Funded Indebtedness, or make any loan or
advance to, or any investment in, any person, except in each case in the
ordinary course of business;
(vii) except as required by law, make any change in any
existing election, or make any new election, with respect to any tax law in any
jurisdiction which election could reasonably be expected to have an adverse
effect on the tax treatment of the Company or the Company's business operations;
(viii) enter into, amend or terminate any agreement listed or,
if in effect on the date hereof, required to be listed on Schedule 3.13;
(ix) sell, transfer, lease, mortgage, encumber or otherwise
dispose of, or agree to sell, transfer, lease, mortgage, encumber or otherwise
dispose of, any Properties except (i) in the ordinary course of business, or
(ii) pursuant to any agreement specified in Schedule 3.13;
(x) settle any material claim or litigation, or file any
material motions, orders, briefs or settlement agreements in any proceeding
before any Governmental Authority or any arbitrator;
(xi) other than in the ordinary course of business consistent
with past practices, incur or approve, or enter into any agreement or commitment
to make, any expenditures in excess of $25,000 (other than those required
pursuant to any agreement specified in Schedule 3.13);
(xii) maintain its books of account other than in the usual,
regular and ordinary manner in accordance with GAAP and on a basis consistent
with prior periods or, except as required by GAAP, make any change in any of its
accounting methods or practices;
25
(xiii) make any material change, whether written or oral, to
any agreement or understanding with any of the suppliers or customers listed or
required to be listed on Schedule 3.19;
(xiv) accelerate or delay collection of any notes or accounts
receivable in advance of or beyond their regular due dates or the dates when
they would have been collected in the ordinary course of business consistent
with past practices;
(xv) delay or accelerate payment of any accrued expense, trade
payable or other liability beyond or in advance of its due date or the date when
such liability would have been paid in the ordinary course of business
consistent with past practices;
(xvi) allow its levels of inventory to vary in any material
respect from the levels customarily maintained (taking into account
seasonality);
(xvii) adopt any Plan or Benefit Program or Agreement or
increase the compensation payable to any employee (including, without
limitation, any increase pursuant to any bonus, profit-sharing or other
incentive plan or commitment);
(xviii) engage in any material activity or transaction outside
the ordinary course of business;
(xix) enter into any transaction or make any commitment which
could reasonably be expected to result in any of the representations, warranties
or covenants of the Company and/or Shareholders contained in this Agreement not
being true and correct in all material respects after the occurrence of such
transaction or event; or
(xx) commit to do any of the foregoing.
5.4 NOTICE REGARDING CHANGES. The Company shall promptly inform Buyer
in writing of any change in facts and circumstances of which it becomes aware
that could reasonably be expected to render any of the representations and
warranties made herein by the Company and/or any of the Shareholders inaccurate
or misleading in any material respect if such representations and warranties had
been made upon the occurrence of the fact or circumstance in question. Buyer
shall promptly inform the Company in writing of any change in facts and
circumstances that could reasonably be expected to render any of the
representations and warranties made herein by it inaccurate or misleading in any
material respect if such representations and warranties had been made upon the
occurrence of the fact or circumstance in question.
5.5 PREFERENTIAL PURCHASE RIGHTS. To the extent there are any parties
entitled or who may become entitled to exercise preferential purchase or consent
rights with respect to the transactions contemplated hereby, the Company shall
promptly use all reasonable efforts to obtain the agreement in writing of such
parties to waive or not exercise such rights, which request shall be in form
reasonably satisfactory to and approved by Buyer.
5.6 ENSURE CONDITIONS MET. Subject to the terms and conditions of this
Agreement, each party hereto shall use all reasonable commercial efforts to take
or cause to be taken all actions and do or cause to be done all things required
under applicable Legal Requirements in order to consummate the transactions
contemplated hereby, including, without limitation, (i) obtaining all Permits,
authorizations, consents and approvals of any Governmental Authority or other
person which are required for or in connection with the consummation of the
transactions contemplated hereby and by the Collateral Agreements, (ii) taking
any and all reasonable actions necessary to satisfy all of the conditions to
each party's obligations hereunder as set forth in Article VI, and (iii)
executing and delivering all agreements and documents required by the terms
hereof to be executed and delivered by such party on or prior to the Closing.
26
5.7 TERMINATION OF INSURANCE POLICIES. The Company shall take all
actions necessary or appropriate to cause any and all insurance coverage
currently carried by or for the benefit of the Company to remain in full force
and effect; provided, however, that the Company shall cooperate with Buyer to
cause termination as of the Closing Date of the insurance coverage identified in
writing for this purpose by Buyer to the Company and, to the extent permissible
under such policies, the Company shall take all reasonable actions necessary to
discharge any and all liabilities or obligations of the Company arising with
respect to any such coverage that is to be terminated hereunder.
5.8 STOCKHOLDER APPROVAL.
(a) The Company agrees to promptly (and in no event later than two
business days after the date hereof) provide the Shareholders, and each of the
Shareholders severally agrees to promptly execute and deliver to the Company, in
accordance with Section 228 of the Corporation Law, a written consent sufficient
to constitute the Company Stockholder Approval.
(b) The Company agrees to promptly provide to all stockholders of
the Company other than the Shareholders (the "NON-CONSENTING STOCKHOLDERS"), in
accordance with Section 228(d) of the Corporation Law, notice of the action
contemplated by Section 5.8(a) hereof (the "NOTICE OF MERGER").
(c) The Company shall provide the Shareholders and the
Non-Consenting Stockholders all information and documents required by the
Corporation Law, as well as all information and documents necessary or
reasonably requested by Buyer, including copies of the Buyer SEC Documents and
the other information required by Rule 502(b)(2) of the Securities Act (the
"Disclosure Statement"), to ensure that neither the Company Stockholder Approval
nor Buyer's issuance of Buyer Common Stock pursuant to the Merger requires
registration under applicable Federal or stock securities laws. In addition, the
Company warrants and agrees that none of the information included in the
Disclosure Statement will at the time the Disclosure Statement is first mailed
to the Company's stockholders contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading; provided, however, that, so long as such
information is limited to the Buyer SEC Documents, copies of which shall be
included with the Disclosure Statement, the Company shall not be responsible for
the accuracy or completeness of any information with respect to Buyer (it being
the parties' intent and agreement that the Company shall provide all required
Disclosure Statement disclosures with respect to the Company and the
transactions contemplated hereby).
(d) If and only if the preceding provisions of this Section 5.8 are
not sufficient to obtain the Company Stockholder Approval, the Company shall, as
soon as practicable, duly call, give notice of, convene and hold a meeting of
its stockholders (the "STOCKHOLDER MEETING") for the purpose of obtaining the
Company Stockholder Approval. The Company shall, through its Board of Directors,
recommend to its stockholders that the Company Stockholder Approval be given.
The Company shall, at the request of Buyer, solicit from holders of Shares
entitled to vote at the Stockholder Meeting proxies in favor of the Company
Stockholder Approval and shall take all other action reasonably necessary or, in
the judgment of Buyer, helpful to secure the vote or consent of such holders
required by the Corporation Law or this Agreement to effect the Merger.
(e) The Shareholders, severally and not jointly, hereby agree that,
from and after the date hereof and until this Agreement shall have been
terminated, at any meeting of the holders of the Company Stock, however called,
or in connection with any written consent of the holders of Company Stock, such
Shareholder shall vote (or cause to be voted) such Shareholder's Shares in favor
of adoption and approval of this Agreement and the Merger and the approval of
the terms thereof and each of the other actions contemplated by this Agreement.
Each of the Shareholders also severally agrees during such period:
(i) not to enter into any agreement or understanding with any
Person to vote in any manner inconsistent herewith;
27
(ii) not to (i) sell, transfer, pledge, encumber, assign or
otherwise dispose of, enforce or permit the execution of the provisions of any
redemption agreement with the Company or enter into any contract, option or
other arrangement or understanding with respect to or consent to the offer for
sale, sale, transfer, pledge, encumbrance, assignment or other disposition of,
any of its Shares, or any Shares acquired after the date hereof, or any interest
in any of the foregoing, except to Buyer, (ii) grant any proxies or powers of
attorney, deposit any Shares into a voting trust or enter into a voting
agreement with respect to any Shares, or any interest in any of the foregoing,
except to Buyer or Acquisition Sub or as otherwise provided herein; or
(iii) take any action that would make any representation or
warranty of such Shareholder contained herein untrue or incorrect or have the
effect of preventing, disabling, restricting, limiting or interfering with the
Shareholder's performance of such Shareholder's obligations under this
Agreement; and (iii) that the obligations hereunder shall attach to such
Shareholder's Shares and shall be binding upon any Person to which legal or
beneficial ownership of such Shares shall pass, whether by operation of law or
otherwise, including, without limitation, such Shareholder's heirs, guardians,
administrators or successors.
5.9 EMPLOYEE MATTERS.
(a) The Company shall take all actions necessary or appropriate to
cause each Plan or Benefit Program or Agreement in effect on the date of this
Agreement to remain in full force and effect through Closing.
(b) The Company shall permit Buyer to contact and make arrangements
with the Company's employees for the purpose of assuring their employment by the
Company or the Surviving Corporation after the Closing and for the purpose of
ensuring the continuity of the Company's business, and the Company agrees not to
discourage any such employees from consulting with Buyer.
