Exhibit 2.6
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
USWEB CORPORATION
USWEB ACQUISITION CORPORATION 108
ELECTRONIC IMAGES, INC.
AND
CERTAIN SHAREHOLDERS OF ELECTRONIC IMAGES, INC.
DATED AS OF AUGUST 28, 1997
TABLE OF CONTENTS
PAGE
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ARTICLE I -- THE MERGER................................................................. 2
1.1 The Merger.................................................................... 2
1.2 Effective Time................................................................ 2
1.3 Effect of the Merger.......................................................... 2
1.4 Certificate of Incorporation; Bylaws.......................................... 2
1.5 Directors and Officers........................................................ 2
1.6 Effect of Merger on the Capital Stock of the Constituent
Corporations.................................................................. 3
1.7 Surrender of Certificates..................................................... 4
1.8 No Further Ownership Rights in Company Common Stock........................... 5
1.9 Lost, Stolen or Destroyed Certificates........................................ 5
1.10 Purchase Price Adjustments.................................................... 5
1.11 Parent Common Stock........................................................... 7
1.12 Tax Consequences.............................................................. 7
1.13 Taking of Necessary Action; Further Action.................................... 7
ARTICLE II - REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE PRINCIPAL SHAREHOLDERS 8
2.1 Organization of the Company................................................... 8
2.2 Company Capital Structure..................................................... 8
2.3 Subsidiaries.................................................................. 8
2.4 Authority..................................................................... 9
2.5 No Conflict................................................................... 9
2.6 Consents...................................................................... 9
2.7 Company Financial Statements.................................................. 9
2.8 No Undisclosed Liabilities.................................................... 10
2.9 No Changes.................................................................... 10
2.10 Tax Matters................................................................... 12
2.11 Restrictions on Business Activities........................................... 13
2.12 Title to Properties; Absence of Liens and Encumbrances; Condition of Equipment 13
2.13 Intellectual Property......................................................... 14
2.14 Agreements, Contracts and Commitments......................................... 17
2.15 Interested Party Transactions................................................. 18
2.16 Governmental Authorization.................................................... 18
2.17 Litigation.................................................................... 19
2.18 Accounts Receivable........................................................... 19
2.19 Minute Books.................................................................. 19
2.20 Environmental Matters......................................................... 19
2.21 Brokers' and Finders' Fees; Third Party Expenses.............................. 20
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TABLE OF CONTENTS
(CONTINUED)
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2.22 Employee Benefit Plans and Compensation....................................... 20
2.23 Insurance..................................................................... 23
2.24 Compliance with Laws.......................................................... 23
2.25 Third Party Consents.......................................................... 23
2.26 Warranties; Indemnities....................................................... 23
2.27 Complete Copies of Materials.................................................. 23
2.28 Business Plan................................................................. 23
2.29 Backlog Report................................................................ 23
2.30 [Intentionally Omitted........................................................ 23
2.31 Principal Shareholder Investment Representations.............................. 23
ARTICLE III -- REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB......................... 24
3.1 Organization, Standing and Power.............................................. 24
3.2 Authority; Consents........................................................... 24
3.3 Capital Structure............................................................. 24
3.4 Brokers' and Finders' Fees.................................................... 25
3.5 Similar Transactions.......................................................... 25
3.6 No Changes.................................................................... 25
3.7 Parent Financial Statements................................................... 25
3.8 Litigation.................................................................... 26
ARTICLE IV -- CONDUCT PRIOR TO THE EFFECTIVE TIME....................................... 26
4.1 Conduct of Business of the Company............................................ 26
4.2 No Solicitation............................................................... 28
ARTICLE V -- ADDITIONAL AGREEMENTS...................................................... 29
5.1 Parent's Right of First Refusal............................................... 29
5.2 Market Standoff Agreement..................................................... 30
5.3 Restriction on Competition.................................................... 30
5.4 Confidentiality............................................................... 32
5.5 Expenses...................................................................... 32
5.6 Public Disclosure............................................................. 32
5.7 Treatment of Affiliate Warrants............................................... 32
5.8 Access to Information......................................................... 32
5.9 Consents...................................................................... 33
5.10 FIRPTA Compliance............................................................. 33
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TABLE OF CONTENTS
(CONTINUED)
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5.11 Best Efforts.................................................................. 33
5.12 Notification of Certain Matters............................................... 33
5.13 Preparation of Tax Returns.................................................... 33
5.14 Additional Documents and Further Assurances................................... 33
5.15 Section 368 Compliance........................................................ 34
5.16 Parent Policies............................................................... 34
5.17 Rule 144...................................................................... 34
ARTICLE VI -- CONDITIONS TO THE MERGER.................................................. 34
6.1 Conditions to Obligations of Each Party to Effect the Merger.................. 34
6.2 Additional Conditions to Obligations of Company............................... 35
6.3 Additional Conditions to the Obligations of Parent and Sub.................... 35
ARTICLE VII -- SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW....................... 36
7.1 Survival of Representations and Warranties.................................... 36
7.2 Escrow Arrangements; Setoff................................................... 37
7.3 Indemnity..................................................................... 44
ARTICLE VIII -- TERMINATION, AMENDMENT AND WAIVER....................................... 45
8.1 Termination................................................................... 45
8.2 Effect of Termination......................................................... 46
8.3 Amendment..................................................................... 46
8.4 Extension; Waiver............................................................. 46
ARTICLE IX -- GENERAL PROVISIONS........................................................ 46
9.1 Notices....................................................................... 46
9.2 Interpretation................................................................ 47
9.3 Counterparts.................................................................. 48
9.4 Entire Agreement; Assignment.................................................. 48
9.5 Severability.................................................................. 48
9.6 Other Remedies................................................................ 48
9.7 Governing Law................................................................. 48
9.8 Rules of Construction......................................................... 48
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INDEX OF EXHIBITS
Exhibit A Principal Shareholders
Exhibit B Valuation Model
Exhibit C Schedule of Exceptions
Exhibit D Form of Shareholder Certificate
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AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and
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entered into as of August 28, 1997, among USWeb Corporation, a Utah corporation
("Parent"), USWeb Acquisition Corporation 108, a Delaware corporation and a
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wholly owned subsidiary of Parent ("Sub"), Electronic Images, Inc., a
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Pennsylvania corporation (the "Company"), and the shareholders of the Company
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listed on Exhibit A attached hereto (such shareholders being hereinafter
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referred to collectively as the "Principal Shareholders" and individually as a
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"Principal Shareholder").
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RECITALS
A. The Boards of Directors of each of the Company, Parent and Sub believe
it is in the best interests of each company and their respective shareholders
that Parent acquire the Company through the statutory merger of the Company with
and into Sub (the "Merger") and, in furtherance thereof, have approved the
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Merger.
B. Pursuant to the Merger, among other things, all of the issued and
outstanding shares of capital stock of the Company shall be converted into the
right to receive shares of Common Stock of Parent.
C. Forty-five percent (45%) of the shares of Common Stock of Parent
otherwise payable in connection with the Merger shall be placed in a one-year
escrow for the purposes of (i) satisfying damages, losses, expenses and other
similar charges which result from breaches of representations, warranties or
covenants or (ii) making adjustments to the purchase price paid by the Parent.
D. The Company, the Principal Shareholders, Parent and Sub desire to make
certain representations, warranties, covenants and other agreements in
connection with the Merger.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the parties agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.2) and
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subject to and upon the terms and conditions of this Agreement and the
applicable provisions of the corporations laws of the states of Delaware
("Delaware Law") and Pennsylvania ("Pennsylvania Law"), the Company shall be
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merged with and into the Sub, the separate corporate existence of the Company
shall cease and Sub shall continue as the surviving corporation and as a wholly
owned subsidiary of Parent. Sub as the surviving corporation after the Merger
is hereinafter sometimes referred to as the "Surviving Corporation."
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1.2 Effective Time. Unless this Agreement is earlier terminated pursuant
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to Section 8.1, the closing of the Merger (the "Closing") will take place as
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promptly as practicable, but no later than five (5) business days following
satisfaction or waiver of the conditions set forth in Article VI, at the offices
of Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx, 000 Xxxx Xxxx Xxxx, Xxxx Xxxx, Xxxxxxxxxx,
unless another place or time is agreed to in writing by Parent and the Company.
The date upon which the Closing actually occurs is herein referred to as the
"Closing Date." On the Closing Date, the parties hereto shall cause the Merger
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to be consummated by submitting for filing an Agreement and Plan of Merger (or
like instrument) with the Secretary of State of Delaware and the Secretary of
State of Pennsylvania (the "Merger Articles"), in accordance with the relevant
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provisions of applicable law (the later of the times of filing with the
Secretary of State of Delaware and the Secretary of State of Pennsylvania being
referred to herein as the "Effective Time").
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1.3 Effect of the Merger. At the Effective Time, the effect of the Merger
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shall be as provided in the applicable provisions of Delaware Law and
Pennsylvania Law. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time, all the property, rights, privileges, powers and
franchises of the Company and Sub shall vest in the Surviving Corporation, and
all debts, liabilities and duties of the Company and Sub shall become the debts,
liabilities and duties of the Surviving Corporation.
1.4 Certificate of Incorporation; Bylaws.
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(a) Unless otherwise determined by Parent prior to the Effective Time,
at the Effective Time, the Certificate of Incorporation of Sub shall be the
Certificate of Incorporation of the Surviving Corporation until thereafter
amended as provided by law and such Certificate of Incorporation.
(b) The Bylaws of Sub, as in effect immediately prior to the Effective
Time, shall be the Bylaws of the Surviving Corporation until thereafter amended.
1.5 Directors and Officers. The director(s) of Sub immediately prior to
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the Effective Time shall be the initial director(s) of the Surviving
Corporation, each to hold office in accordance with the Certificate of
Incorporation and Bylaws of the Surviving Corporation. The officers of Sub
immediately prior to the Effective Time shall be the initial officers of the
Surviving Corporation, each to hold office in accordance with the Bylaws of the
Surviving Corporation.
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1.6 Effect of Merger on the Capital Stock of the Constituent Corporations.
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(a) Exchange of Stock; Purchase Price Adjustments. As of the
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Effective Time of the Merger, each share of the Company's Common Stock, $1.00
par value (the "Company Common Stock"), that is issued and outstanding
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immediately prior to the Effective Time (other than any Dissenting Shares (as
defined and to the extent provided in Section 1.7)) dissenting shares under
applicable state law) shall, by virtue of the Merger and without any action on
the part of Sub, the Company, or the Company's shareholders (the "Company
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Shareholders"), be canceled and extinguished and each Company Shareholder shall
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have (i) the right to receive such Company Shareholder's pro rata portion (based
on such Company Shareholder's equity ownership in the Company as represented to
Parent by the Company) of that number of shares of the Parent's Common Stock,
par value $.001 per share (the "Parent Common Stock") equal to $11,242,293 (the
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"Original Purchase Price") divided by $2.25, subject to Section 7.2 hereof, plus
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(ii) the contingent right to receive from Sub additional shares of Parent Common
Stock as provided in Section 1.10 of this Agreement (the "Purchase Price
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Adjustment"). The Original Purchase Price and the Purchase Price Adjustment are
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hereinafter collectively referred to as the "Merger Consideration."
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(b) [Intentionally Omitted]
(c) Adjustments to Parent Common Stock. The number of shares of
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Parent Common Stock issuable hereunder shall be adjusted to reflect fully the
effect of any stock split, reverse split, stock dividend (including any dividend
or distribution of securities convertible into Parent Common Stock or Company
Common Stock), reorganization, recapitalization or other like change with
respect to Parent Common Stock or Company Common Stock occurring after the date
hereof.
(d) Fractional Shares. No fractional share of Parent Common Stock
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shall be issued in the Merger, including the Purchase Price Adjustment pursuant
to Section 1.10 below, or pursuant to any stock option or stock bonus issued to
a Company employee that becomes an employee of Parent or Sub following the
Merger. In lieu thereof, the number of shares otherwise issued or issuable
shall be rounded to the nearest whole share, with one-half share or more being
rounded up.
(e) Definitions.
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(i) Aggregate Common Number. The "Aggregate Common Number"
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shall mean the aggregate number of shares of Company Common Stock outstanding
immediately prior to the Effective Time.
(ii) Fair Value Per Share. The Fair Value Per Share of
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Parent's Common Stock, as of any particular date, shall mean, if the Parent's
Common Stock is then traded on an exchange or national quotation system, the
average closing price per share of Parent's Common Stock as traded on such
exchange or national quotation system during the 10 trading day period ending
three business days prior to the date of determination or, if not so traded, the
fair market value per share of such Parent's Common Stock as most recently
determined by the Parent's Board of Directors acting in good faith.