5.10 CAPITALIZATION UPDATE. Immediately prior to the Closing, the
Company shall deliver to Buyer a true, correct and complete schedule of all
outstanding Company Stock, Company Options and Company Warrants showing all
information required to be set forth on Schedule 3.3.
5.11 ENVIRONMENTAL ASSESSMENT. As part of its general due diligence
review of the assets, properties, books and records of the Company, Buyer shall
be entitled at its expense to conduct prior to Closing an environmental
assessment of the Company's Owned Premises and/or Leased Premises (hereinafter
referred to as "ENVIRONMENTAL ASSESSMENT"). The Environmental Assessment may
include, but not be limited to, a physical examination of the Premises and any
structures, facilities or equipment located thereon, soil samples, ground and
surface water samples, storage tank testing, review of pertinent records
(including but not limited to, off-site disposal records and manifests),
documents and licenses of the Company. The Company shall, and shall cause its
landlord(s) to, provide Buyer or its designated agents or consultants with the
access to such property which Buyer, its agents or consultants require to
conduct the Environmental Assessment, and Buyer shall provide the Company and
such landlord(s) with reasonable indemnification protections in connection with
such Environmental Assessment. Buyer's failure or decision not to conduct any
such Environmental Assessment shall not affect any representation or warranty of
the Company under this Agreement.
5.12 SURVEY. The Company will cooperate with Buyer if Buyer elects in
its sole discretion to obtain at Buyer's expense an as-built plat or survey of
the Company's Owned Premises and/or Leased Premises (the "SURVEY") prepared by a
registered land surveyor or engineer, licensed in the state in which such
property is located, dated on or after the date hereof, certified to Buyer, and
such other entities as Buyer may designate in writing to the Company prior to
the Closing, and conforming to current ALTA Minimum Detail Requirements for Land
Title Surveys. The Survey shall show access from the land to dedicated roads and
shall include a flood plain certification. The Survey may be a recertification
of a prior survey; provided, that it meets the above-described criteria.
28
5.13 PAYOFF AND ESTOPPEL LETTERS. At least three business days prior to
the Closing Date, the Company will provide the Buyer with customary pay-off
letters from all holders of Funded Indebtedness (other than capital leases and
accrued bonuses), and make arrangements reasonably satisfactory to the Buyer for
such holders to provide to the Company recordable form lien releases, canceled
notes, trademark and patent assignments and other documents reasonably requested
by the Buyer. The Company represents and warrants to Buyer that all Contracts
evidencing its Funded Indebtedness are set forth and expressly designated as
such (with an asterisk) on Schedule 3.13 hereto.
5.14 NO SHOP. From the date of this Agreement until the earlier of (i)
the Closing Date, or (ii) the termination of this Agreement, the Company and the
Shareholders shall not, and the Company shall cause the Company's officers,
directors, employees and other agents not to, directly or indirectly, take any
action to solicit, initiate or encourage any offer or proposal or indication of
interest in (x) the acquisition of the Company through a merger, consolidation
or other business combination, or (y) the sale of any equity interest in, or a
substantial portion of the assets of the Company, in each case other than in
connection with the transactions contemplated by this Agreement. The Company
shall immediately advise the Buyer of the terms of any offer, proposal or
indication of interest that it receives or otherwise becomes aware of.
ARTICLE VI. - CONDITIONS TO COMPANY'S AND BUYER'S OBLIGATIONS
6.1 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The obligations of the
Company to carry out the transactions contemplated by this Agreement are
subject, at the option of the Company, to the satisfaction or waiver of the
following conditions:
(a) Buyer and Acquisition Sub shall have furnished the Company with
a certified copy of all necessary corporate action on its behalf approving its
execution, delivery and performance of this Agreement.
(b) All representations and warranties of Buyer contained in this
Agreement shall be true and correct in all material respects at and as of the
Closing as though made at and as of Closing, and Buyer and Acquisition Sub shall
have performed and satisfied in all material respects all covenants and
agreements required by this Agreement to be performed and satisfied by Buyer or
Acquisition Sub at or prior to the Closing.
(c) As of the Closing Date, no suit, action or other proceeding
(excluding any such matter initiated by the Company or any of Shareholders)
shall be pending or threatened before any Governmental Authority seeking to
restrain the Company or prohibit the Closing or seeking Damages against the
Company as a result of the consummation of this Agreement.
(d) The Company shall have received the opinion of Xxxxxxxxx
Xxxxxxx, LLP, counsel to Buyer, dated as of the Closing Date, in form and
substance reasonably satisfactory to the Company, to the effect of Sections 4.1,
4.2 and 4.3(i). In rendering such opinion, Xxxxxxxxx Traurig, LLP, may rely as
to factual matters on certificates of officers and directors of Buyer and on
certificates of governmental officials.
(e) The Buyer shall have executed and delivered to the Designated
Executives the Registration Rights Agreement in the form attached hereto as
EXHIBIT B.
(f) The Buyer shall have executed and delivered to each stockholder
of the Company who executes such agreement (other than the Designated Executives
and Non-Electing Holders) the Registration Rights Agreement in the form attached
hereto as EXHIBIT C (the "Registration Rights Agreement")
29
(g) The Buyer shall have granted a Buyer Stock Option and agreed to
pay the required cash to each holder of a Company Option who executes and
performs an Option Substitution Agreement.
(h) The Merger shall have been approved by the requisite vote of
the Company's stockholders in accordance with the Corporation Law and the
Company's Certificate of Incorporation.
(i) No Governmental Entity or other regulatory body (including any
court of competent jurisdiction) shall have enacted, issued, promulgated,
enforced or entered any law, rule, regulation, executive order or decree, or any
final and nonappealable ruling, permanent injunction or other order (whether
temporary, preliminary or permanent) which is then in effect and has the effect
of making illegal, materially restricting or in any way preventing or
prohibiting the Merger or the transactions contemplated by this Agreement;
provided, however, that the Company shall have used reasonable efforts (subject
to the other terms and conditions of this Agreement) to prevent the entry of any
such injunction or other order and to appeal as promptly as possible any
injunction or other order that may be entered prior to it having become final
and nonappealable.
(j) Except for matters heretofore disclosed to the Shareholders'
Representative, since September 30, 1999 and up to and including the Closing,
there shall not have been any event, circumstance, change or effect that,
individually or in the aggregate, had or could reasonably be expected to have a
Buyer Material Adverse Effect.
(k) All proceedings to be taken by Buyer in connection with the
transactions contemplated hereby and all documents incident thereto shall be
reasonably satisfactory in form and substance to the Company and its counsel,
and the Company and said counsel shall have received all such counterpart
originals or certified or other copies of such documents as it or they may
reasonably request.
(l) The Merger Shares shall have been approved for quotation on the
Nasdaq National Market.
(m) The Company shall have received the opinion of Xxxx and Xxxx,
LLP, in form and substance reasonably satisfactory to it, to the effect that the
Merger will be treated for Federal income tax purposes as a reorganization
within the meaning of Sections 368(a) of the Code and that the Company, Buyer
and Acquisition Sub will be parties to the reorganization within the meaning of
Section 368(b) of the Code.
6.2 CONDITIONS TO OBLIGATIONS OF BUYER AND ACQUISITION SUB. The
obligations of Buyer and Acquisition Sub to carry out the transactions
contemplated by this Agreement are subject, at the option of Buyer, to the
satisfaction, or waiver by Buyer, of the following conditions:
(a) The Company shall have furnished Buyer with a certified copy of
all necessary corporate action on its behalf approving the Company's execution,
delivery and performance of this Agreement.
(b) All representations and warranties of the Company and the
Shareholders contained in this Agreement shall be true and correct in all
material respects at and as of the Closing as though made at and as of Closing,
and the Company and the Shareholders shall have performed and satisfied in all
material respects all agreements and covenants required by this Agreement to be
performed and satisfied by them at or prior to the Closing.
(c) As of the Closing Date, no suit, action or other proceeding
(excluding any such matter initiated by Buyer or Acquisition Sub) shall be
pending or threatened before any court or governmental agency seeking to
restrain Buyer or Acquisition Sub or prohibit the Closing or seeking
30
Damages against Buyer, Acquisition Sub or the Company or its Properties as a
result of the consummation of this Agreement.
(d) The Buyer shall have received the opinion of Xxxx and Xxxx,
LLP, counsel to the Company ("COMPANY Counsel"), dated as of the Closing Date,
addressed to the Buyer and in form and substance reasonably satisfactory to the
Buyer, to the effect set forth on EXHIBIT D hereto. In rendering such opinion,
Company Counsel may rely as to factual matters on certificates of officers,
directors and shareholders of the Company and on certificates of governmental
officials.
(e) Except for matters disclosed in Schedule 3.9(a) or 3.9(b)
attached hereto, since the Balance Sheet Date and up to and including the
Closing, there shall not have been any event, circumstance, change or effect
that, individually or in the aggregate, had or could reasonably be expected to
have a material adverse effect on the Company's business, operations, prospects,
Properties or financial condition.
(f) All agreements, commitments and understandings between the
Company and any Shareholder (or any other Affiliate of the Company or any such
Shareholder) shall have been terminated in all respects on terms satisfactory to
Buyer, and all obligations, claims or entitlements thereunder shall be
unconditionally waived and released by the Shareholders and such Affiliates and
written evidence thereof satisfactory in form and substance to Buyer shall have
been delivered to Buyer; provided, however, that the Specified Advisory
Agreements shall remain in full force and effect subsequent to Closing.
(g) All proceedings to be taken by the Company in connection with
the transactions contemplated hereby and all documents incident thereto shall be
reasonably satisfactory in form and substance to Buyer and its counsel, and
Buyer and said counsel shall have received all such counterpart originals or
certified or other copies of such documents as it or they may reasonably
request.
(h) Buyer shall have received written evidence, in form and
substance reasonably satisfactory to Buyer, of the consent to the transactions
contemplated by this Agreement of all governmental, quasi-governmental and
private third parties (including, without limitation, persons or other entities
leasing real or personal property to the Company) where the absence of any such
consent would result in a material violation of law or a breach or default under
any Contract listed or required to be listed on Schedule 3.13.
(i) The Merger shall have been approved by the affirmative vote or
consent of the holders of at least a majority of the outstanding shares of
Company Stock.
(j) No Governmental Entity or other regulatory body (including any
court of competent jurisdiction) shall have enacted, issued, promulgated,
enforced or entered any law, rule, regulation, executive order or decree, or any
final and nonappealable ruling, permanent injunction or other order (whether
temporary, preliminary or permanent) which is then in effect and has the effect
of making illegal, materially restricting or in any way preventing or
prohibiting the Merger or the transactions contemplated by this Agreement;
provided, however, that Buyer shall have used reasonable efforts (subject to the
other terms and conditions of this Agreement) to prevent the entry of any such
injunction or other order that may be entered prior to it having become final
and nonappealable.
(k) No proceeding in which the Company shall be a debtor, defendant
or party seeking an order for its own relief or reorganization shall have been
brought or be pending by or against such person under any United States or state
bankruptcy or insolvency law.
(l) The Buyer shall have received copies of "payoff" or "estoppel"
letters or other evidence, reasonably satisfactory to it, with respect to all
Funded Indebtedness of the Company and, subject to Buyer's payment of all
amounts reflected thereon, the termination of any and all Liens that encumber
the Company's Properties pursuant thereto.
31
(m) The holders of not more than one percent (1%) of the
outstanding shares of the Company's Common stock shall have made a demand for
appraisal in accordance with the provisions of Section 262 of the Corporation
Law.
(n) The Designated Executives shall have executed and delivered to
Buyer Employment Agreements in the forms attached hereto as EXHIBITS E-1, E-2,
E-3, E-4, E-5 and E-6, as applicable.
(o) Each of the Key Employees (as hereinafter defined) shall have
executed and delivered to Buyer an Employee Confidentiality, Non-Competition and
Invention Assignment Agreement in the form attached as EXHIBIT F.
(p) Each Shareholder shall have exercised all of its or his Company
Warrants in full, and Buyer shall not be obligated to grant Substitute Warrants
which, if exercised, would require Buyer to issue more than 9,027 shares of
Buyer Common Stock.
(q) The Shareholders shall have executed and delivered to the Buyer
the Escrow Agreement in the form attached hereto as EXHIBIT G (the "ESCROW
AGREEMENT").
(r) Buyer shall have received reasonable assurance that it will be
able to obtain, not later than thirty (30) days after the Effective Time, all
audited historical and unaudited pro forma Financial Statements with respect to
the Company, if any, together with (i) any required consent of the Company's
independent public accountants that could reasonably be expected to be required
to be included in a Buyer Current Report on Form 8-K, and (ii) an agreement from
such accountants to provide a comparable consent with respect to each other
Buyer SEC filing in which it is required.
(s) Buyer shall have received the opinion of Xxxxxxxxx Xxxxxxx,
P.A., in form and substance reasonably satisfactory to it, to the effect that
the Merger will be treated for Federal income tax purposes as a reorganization
within the meaning of Sections 368(a) of the Code and that the Company, Buyer
and Acquisition Sub will be parties to the reorganization within the meaning of
Section 368(b) of the Code.
ARTICLE VII. - POST-CLOSING OBLIGATIONS
7.1 FURTHER ASSURANCES. Following the Closing, the Company, the
Shareholders and the Buyer shall execute and deliver such documents, and take
such other action, as shall be reasonably requested by any other party hereto to
carry out the transactions contemplated by this Agreement. If at any time after
the Effective Time, any further assignments or assurances in law or any other
things are necessary or desirable to vest or to perfect or confirm of record in
the Surviving Corporation the title to any Properties or rights of the Company,
or otherwise to carry out the provisions of this Agreement, the officers and
directors of the Surviving Corporation are hereby authorized and empowered on
behalf of the Company, in the name of and on behalf of the Company as
appropriate, to execute and deliver any and all things necessary or proper to
vest or perfect or confirm title to such Properties or rights in the Surviving
Corporation, and otherwise to carry out the purposes and provisions of this
Agreement.
7.2 PUBLICITY. None of the parties hereto shall issue or make, or cause
to have issued or made, any public release or announcement concerning this
Agreement or the transactions contemplated hereby, without the advance approval
in writing of the form and substance thereof by each of the other parties,
except as required by law (in which case, so far as possible, there shall be
consultation among the parties prior to such announcement), and the parties
shall endeavor jointly to agree on the text of any announcement or circular so
approved or required.
32
7.3 POST-CLOSING INDEMNITY .
(a) Subject to the provisions of the Escrow Agreement and Section
9.1 hereof, from and after the Closing, the holders of Buyer Stock Options and
the stockholders of the Company immediately prior to the Effective Time
(collectively the "SELLERS") shall severally indemnify and hold harmless Buyer
and its Affiliates, directors, officers and employees from and against any and
all Damages incurred or suffered arising out of, resulting from or in any way
related to (i) a breach of, or the failure to perform or satisfy, any of the
representations, warranties, covenants and agreements made by the Company in
this Agreement, and/or (ii) the contingent and other liabilities described in
part II of Schedule 3.8(b), but only to the extent that the Surviving
Corporation and/or Buyer incurs liabilities greater than the reserve therefor
reflected on the December 31, 1999 Balance Sheet included in the 1999 Financials
(as hereinafter defined). Any payment made to Buyer pursuant to the
indemnification obligations under this Section 7.3(a) shall constitute a
reduction in the Purchase Price hereunder.
(b) Each Shareholder severally agrees to indemnify and hold
harmless Buyer and its Affiliates, directors, officers and employees from and
against any and all Damages incurred or suffered arising out of, resulting from
or in any way related to a breach of, or the failure to perform or satisfy, any
of the representations, warranties, covenants and agreements made by such
Shareholder in this Agreement.
(c) Following receipt of the audited financials for the Company as
of and for the year ended December 31, 1999 (the "1999 FINANCIALS"), which shall
be prepared in accordance with GAAP and certified by Xxxxxx Xxxxxxxx LLP, there
shall be released to Buyer some or all of the Escrow Account (as defined in the
Escrow Agreement) having a Fair Market Value (as defined in the Escrow
Agreement) equal to the sum of (i) the excess, if any, of $60,525,749 over the
1999 net revenues of the Company reflected in the 1999 Financials, PLUS (ii) if
positive, the product of (A) five (5) MULTIPLIED BY (B) the excess, if any, of
$8,703,758 over the Company's stockholders' equity (computed in accordance with
GAAP) reflected in the 1999 Financials.
7.4 NON-SOLICITATION AND NON-DISCLOSURE.
(a) GENERAL. In consideration of the Buyer's payments and
deliveries pursuant to the Merger, and in order to induce the Buyer to enter
into this Agreement and to consummate the transactions contemplated hereby, each
Shareholder hereby covenants and agrees as follows:
(i) Without the prior consent of Buyer, such Shareholder shall
not for a period of two (2) years from the Closing Date, directly or indirectly,
for himself or for any other person, firm, corporation, partnership, association
or other entity, (i) attempt to employ or enter into any contractual arrangement
with any Designated Executive, unless such Designated Executive has not been
employed by the Company for a period in excess of six (6) months, and/or (ii)
divert or take away or attempt to divert or take away the business or prospects
of any of the actual or targeted prospective customers or clients of the
Company, nor shall such Shareholder make known the names and addresses of such
customers or any information relating in any manner to the Company's trade or
business relationships with such customers.
(ii) Such Shareholder shall not at any time divulge,
communicate, use to the detriment of the Company or for the benefit of any other
person or persons, or misuse in any way, any Confidential Information pertaining
to the Company. Any Confidential Information or data now known or hereafter
acquired by such Shareholder with respect to the Company shall be deemed a
valuable, special and unique asset of the Company that is received by such
Shareholder in confidence and as a fiduciary, and such Shareholder shall remain
a fiduciary to the Company with respect to all of such information.
(b) INJUNCTION. It is recognized and hereby acknowledged by the
parties hereto that a breach or violation by a Shareholder of any or all of the
covenants and agreements contained in this Section 7.4 may cause irreparable
harm and damage to Buyer in a monetary amount which may be virtually impossible
to ascertain. As a result, each Shareholder recognizes and hereby acknowledges
33
that Buyer shall be entitled to seek an injunction from any court of competent
jurisdiction enjoining and restraining any breach or violation of any or all of
the covenants and agreements contained in this Section 7.4 by such Shareholder
and/or his associates, Affiliates, partners or agents, either directly or
indirectly, and that such right to injunction shall be cumulative and in
addition to whatever other rights or remedies the Buyer may possess hereunder,
at law or in equity. Nothing contained in this Section 7.4 shall be construed to
prevent Buyer from seeking and recovering from a Shareholder under Section 7.3
Damages sustained by it as a result of any breach or violation by such
Shareholder of any of the covenants or agreements contained herein.