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(iii) Escrow Amount; Escrow Agent. The "Escrow Amount" shall be
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equal to forty-five percent (45%) of the number of shares of Parent Common Stock
constituting the Original Purchase Price. The "Escrow Agent" shall be the
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secretary of the Parent, or his designee, so long as the Parent is a privately
held company. Thereafter, any transfer agent for the Parent's Common Stock may
be appointed Escrow Agent.
1.7 Surrender of Certificates.
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(a) Exchange Agent. The Secretary of Parent or such other entity
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reasonably designated by Parent shall serve as exchange agent (the "Exchange
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Agent") in the Merger.
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(b) Parent to Provide Common Stock. Promptly after the Effective
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Time, Parent shall make available to the Exchange Agent for exchange in
accordance with this Article I the Original Purchase Price issuable pursuant to
Section 1.6(a) in exchange for outstanding shares of Company Common Stock;
provided that, on behalf of the Company Shareholders, Parent shall deposit the
Escrow Amount into an escrow account.
(c) Exchange Procedures. Promptly after the Effective Time, the
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Surviving Corporation shall cause to be mailed to each Company Shareholder (i) a
letter of transmittal (which shall specify that delivery shall be effected, and
risk of loss and title to the certificates (the "Certificates") which
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immediately prior to the Effective Time represented outstanding shares of
Company Common Stock whose shares were converted into the right to receive the
Merger Consideration pursuant to Section 1.6, shall pass, only upon delivery of
the Certificates to the Exchange Agent and shall be in such form and have such
other provisions substantially consistent with the provisions of this Agreement
as Parent 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 Exchange Agent or to such
other agent or agents as may be appointed by Parent, together with such letter
of transmittal, duly completed and validly executed in accordance with the
instructions thereto, the Company Shareholder shall be entitled to receive in
exchange therefor a certificate representing the number of shares issuable to
such Company Shareholder as part of the Original Purchase Price (less the number
of shares of Parent Common Stock to be deposited in the Escrow Fund (as defined
in Article VII) on such holder's behalf pursuant to Article VII hereof) and the
Certificate so surrendered shall forthwith be canceled. As soon as practicable
after the Effective Time, and subject to and in accordance with the provisions
of Article VII hereof, Parent shall cause to be distributed to the Escrow Agent
(as defined in Article VII) a certificate or certificates representing that
number of shares of Parent Common Stock equal to the Escrow Amount. Such
consideration shall be beneficially owned by the holders on whose behalf such
consideration were deposited in the Escrow Fund and shall be available to
compensate Parent as provided in Article VII. Until surrendered to the Exchange
Agent, each outstanding Certificate that, prior to the Effective Time,
represented shares of Company Common Stock will be deemed from and after the
Effective Time, for all corporate purposes, other than the payment of dividends,
to evidence only the right to receive Merger Consideration pursuant to Section
1.6 hereof.
(d) Distributions With Respect to Unexchanged Shares. No dividends or
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other distributions declared or made after the Effective Time with respect to
Parent Common Stock with a
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record date after the Effective Time will be paid to the holder of any
unsurrendered Certificate with respect to the shares of Parent Common Stock
issuable upon conversion of the shares of Company Common Stock represented
thereby until the holder of record of such Certificate shall surrender such
Certificate. Subject to applicable law, following surrender of any such
Certificate, there shall be paid to the record holder of the certificates
representing whole shares of Parent Common Stock issued in exchange therefor,
without interest, at the time of such surrender, the amount of dividends or
other distributions with a record date after the Effective Time theretofore paid
with respect to such whole shares of Parent Common Stock.
(e) Transfers of Ownership. If any certificate for shares of Parent
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Common Stock is to be issued in a name other than that in which the Certificate
surrendered in exchange therefor is registered, it will be a condition of the
issuance thereof that the Certificate so surrendered will be properly endorsed
and otherwise in proper form for transfer and that the person requesting such
exchange will have paid to Sub or any agent designated by it any transfer or
other taxes required by reason of the issuance of a certificate for shares of
Parent Common Stock in any name other than that of the registered holder of the
Certificate surrendered or have established to the satisfaction of Sub or any
agent designated by it that such tax has been paid or is not payable.
(f) No Liability. Notwithstanding anything to the contrary in this
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Section 1.7, none of the Exchange Agent, the Surviving Corporation or any party
hereto shall be liable to a holder of shares of Parent Common Stock or Company
Common Stock for any amount properly paid to a public official pursuant to any
applicable abandoned property, escheat or similar law.
1.8 No Further Ownership Rights in Company Common Stock. All shares of
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Parent Common Stock issued upon the surrender for exchange of shares of Company
Common Stock in accordance with the terms hereof shall be deemed to have been
issued in full satisfaction of all rights pertaining to such shares of Company
Common Stock capital stock, and there shall be no further registration of
transfers on the records of the Surviving Corporation of shares of Company
Common Stock capital stock which were outstanding immediately prior to the
Effective Time. If, after the Effective Time, Certificates are presented to
the Surviving Corporation for any reason, they shall be canceled and exchanged
as provided in this Article I.
1.9 Lost, Stolen or Destroyed Certificates. In the event any Certificates
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shall have been lost, stolen or destroyed, the Exchange Agent shall issue in
exchange for such lost, stolen or destroyed Certificates, upon the making of an
affidavit of that fact by the holder thereof, such shares of Parent Common Stock
as may be required pursuant to Section 1.6(a); provided, however, that Sub may,
in its discretion and as a condition precedent to the issuance thereof, require
the owner of such lost, stolen or destroyed Certificates to deliver a bond in
such sum as it may reasonably direct as indemnity against any claim that may be
made against Parent, Sub or the Exchange Agent with respect to the Certificates
alleged to have been lost, stolen or destroyed.
1.10 Purchase Price Adjustments. The Original Purchase Price shall be
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subject to adjustment as follows:
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(a) Six-Month Adjustment. At the close of business on December 1,1997
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(the "First Adjustment Date"), the Parent shall conduct a valuation of the Sub
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according to the operation of the Parent's affiliate valuation method set forth
on Exhibit B attached hereto (the "Valuation Method"), which is the valuation
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method used to determine the Original Purchase Price. Parent shall then
calculate the "First Adjustment to Purchase Price" as follows:
FAPP = FADV - OPP
where FAPP is the First Adjustment to Purchase Price;
FADV is the First Adjustment Date Value as calculated on the First
Adjustment Date using the Valuation Method; and
OPP is the Original Purchase Price.
(i) If FAPP is greater than zero, then the Parent shall pay to
the Company Shareholders promptly after the First Adjustment Date a number of
shares calculated as follows:
FSP = (FAPP / FVPSFAD) x .25
where FSP is the "First Shares Payment";
FAPP is the First Adjustment to Purchase Price as calculated above;
and
FVPSFAD is the Fair Value Per Share of the Parent's Common Stock on
the First Adjustment Date.
(ii) If FAPP is less than zero, then the Escrow Agent shall
pay to Parent from the Escrow Amount promptly after the First Adjustment Date a
number of shares calculated as follows:
FSP = (-FAPP / FVPSCD)
where FSP is the "First Shares Payment";
FAPP is the First Adjustment to Purchase Price as calculated above;
and
FVPSCD is the Fair Value Per Share of the Parent's Common Stock on the
Closing Date.
If FAPP equals zero, no adjustment to the Original Purchase Price shall be made
for the First Adjustment Date.
(b) Twelve-Month Adjustment. At the close of business on June 1, 1998
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(the "Second Adjustment Date"), the Parent shall conduct a valuation of the Sub
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according to the Valuation Method. Parent shall then calculate the "Second
Adjustment to Purchase Price" as follows:
XXXX = SADV - FADV
where XXXX is the Second Adjustment to Purchase Price;
SADV is the Second Adjustment Date Value as calculated on the Second
Adjustment Date using the Valuation Method; and
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FADV is the First Adjustment Date Value.
(i) If XXXX is greater than zero, then the Parent shall pay
to the Company Shareholders promptly after the Second Adjustment Date a number
of shares calculated as follows:
SSP = (XXXX / FVPSSAD) x .25
where SSP is the "Second Shares Payment";
XXXX is the Second Adjustment to Purchase Price as calculated above;
and
FVPSSAD is the Fair Value Per Share of the Parent's Common Stock on
the Second Adjustment Date.
(ii) If XXXX is less than zero, then the Escrow Agent shall
pay to Parent from the Escrow Amount promptly after the Second Adjustment Date a
number of shares calculated as follows:
SSP = (-XXXX / FVPSCD)
where SSP is the "Second Shares Payment";
XXXX is the Second Adjustment to Purchase Price as calculated above;
and
FVPSCD is the Fair Value Per Share of the Parent's Common Stock on the
Closing Date.
If XXXX equals zero, no adjustment to the Original Purchase Price shall be made
for the Second Adjustment Date.
1.11 Parent Common Stock. The shares of Parent Common Stock issued in
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connection with the Merger will be issued in a transaction exempt from
registration under the Securities Act, by reason of Section 4(2) of the
Securities Act or Regulation D thereunder. Such shares may not be transferred
or resold thereafter except in compliance with the terms of this Agreement and
following registration under the Securities Act or in reliance on an exemption
from registration under the Securities Act.
1.12 Tax Consequences. It is intended by the parties hereto that the
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Merger will constitute a reorganization within the meaning of Section 368 of the
Internal Revenue Code of 1986, as amended (the "Code"). Each party has
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consulted its own tax advisors with respect to the tax consequences of the
Merger.
1.13 Taking of Necessary Action; Further Action. If, at any time after the
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Effective Time, any further action is necessary or desirable to carry out the
purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of the Company and Sub, the officers and directors of the
Company, Parent and Sub are fully authorized in the name of their respective
corporations or otherwise to take, and will take, all such lawful and necessary
action.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE PRINCIPAL SHAREHOLDERS
The Company and the Principal Shareholders hereby, jointly and severally,
represent and warrant to Parent and Sub, subject to such exceptions as are
specifically disclosed in Exhibit C attached hereto (referencing the appropriate
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section and paragraph numbers), as follows; provided, however, that each
Principal Shareholder makes the representations and warranties set forth in
Section 2.4, 2.11 and 2.31 only as to the Company and itself, as the case may
be, and not as to any other Principal Shareholder:
2.1 Organization of the Company. The Company is a corporation duly
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organized, validly existing and in good standing under the laws of the State of
Pennsylvania. The Company has the corporate power to own its properties and to
carry on its business as now being conducted. The Company is duly qualified to
do business and in good standing as a foreign corporation in each jurisdiction
in which the failure to be so qualified would have a material adverse effect on
the business, assets (including intangible assets), financial condition, results
of operations or prospects of the Company (hereinafter referred to as a
"Material Adverse Effect"). The Company has delivered a true and correct copy
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of its Articles of Incorporation and Bylaws, each as amended to date, to Parent.
Exhibit C lists the directors and officers of the Company. The operations now
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being conducted by the Company have not been conducted under any other name.
2.2 Company Capital Structure.
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(a) The authorized capital stock of the Company consists of 10,000
shares of authorized Common Stock, of which 5,263 shares are issued and
outstanding. There are no other classes or series of capital stock of the
Company of any kind outstanding or issuable. The Company Common Stock is held
by the persons, with the domicile addresses and in the amounts set forth on
Exhibit C. All outstanding shares of Company Common Stock are duly authorized,
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validly issued, fully paid and non-assessable and not subject to preemptive
rights created by statute, the Articles of Incorporation or Bylaws of the
Company or any agreement to which the Company is a party or by which it is
bound.
(b) There are no options, warrants, calls, rights, commitments or
agreements of any character, written or oral, to which the Company is a party or
by which it is bound obligating the Company to issue, deliver, sell, repurchase
or redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any
shares of the capital stock of the Company or obligating the Company to grant,
extend, accelerate the vesting of, change the price of, otherwise amend or enter
into any such option, warrant, call, right, commitment or agreement.
2.3 Subsidiaries. Except as set forth on Exhibit C, the Company does not
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have any subsidiaries or affiliated companies and does not otherwise own any
shares in the capital of or any interest in, or control, directly or indirectly,
any other corporation, partnership, association, joint venture or other business
entity. The Company has never had any subsidiaries or affiliated companies and
has
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never otherwise owned shares in the capital of or any interest in or control,
directly or indirectly of, any other corporation, partnership association, joint
venture or other business entity.
2.4 Authority. Each of the Company and the Principal Shareholders has all
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requisite corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of the
Company and the Principal Shareholders, and no further action is required on
their part to authorize the Agreement and the transactions contemplated hereby
and thereby. This Agreement has been duly executed and delivered by the Company
and the Principal Shareholders and, assuming the due authorization, execution
and delivery by the other parties hereto and thereto, constitutes the valid and
binding obligation of the Company and the Principal Shareholders, enforceable in
accordance with its terms, subject to the laws of general application relating
to bankruptcy, insolvency and the relief of debtors and to rules of law
governing specific performance, injunctive relief or other equitable remedies.