7.5 CERTAIN EMPLOYEE BENEFIT MATTERS.
(a) During the period commencing on the Closing Date and ending on
December 31, 2000, Buyer shall, or shall cause the Surviving Corporation to,
provide employee benefits that in the aggregate are not substantially less
favorable than the employee benefit plans, programs, contracts and arrangements
of the Company as in effect immediately prior to the Effective Time and that are
described on Schedule 3.7(a) or Schedule 3.7(c); provided, however, that Buyer
and the Surviving Corporation shall not be required to provide employee benefits
in respect of stock options, stock purchase rights, restricted stock, phantom
stock or other stock-based compensation. From and after the Effective Time,
Buyer shall cause Surviving Corporation to honor, in accordance with their
terms, all contracts, arrangements and plans of the Company in accordance with
such terms that are applicable to any employees of the Company and that are
described on Schedule 3.7(a) or Schedule 3.7(c).
(b) To the extent that service is relevant for purposes of
eligibility, participation or vesting under any employee benefit plan, program
or arrangement established or maintained by the Company described on Schedule
3.7(a) or Schedule 3.7(c), employees of the Surviving Corporation shall be
credited with service accrued prior to the Effective Time with the Company to
the extent such service was recognized by the Company under such plans.
7.6 INDEMNIFICATION OF DIRECTORS AND OFFICERS.
(a) The Buyer shall not, for a period of three years after the
Effective Time, take any action to alter or impair any exculpatory or
indemnification provisions now existing in the Certificate of Incorporation or
Bylaws of the Company for the benefit of any individual who served as a director
or officer of the Company at any time prior to the Effective Time, except for
any changes which may be required to conform with changes in applicable law and
any changes which do not affect the application of such provisions to acts or
omissions of such individuals prior to the Effective Time.
(b) During the three-year period commencing on the Effective Time,
the Buyer agrees that it will, and will cause the Surviving Corporation to,
indemnify and hold harmless each present and former director and officer of the
Company (the "Indemnified Executives") against any costs or expenses (including
attorneys' fees), judgments, fines, losses, claims, damages, liabilities or
amounts paid in settlement incurred in connection with any claim, action, suit,
proceeding or investigation, whether civil, criminal, administrative or
investigative, arising out of or pertaining to matters existing or occurring at
or prior to the Effective Time, whether asserted or claimed prior to, at or
after the Effective Time, to the fullest extent permitted under Delaware law
(and the Buyer and the Surviving Corporation shall also advance expenses as
incurred to the fullest extent permitted under Delaware law, provided the
Indemnified Executive to whom expenses are advanced provides an undertaking to
repay such advances if it is ultimately determined that such Indemnified
Executive is not entitled to indemnification).
(c) The rights of a director or officer to indemnification and
advancement of expenses under this Section 7.6 shall not be deemed exclusive of
any other rights such director or officer may, at any time, be entitled to under
applicable Legal Requirements, any charter or bylaw provision, any agreement or
otherwise.
7.7 REGISTRATION RIGHTS AGREEMENT. Buyer agrees to execute and deliver
the Registration Rights Agreement to each former stockholder of the Company
(other than the Designated Executives and
34
Non-Electing Holders) who executes and delivers such agreement to Buyer within
thirty (30) days after the Closing.
7.8 TAX-RELATED COVENANTS. From and after the date hereof, none of the
Buyer, Acquisition Sub or the Company will knowingly take any action or fail to
take action which would prevent or impede the Merger from qualifying as a
reorganization within the meaning of Section 368(a) of the Code.
ARTICLE VIII. - TAX MATTERS
8.1 REPRESENTATIONS AND OBLIGATIONS REGARDING TAXES. The Company
represents and warrants to and agrees with the Buyer that, except as set forth
on Schedule 8.1:
(a) The Company has filed all Tax Returns that it was required to
file, taking into account any extension of time granted or obtained on behalf of
the Company. All such Tax Returns were correct and complete in all respects. All
Taxes that are required to have been paid by the Company (whether or not shown
on any Tax Return and whether or not any Tax Return was required) have been
paid. The Company is not currently the beneficiary of any extension of time
within which to file any Tax Return. The Company has not received notice from
any taxing authority in a jurisdiction where the Company does not file Tax
Returns that it is or may be subject to taxation by that jurisdiction. There are
no liens on any of the assets of the Company that arose in connection with any
failure (or alleged failure) to pay any Tax, except for liens for Taxes not yet
due.
(b) The Company has withheld and paid all Taxes required to have
been withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder or other third party.
(c) There is no dispute or claim concerning any Tax liability of
the Company either (i) claimed or raised by any taxing authority in writing or
(ii) as to which any of the directors or officers (or employees responsible for
Tax matters) of the Company has actual knowledge based upon personal contact
with any agent of such taxing authority. Schedule 8.1 lists all Federal, state,
local and foreign income Tax Returns filed with respect to the Company for
taxable periods ended on or after December 31, 1994, indicates those Tax Returns
that have been audited and indicates those Tax Returns that currently are the
subject of audit or in respect of which any written or unwritten notice of any
audit or examination has been received by the Company. No issue relating to
Taxes has been raised in writing by a taxing authority during any pending audit
or examination, and no issue relating to Taxes was raised in writing by a taxing
authority in any completed audit or examination, that reasonably can be expected
to recur in a later taxable period. The Company has delivered to Buyer correct
and complete copies of all Federal income Tax Returns, examination reports and
statements of deficiencies assessed against or agreed to by the Company since
December 31, 1996.
(d) The Company has not waived any statute of limitations in
respect of Taxes or agreed to any extension of time with respect to a Tax
assessment or deficiency.
(e) The Company has not filed a consent under Section 341(f) of the
Code concerning collapsible corporations. The Company has not been a United
States real property holding corporation within the meaning of Section 897(c)(2)
of the Code during the applicable period specified in Section 897(c)(1)(A)(ii)
of the Code. The Company has disclosed on its Federal income Tax Returns all
positions taken therein that could give rise to a substantial understatement of
Federal income Tax within the meaning of Section 6662 of the Code. The Company
is not a party to any Tax allocation or sharing agreement. The Company (i) has
not been a member of an Affiliated Group filing a consolidated Federal income
Tax Return and (ii) has no liability for the Taxes of any Person under Treasury
regulation section 1.1502-6 (or any similar provision of state, local or foreign
law), as a transferee or successor, by contract or otherwise.
35
(f) The unpaid Taxes of the Company did not, as of December 31,
1999, exceed the reserve for Tax liability (excluding any reserve for deferred
Taxes established to reflect timing differences between book and Tax income) set
forth on the face of the December 31, 1999 balance sheet included with the
Financial Statements attached as Schedule 3.8(a) (rather than in any notes
thereto).
(g) The Company shall not be required to include in a taxable
period ending after the Closing Date taxable income attributable to income that
accrued in a prior taxable period but was not recognized in any prior taxable
period as a result of the installment method of accounting, the completed
contract method of accounting, the long-term contract method of accounting, the
cash method of accounting or Section 481 of the Code or any comparable provision
of state, local or foreign tax law.
(h) The Company is not a party to any joint venture, partnership or
other arrangement or contract that could be treated as a partnership for Federal
income tax purposes.
(i) The Company has not entered into any sale leaseback or
leveraged lease transaction that fails to satisfy the requirements of Revenue
Procedure 75-21 (or similar provisions of foreign law) or any safe harbor lease
transaction.
(j) The Company was an S corporation (within the meaning of Section
1361(a)(1) of the Code) from inception until April 1, 1995 and has been a C
corporation since April 1, 1995. With respect to the period the Company was an S
corporation, (i) the Company had filed a timely and valid election to be an S
corporation and was validly electing S corporation, for Federal income tax
purposes, (ii) the Company was a validly electing S corporation for purposes of
all state and local income and franchise tax purposes in each state and locality
in which the election of the Company was or could be relevant, and the Company
was not subject to income or franchise tax by any state or local taxing
authority; and (iii) no taxing authority at any time has challenged or
questioned the status of the Company as an S corporation for any purpose.
(k) All material elections with respect to Taxes affecting the
Company are disclosed or attached to a Tax Return of the Company.
(l) All private letter rulings issued by the Internal Revenue
Service to the Company (and any corresponding ruling or determination of any
state, local or foreign taxing authority) have been disclosed on Schedule 8.1,
and there are no pending requests for any such rulings (or corresponding
determinations).
(m) The Company shall grant to Buyer or its designees access at all
reasonable times to all of the Company's books and records (including tax
workpapers and returns and correspondence with tax authorities), including the
right to take extracts therefrom and make copies thereof, to the extent such
books and records relate to taxable periods ending on or prior to or that
include the Closing Date. Buyer shall (i) grant to Shareholders access at all
reasonable times to all of the Company's books and records (including tax
workpapers and returns and correspondence with tax authorities), including the
right to take extracts therefrom and make copies thereof, to the extent that
such books and records relate to the operations of the Company during taxable
periods ending on or prior to or that include the Closing Date, and (ii)
otherwise cooperate with Shareholders in connection with any audit of Taxes that
relate to the business of the Company prior to Closing.
(n) Neither the Company nor any of the Shareholders has taken or
will take any action that could result in a deemed election under section 338 of
the Code with respect to the Merger.
(o) The Company has not made any distributions to its stockholders,
in redemption of its stock, through a spin-off or split-off or otherwise (except
for regular, normal dividends) within the preceding twelve (12) months.
36
(p) As used in this Agreement, "AFFILIATED GROUP" means any
affiliated group within the meaning of Section 1504(a) of the Code or any
similar group defined under a similar provision of state, local or foreign law;
"TAX" means any Federal, state, local or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental (including taxes under Section 59A of the Code),
customs duties, capital stock, franchise, profits, withholding, social security
(or similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated or other tax of any kind whatsoever, including any interest, penalty
or addition thereto, whether disputed or not, and "TAXES" means any or all of
the foregoing collectively; and "TAX RETURN" means any return, declaration,
report, claim for refund or information return or statement relating to Taxes,
including any schedule or attachment thereto and including any amendment
thereof.
(q) In the Merger, the Company will transfer to Acquisition Sub at
least 90 percent of the fair market value of the net assets and at least 70
percent of the fair market value of the gross assets held by the Company
immediately prior to the Merger. For purposes of this representation, the
following assets will be treated as assets held by the Company immediately prior
to the Merger but not held by Acquisition Sub subsequent to the Merger: (i)
assets disposed of by the Company (other than assets transferred from the
Company to Acquisition Sub in the Merger) prior to the Merger in contemplation
thereof (including, without limiation, any asset disposed of by the Company,
other than in the ordinary course of business, pursuant to a plan or intent
existing during the period ending at the Effective Time and beginning with the
commencement of negotiations (whether formal or informal) with the Buyer
regarding the Merger); (ii) assets used by the Company to pay stockholders
perfecting dissenters' rights or stockholders receiving cash in lieu of a
fractional share of Buyer Common Stock, or to pay other expenses or liabilities
incurred in connection with the Merger; and (iii) assets used to make
distribution, redemption or other payments in respect of Company Stock or rights
to acquire such stock (including payments treated as such for tax purposes) that
are made in contemplation of the Merger or related thereto.
(r) The liabilities of the Company to be assumed by Acquisition Sub
and the liabilities to which the transferred assets of the Company are subject
were incurred by the Company in the ordinary course of its business.
(s) There is no intercorporate indebtedness existing between Buyer
and the Company that was issued, acquired or will be settled at a discount.
(t) The Company is not an investment company as defined in section
368(a)(2)(F)(iii) and (iv) of the Code.
(u) The Company is not under the jurisdiction of a court in Title
11 or similar case within the meaning of Section 368(a)(3)(A) of the Code.
(v) The fair market value of the assets of the Company transferred
to Acquisition Sub pursuant to the Merger will equal or exceed the sum of the
liabilities assumed by Acquisition Sub, plus the amount of liabilities, if any,
to which the transferred assets are subject.
8.2 INDEMNIFICATION FOR TAXES. Subject to the provisions of the Escrow
Agreement (if applicable) and Section 9.1 hereof, the Sellers shall severally
indemnify and hold harmless Buyer and its Affiliates, including, after the
Closing, the Surviving Corporation (each herein sometimes referred to as an
"INDEMNIFIED TAXPAYER") from and against all Damages incurred or suffered
arising out of, resulting from or in any way related to any misrepresentation or
breach of any representation, warranty or obligation set forth in this Article
VIII.
37
ARTICLE IX. - MISCELLANEOUS
9.1 LIMITATION ON LIABILITY.
(a) The representations, warranties, agreements, and indemnities of
the Company and the Shareholders set forth in this Agreement or in connection
with the transactions contemplated hereby shall survive the Closing except as
expressly provided in Section 9.1(b).
(b) The Sellers shall have no liability under the agreement to
indemnify under Section 7.3(a) and 8.2 against breaches of the provisions of
Sections 3.5 (clauses (ii), (iii), (iv) and (v)), 3.6, and 3.8 through 3.23
(collectively the "BUSINESS REPRESENTATIONS"), in each case unless the
Shareholders' Representative receives notice in writing from Buyer of Buyer's
claim under said indemnity on or before the one-year anniversary of the Closing
Date. The Sellers shall have no liability under the agreement to indemnify under
Section 7.3(a) against breaches of the provisions of Sections 3.1 through 3.4,
clause (i) of 3.5 and 3.7 in each case unless the Shareholders' Representative
receives notice in writing from Buyer of Buyer's claim under said indemnity on
or before the three-year anniversary of the Closing Date. The Shareholders shall
have no liability under the agreement to indemnify under Section 7.3(b) against
breaches of the provisions of Section 3.24 unless the Shareholders'
Representative receives notice in writing from Buyer of Buyer's claim under said
indemnity on or before the three-year anniversary of the Closing Date. Said
limitations shall not apply to any breaches of or obligations to comply with any
of the other provisions of this Agreement, regardless of whether such breach or
obligation also constitutes a breach or obligation under any of the provisions
specifically listed in this Section 9.1(b).
(c) (i) The Sellers shall be obligated to indemnify as and to the
extent set forth in Section 7.3(a) and 8.2 of this Agreement only if the
aggregate of all of their liability under such indemnity obligations exceeds
$250,000, it being understood that such $250,000 figure is to serve as a
"trigger" for the indemnification and then only to the extent such aggregate
exceeds $100,000 (for example, if the indemnity claims for which the Sellers
would, but for the provisions of this paragraph (c)(i), be liable aggregate
$251,000, the Sellers would then be liable for $151,000, and not just $1,000).
In addition, in no event shall the aggregate indemnification liability of the
Sellers with respect to the Business Representations exceed the Escrow Account.
(ii) A representation shall not be deemed to be breached
hereunder unless, as a result thereof, the Indemnified Party (as hereinafter
defined) incurs or suffers Damages of at least $10,000, if being understood that
such $10,000 figure is to serve as a "trigger" for indemnification (for example,
if an Indemnified Party incurs or suffers Damages of $11,000, the Indemnified
Party would be entitled (subject to the other limitations of this Section 9.1)
to seek indemnification for the full $11,000, and not just $1,000).
(d) For purposes of this Section 9.1(d), a party making a claim for
indemnity under Section 7.3 or 8.2 is hereinafter referred to as an "INDEMNIFIED
PARTY" and the party against whom such claim is asserted is hereinafter referred
to as the "INDEMNIFYING PARTY." All claims by any Indemnified Party under
Section 7.3 or 8.2 hereof shall be asserted and resolved initially in accordance
with the Escrow Agreement and, after termination thereof or to the extent not
inconsistent therewith, in accordance with the following provisions. If any
claim or demand for which an Indemnifying Party would be liable to an
Indemnified Party is asserted against or sought to be collected from such
Indemnified Party by such Indemnified Party, said Indemnified Party shall with
reasonable promptness notify in writing the Indemnifying Party of such claim or
demand stating with reasonable specificity the circumstances of the Indemnified
Party's claim for indemnification; provided, however, that any failure to give
such notice will not waive any rights of the Indemnified Party except to the
extent the rights of the Indemnifying Party are actually prejudiced or to the
extent that any applicable period set forth in Section 9.1(b) has expired
without such notice being given. After receipt by the Indemnifying Party of any
notice seeking indemnification for Damages arising from a claim, suit or action
by a person not a party to this Agreement (a "THIRD PARTY CLAIM"), then upon
reasonable notice from the Indemnifying Party to the Indemnified Party, or upon
the request of the Indemnified Party, the Indemnifying Party shall defend,
manage and conduct
38
any proceedings, negotiations or communications involving such Third Party
Claim, and shall take all actions necessary, including but not limited to the
posting of such bond or other security as may be required by any Governmental
Authority, so as to enable the claim to be defended against or resolved without
expense or other action by the Indemnified Party. Upon request of the
Indemnifying Party, the Indemnified Party shall, to the extent it may legally do
so and to the extent that it is compensated in advance by the Indemnifying Party
for any costs and expenses thereby incurred,
(i) take such action as the Indemnifying Party may reasonably
request in connection with such action,
(ii) allow the Indemnifying Party to dispute such action in the
name of the Indemnified Party and to conduct a defense to such action on behalf
of the Indemnified Party, and
(iii) render to the Indemnifying Party all such assistance as
the Indemnifying Party may reasonably request in connection with such dispute
and defense.
(e) The Indemnified Party shall have the right to employ separate
counsel in each Third Party Claim and participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of the Indemnified
Party unless the Indemnifying Party is in breach of its obligations under this
Section 9.1(d). No Indemnified Party shall, without the Indemnifying Party's
prior written consent, which consent shall not be unreasonably withheld or
delayed, settle or compromise any Third Party Claim or consent to the entry of
any judgment with respect to any Third Party Claim.
(f) Buyer shall use reasonable efforts to seek recovery of any
claim for insurance under applicable insurance policies with respect to a matter
giving rise to an indemnification obligation under Section 7.3(a) to the same
extent as would a reasonable and prudent person to whom no indemnity was
available under similar facts and circumstances. The amount of Damages
recoverable by an Indemnified Party under Section 7.3 with respect to an
indemnity claim shall be reduced by any proceeds received by such Indemnified
Party or an Affiliate from an insurance carrier with respect to the Damages to
which such indemnity claim relates.
(g) The indemnification obligations of the Sellers set forth in
Section 7.3(a) and 8.2, as limited by the applicable provisions of this Section
9.1, shall be the sole and exclusive remedy of Buyer with respect to any breach
of the representations made herein, absent fraud. Except to the extent
indemnification is available after the first anniversary of the Closing, and
except as provided in Section 9.11(b) hereof, the Escrow Agreement shall be the
exclusive means for the Buyer to collect any Damages for which it is entitled
under Section 7.3(a) and 8.2(a) hereof.