2.5 No Conflict. Except as set forth in Exhibit C, the execution and
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delivery of this Agreement does not, and the consummation of the transactions
contemplated hereby will not, conflict with, or result in any violation of, or
default under (with or without notice or lapse of time, or both), or give rise
to a right of termination, cancellation, modification or acceleration of any
obligation or loss of any benefit under (any such event, a "Conflict") (i) any
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provision of the Articles of Incorporation and Bylaws of the Company, (ii) any
mortgage, indenture, lease, contract or other agreement or instrument, permit,
concession, franchise or license to which the Company or any of its properties
or assets is subject, or (iii) any judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to the Company or its properties or
assets.
2.6 Consents. Except as set forth on Exhibit C, no consent, waiver,
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approval, order or authorization of, or registration, declaration or filing
with, any court, administrative agency or commission or other federal, state,
county, local or other foreign governmental authority, instrumentality, agency
or commission ("Governmental Entity") or any third party, including a party to
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any agreement with the Company (so as not to trigger any Conflict), is required
by or with respect to the Company in connection with the execution and delivery
of this Agreement or the consummation of the transactions contemplated hereby,
except for (i) such consents, waivers, approvals, orders, authorizations,
registrations, declarations and filings as may be required under applicable
securities laws thereby, (ii) the filing of the Certificate of Merger with the
Secretary of State of the State of Delaware and (iii) the filing of the
Agreement of Merger with the Secretary of State of the Commonwealth of
Pennsylvania.
2.7 Company Financial Statements. Exhibit C sets forth the Company's
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balance sheet as of January 31, 1997 and the related statements of income and
cash flow for year then ended, as reviewed by Deloitte & Touche LLP, independent
certified public accountants (the "Reviewed Financials"), and the Company's
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unaudited balance sheet of May 31, 1997, and the related unaudited statements of
income and cash flow for the four months then ended (the "Unaudited
---------
Financials"). The Reviewed Financials and the Unaudited Financials are correct
in all material respects and have been prepared in accordance with United States
generally accepted accounting principles ("USGAAP"), applied on a basis
------
consistent throughout the periods indicated and consistent with each other
except that the Unaudited Financials do
-9-
not contain notes. The Reviewed and Unaudited Financials present fairly in all
material respects the financial condition, operating results and cash flows of
the Company as of the dates and during the periods indicated therein, subject in
the case of the Unaudited Financials, to normal year-end adjustments, which
will not be material in amount or significance. The Company's balance sheet as
of May 31, 1997 shall be referred to as the "Balance Sheet."
-------------
2.8 No Undisclosed Liabilities. Except as set forth in Exhibit C, the
-------------------------- ---------
Company does not have any liability, indebtedness, obligation, expense, claim,
deficiency, guaranty or endorsement of any type, whether accrued, absolute,
contingent, matured, unmatured or other (whether or not required to be reflected
in financial statements in accordance with USGAAP), which individually or in the
aggregate (i) has not been reflected in the Balance Sheet; (ii) has not arisen
in the ordinary course of business consistent with past practices since May 31,
1997; (iii) has not been specifically identified as a liability in Exhibit C
---------
hereto; (iv) is not an executory obligation under a Company Agreement listed in
Exhibit C hereto; or (v) has not arisen under a Company Agreement not required
---------
to be set forth in Exhibit C hereto.
---------
2.9 No Changes. Except as set forth in Exhibit C, since May 31, 1997,
---------- ---------
there has not been, occurred or arisen any:
(a) transaction by the Company except in the ordinary course of
business as conducted on that date and consistent with past practices;
(b) amendments or changes to the Articles of Incorporation or Bylaws
of the Company;
(c) capital expenditure or commitment by the Company, either
individually or in the aggregate, exceeding $25,000;
(d) destruction of, damage to or loss of any material assets,
material business or material customer of the Company (whether or not covered by
insurance);
(e) labor trouble or claim of wrongful discharge or other unlawful
labor practice or action;
(f) change in accounting methods or practices (including any change
in depreciation or amortization policies or rates) by the Company;
(g) revaluation by the Company of any of its assets;
(h) declaration, setting aside or payment of a dividend or other
distribution with respect to the Company's capital stock, or any direct or
indirect redemption, purchase or other acquisition by the Company of any of its
capital stock;
-10-
(i) increase in the salary or other compensation payable or to become
payable by the Company to any of its officers, directors, employees or
consultants, or the declaration, payment or commitment or obligation of any kind
for the payment, by the Company, of a bonus or other additional salary or
compensation to any such person;
(j) any agreement, contract, lease or commitment (collectively a
"Company Agreement") or any extension or modification of the terms of any
------------------
Company Agreement which (i) involves the payment of greater than $25,000 per
annum or which extends for more than one year, (ii) involves any payment or
obligation to any affiliate of the Company other than in the ordinary course of
business as conducted on that date and consistent with past practices, or (iii)
involves the sale of any material assets;
(k) sale, lease, license or other disposition of any of the assets or
properties of the Company, or any creation of any security interest in such
assets or properties except in the ordinary course of business as conducted on
that date and consistent with past practices;
(l) amendment or termination of any material contract, agreement or
license to which the Company is a party or by which it is bound;
(m) loan by the Company to any person or entity, incurring by the
Company of any indebtedness, guaranteeing by the Company of any indebtedness,
issuance or sale of any debt securities of the Company or guaranteeing of any
debt securities of others, except for advances to employees for travel and
business expenses in the ordinary course of business, consistent with past
practices;
(n) waiver or release of any right or claim of the Company, including
any write-off or other compromise of any account receivable of the Company;
(o) the commencement or notice or, to the knowledge of the Company
and the Principal Shareholders, threat of commencement of any lawsuit or
proceeding against, or investigation of, the Company;
(p) notice of any claim of ownership by a third party of the
Company's Intellectual Property (as defined in Section 2.13 below) or notice of
infringement by the Company of any third party's Intellectual Property rights;
(q) issuance or sale by the Company of any of its shares of capital
stock, or securities exchangeable, convertible or exercisable therefor, or of
any other of its securities;
(r) change in pricing or royalties set or charged by the Company to
its customers or licensees or in pricing or royalties set or charged by persons
who have licensed Intellectual Property (as defined in Section 2.13 below) to
the Company;
(s) any event or condition of any character that has or, to the
knowledge of the Company and the Principal Shareholders, may have a Material
Adverse Effect on the Company; or
-11-
(t) negotiation or agreement by the Company, or any officer or
employee thereof to do any of the things described in the preceding clauses (a)
through (s) (other than negotiations with Parent and its representatives
regarding the transactions contemplated by this Agreement).
2.10 Tax Matters.
-----------
(a) Definition of Taxes. For the purposes of this Agreement, "Tax"
------------------- ---
or, collectively, "Taxes," means (i) any and all federal, state, local and
-----
foreign taxes, assessments and other governmental charges, duties, impositions
and liabilities, including taxes based upon or measured by gross receipts,
income, profits, sales, use and occupation, and value added, ad valorem,
transfer, franchise, withholding, payroll, recapture, employment, excise and
property taxes, together with all interest, penalties and additions imposed with
respect to such amounts; (ii) any liability for the payment of any amounts of
the type described in clause (i) as a result of being a member of an affiliated,
consolidated, combined or unitary group for any period; and (iii) any liability
for the payment of any amounts of the type described in clause (i) or (ii) as a
result of any express or implied obligation to indemnify any other person or as
a result of any obligations under any agreements or arrangements with any other
person with respect to such amounts and including any liability for taxes of a
predecessor entity.
(b) Tax Returns and Audits. Except as set forth in Exhibit C:
---------------------- ---------
(i) The Company as of the Closing Date will have prepared and
timely filed or made a timely request for extension for all required federal,
state, local and foreign returns, estimates, information statements and reports
("Returns") relating to any and all Taxes concerning or attributable to the
---------
Company or its operations and such Returns are true and correct and have been
completed in accordance with applicable law.
(ii) The Company as of the Closing Date (A) will have paid or
accrued all Taxes it is required to pay or accrue as shown on the Returns and
(B) will have withheld and timely remitted with respect to its employees all
income taxes and other Taxes required to be withheld and remitted.
(iii) The Company has not been delinquent in the payment of any
Tax nor is there any Tax deficiency outstanding, assessed or proposed against
the Company, nor has the Company executed any waiver of any statute of
limitations on or extending the period for the assessment or collection of any
Tax imposed upon the Company.
(iv) No audit or other examination of any Return of the
Company is presently in progress, nor has the Company been notified of any
request for such an audit or other examination.
(v) The Company has no liabilities for unpaid federal, state,
local and foreign Taxes which have not been accrued or reserved against in
accordance with USGAAP on the Balance Sheet, whether asserted or unasserted,
contingent or otherwise, for periods prior to May 31, 1997.
-12-
(vi) The Company has made available to Parent or its legal
counsel copies of all foreign, federal and state income and all state sales and
use Returns filed for all years as to which any applicable statute of
limitations has not expired.
(vii) There is no mortgage, pledge, security interest or lien
or other encumbrance (each a "Lien") of any sort on the assets of the Company
relating to or attributable to Taxes other than Liens for taxes not yet due and
payable.
(viii) The Company Shareholders have no knowledge of any basis
for the assertion of any claim relating or attributable to Taxes which, if
adversely determined, would result in any Lien on any material assets of the
Company.
(ix) As of the Closing, there will not be any contract,
agreement, plan or arrangement, including but not limited to the provisions of
this Agreement, covering any employee or former employee of the Company that,
individually or collectively, could give rise to the payment of any amount that
would not be deductible by the Company as an expense under Sections 162, 280G or
404 of the Code.
(x) The Company is not a party to a tax sharing,
indemnification or allocation agreement nor does the Company owe any amount
under any such agreement.
(xi) The Company uses the accrual method of accounting for
income tax purposes and its tax basis in its assets for purposes of determining
its future amortization, depreciation and other federal income tax deductions is
accurately reflected on the Company's tax books and records.
2.11 Restrictions on Business Activities. There is no agreement
-----------------------------------
(noncompete or otherwise), commitment, judgment, injunction, order or decree to
which the Company or any Principal Shareholder is a party or, to the knowledge
of the Company and the Principal Shareholders, is otherwise legally binding upon
the Company which has or reasonably could be expected to have the effect of
prohibiting or impairing any acquisition of property (tangible or intangible) by
the Company or the conduct of business by the Company as heretofore conducted.
The Company has not entered into any agreement under which the Company is
restricted from providing services to customers or potential customers or any
class of customers, in any geographic area, during any period of time or in any
segment of the market.
2.12 Title to Properties; Absence of Liens and Encumbrances; Condition of
--------------------------------------------------------------------
Equipment.
---------
(a) The Company does not own any real property, nor has it ever owned
any real property. Exhibit C sets forth a list of all real property currently
---------
leased by the Company, the name of the lessor, the date of the lease and each
amendment thereto and, with respect to any current lease, the aggregate annual
rental and/or other fees payable under any such lease. All such current leases
are in full force and effect, are valid and effective in accordance with their
respective terms. Neither the Company nor, to the knowledge of the Company and
the Principal Shareholders, any other party to any
-13-
such lease is in default (or has caused an event which with notice or lapse of
time, or both, would constitute a default).
(b) The Company has good and valid title to, or, in the case of
leased or licensed properties and assets, valid leasehold or licensed interests
in, all of its tangible properties and assets, real, personal and mixed, used or
held for use in its business, free and clear of any Liens, except as reflected
in the Company Financials or in Exhibit C and except for Liens for taxes not yet
---------
due and payable and such imperfections of title and encumbrances, if any, which
are not material in character, amount or extent, and which do not detract from
the value, or interfere with the present use, of the property subject thereto or
affected thereby.
(c) Exhibit C lists all material items of equipment (the "Equipment")
--------- ---------
owned or leased by the Company and such Equipment is, taken as a whole, (i)
adequate for the conduct of the business of the Company as currently conducted
and (ii) in good operating condition, regularly and properly maintained, subject
to normal wear and tear.
(d) The Company has sole and exclusive ownership, free and clear of
any Liens, of all customer files and other customer information relating to
Company's current and former customers (the "Customer Information"). No third
--------------------
party possesses any claims or rights with respect to use of the Customer
Information (other than any right of each customer to Customer Information about
itself).