9.2 CONFIDENTIALITY.
(a) Prior to the Closing, Buyer shall, and shall cause its
Affiliates and its and their employees, agents, accountants, legal counsel and
other representatives and advisers to, hold in strict confidence all, and not
divulge or disclose any, information of any kind concerning the Company and its
business; provided, however, that the foregoing obligation of confidence shall
not apply to (i) information that is or becomes generally available to the
public other than as a result of a disclosure by Buyer or its Affiliates or any
of its or their employees, agents, accountants, legal counsel or other
representatives or advisers, (ii) information that is or becomes available to
Buyer or its Affiliates or any of its or their employees, agents, accountants,
legal counsel or other representatives or advisers on a nonconfidential basis
prior to its disclosure by Buyer or its Affiliates or any of its or their
employees, agents, accountants, legal counsel or other representatives or
advisers and (iii) information that is required to be disclosed by Buyer or its
Affiliates or any of its or their employees, agents, accountants, legal counsel
or other representatives or advisers as a result of any applicable law, rule or
regulation of any Governmental Authority; and provided further that Buyer
promptly shall notify the Company of any disclosure pursuant to clause (iii) of
this Section 9.2(a).
39
(b) Prior to the Closing, the Company shall, and shall cause its
Affiliates, employees, agents, accountants, legal counsel and other
representatives and advisers to, hold in strict confidence all, and not divulge
or disclose any, information of any kind concerning the transactions
contemplated by this Agreement, the Company, Buyer or their respective
businesses; provided, however, that the foregoing obligation of confidence shall
not apply to (i) information that is or becomes generally available to the
public other than as a result of a disclosure by any of the Company, the
Shareholders or any of their respective Affiliates, employees, agents,
accountants, legal counsel or other representatives or advisers, (ii)
information that is or becomes available to the Company or any of its
Affiliates, employees, agents, accountants, legal counsel or other
representatives or advisers after the Closing on a nonconfidential basis prior
to its disclosure by the Company or any of its Affiliates, employees, agents,
accountants, legal counsel or other representatives or advisers and (iii)
information that is required to be disclosed by the Company or any of its
Affiliates, employees, agents, accountants, legal counsel or other
representatives or advisers as a result of any applicable law, rule or
regulation of any Governmental Authority; and provided further that the Company
shall promptly shall notify Buyer of any disclosure pursuant to clause (iii) of
this Section 9.2(b).
(c) That certain Nondisclosure Agreement, dated as of November 9,
1999, between Buyer and the Company, is hereby terminated.
9.3 BROKERS. Regardless of whether the Closing shall occur, (i) the
Shareholders shall jointly and severally indemnify and hold harmless Buyer from
and against any and all liability for any brokers or finders' fees arising with
respect to brokers or finders retained or engaged by the Company or any of the
Shareholders in respect of the transactions contemplated by this Agreement,
other than (in the event the Closing occurs) pursuant to the Specified Advisory
Agreements, and (ii) Buyer shall indemnify and hold harmless the Company from
and against any and all liability for any brokers' or finders' fees arising with
respect to brokers or finders retained or engaged by Buyer in respect of the
transactions contemplated by this Agreement.
9.4 COSTS AND EXPENSES. Each of the parties to this Agreement shall
bear his or its own expenses incurred in connection with the negotiation,
preparation, execution and closing of this Agreement and the transactions
contemplated hereby, provided that if the Merger is consummated, none of the
Sellers shall bear or otherwise be liable for any such expenses incurred by or
on behalf of the Company. The parties agree that neither the Company, Buyer nor
the Surviving Corporation shall bear or otherwise be liable for any such
expenses incurred by or on behalf of any of the Shareholders.
9.5 NOTICES. Any notice, request, instruction, correspondence or other
document to be given hereunder by any party hereto to another (herein
collectively called "NOTICE") shall be in writing and delivered personally or
mailed by registered or certified mail, postage prepaid and return receipt
requested, or by telecopier, as follows:
IF TO BUYER: SmartDisk Corporation
0000 Xxxxxxxxxx Xxxxxx
Xxxxxx, Xxxxxxx 00000
Attention: Xxxxxx X. Xxxx
Telecopy No. (000) 000-0000
WITH A COPY TO:
--------------
Xxxxxxxxx Traurig, LLP
Xxx Xxxx Xxxxxxxxx Xxxx, Xxxxx 0000
Xxxxxxx, Xxxxxxx 00000
Attention: Xxxxx X. Xxxxxxxxxx
Telecopy No. (000) 000-0000
40
IF TO THE COMPANY AND/OR ANY OF THE
SHAREHOLDERS: VST Technologies, Inc.
000 Xxxxx Xxxx
Xxxxx, Xxxxxxxxxxxxx 00000
Attention: Xxxxxxx X. Xxxxxxx
Telecopy No. (000) 000-0000
WITH COPIES TO:
--------------
Xxxx and Xxxx LLP
00 Xxxxx Xxxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
Attention: Xxxxxx X. Xxxxxx
Telecopy No. (000) 000-0000
AND
---
Xxxxxxx Xxxxxxxxxx
Imaging Automation
00 Xxxxxxxxxxxx Xxxxx
Xxxxxxx, Xxx Xxxxxxxxx 00000-0000
Telecopy No. (000) 000-0000
Each of the above addresses for notice purposes may be changed by providing
appropriate notice hereunder. Notice given by personal delivery or registered
mail shall be effective upon actual receipt. Notice given by telecopier shall be
effective upon actual receipt if received during the recipient's normal business
hours, or at the beginning of the recipient's next normal business day after
receipt if not received during the recipient's normal business hours. All
Notices by telecopier shall be confirmed by the sender thereof promptly after
transmission in writing by registered mail or personal delivery. Anything to the
contrary contained herein notwithstanding, notices to any party hereto shall not
be deemed effective with respect to such party until such Notice would, but for
this sentence, be effective both as to such party and as to all other persons to
whom copies are provided above to be given.
9.6 GOVERNING LAW. The provisions of this agreement and the documents
delivered pursuant hereto shall be governed by and construed in accordance with
the laws of the State of Delaware (excluding any conflict of law rule or
principle that would refer to the laws of another jurisdiction). Each party
hereto consents to service of process by any means authorized by the applicable
law of the forum in any action brought under or arising out of this Agreement or
any of the Collateral Agreements, and each party irrevocably waives, to the
fullest extent each may effectively do so, the defense of an inconvenient forum
to the maintenance of such action or proceeding in any such court. EACH PARTY
HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT IT
MAY LEGALLY AND EFFECTIVELY DO SO, TRIAL BY JURY IN ANY SUIT, ACTION OR
PROCEEDING ARISING HEREUNDER.
9.7 REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties of each of the parties to this Agreement shall be deemed to have been
made, and the certificates delivered pursuant to clause (iv) of Section 2.2 and
the first sentence of Section 2.3 by a party are agreed to and shall be deemed
to constitute the making of such representations and warranties, again at and as
of the Closing by and on behalf of the party on behalf of whom such certificates
are delivered.
9.8 ENTIRE AGREEMENT; AMENDMENTS AND WAIVERS. This Agreement, together
with all exhibits and schedules attached hereto, constitutes the entire
agreement between and among the parties hereto pertaining to the subject matter
hereof and supersedes all prior agreements, understandings, negotiations and
discussions, whether oral or written, of the parties, and there are no
warranties, representations or other agreements between the parties in
connection with the subject matter hereof except as set forth
41
specifically herein or contemplated hereby. No supplement, modification or
waiver of this Agreement shall be binding unless executed in writing by the
party to be bound thereby. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provision hereof
(regardless of whether similar), nor shall any such waiver constitute a
continuing waiver unless otherwise expressly provided.
9.9 BINDING EFFECT AND ASSIGNMENT. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective permitted
successors and assigns; but neither this Agreement nor any of the rights,
benefits or obligations hereunder shall be assigned, by operation of law or
otherwise, by any party hereto without the prior written consent of the other
party, provided, however, that nothing herein shall prohibit the assignment of
Buyer's rights (but not obligations) to any direct or indirect subsidiary or
prohibit the assignment of Buyer's rights (but not obligations) to any lender.
Nothing in this Agreement, express or implied, is intended to confer upon any
person or entity other than the parties hereto and their respective permitted
successors and assigns, any rights, benefits or obligations hereunder.
9.10 REMEDIES. Except as expressly provided in Section 9.1(e) hereof,
the rights and remedies provided by this Agreement are cumulative, and the use
of any one right or remedy by any party hereto shall not preclude or constitute
a waiver of its right to use any or all other remedies. Such rights and remedies
are given in addition to any other rights and remedies a party may have by law,
statute or otherwise.
9.11 CANCELLATION OF ESCROW STOCK.
(a) In the event that a dispute among the parties leads to a
retention or interpleading of Buyer Common Stock by the Escrow Agent pursuant to
the Escrow Agreement, the party who is later determined to have been in error in
attempting to enforce or disputing the share cancellation shall pay the
reasonable legal and accounting fees, costs and expenses incurred by the
prevailing party in presenting, arguing and resolving such dispute.
(b) Notwithstanding anything herein or in the Escrow Agreement to
the contrary, the Shareholders agree that, if and to the extent Substitute
Options and/or Merger Shares issued to Non-Consenting Stockholders are not
forfeitable and/or cancellable in accordance with the purpose and intent of the
Escrow Agreement, additional Merger Shares issued to the Shareholders may be
cancelled, pro rata in accordance with the Shareholders' respective
Proportionate Shares.
9.12 EXHIBITS AND SCHEDULES. The exhibits and Schedules referred to
herein are attached hereto and incorporated herein by this reference. Disclosure
of a specific item in any one Schedule shall be deemed restricted only to the
Section to which such disclosure specifically relates except where (i) there is
an explicit cross-reference to another Schedule, and (ii) Buyer could reasonably
be expected to ascertain the scope of the modification to a representation
intended by such cross-reference.
9.13 MULTIPLE COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
9.14 REFERENCES AND CONSTRUCTION.
(a) Whenever required by the context, and is used in this
Agreement, the singular number shall include the plural and pronouns and any
variations thereof shall be deemed to refer to the masculine, feminine, neuter,
singular or plural, as the identification the person may require. References to
monetary amounts, specific named statutes and generally accepted accounting
principles are intended to be and shall be construed as references to United
States dollars, statutes of the United States of the stated name and United
States generally accepted accounting principles, respectively, unless the
context otherwise requires.
42
(b) The provisions of this Agreement shall be construed according
to their fair meaning and neither for nor against any party hereto irrespective
of which party caused such provisions to be drafted. Each of the parties
acknowledge that it has been represented by an attorney in connection with the
preparation and execution of this Agreement.
9.15 SURVIVAL. Any provision of this Agreement which contemplates
performance or the existence of obligations after the Closing Date, and any and
all representations and warranties set forth in this Agreement, shall not be
deemed to be merged into or waived by the execution and delivery of the
instruments executed at the Closing, but shall expressly survive Closing and
shall be binding upon the party or parties obligated thereby in accordance with
the terms of this Agreement, subject to any limitations expressly set forth in
this Agreement.
9.16 ATTORNEYS' FEES. In the event any suit or other legal proceeding
is brought for the enforcement of any of the provisions of this Agreement, the
parties hereto agree that the prevailing party or parties shall be entitled to
recover from the other party or parties upon final judgment on the merits
reasonable attorneys' fees (and sales taxes thereon, if any), including
attorneys' fees for any appeal, and costs incurred in bringing such suit or
proceeding.
9.17 RISK OF LOSS. Prior to the Closing, the risk of loss of damage to,
or destruction of, any and all of the Company's assets, including without
limitation the Properties, shall remain with the Company, and the legal doctrine
known as the "Doctrine of Equitable Conversion" shall not be applicable to this
Agreement or to any of the transactions contemplated hereby.
9.18 SHAREHOLDERS' REPRESENTATIVE. Each of the Shareholders designates
Xxxxxxx Xxxxxxxxxx as its representative and attorney-in-fact for all purposes
under this Agreement and the Escrow Agreement (the "SHAREHOLDERS'
REPRESENTATIVE"), including without limitation, (i) taking all action necessary
in connection with the indemnification obligations of the Shareholders under
this Agreement and the Escrow Agreement, including the defense or settlement of
any claims and the making of payments with respect thereto, (ii) giving and
receiving on behalf of the Shareholders all notices required to be given under
this Agreement and the Escrow Agreement, (iii) executing the Escrow Agreement as
attorney-in-fact for and on behalf of the Shareholders, (iv) agreeing to and
executing amendments to this Agreement, and (v) taking any and all additional
action as is contemplated to be taken by or on behalf of the Shareholders by the
Shareholders' Representative pursuant to this Agreement and the Escrow
Agreement. Any such action taken by the Shareholders' Representative shall be
valid and binding on each of the Shareholders. Each of the Shareholders also
appoints the Shareholders' Representative as such Shareholder's custodian and
attorney-in-fact to act for such Shareholder in connection with the Escrow
Agreement arrangements as contemplated by the terms hereof and thereof, and the
Shareholders' Representative hereby accepts such appointment. It is agreed by
each of the Shareholders that the Buyer Common Stock to be held in custody by
the Escrow Agent under the Escrow Agreement (the "ESCROW STOCK") will be subject
to the interests of the Buyer and the Shareholders' Representative as
attorney-in-fact; that the arrangements made by such Shareholder hereunder and
thereunder are irrevocable; and that the obligations of such Shareholder
hereunder shall not be terminated by any acts of such Shareholder, or by
operation of law, whether by the death or incapacity of such Shareholder or any
other party to this Agreement or the occurrence of any other event; and if any
such death, incapacity or any other such event shall occur after the execution
of this Agreement and before the Closing Date or the delivery of the Escrow
Stock to Buyer, the Shareholders' Representative is nevertheless authorized and
directed to hold and dispose of the Escrow Stock (and to instruct the Escrow
Agent to hold and dispose of the Escrow Stock) in accordance with the terms and
conditions of this Agreement as if such death, incapacity or other event had not
occurred, regardless of whether or not the Shareholder's Representative shall
have received notice of such death, incapacity or other event. The designation
by the Shareholders of Xxxxxxx Xxxxxxxxxx as the Shareholders' Representative
may not be revoked without the written consent of Buyer.
All decisions and actions by the Shareholders' Representative,
including without limitation any agreement between the Shareholders'
Representative and the Buyer or the Escrow Agent relating to indemnification
obligations of the Shareholders under this Agreement, including the defense or
settlement
43
of any claims and the making of payments with respect hereto, shall be binding
upon all of the Shareholders, and no Shareholder shall have the right to object,
dissent, protest or otherwise contest the same. The Shareholders' Representative
shall incur no liability to the Shareholders with respect to any action taken or
suffered by the Shareholders' Representative in reliance upon any notice,
direction, instruction, consent, statement or other documents believed by him to
be genuinely and duly authorized, nor for any other action or inaction with
respect to the indemnification obligations of the Shareholders under this
Agreement, including the defense or settlement of any claims and the making of
payments with respect thereto, except to the extent resulting from the
Shareholders' Representative's own willful misconduct or negligence. The
Shareholders' Representative may, in all questions arising under this Agreement
or the Escrow Agreement, rely on the advice of counsel, and for anything done,
omitted or suffered in good faith by the Shareholders' Representative shall not
be liable to the Shareholders.
The Shareholders acknowledge and agree that the Shareholders'
Representative may incur costs and expenses on behalf of the Shareholders in his
capacity as Shareholders' Representative ("REPRESENTATIVE Expenses"). Each of
the Shareholders agrees to pay the Shareholders' Representative, promptly upon
demand by the Shareholders' Representative therefor, such Shareholder's
Proportionate Share of any Representative Expenses, provided that no Shareholder
shall be required to pay, in the aggregate, Representative Expenses in an amount
in excess of the Merger Consideration received by such Shareholder.
ARTICLE X. - DEFINITIONS
Capitalized terms used in this Agreement are used as defined in this
Article X or elsewhere in this Agreement.
10.1 AFFILIATE. The term "Affiliate" shall mean, with respect to any
person, any other person controlling, controlled by or under common control with
such person. The term "Control" as used in the preceding sentence means, with
respect to a corporation, the right to exercise, directly or indirectly, more
than 50% of the voting rights attributable to the shares of the controlled
corporation and, with respect to any person other than a corporation, the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such person. Without limiting the
generality of the foregoing, each of the officers and directors of a corporation
shall be deemed an Affiliate of such corporation.
10.2 COLLATERAL AGREEMENTS. The term "Collateral Agreements" shall mean
any or all of the exhibits to this Agreement and any and all other agreements,
instruments or documents required or expressly provided under this Agreement to
be executed and delivered in connection with the transactions contemplated by
this Agreement.
10.3 CONFIDENTIAL INFORMATION. The term "Confidential Information"
shall mean confidential data and confidential information relating to the
business of the Company (which does not rise to the status of a Trade Secret
under applicable law) which is or has been disclosed to any of the Shareholders
or of which any of the Shareholders became aware as a consequence of or through
his employment with the Company and which has value to the Company and is not
generally known to the competitors of the Company. Confidential Information
shall not include any data or information that (i) has been voluntarily
disclosed to the general public by the Company or its Affiliates, (ii) has been
independently developed and disclosed to the general public by others, or (iii)
otherwise enters the public domain through lawful means.
10.4 CONTRACTS. The term "Contracts," when described as being those of
or applicable to any person, shall mean any and all contracts, agreements,
franchises, understandings, arrangements, leases, licenses, registrations,
authorizations, easements, servitudes, rights of way, mortgages, bonds, notes,
guaranties, liens, indebtedness, approvals or other instruments or undertakings
to which such person is a party or to which or by which such person or the
property of such person is subject or bound, excluding any Permits.
44
10.5 DAMAGES. The term "Damages" shall mean any and all damages,
liabilities, obligations, penalties, fines, judgments, claims, deficiencies,
losses, costs, expenses and assessments (including without limitation, interest,
penalties, additions and attorneys', accountants' and experts' fees and
disbursements).
10.6 DESIGNATED EXECUTIVES. The term "Designated Executives" shall mean
any and all of Xxxxxxx Xxxxxx, Xxxxx Xxxxxxxxx, Xxxx Xxxxxxx, Xxxx Xxxxxx, Xxxxx
Xxxxxxxxxx and Xx Xxxxxx.