2.13 Intellectual Property.
---------------------
(a) For the purposes of this Agreement, the following terms have the
following definitions:
"Intellectual Property" shall mean any or all of the following
---------------------
and all rights in, arising out of, or associated therewith: (i) all United
States and foreign patents and applications therefor and all reissues,
divisions, renewals, extensions, provisionals, continuations and continuations-
in-part thereof; (ii) all inventions (whether patentable or not), invention
disclosures, improvements, trade secrets, proprietary information, know how,
technology, technical data and customer lists, and all documentation relating to
any of the foregoing; (iii) all copyrights, copyrights registrations and
applications therefor, and all other rights corresponding thereto throughout the
world; (iv) all mask works, mask work registrations and applications therefor,
and all other rights corresponding thereto throughout the world; (v) all
industrial designs and any registrations and applications therefor throughout
the world; (vi) all trade names, logos, common law trademarks and service marks;
trademark and service xxxx registrations and applications therefor throughout
the world; (vii) all databases and data collections and all rights therein
throughout the world; and (viii) all computer software including all source
code, object code, firmware, development tools, files, records and data, all
media on which any of the foregoing is recorded, and all documentation related
to any of the foregoing throughout the world.
"Intellectual Property of Company" shall mean any Intellectual
--------------------------------
Property that: (i) is owned by or exclusively licensed to the Company, or (ii)
which is necessary to the operation of the Company, including the design,
manufacture and use of the products or performance of the services of
-14-
the Company as it currently is operated or is reasonably anticipated to be
operated in the future, but shall specifically not include any rights in or to
materials created for clients as "work-made-for-hire" or which are subject to an
exclusive assignment or license in favor of clients of the Company.
(b) Exhibit C lists all of the Company's United States and foreign:
---------
(i) patents, patent applications (including provisional applications); (ii)
registered trademarks, applications to register trademarks, intent-to-use
applications, or other registrations related to trademarks; (iii) registered
copyrights and applications for copyright registration; (iv) mask work
registrations and applications to register mask works; and (v) any other
Intellectual Property of Company that is the subject of an application,
certificate or registration filed with, issued by, or recorded by, any state,
government or other public legal authority (all of the foregoing, the
"Registered Intellectual Property").
(c) Each item of Registered Intellectual Property is valid and
subsisting, all necessary registration, maintenance and renewal fees in
connection with such Registered Intellectual Property have been made and all
necessary documents and certificates in connection with such Registered
Intellectual Property have been filed with the relevant patent, copyright,
trademark or other authorities in the United States or foreign jurisdictions, as
the case may be, for the purposes of maintaining such Registered Intellectual
Property.
(d) The contracts, licenses and agreements listed in Exhibit C
---------
include all contracts, licenses and agreements, to which the Company is a party
with respect to any Intellectual Property with a value or cost in excess of
$10,000, other than "shrink wrap" and similar commercial end-user licenses.
(e) The contracts, licenses and agreements listed in Exhibit C are in
---------
full force and effect. The consummation of the transactions contemplated by
this Agreement will neither violate nor result in the breach, modification,
cancellation, termination, or suspension of the contracts, licenses and
agreements listed in Exhibit C. The Company is in compliance with, and has not
---------
breached any term of, the contracts, licenses and agreements listed in Exhibit
-------
C, and, to the knowledge of the Company and the Principal Shareholders, all
-
other parties to the contracts, licenses and agreements listed in Exhibit C are,
---------
in compliance with, and have not breached any term of, the contracts, licenses
and agreements. Following the Closing Date, Sub will be permitted to exercise
all of the Company's rights under the contracts, licenses and agreements listed
in Exhibit C without the payment of any additional amounts or consideration
---------
other than ongoing fees, royalties or payments which the Company would otherwise
be required to pay.
(f) Except as set forth in Exhibit C: (i) no person has any rights to
---------
use any of the Intellectual Property of the Company; and (ii) the Company has
not granted to any Person, or authorized any Person to retain, any rights in the
Intellectual Property of Company.
(g) Except as set forth in Exhibit C: (i) the Company owns and has
---------
good and exclusive title to each item of Intellectual Property listed in Exhibit
-------
C, free and clear of any Lien; and (ii) the Company owns, or has the right,
-
pursuant to a valid Contract to use or operate under, all other Intellectual
Property of the Company.
-15-
(h) The operation of the business of the Company as it currently is
conducted, including its design, development, manufacture and sale of its
products (including with respect to products currently under development) and
provision of services, to the knowledge of the Company and the Principal
Shareholders, does not infringe or misappropriate the Intellectual Property of
any other person, violate the rights of any person (including rights to privacy
or publicity), or constitute unfair competition.
(i) The Company has not received notice from any person that the
operation of the business of the Company, including its design, development,
manufacture and sale of its products (including with respect to products
currently under development) and provision of its services, infringes or
misappropriates the Intellectual Property of any person, violates the rights of
any person (including rights to privacy or publicity), or constitutes unfair
competition.
(j) To the knowledge of the Company and the Principal Shareholders,
the Company owns or has the right to all Intellectual Property necessary to the
conduct of its business as it currently is conducted, including, without
limitation, the design, development, manufacture and sale of all products
currently manufactured or sold by the Company or under development by the
Company and the performance of all services provided or contemplated to be
provided by the Company.
(k) Exhibit C lists all contracts, licenses and agreements between
---------
the Company and any other person wherein or whereby the Company has agreed to,
or assumed, any obligation or duty to indemnify, hold harmless or otherwise
assume or incur any obligation or liability with respect to the infringement by
the Company or such other Person of the Intellectual Property rights of any
other person.
(l) Except as listed in Exhibit C, there are no contracts, licenses
---------
and agreements between the Company and any other person with respect to Company
Intellectual Property under which there is any dispute known to the Company or
the Principal Shareholders regarding the scope of such agreement or performance
under such agreement, including with respect to any payments to be made or
received by the Company thereunder.
(m) Except as listed in Exhibit C, to the knowledge of the Company
---------
and the Principal Shareholders, no person is infringing or misappropriating any
of the Intellectual Property of Company.
(n) Except as listed in Exhibit C, there are no claims asserted
---------
against the Company or, to the knowledge of the Company and the Principal
Shareholders, against any customer of the Company, related to any product or
service of the Company.
(o) No Intellectual Property of Company or product or service of the
Company is subject to any outstanding decree, order, judgment, or stipulation
restricting in any manner the use or licensing thereof by the Company.
(p) Except as set forth on Exhibit C, the Company has, and enforces,
---------
a policy requiring each employee and contractor to execute proprietary
information and confidentiality
-16-
agreements substantially in the Company's standard forms and all current and
former employees and contractors of the Company have executed such an agreement.
(q) To the knowledge of the Company and the Principal Shareholders,
no (i) product, service or publication of the Company, (ii) material published
or distributed by the Company or (iii) conduct or statement of the Company,
constitutes obscene material, a defamatory statement or material, or violates
any rights, including rights of publicity or privacy, of any person.
2.14 Agreements, Contracts and Commitments.
-------------------------------------
(a) Except as set forth in Exhibit C, the Company does not have, or
---------
is not bound by:
(i) any collective bargaining agreement,
(ii) any agreements or arrangements that contain any severance
pay or post-employment liabilities or obligations,
(iii) any bonus, deferred compensation, pension, profit sharing
or retirement plans, or any other employee benefit plans or arrangements,
(iv) any employment or consulting agreement, contract or
commitment with an employee or individual consultant or salesperson or
consulting or sales agreement, contract or commitment with a firm or other
organization,
(v) any agreement or plan, including, without limitation, any
stock option plan, stock appreciation rights plan or stock purchase plan, any of
the benefits of which will be increased, or the vesting of benefits of which
will be accelerated, by the occurrence of any of the transactions contemplated
by this Agreement or the value of any of the benefits of which will be
calculated on the basis of any of the transactions contemplated by this
Agreement,
(vi) any fidelity or surety bond or completion bond,
(vii) any lease of personal property involving future payments
in excess of $25,000,
(viii) any agreement of indemnification or guaranty, other than
as set forth in agreements listed in Exhibit C,
---------
(ix) any agreement, contract or commitment containing any
covenant limiting the freedom of the Company to engage in any line of business
or to compete with any person,
(x) any agreement, contract or commitment relating to capital
expenditures and involving future payments in excess of $25,000,
-17-
(xi) any agreement, contract or commitment relating to the
disposition or acquisition of assets or any interest in any business enterprise
outside the ordinary course of the Company's business,
(xii) any mortgages, indentures, loans or credit agreements,
security agreements or other agreements or instruments relating to the borrowing
of money or extension of credit, including guaranties referred to in clause
(viii) hereof,
(xiii) any purchase order or contract for the purchase of
materials involving $25,000 or more,
(xiv) any construction contracts,
(xv) any distribution, joint marketing or development
agreement, or
(xvi) any other agreement, contract or commitment that involves
$25,000 or more or is not cancelable without penalty within thirty (30) days.
The Company has not breached, violated or defaulted under, or received
notice that it has breached, violated or defaulted under, any of the terms or
conditions of any material agreement, contract, license or commitment to which
it is a party, by which it benefits or by which it is bound (any such agreement,
contract, license or commitment, a "Contract"), nor is the Company or any
--------
Principal Shareholder aware of any event that would constitute such a breach,
violation or default with the lapse of time, giving of notice or both. Each
Contract is in full force and effect and, except as otherwise disclosed in
Exhibit C, is not subject to any default thereunder by any party obligated to
---------
the Company pursuant thereto. The Company has obtained, or will obtain prior to
the Closing Date, all necessary consents, waivers and approvals of parties to
any Contract as are required thereunder in connection with the Merger so that
all such Contracts will remain in effect without modification after the Closing.
2.15 Interested Party Transactions. Except as set forth in Exhibit C, no
----------------------------- ---------
Principal Shareholder or, to the knowledge of the Company and the Principal
Shareholders, no officer or director of the Company (nor any ancestor, sibling,
descendant or spouse of any of such persons, or any trust, partnership or
corporation in which any of such persons has or has had an interest), has or has
had, directly or indirectly, (i) an interest in any entity which furnished or
sold, or furnishes or sells, services or products that the Company furnishes or
sells, or proposes to furnish or sell, or (ii) any interest in any entity that
purchases from or sells or furnishes to, the Company, any goods or services or
(iii) a beneficial interest in any Contract; provided, that ownership of no more
than one percent (1%) of the outstanding voting stock of a publicly traded
corporation shall not be deemed an "interest in any entity" for purposes of this
Section 2.15.
2.16 Governmental Authorization. Exhibit C accurately lists each consent,
-------------------------- ---------
license, permit, grant or other authorization issued to the Company by a
Governmental Entity (i) pursuant to which the Company currently operates or
holds any interest in any of its properties or (ii) which is required for the
operation of its business or the holding of any such interest (herein
collectively called "Company
-------
-18-
Authorizations"). The Company Authorizations are in full force and effect and
--------------
constitute all Company Authorizations required to permit the Company to operate
or conduct its business or hold any interest in its properties or assets.
2.17 Litigation. There is no action, suit or proceeding of any nature
----------
pending, or to the Company's or the Principal Shareholders' knowledge
threatened, against the Company or its properties or against any of its
officers or directors relating to the performance of duties on behalf of the
Company, nor, to the knowledge of the Principal Shareholders, is there any
reasonable basis therefor. There is no investigation pending or, to the
Company's or Principals Shareholders' knowledge threatened, against the Company
or its properties, or against any of its officers or directors relating to the
performance of duties on behalf of the Company (nor, to the best knowledge of
the Principal Shareholders, is there any reasonable basis therefor) by or before
any Governmental Entity. No Governmental Entity has at any time challenged or
questioned the legal right of the Company to manufacture, offer or sell any of
its products or services in the present manner or style thereof.
2.18 Accounts Receivable.
-------------------
(a) The Company has made available to Parent a list of all accounts
receivable of the Company as of May 31, 1997 ("Accounts Receivable"), along with
-------------------
a range of days elapsed since invoice.
(b) Except as set forth on Exhibit C, all Accounts Receivable of the
---------
Company arose in the ordinary course of business, are carried at values
determined in accordance with USGAAP consistently applied and, to the
knowledge of the Company and the Principal Shareholders, are collectible except
to the extent of reserves therefor set forth in the Balance Sheet. No person
has any Lien on any of such Accounts Receivable and no request or agreement for
deduction or discount has been made with respect to any of such Accounts
Receivable.
2.19 Minute Books. The minutes of the Company made available to counsel
------------
for Parent are the only minutes of the Company and contain a reasonably accurate
summary of all meetings of the Board of Directors (or committees thereof) of the
Company and its shareholders or actions by written consent since the time of
incorporation of the Company.
2.20 Environmental Matters.
---------------------
(a) Hazardous Material. The Company has not: (i) operated any
------------------
underground storage tanks at any property that the Company has at any time
owned, operated, occupied or leased; or (ii) illegally released any material
amount of any substance that has been designated by any Governmental Entity or
by applicable federal, state or local law to be radioactive, toxic, hazardous or
otherwise a danger to health or the environment, including, without limitation,
PBS, asbestos, petroleum, and urea-formaldehyde and all substances listed as
hazardous substances pursuant to the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended, or defined as a hazardous
waste pursuant to the United States Resource Conservation and Recovery Act of
1976, as amended, and the regulations promulgated pursuant to said laws (a
"Hazardous Material"), but excluding office and janitorial supplies properly and
-------------------
safely maintained. No Hazardous Materials are present as a
-19-
result of the deliberate actions of the Company or, to the Company's or
Principal Shareholders' knowledge, as a result of any actions of any third party
or otherwise, in, on or under any property, including the land and the
improvements, ground water and surface water thereof, that the Company has at
any time owned, operated, occupied or leased.
(b) Hazardous Materials Activities. The Company has not transported,
------------------------------
stored, used, manufactured, disposed of, released or exposed its employees or
others to Hazardous Materials in violation of any law in effect on or before the
Closing Date, nor has either the Company disposed of, transported, sold, or
manufactured any product containing a Hazardous Material (any or all of the
foregoing being collectively referred to as "Hazardous Materials Activities") in
------------------------------
violation of any rule, regulation, treaty or statute promulgated by any
Governmental Entity in effect prior to or as of the date hereof to prohibit,
regulate or control Hazardous Materials or any Hazardous Material Activity.
(c) Permits. The Company currently holds all environmental
-------
approvals, permits, licenses, clearances and consents (the "Environmental
-------------
Permits") necessary for the conduct of the Company's Hazardous Material
-------
Activities and other businesses of the Company as such activities and businesses
are currently being conducted.
(d) Environmental Liabilities. No action, proceeding, revocation
-------------------------
proceeding, amendment procedure, writ, injunction or claim is pending, or to the
Principal Shareholders' knowledge, threatened concerning any Environmental
Permit, Hazardous Material or any Hazardous Materials Activity of the Company.
The Principal Shareholders are not aware of any fact or circumstance which could
involve the Company in any environmental litigation or impose upon the Company
any environmental liability.
2.21 Brokers' and Finders' Fees; Third Party Expenses. Except as set forth
------------------------------------------------
in Exhibit C, the Company has not incurred, nor will it incur, directly or
---------
indirectly, any liability for brokers' or finders' fees or agents' commissions
or any similar charges in connection with the Agreement or any transaction
contemplated hereby. Exhibit C sets forth the principal terms and conditions of
---------
any agreement, written or oral, with respect to such fees. Exhibit C sets forth
---------
the Company's current reasonable estimate of all third party expenses expected
to be incurred by the Company in connection with the negotiation and
effectuation of the terms and conditions of this Agreement and the transactions
contemplated hereby.
2.22 Employee Benefit Plans and Compensation.
---------------------------------------
(a) For purposes of this Section 2.22, the following terms shall have
the meanings set forth below:
(i) "Employee Plan" shall refer to any plan, program, policy,
-------------
practice, contract, agreement or other arrangement providing for bonuses,
severance, termination pay, performance awards, stock or stock-related awards,
fringe benefits or other employee benefits of any kind, whether formal or
informal, funded or unfunded and whether or not legally binding, including
without limitation, any plan which is or has been maintained, contributed to, or
required to be
-20-
contributed to, by the Company for the benefit of any "Employee" (as defined
below), and pursuant to which the Company has or may have any material
liability, contingent or otherwise;
(ii) "Employee" shall mean any current, former, or retired
--------
employee, officer, or director of the Company; and
(iii) "Employee Agreement" shall refer to each employment,
------------------
severance, consulting or similar agreement or contract between the Company and
any Employee.
(b) Schedule. Exhibit C contains an accurate and complete list of
-------- ---------
each Company Employee Plan and each Employee Agreement, together with a schedule
of all liabilities, whether or not accrued, under each such Company Employee
Plan. The Company does not have any plan or commitment, whether legally binding
or not, to establish any new Company Employee Plan or Employee Agreement, to
modify any Company Employee Plan or Employee Agreement (except to the extent
required by law or to conform any such Company Employee Plan or Employee
Agreement to the requirements of any applicable law, in each case as previously
disclosed to Parent in writing, or as required by this Agreement), or to enter
into any Company Employee Plan or Employee Agreement, nor does it have any
intention or commitment to do any of the foregoing.
(c) Documents. The Company has provided to Parent: (i) correct and
---------
complete copies of all documents embodying each Employee Plan and each Employee
Agreement including all amendments thereto and copies of all forms of agreement
and enrollment used therewith; (ii) the most recent annual actuarial valuations,
if any, prepared for each Employee Plan; (iii) the three most recent annual
reports (Series 5500 and all schedules thereto), if any, required under ERISA or
the Code in connection with each Company Employee Plan or related trust; (iv)
the most recent summary plan description together with the most recent summary
of material modifications, if any, required under ERISA with respect to each
Company Employee Plan; (v) all IRS determination letters and rulings relating to
Company Employee Plans and copies of all applications and correspondence to or
from the IRS or the Department of Labor ("DOL") with respect to any Company
Employee Plan; (vi) if the Employee Plan is funded, the most recent annual and
periodic accounting of Employee Plan assets; and (vii) all communications
material to any Employee or Employees relating to any Employee Plan and any
proposed Employee Plans, in each case, relating to any amendments, terminations,
establishments, increases or decreases in benefits, acceleration of payments or
vesting schedules or other events which would result in any liability to the
Company.
(d) Employee Plan Compliance. Except as set forth in Exhibit C, (i)
------------------------ ---------
The Company has performed in all material respects all obligations required to
be performed by it under each Employee Plan and each Employee Plan has been
established and maintained in all material respects in accordance with its terms
and in material compliance with all applicable laws, statutes, orders, rules and
regulations, including ERISA and the Code; (ii) no "prohibited transaction,"
within the meaning of Section 4975 of the Code or Section 406 of ERISA, has
occurred with respect to any Company Employee Plan; (iii) there are no actions,
suits or claims pending, or, to the knowledge of the Company or the Principal
Shareholders threatened or anticipated (other than routine claims for benefits)
against any Employee Plan
-21-
or against the assets of any Employee Plan; (iii) each Employee Plan can be
amended, terminated or otherwise discontinued after the Closing Date in
accordance with its terms, without liability to the Company, Parent or Sub
(other than ordinary administration expenses typically incurred in a termination
event); (iv) there are no inquiries or proceedings pending or, to the knowledge
of the Company or any Principal Shareholders threatened by the IRS or DOL with
respect to any Company Employee Plan; and (v) the Company is not subject to any
penalty or tax with respect to any Company Employee Plan under Section 402(i) of
ERISA or Section 4975 through 4980 of the Code.
(e) Pension Plans. The Company does not now, nor has it ever,
-------------
maintained, established, sponsored, participated in, or contributed to, any
Pension Plan which is subject to Part 3 of Subtitle B of Title I of ERISA, Title
IV of ERISA or Section 412 of the Code.
(f) Multiemployer Plans. At no time has the Company contributed to or
-------------------
been requested to contribute to any Multiemployer Plan.
(g) No Post-Employment Obligations. Except as set forth in Exhibit C,
------------------------------ ---------
no Company Employee Plan provides, or has any liability to provide, life
insurance, medical or other employee benefits to any Employee upon his or her
retirement or termination of employment for any reason, except as may be
required by statute, and the Company has not represented, promised or contracted
(whether in oral or written form) to any Employee (either individually or to
Employees as a group) that such Employee(s) would be provided with life
insurance, medical or other employee welfare benefits upon their retirement or
termination of employment, except to the extent required by statute.
(h) No Conflicts. Except as set forth on Exhibit C, the execution of
------------ ---------
this Agreement and the consummation of the transactions contemplated hereby will
not (either alone or upon the occurrence of any additional or subsequent events)
constitute an event under any Employee Plan, Employee Agreement, trust or loan
that will or may result in any payment (whether of severance pay or otherwise),
acceleration, forgiveness of indebtedness, vesting, distribution, increase in
benefits or obligation to fund benefits with respect to any Employee.
(i) Employment Matters. Except as set forth on Exhibit C, the Company
------------------ ---------
(i) is in compliance in all material respects with all applicable laws, rules
and regulations respecting employment, employment practices, terms and
conditions of employment and wages and hours, in each case, with respect to
Employees; (ii) has withheld all amounts required by law or by agreement to be
withheld from the wages, salaries and other payments to Employees; (iii) is not
liable for any arrears of wages or any taxes or any penalty for failure to
comply with any of the foregoing; and (iv) is not liable for any payment to any
trust or other fund or to any governmental or administrative authority, with
respect to unemployment compensation benefits, social security or other benefits
for Employees (other than routine payments to be made in the normal course of
business and consistent with past practice).
(j) Labor. No work stoppage or labor strike against the Company is
-----
pending or, to the knowledge of the Company and the Principal Shareholders,
threatened. The Company is not involved in or, to the knowledge of the Company
and the Principal Shareholders, threatened with any labor dispute, grievance, or
litigation relating to labor, safety, discrimination, or harassment matters
-22-
involving any Employee, including, without limitation, charges of unfair labor
practices, discrimination, or harassment complaints, which, if adversely
determined, would, individually or in the aggregate, result in liability to the
Company, Parent or Sub. The Company has not engaged in any unfair labor
practices which could, individually or in the aggregate, directly or indirectly
result in a material liability to the Company, Parent or Sub. The Company is
not presently, or has in the past, been a party to, or bound by, any collective
bargaining agreement or union contract with respect to Employees and no
collective bargaining agreement is being negotiated by the Company.
2.23 Insurance. Exhibit C lists all insurance policies and fidelity bonds
--------- ---------
covering the assets, business, equipment, properties, operations, employees,
officers and directors of the Company. There is no claim by the Company pending
under any of such policies or bonds as to which coverage has been questioned,
denied or disputed by the underwriters of such policies or bonds. All premiums
due and payable under all such policies and bonds have been paid and the Company
is otherwise in compliance with the terms of such policies and bonds (or other
policies and bonds providing substantially similar insurance coverage). The
Company and the Principal Shareholders have no knowledge of any threatened
termination of, or premium increase with respect to, any of such policies.
2.24 Compliance with Laws. The Company has complied in all material
--------------------
respects with, is not in violation of, and has not received any notices of
violation with respect to, any foreign, federal, state or local statute, law or,
to the knowledge of the Company and the Principal Shareholders, regulation.
2.25 Third Party Consents. Except as set forth in Exhibit C, no consent or
-------------------- ---------
approval is needed from any third party in order to effect the Merger or any of
the transactions contemplated by this Agreement.
2.26 Warranties; Indemnities. Exhibit C sets forth a summary of all
----------------------- ---------
warranties and indemnities relating to products sold or services rendered by the
Company, and no warranty or indemnity has been given by the Company which
differs therefrom in any respect. Exhibit C also indicates all warranty and
---------
indemnity claims in excess of $25,000 made against the Company.
2.27 Complete Copies of Materials. The Company has delivered or made
----------------------------
available true and complete copies of each document (or summaries of same) that
has been requested by Parent or its counsel.
2.28 Business Plan. The Company has provided to Parent a current business
-------------
plan for the Company's planned operations during the twelve months following the
Closing Date which includes, without limitation, a description of the Company's
capital requirements, staffing needs, and a pro forma income statement. The
business plan is attached to Exhibit C hereto. The Company does not represent
---------
that the future results of operations of its business will equal or exceed those
set forth in such business plan, but the Company does represent that the
business plan was developed in good faith and upon a reasonable basis.
-23-
2.29 Backlog Report. The Company has provided to Parent a detailed and
--------------
accurate list of all orders booked but not yet completed, giving the status of
each order as of a recent date. The backlog report is attached to Exhibit C
---------
hereto.
2.30 [Intentionally Omitted]
2.31 Principal Shareholder Investment Representations. Each Principal
------------------------------------------------
Shareholder, severally and not jointly, hereby makes all of the representations
and warranties set forth in Section 1 of the Shareholder Certificate attached
hereto as Exhibit D as if such representations and warranties were set forth in
---------
full herein.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Parent and Sub represent and warrant to the Company as follows:
3.1 Organization, Standing and Power. Parent is a corporation duly
--------------------------------
organized, validly existing and in good standing under the laws of the State of
Utah. Sub is a corporation duly organized, validly existing and in good
standing under the laws of Delaware. Each of Parent and Sub has the corporate
power to own its properties and to carry on its business as now being conducted
and is duly qualified to do business and is in good standing in each
jurisdiction in which the failure to be so qualified would have a material
adverse effect on the ability of Parent and Sub to consummate the transactions
contemplated hereby. Parent and Sub have delivered true and correct copies of
their respective Articles of Incorporation and Bylaws, each as amended to date,
to the Company.
3.2 Authority; Consents. Parent and Sub have all requisite corporate
-------------------
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Parent and Sub.