10.7 FINANCIAL STATEMENTS. The term "Financial Statements" shall mean
any or all of the financial statements, including balance sheets and related
statements of income and statements of cash flow and the accompanying notes
thereto, of the Company's business prepared in accordance with generally
accepted accounting principles consistently applied, except as may be otherwise
provided herein.
10.8 FUNDED INDEBTEDNESS. "Funded Indebtedness" shall mean the
aggregate amount (including the current portions thereof) of all (i)
indebtedness for money borrowed from others, capital lease obligations,
dividends payable to the Shareholders, bonus payables to employees, and purchase
money indebtedness of the Company, (ii) indebtedness of the type described in
clause (i) above guaranteed, directly or indirectly, in any manner by the
Company, or in effect guaranteed, directly or indirectly, in any manner by the
Company, through an agreement, contingent or otherwise, to supply funds to, or
in any other manner invest in, the debtor, or to purchase indebtedness, or to
purchase and pay for property if not delivered or to pay for services if not
performed, primarily for the purpose of enabling the debtor to make payment of
the indebtedness or to assure the owners of the indebtedness against loss, but
excluding endorsements of checks and other instruments in the ordinary course,
(iii) indebtedness of the type described in clause (i) above secured by any Lien
upon property owned by the Company, even though the Company has not in any
manner become liable for the payment of such indebtedness and (iv) interest
expense accrued but unpaid, and all prepayment premiums, on or relating to any
of such indebtedness.
10.9 GAAP. "GAAP" means U.S. generally accepted accounting principles,
applied consistently with the Company's past practices.
10.10 GOVERNMENTAL AUTHORITIES. The term "Governmental Authorities"
shall mean any nation or country (including but not limited to the United
States) and any commonwealth, territory or possession thereof and any political
subdivision of any of the foregoing, including but not limited to courts,
departments, commissions, boards, bureaus, agencies, ministries or other
instrumentalities.
10.11 HAZARDOUS MATERIAL. The term "Hazardous Material" shall mean all
or any of the following: (a) substances that are defined or listed in, or
otherwise classified pursuant to, any applicable laws or regulations as
"hazardous substances," "hazardous materials," "Hazardous wastes," "toxic
substances" or any other formulation intended to define, list or classify
substances by reason of deleterious properties such as ignitability,
corrosivity, reactivity, carcinogenicity, reproductive toxicity or "EP
toxicity"; (b) oil, petroleum or petroleum derived substances, natural gas,
natural gas liquids or synthetic gas and drilling fluids, produced waters and
other wastes associated with the exploration, development or production of crude
oil, natural gas or geothermal resources; (c) any flammable substances or
explosives or any radioactive materials; and (d) asbestos in any form or
electrical equipment which contains any oil or dielectric fluid containing
levels of polychlorinated biphenyls in excess of fifty parts per million.
10.12 INVENTORY. The term "Inventory" shall mean all goods, merchandise
and other personal property owned and held for sale, and all raw materials,
works-in-process, materials and supplies of every nature which contribute to the
finished products of the Company in the ordinary course of its business,
specifically excluding, however, damaged, defective or otherwise unsaleable
items.
10.13 KEY EMPLOYEES. The term "Key Employees" shall mean any and all of
the Company's employees reasonably designated by Buyer not later than two (2)
business days after the date hereof.
45
10.14 KNOWLEDGE OF THE COMPANY. The term "Knowledge of the Company"
shall mean the actual knowledge of any of the Designated Executives with respect
to the matter in question, and such knowledge as any of the Designated
Executives should have obtained upon reasonable investigation and inquiry into
the matter in question.
10.15 LEGAL REQUIREMENTS. The term "Legal Requirements," when described
as being applicable to any person, shall mean any and all laws (statutory,
judicial or otherwise), ordinances, regulations, judgments, orders, directives,
injunctions, writs, decrees or awards of, and any Contracts with, any
Governmental Authority, in each case as and to the extent applicable to such
person or such person's business, operations or properties.
10.16 PERMITS. The term "Permits" shall mean any and all permits,
rights, approvals, licenses, authorizations, legal status or orders under any
Legal Requirement or otherwise granted by any Governmental Authority.
10.17 PERSON. The term "Person" shall mean any individual, partnership,
joint venture, firm, corporation, association, limited liability company, trust,
joint stock company, unincorporated organization or other enterprise or any
governmental or political subdivision or any agency, department or
instrumentality thereof.
10.18 PRODUCT. The term "Product" shall mean each product, repair
process or service under development, developed, manufactured, licensed,
distributed or sold by the Company and any other products in which the Company
has any proprietary rights or beneficial interest.
10.19 PROPERTIES. The term "Properties" shall mean any and all
properties and assets (real, personal or mixed, tangible or intangible) owned or
Used by the Company.
10.20 PROPORTIONATE SHARE. The term "Proportionate Share" shall mean,
as to each Shareholder, the percentage set forth opposite such Shareholder's
name on SCHEDULE 1 to the Escrow Agreement.
10.21 REAL PROPERTY. The term "Real Property" shall mean the real
property Used by the Company in the conduct of its business.
10.22 REGULATIONS. The term "Regulations" shall mean any and all
regulations promulgated by the Department of the Treasury pursuant to the
Internal Revenue Code.
10.23 SPECIFIED ADVISORY AGREEMENTS. The term "Specified Advisory
Agreements shall mean (i) that certain letter agreement, dated April 27, 1999,
between the Company and BankBoston Xxxxxxxxx Xxxxxxxx, Inc., and (ii) solely as
it relates to the transactions contemplated hereby, the proposed 1999 Incentive
Plans for Xxxxx Xxxxxx, Xxx Xxxxxxxxx and Xxxx Xxxxxxxxxx recommended May 25,
1999 by the Compensation Committee of the Company's Board of Directors (the
"BOARD") and approved June 10, 1999 by the Board and amended on January 13,
2000, true and correct copies of which are included with the Schedules to this
Agreement.
10.24 SPECIFIED PRICE. The term "Specified Price" shall mean $32.50 per
share of Buyer Common Stock, subject to appropriate adjustment for stock
dividends, stock splits, reclassifications and other similar events affecting
Buyer Common Stock.
10.25 SUBSIDIARY. The term "Subsidiary" shall mean any Person of which
a majority of the outstanding voting securities or other voting equity interests
are owned, directly or indirectly, by the Company.
10.26 TRADE SECRETS. The term "Trade Secrets" shall mean information of
the Company including, but not limited to, technical or nontechnical data,
formulas, patterns, compilations, programs,
46
financial data, financial plans, product or service plans or lists of actual or
potential customers or suppliers which (i) derives economic value, actual or
potential, from not being generally known to, and not being readily
ascertainable by proper means by, other persons who can obtain economic value
from its disclosure or use, and (ii) is the subject of efforts that are
reasonable under the circumstances to maintain its secrecy.
10.27 USED. The term "Used" shall mean, with respect to the Properties,
Contracts or Permits of the Company, those owned, leased, licensed or otherwise
held by the Company which were acquired for use or held for use by the Company
in connection with the Company's business and operations, whether or not
reflected on the Company's books of account.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
47
EXECUTED as of the date first written above.
BUYER:
SMARTDISK CORPORATION
By:/S/ XXXXXXX X. XXXXXXXXX
---------------------------------
ACQUISITION SUB:
VST ACQUISITION, INC.
By:/S/ XXXXXXX X. XXXXXXXXX
---------------------------------
COMPANY:
VST TECHNOLOGIES, INC.
By:/S/ XXXXX X. XXXXXXXXX
------------------------------------
SHAREHOLDERS:
/S/ XXXXXXX XXXXXX
------------------------------------
XXXXXXX XXXXXX
/S/ XXXXXX XXXXXX
------------------------------------
XXXXXX XXXXXX
/S/ XXXXX X. XXXXXXXXX
------------------------------------
XXXXX X. XXXXXXXXX, custodian for
XXXXXXX X. XXXXXXXXX
/S/ XXXXXXX X. XXXXXXX
------------------------------------
XXXXXXX X. XXXXXXX
[Signature Page To SmartDisk - VST Merger Agreement]
48
MASSACHUSETTS TECHNOLOGY
DEVELOPMENT CORPORATION (MTDC)
By:/S/ XXXX X. XXXXXXX
---------------------------------
ASCENT VENTURE PARTNERS, L.P.
By:/S/ XXXXX X. MICHI
---------------------------------
ASCENT VENTURE PARTNERS II, L.P.
By:/S/ XXXXX X. MICHI
---------------------------------
LE SERRE
By:/S/ XXXXX XXXXXXXX
---------------------------------
H & D INVESTMENTS II
By:/S/ XXXX X. XXXXXXXX
---------------------------------
ZERO STAGE CAPITAL V, L.P.
By:/S/ XXXX X. XXXXXX
---------------------------------
GREEN MOUNTAIN CAPITAL, L.P.
By:/S/ XXXXXXX XXXXXXXX
---------------------------------
[Signature Page To SmartDisk - VST Merger Agreement]
49
T & B INVESTORS, LLC
By:/S/ XXXXXXX XXXXXXXXXX
---------------------------------
XXXXX PARTNERS III
By:/S/ XXXXXXX XXXXXXXXXX
---------------------------------
KEYSTONE VENTURE PARTNERS V, L.P.
By:/S/ XXXX X. XXXXX
---------------------------------
[Signature Page To SmartDisk - VST Merger Agreement]
50