This Agreement has been duly executed and delivered by Parent and Sub and
constitutes the valid and binding obligations of Parent and Sub, enforceable in
accordance with its terms, except as such enforceability may be limited by
principles of public policy and subject to the laws of general application
relating to bankruptcy, insolvency and the relief of debtors and rules of law
governing specific performance, injunctive relief or other equitable remedies.
The execution and delivery of this Agreement by Parent and Sub does not, and, as
of the Closing, the consummation of the transactions contemplated hereby and
thereby will not, Conflict with (i) any provision of the respective Articles of
Incorporation or Bylaws of Parent or Sub or (ii) any agreement or instrument,
permit, judgment, statute, law, rule or regulation applicable to Parent or Sub.
No consent, waiver, approval, or registration, declaration or filing with, any
Governmental Entity or any third party is required by or with respect to any of
the Parent or Sub in connection with the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby.
3.3 Capital Structure.
-----------------
-24-
(a) The authorized stock of Parent consists of 100,000,000 shares of
Common Stock, $.001 par value, of which 23,423,331 shares were issued and
outstanding as of June 30, 1997, and 38,188,501 shares of Preferred Stock, $.001
par value, of which 18,678,500 shares are designated Series A Preferred Stock,
18,518,500 of which are issued and outstanding, 9,310,001 shares are designated
Series B Preferred Stock, all of which are issued and outstanding, and
10,200,000 shares are designated Series C Preferred Stock, 8,454,580 of which
are issued and outstanding. All such shares have been duly authorized, and all
such issued and outstanding shares have been validly issued, are fully paid and
nonassessable and are free of any liens or encumbrances other than any liens or
encumbrances created by or imposed upon the holders thereof. Parent has also
reserved (i) 3,900,000 shares of Common Stock for issuance to employees and
consultants pursuant to Parent's 1996 Stock Option Plan and 1996 Equity
Compensation Plan, (ii) 160,000 shares of Series A Preferred Stock and 2,113,647
shares of Series C Preferred Stock for issuance upon the exercise of outstanding
warrants to purchase Series A Preferred Stock and Series C Preferred Stock,
respectively (the "Warrant Stock"), (iii) 2,273,647 shares of Common Stock for
-------------
issuance upon conversion of the Warrant Stock, (vi) 1,000,000 shares of Common
Stock for issuance upon the exercise of warrants issued or available for grant
pursuant to the Company's Affiliate Warrant Program, (vii) 24,000,000 shares of
Common Stock for issuance upon the exercise of options issued or available for
grant pursuant to the Company's 1997 Acquisition Stock Option Program, and
(viii) 300,000 shares of Common Stock for issuance upon the conversion of other
outstanding warrants to purchase Common Stock. There are no other options,
warrants, calls, rights, commitments or agreements of any character to which
Parent is a party or by which it is bound obligating Parent to issue, deliver,
sell, repurchase or redeem, or cause to be issued, delivered, sold, repurchased
or redeemed, any shares of the capital stock of Parent or obligating Parent to
grant, extend or enter into any such option, warrant, call, right, commitment or
agreement.
(b) The shares of Parent Common Stock to be issued pursuant to the
Merger will be duly authorized, validly issued, fully paid and non-assessable.
3.4 Brokers' and Finders' Fees. The Parent has not incurred, nor will it
--------------------------
incur, directly or indirectly, any liability for brokers' or finders' fees or
agents' commissions or any similar charges in connection with this Agreement or
any transaction contemplated hereby.
3.5 Similar Transactions. Each party understands and agrees that the
--------------------
Parent may acquire other entities that are in a business similar to that of the
Company. In the event that, prior to the Second Adjustment Date, Parent
acquires another entity similar to the Company on terms substantially more
favorable to the equity owners of such entity after taking into account the
similarities and differences of the businesses, then the valuation of the
Company at the First Adjustment Date and the Second Adjustment Date shall be
recalculated to take into account such favorable treatment and the First
Adjustment to Purchase Price and Second Adjustment to Purchase Price shall be
recalculated promptly on such more favorable basis. Any additional shares due
to the Sellers upon such recalculation shall be issued promptly to the Company
Shareholders.
3.6 No Changes. Except as otherwise disclosed in this Agreement, there
----------
have been no material adverse changes to the Parent's financial condition or
operating information from the information contained in the Franchise Offering
Circular dated effective December 23, 1996, and the
-25-
Confidential Offering Memorandum dated February 1997 (the "Offering
--------
Memorandum"), relating to Parent's Series C Preferred Stock offering.
----------
3.7 Parent Financial Statements. Parent's balance sheet as of December
---------------------------
31, 1996 and the related statements of operations and cash flow for year then
ended (the "Parent Financials") are correct in all material respects. The
-----------------
Parent Financials present fairly in all material respects the financial
condition, operating results and cash flows of the Company as of the dates and
during the periods indicated therein.
3.8 Litigation. There is no action, suit or proceeding of any nature
----------
pending, or to Parent's and Sub's knowledge threatened, against Parent or Sub,
their respective properties or any of their respective officers or directors,
nor, to the knowledge of Parent and Sub, is there any reasonable basis therefor.
There is no investigation pending or, to Parent's and Sub's knowledge
threatened, against Parent or Sub, their respective properties or any of their
respective officers or directors (nor, to the knowledge of Parent and Sub, is
there any reasonable basis therefor) by or before any governmental entity. No
governmental entity has at any time challenged or questioned the legal right of
Parent or Sub to manufacture, offer or sell any of its products or services in
the present manner or style thereof.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business of the Company. During the period from the date
----------------------------------
of this Agreement and continuing until the earlier of the termination of this
Agreement or the Effective Time, the Company agrees (except to the extent that
Parent shall otherwise consent in writing), to carry on its business in the
usual, regular and ordinary course in substantially the same manner as
heretofore conducted, to pay debts and Taxes when due, to pay or perform other
obligations when due, and, to the extent consistent with such business, use all
reasonable efforts consistent with past practice and policies to preserve intact
the Company's present business organization, keep available the services of
present officers and key employees and preserve relationships with customers,
suppliers, distributors, licensors, licensees, and others having business
dealings with it, all with the goal of preserving unimpaired the Company's
goodwill and ongoing businesses at the Effective Time. The Company shall
promptly notify Parent of any event or occurrence or emergency not in the
ordinary course of business of the Company, and any material event involving the
Company. Except as expressly contemplated by this Agreement, the Company shall
not, without the prior written consent of Parent:
(a) Enter into any commitment or transaction not in the ordinary
course of business or any commitment or transaction of the type described in
Section 2.9 hereof;
(b) Transfer to any person or entity any rights to the Intellectual
Property of the Company;
-26-
(c) Enter into or amend any agreements pursuant to which any other
party is granted marketing, distribution or similar rights of any type or scope
with respect to any products of the Company;
(d) Amend or otherwise modify (or agree to do so), except in the
ordinary course of business, or violate the terms of, any of the agreements set
forth or described in Exhibit C;
---------
(e) Commence any litigation;
(f) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock or property) in respect of any of its
capital stock, or split, combine or reclassify any of its capital stock or issue
or authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of capital stock of the Company, or repurchase,
redeem or otherwise acquire, directly or indirectly, any shares of its capital
stock (or options, warrants or other rights exercisable therefor);
(g) Issue, grant, deliver or sell or authorize or propose the
issuance, grant, delivery or sale of, or purchase or propose the purchase of,
any shares of its capital stock or securities convertible into, or
subscriptions, rights, warrants or options to acquire, or other agreements or
commitments of any character obligating it to issue any such shares or other
convertible securities;
(h) Cause or permit any amendments to its Articles of Incorporation or
Bylaws;
(i) Acquire or agree to acquire by merging or consolidating with, or
by purchasing any assets or equity securities of, or by any other manner, any
business or any corporation, partnership, association or other business
organization or division thereof, or otherwise acquire or agree to acquire any
assets which are material, individually or in the aggregate, to its business;
(j) Sell, lease, license or otherwise dispose of any of its properties
or assets, except in the ordinary course of business and consistent with past
practices;
(k) Incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities or guarantee any debt
securities of others;
(l) Grant any loans to others or purchase debt securities of others or
amend the terms of any outstanding loan agreement, except in the ordinary course
of business and consistent with past practices;
(m) Grant any severance or termination pay (i) to any director or
officer or (ii) to any other employee except payments made pursuant to standard
written agreements outstanding on the date hereof;
-27-
(n) Adopt or amend any employee benefit plan, or enter into any
employment contract, pay or agree to pay any special bonus or special
remuneration to any director or employee, or increase the salaries or wage rates
of its employees;
(o) Revalue any of its assets, including without limitation writing
down the value of inventory or writing off notes or accounts receivable other
than in the ordinary course of business;
(p) Take any action which could jeopardize the tax-free reorganization
hereunder;
(q) Pay, discharge or satisfy, in an amount in excess of $10,000 (in
any one case) or $25,000 (in the aggregate), any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
any such payment, discharge or satisfaction in the ordinary course of business;
(r) Make or change any material election in respect of Taxes, adopt or
change any accounting method in respect of Taxes, enter into any closing
agreement, settle any claim or assessment in respect of Taxes, or consent to any
extension or waiver of the limitation period applicable to any claim or
assessment in respect of Taxes;
(s) Enter into any strategic alliance or joint marketing arrangement
or agreement; or
(t) Take, or agree in writing or otherwise to take, any of the actions
described in Sections 4.1(a) through (s) above, or any other action that would
prevent the Company from performing or cause the Company not to perform its
covenants hereunder.
4.2 No Solicitation. Until the earlier of the Effective Time or the date
---------------
of termination of this Agreement pursuant to the provisions of Section 8.1
hereof, neither the Company nor any of the Principal Shareholders will (nor will
the Company permit any of the Company's officers, directors, agents,
representatives or affiliates to) directly or indirectly, take any of the
following actions with any party other than Parent and its designees: (a)
solicit, conduct discussions with or engage in negotiations with any person,
relating to the possible acquisition of the Company (whether by way of merger,
purchase of capital stock, purchase of assets or otherwise) or any material
portion of its or their capital stock or assets, (b) provide information with
respect to it to any person, other than Parent, relating to the possible
acquisition of the Company (whether by way of merger, purchase of capital stock,
purchase of assets or otherwise) or any material portion of its or their capital
stock or assets, (c) enter into an agreement with any person, other than Parent,
providing for the acquisition of the Company (whether by way of merger, purchase
of capital stock, purchase of assets or otherwise) or any material portion of
its or their capital stock or assets or (d) make or authorize any statement,
recommendation or solicitation in support of any possible acquisition of the
Company (whether by way of merger, purchase of capital stock, purchase of assets
or otherwise) or any material portion of its or their capital stock or assets by
any person, other than by Parent. In addition to the foregoing, if the Company
or any Principal Shareholder receives prior to the Effective Time or the
termination of this Agreement any offer or proposal relating to any of the
above, the Company or such Principal Shareholder, as applicable shall
immediately notify Parent thereof, including information as to the identity of
the offeror or the party
-28-
making any such offer or proposal and the specific terms of such offer or
proposal, as the case may be, and such other information related thereto as
Parent may reasonably request.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Parent's Right of First Refusal.
-------------------------------
(a) Parent's Right of First Refusal. Before any shares issued
-------------------------------
pursuant to this Agreement (the "Shares") may be sold or otherwise transferred
------
(including transfer by gift or operation of law), or any Shares held by a
transferee (either being sometimes referred to herein as the "Holder") may be
------
sold, the Parent or its assignee(s) shall have a right of first refusal to
purchase such Shares on the terms and conditions set forth in this Section (the
"Right of First Refusal").
----------------------
(b) Notice of Proposed Transfer. The Holder of the Shares shall
---------------------------
deliver to the Parent a written notice (the "Notice") stating: (i) the Holder's
------
bona fide intention to sell or otherwise transfer such Shares; (ii) the name of
each proposed purchaser or other transferee ("Proposed Transferee"); (iii) the
-------------------
number of Shares to be transferred to each Proposed Transferee; and (iv) the
bona fide cash price or other consideration for which the Holder proposes to
transfer the Shares (the "Offered Price"), and the Holder shall offer the Shares
-------------
at the Offered Price to the Parent or its assignee(s).
(c) Exercise of Right of First Refusal. At any time within (15) days
----------------------------------
after receipt of the Notice, the Parent or its assignee(s) may, by giving
written notice to the Holder, elect to purchase all, but not less than all, of
the Shares proposed to be transferred to any one or more of the Proposed
Transferees, at the purchase price determined in accordance with subsection (d)
below.
(d) Purchase Price. The purchase price ("Parent Purchase Price") for
-------------- ---------------------
the Shares purchased by the Parent or its assignee(s) under this Section shall
be the Offered Price. If the Offered Price includes consideration other than
cash, the Parent may match such non-cash consideration with such other cash or
non-cash consideration as shall be mutually agreed to by Parent and the Holder.
If Parent and Holder cannot agree on the value of the proposed non-cash
consideration, then they shall submit the determination of the value of such
consideration to a mutually agreeable third-party appraiser.
(e) Payment. Payment of the Parent Purchase Price shall be made, at
-------
the option of the Parent or its assignee(s), in cash (by check), by cancellation
of all or a portion of any outstanding indebtedness of the Holder to the Parent
(or, in the case of repurchase by an assignee, to the assignee), or by any
combination thereof within 15 days after receipt of the Notice or in the manner
and at the times set forth in the Notice.
(f) Holder's Right to Transfer. If all of the Shares proposed in the
--------------------------
Notice to be transferred to a given Proposed Transferee are not purchased by the
Parent or its assignee(s) as provided in this Section, then the Holder may sell
or otherwise transfer such Shares to that Proposed Transferee
-29-
at the Offered Price or at a higher price, provided that such sale or other
transfer is consummated within 120 days after the date of the Notice and
provided further that any such sale or other transfer is effected in accordance
with any applicable securities laws and the Proposed Transferee agrees in
writing that the provisions of this Section shall continue to apply to the
Shares in the hands of such Proposed Transferee. If the Shares described in the
Notice are not transferred to the Proposed Transferee within such period, a new
Notice shall be given to the Parent, and the Parent or its assignees shall again
be offered the Right of First Refusal before any Shares held by the Holder may
be sold or otherwise transferred.
(g) Exception for Certain Family Transfers. Anything to the contrary
--------------------------------------
contained in this Section notwithstanding, the transfer of any or all of the
Shares during the Holder's lifetime or on the Holder's death by will or
intestacy to the Holder's immediate family or a trust for the benefit of the
Holder's immediate family shall be exempt from the provisions of this Section.
"Immediate Family" as used herein shall mean spouse, lineal descendant or
antecedent, brother or sister. In such case, the transferee or other recipient
shall receive and hold the Shares so transferred subject to the provisions of
this Section, and there shall be no further transfer of such Shares except in
accordance with the terms of this Section.
(h) Termination of Right of First Refusal. The Right of First Refusal
-------------------------------------
shall terminate as to any Shares 90 days after the first sale of Common Stock of
the Parent to the general public pursuant to a registration statement filed with
and declared effective by the Securities and Exchange Commission (the "SEC")
---
under the Securities Act.
5.2 Market Standoff Agreement. Each Company Shareholder hereby agrees
-------------------------
that if so requested by Parent or any representative of the underwriters in
connection with any registration of the offering of any Shares of Parent under
the Securities Act, such Company Shareholder shall not sell or otherwise
transfer, pledge, hypothecate or otherwise decrease his market risk or
beneficial ownership in any Shares or other securities of Parent during the 180-
day period following the date of the final Prospectus contained in a
registration statement of the Company filed under the Securities Act; provided,
however, that such restriction shall only apply to the first registration
statement of Parent to become effective under the Securities Act which includes
securities to be sold on behalf of Parent to the general public in an
underwritten public offering under the Securities Act. Parent may impose stop-
transfer instructions with respect to securities subject to the foregoing
restrictions until the end of such 180-day period.
5.3 Restriction on Competition.
--------------------------
(a) Restricted Activities. For a period of three (3) years beginning
---------------------
on the Closing Date, each Principal Shareholder other than Unicorn Creative
Services, Ltd. severally agrees that he or it shall not, directly or indirectly,
(i) engage in or own any interest (except as a passive investor
of less than five percent (5%) of total debt and equity) in any Competing
Business;
-30-
(ii) divert or attempt to divert any current or prospective
customers of the Company or any wholly owned subsidiary or franchisee of the
Company to any Competing Business, by any means including, but not limited to,
direct or indirect inducement; or
(iii) solicit any person for employment who is at that time
already employed by the Company, or any wholly owned subsidiary or franchisee of
the Company, or otherwise directly or indirectly induce or seek to induce such
person to leave his or her employment.
For purposes of subsection (i) above, the term "Competing Business"
shall mean and be limited to any business which derives the majority of its
revenues from Web site, intranet or Internet development or consulting services.
For purposes of subsections (ii) and (iii) above, the term "Competing Business"
shall mean and be limited to any business which offers Web site, intranet or
Internet development or consulting services.
(b) Scope. The restrictions set forth in this Section 5.3 shall apply
-----
in and be restricted to the Greater Pittsburgh Standard Metropolitan Statistical
Area, as defined by the U.S. Census Bureau or any successor agency thereof.
(c) Severability. In the event that any other provision of this
------------
Section 5.3 or the application of any provision shall be held to be prohibited
or unenforceable in any jurisdiction, such provision shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability. The remaining provisions of this covenant to refrain from
competition shall remain in full force and effect, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. The parties shall use
their best efforts to replace the provision that is contrary to law with a legal
one approximating to the extent possible the original intent of the parties.
(d) Termination of Principal Shareholder Without Cause. In the event
--------------------------------------------------
that a Principal Shareholder, who following the Merger becomes an employee of
Parent, is terminated from employment by Parent without cause at any time within
three (3) years of the Closing Date, then the term of the restrictions imposed
by this Section 5.3 shall be reduced to six (6) months and that terminated
Principal Shareholder shall receive severance benefits from Parent equal to six
(6) months' salary and employee benefits. For the purposes solely of this
Agreement, "cause" for a Principal Shareholder's termination shall exist at any
-----
time upon the occurrence of any of the following events;
(i) material acts of dishonesty by the Principal Shareholder;
(ii) gross negligence or willful malfeasance by the Principal
Shareholder in the performance of his duties;
(iii) willful disregard of, or failure to follow, written
instructions specifically addressed to the Principal Shareholder from Parent's
officers or board of directors to do any legal act related to the Company's
business;
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(iv) physical or mental disability of the Principal Shareholder
which prevents performance of his duties for a consecutive period of at least
120 days, or at least 150 days in a period of 200 days; or
(v) death of the Principal Shareholder.
5.4 Confidentiality. Each of the parties hereto hereby severally agrees
---------------
to keep such information or knowledge obtained pursuant to the negotiation and
execution of this Agreement, or the effectuation of the transactions
contemplated hereby, confidential; provided, however, that the foregoing shall
not apply to information or knowledge which (a) a party can demonstrate was
already lawfully in its possession prior to the disclosure thereof by the other
party, (b) is or becomes generally known to the public and did not become so
known through any violation of law or this Agreement by the non-disclosing
party, (c) is later lawfully acquired by such party from other sources, (d) is
required to be disclosed by order of court or government agency after seeking
any reasonably available protection against general disclosure or (e) which is
disclosed in the course of any litigation between any of the parties hereto; it
being understood that the parties may disclose relevant information and
knowledge to their respective employees and agents on a need to know basis,
provided that the parties cause such employees and agents to treat such
information and knowledge confidentially.
5.5 Expenses. Whether or not the Acquisition is consummated, all fees and
--------
expenses incurred in connection with the Acquisition including, without
limitation, all legal, accounting, financial advisory, consulting and all other
fees and expenses of third parties incurred by a party in connection with the
negotiation and effectuation of the terms and conditions of this Agreement and
the transactions contemplated hereby, shall be the obligation of the respective
party incurring such fees and expenses.
5.6 Public Disclosure. Unless otherwise required by law or any applicable
-----------------
rule of a stock exchange or quotation system upon which a party's securities are
listed, prior to the Closing Date, no public disclosure (whether or not in
response to an inquiry) of the subject matter of this Agreement shall be made by
any party unless approved by the other parties prior to release, provided that
such approval shall not be unreasonably withheld, subject to the parties'
obligations to comply with applicable securities laws.
5.7 Treatment of Affiliate Warrants. To the extent that any affiliate of
-------------------------------
the Company has received or has the right to receive any warrants under Parent's
Affiliate Warrant Program, the warrants received or to be received thereunder
shall remain in full force and effect and, to the extent required to make
calculations of shares issuable under such warrants, Parent shall estimate in
good faith the business measures of the Surviving Corporation as necessary to
such calculations, with the intent of preserving the economic value of such
warrants to the holders thereof following the completion of the acquisition
contemplated hereby.
5.8 Access to Information. The Company shall afford Parent and its
---------------------
accountants, counsel and other representatives, reasonable access during normal
business hours during the period prior to the Effective Time to (a) all of the
Company's properties, books, contracts, commitments and records, and (b) all
other information concerning the business, properties and personnel (subject to
restrictions
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imposed by applicable law) of the Company as Parent may reasonably request. The
Company agrees to provide to Parent and its accountants, counsel and other
representatives copies of internal financial statements promptly upon request.
No information or knowledge obtained in any investigation pursuant to this
Section 5.8 shall affect or be deemed to modify any representation or warranty
contained herein or the conditions to the obligations of the parties to
consummate the Merger.
5.9 Consents. The Company shall use its best efforts to obtain the
--------
consents, waivers and approvals under any of the Contracts as may be required in
connection with the Merger (all of such consents, waivers and approvals are set
forth in Exhibit C) so as to preserve all rights of, and benefits to, the
---------
Company thereunder.
5.10 FIRPTA Compliance. On the Closing Date, the Company shall deliver to
-----------------
Parent a properly executed statement in a form reasonably acceptable to Parent
for purposes of satisfying Parent's obligations under Treasury Regulation
Section 1.1445-2(c)(3).
5.11 Best Efforts. Subject to the terms and conditions provided in this
------------
Agreement, each of the parties hereto shall use its best efforts to take
promptly, or cause to be taken, all actions, and to do promptly, or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated
hereby to obtain all necessary waivers, consents and approvals and to effect all
necessary registrations and filings and to remove any injunctions or other
impediments or delays, legal or otherwise, in order to consummate and make
effective the transactions contemplated by this Agreement for the purpose of
securing to the parties hereto the benefits contemplated by this Agreement;
provided that Parent shall not be required to agree to any divestiture by Parent
or the Company or any of Parent's subsidiaries or affiliates of shares of
capital stock or of any business, assets or property of Parent or its affiliates
or of the Company or its affiliates, or the imposition of any material
limitation on the ability of any of them to conduct their businesses or to own
or exercise control of such assets, properties and stock.
5.12 Notification of Certain Matters. The Company shall give prompt notice
-------------------------------
to Parent, and Parent shall give prompt notice to the Company, of (i) the
occurrence or non-occurrence of any event, the occurrence or non-occurrence of
which is likely to cause any representation or warranty of the Company or the
Principal Shareholders and Parent, respectively, contained in this Agreement to
be untrue or inaccurate at or prior to the Effective Time and (ii) any failure
of the Company or Parent, as the case may be, to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder; provided, however, that the delivery of any notice pursuant to this
Section 5.12 shall not limit or otherwise affect any remedies available to the
party receiving such notice.
5.13 Preparation of Tax Returns. The Principal Shareholders shall prepare
--------------------------
or cause to be prepared and file or cause to be filed all income Tax Returns for
the Company for all periods ending on or prior to the Closing Date which are
filed after the Closing Date. Such returns shall be prepared in accordance with
applicable law and past practices consistently applied. The Principal
Shareholders shall permit Parent to review and comment on each such Tax Return
prior to filing.
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5.14 Additional Documents and Further Assurances. Each party hereto, at
-------------------------------------------
the request of another party hereto, shall execute and deliver such other
instruments and do and perform such other acts and things as may be necessary or
desirable for effecting completely the consummation of this Agreement and the
transactions contemplated hereby.
5.15 Section 368 Compliance. From and after the Effective Time, neither
----------------------
Parent, Sub, or the Company shall take any action that will cause the Merger not
to be treated as a reorganization within the meaning of Section 368 of the Code.
5.16 Parent Policies. The Company and Principal Shareholders acknowledge
---------------
that Parent has implemented policies regarding the operation of subsidiary
entities such as the Company will be following the Merger. The Company and
Principal Shareholders acknowledge and agree that such policies, or any such
amended or replacement policies that are reasonably similar in scope, nature or
effect, are anticipated to be in place following the Merger, and the Company and
Principal Shareholders hereby indicate their intention to act in substantial
compliance with all such policies. Such policies shall not provide for Parent
overhead allocations from Parent to Company or Sub, unless otherwise agreed in
advance by the parties.
5.17 Rule 144. If the Company shall have filed a registration statement
--------
pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, as amended, and the rules and regulations thereunder (the "Exchange Act")
------------
or a registration statement pursuant to the requirements of the Securities Act,
the Company shall file the reports required to be filed by it under the
Securities Act and the Exchange Act, and will take such further action as any
Principal Shareholder may reasonably request, all to the extent required from
time to time to enable such Principal Shareholder to sell shares of Parent
Common Stock without registration under the Securities Act within the limitation
of the exemptions provided by (a) Rule 144 under the Securities Act, as such
Rule may be amended from time to time, or (b) any similar rule or regulation
hereafter adopted by the SEC. Upon the request of any Principal Shareholder,
Parent will deliver to it a written statement as to whether it has complied with
such requirements.
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 Conditions to Obligations of Each Party to Effect the Merger. The
------------------------------------------------------------
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Effective Time of the
following conditions:
(a) No Injunctions or Restraints; Illegality. No temporary
----------------------------------------
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the Merger shall be in effect, nor shall any
proceeding brought by an administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, seeking any of
the foregoing be pending; nor shall there be any
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action taken, or any statute, rule, regulation or order enacted, entered,
enforced or deemed applicable to the Merger, which makes the consummation of the
Merger illegal.
(b) Litigation. There shall be no action, suit, claim or proceeding
----------
of any nature pending, or overtly threatened, against Parent, Sub or the
Company, their respective properties or any of their officers or directors
relating to the performance of their duties for Parent, Sub or the Company, as
applicable, arising out of, or in any way connected with, the Merger or the
other transactions contemplated by the terms of this Agreement.
6.2 Additional Conditions to Obligations of Company. The obligations of
-----------------------------------------------
the Company to consummate and effect this Agreement and the transactions
contemplated hereby shall be subject to the satisfaction at or prior to the
Effective Time of each of the following conditions, any of which may be waived,
in writing, exclusively by the Company:
(a) Representations, Warranties and Covenants. The representations
-----------------------------------------
and warranties of Parent and Sub in this Agreement shall be true and correct in
all material respects on and as of the Effective Time as though such
representations and warranties were made on and as of such time and each of
Parent and Sub shall have performed and complied in all material respects with
all covenants and obligations of this Agreement required to be performed and
complied with by it as of the Effective Time.
(b) Certificate of the Parent. Company shall have been provided with
-------------------------
a certificate executed on behalf of the Parent by its President to the effect
that, as of the Effective Time:
(i) all representations and warranties made by the Parent and
Sub in this Agreement are true and correct in all material respects;
(ii) all covenants and obligations of this Agreement to be
performed by the Parent on or before such date have been so performed in all
material respects.
(c) Claims. There shall not have occurred any claims (whether or not
------
asserted in litigation) which may materially and adversely affect the
consummation of the transactions contemplated hereby or the business, assets
(including intangible assets), financial condition or results of operations of
the Parent, taken as a whole.
(d) No Material Adverse Changes. There shall not have occurred any
---------------------------
material adverse change in the business, assets (including intangible assets),
financial condition or results of operations of the Parent since December 31,
1996.
6.3 Additional Conditions to the Obligations of Parent and Sub. The
----------------------------------------------------------
obligations of Parent and Sub to consummate and effect this Agreement and the
transactions contemplated hereby shall be subject to the satisfaction at or
prior to the Effective Time of each of the following conditions, any of which
may be waived, in writing, exclusively by Parent:
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(a) Representations, Warranties and Covenants. The representations
-----------------------------------------
and warranties of the Company and the Principal Shareholders in this Agreement
shall be true and correct in all material respects on and as of the Effective
Time as though such representations and warranties were made on and as of the
Effective Time and the Company shall have performed and complied in all material
respects with all covenants and obligations of this Agreement required to be
performed and complied with by it as of the Effective Time.
(b) Certificate of the Company and Principal Shareholders. Parent
-----------------------------------------------------
shall have been provided with a certificate executed by the Principal
Shareholders and executed on behalf of the Company by its Chief Executive
Officer to the effect that, as of the Effective Time:
(i) all representations and warranties made by the Company and
the Principal Shareholders in this Agreement are true and correct in all
material respects; and
(ii) all covenants and obligations of this Agreement to be
performed by the Company on or before such date have been so performed in all
material respects.
(c) Claims. There shall not have occurred any claims (whether or not
------
asserted in litigation) which may materially and adversely affect the
consummation of the transactions contemplated hereby or may have a Material
Adverse Effect.
(d) Third Party Consents. Any and all consents, waivers, and
--------------------
approvals listed in Exhibit C shall have been obtained.
---------
(e) Shareholder Certificate. Each of the Company Shareholders shall
-----------------------
have executed and delivered to Parent a Shareholder Certificate in the form
attached hereto as Exhibit D.
---------
(f) No Material Adverse Changes. There shall not have occurred any
---------------------------
material adverse change in the business, assets (including intangible assets),
results of operations, liabilities (contingent or accrued), financial condition
or prospects of the Company since May 31, 1997.
(g) Company Shareholder Approval. Each of the Company Shareholders
----------------------------
shall have approved this Agreement and the Merger and the transactions
contemplated thereby, and no Company Shareholder shall have exercised, or have
any continuing right to exercise, appraisal, dissenters' or similar rights by
virtue of the Merger.
ARTICLE VII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW
7.1 Survival of Representations and Warranties. All of the Company's and
------------------------------------------
the Principal Shareholders' representations and warranties in this Agreement,
including all exhibits hereto, or in any certificate delivered at the Closing
pursuant hereto shall terminate on the second anniversary of the
-36-
Effective Time. All of Parent's and Sub's representations and warranties
contained herein or in any certificate delivered at the Closing pursuant hereto
shall terminate on the second anniversary of the Effective Time.
7.2 Escrow Arrangements; Setoff.
---------------------------
(a) Escrow Fund; Setoff from Purchase Price Adjustments. As partial
---------------------------------------------------
security for the indemnity provided for in Section 7.3 and the Purchase Price
Adjustments provided for in Section 1.10, (i) at the Effective Time, the Company
Shareholders will be deemed to have received and deposited with the Escrow Agent
(as defined in Section 1.6(e)(iii) above) the Escrow Amount (plus any additional
shares that may be issued upon any stock split, stock dividend or
recapitalization effected by Parent after the Effective Time) without any act of
any Company Shareholder. On and after the Effective Time, the Escrow Amount
shall form an escrow fund (the "Escrow Fund") to be governed by the terms set
-----------
forth herein at Parent's cost and expense. The Escrow Agent may execute this
Agreement following the date hereof and prior to the Effective Time, and such
later execution, if so executed after the date hereof, shall not affect the
binding nature of this Agreement as of the date hereof between the other
signatories hereto. The portion of the Escrow Amount contributed on behalf of
each Company Shareholder shall be the pro rata amount calculated pursuant to
Section 1.6(a) of this Agreement. In addition to seeking indemnification under
Section 7.3 from the Escrow Fund and setting off amounts from the Purchase Price
Adjustment, Parent may, in its discretion, subject to the provisions of Section
7.2(f), seek indemnification for Losses directly from the Principal
Shareholders, but only after first proceeding against the Escrow Fund so long as
it exists and is not subject to other claims. Nothing herein shall limit the
liability of the Parent, the Company or the Principal Shareholders for any
breach of covenant if the Merger does not close as a result of such breach.
Parent may not receive any shares from the Escrow Fund (other than as a Purchase
Price Adjustment) unless Officer's Certificates (as defined in subsection (d)
below) identifying losses, the aggregate of which exceed $200,000, have been
delivered to the Shareholder Representative (as defined below) and the Escrow
Agent as provided in paragraph (d) below. The Company Shareholders shall not
have any right of contribution from the Company with respect to any Loss claimed
by Parent or Sub after the Effective Time.
(b) Escrow Period; Distribution upon Termination of Escrow Periods.
--------------------------------------------------------------
Subject to the following requirements, the Escrow Fund shall be in existence
immediately following the Effective Time and shall terminate at 5:00 p.m.,
Pacific Time, on the date of the first anniversary of the Effective Time (the
"Escrow Period"); provided that the Escrow Period shall not terminate with
--------------
respect to such amount (or some portion thereof) if in the reasonable judgment
of Parent, subject to the objection of the Shareholder Representative and the
subsequent arbitration of the matter in the manner provided in this Section 7.2,
subject to Section 7.2(f), such amount (or some portion thereof) together with
the aggregate amount remaining in the Escrow Fund is necessary to satisfy any
unsatisfied claims specified in any Officer's Certificate delivered to the
Escrow Agent prior to termination of such Escrow Period with respect to facts
and circumstances existing prior to the termination of such Escrow Period. As
soon as all such claims have been resolved, the Escrow Agent shall deliver to
the Company Shareholders the remaining portion of the Escrow Fund not required
to satisfy such claims as their interests therein then exist. Deliveries of
Escrow Amounts to the Company Shareholders pursuant to this Section 7.2(b) shall
-37-
be made in proportion to their respective original contributions to the Escrow
Fund except to the extent that the provisions of Section 7.2(f) require
otherwise.
(c) Protection of Escrow Fund.
-------------------------
(i) The Escrow Agent shall hold and safeguard the Escrow Fund
during the Escrow Period, shall treat such fund as a trust fund in accordance
with the terms of this Agreement and not as the property of Parent and shall
hold and dispose of the Escrow Fund only in accordance with the terms hereof.
(ii) Any shares of Parent Common Stock or other equity
securities issued or distributed by Parent (including shares issued upon a stock
split)("New Shares") in respect of Parent Common Stock in the Escrow Fund which
-----------
have not been released from the Escrow Fund shall be added to the Escrow Fund
and become a part thereof. New Shares issued in respect of shares of Parent
Common Stock which have been released from the Escrow Fund shall not be added to
the Escrow Fund but shall be distributed to the record holders thereof. Cash
dividends on Parent Common Stock shall not be added to the Escrow Fund but shall
be distributed to the record holders thereof.
(iii) Each Company Shareholder shall have voting rights with
respect to the shares of Parent Common Stock contributed to the Escrow Fund by
such Company Shareholder (and on any voting securities added to the Escrow Fund
in respect of such shares of Parent Common Stock).
(d) Claims Upon Escrow Fund. Upon receipt by the Escrow Agent at any
-----------------------
time on or before the last day of the Escrow Period of a certificate signed by
any officer of Parent (an "Officer's Certificate"): (A) stating that Parent has
---------------------
paid or accrued Losses, and (B) specifying in reasonable detail the individual
items of Losses included in the amount so stated, the date each such item was
paid or accrued, or the basis for such anticipated liability, and the nature of
the misrepresentation, breach of warranty or covenant to which such item is
related, the Escrow Agent shall, subject to the provisions of Section 7.2(e)
hereof, deliver to Parent out of the Escrow Fund, as promptly as practicable,
shares of Parent Common Stock held in the Escrow Fund in an amount equal to such
Losses.
(e) Objections to Claims. At the time of delivery of any Officer's
--------------------
Certificate to the Escrow Agent, a duplicate copy of such certificate shall be
delivered to the Shareholder Representative and for a period of thirty (30) days
after such delivery, the Escrow Agent shall make no delivery to Parent of any
Escrow Amounts pursuant to Section 7.2(d) hereof unless the Escrow Agent shall
have received written authorization from the Shareholder Representative to make
such delivery. After the expiration of such thirty (30) day period, the Escrow
Agent shall make delivery of the Escrow Amount from the Escrow Fund in
accordance with Sections 7.2(d) and 7.2(g) hereof, provided that no such payment
or delivery may be made if the Shareholder Representative shall object in a
written statement to the claim made in the Officer's Certificate, and such
statement shall have been delivered to the Escrow Agent prior to the expiration
of such thirty (30) day period.
(f) Maximum Liability. The total liability for any Principal
-----------------
Shareholder under this Agreement for Losses shall not exceed the aggregate
number of shares of Parent Common Stock that
-38-
such shareholder is entitled to receive pursuant to Section 1.6(a) hereunder, or
any proceeds from the sale thereof (the "Indemnification Shares"). The
----------------------
Indemnified Persons (as defined below) agree that they will look first to the
Escrow Fund and next to the shares of Parent Common Stock held by the Principal
Shareholders for the satisfaction of their claims under the indemnity provisions
set forth herein and costs and expenses related thereto. The Indemnified Persons
further agree that no Principal Shareholder shall be personally liable with
respect to such claims beyond the Indemnification Shares, and that the
Indemnification Shares shall be the only assets of Principal Shareholders to
which the Indemnified Persons shall have recourse. In addition, notwithstanding
anything to the contrary contained or implied in this Agreement, except as
provided in the next sentence, the shares of Parent Common Stock delivered out
of escrow to satisfy an indemnification claim shall be allocated pro rata
amongst the Principal Shareholders in proportion to the number of shares of
Parent Common Stock initially delivered into escrow by each Principal
Shareholder. However, shares delivered out of escrow to satisfy an
indemnification claim for breach by a Principal Shareholder of his or its
individual representations under Section 2.4, 2.11 or 2.31 or for a breach by a
Principal Shareholder of his or its obligations under the provisions of Article
V shall be made solely from the shares of Parent Common Stock of such breaching
Principal Shareholder then held in escrow.
(g) Indemnification and Setoff Claims. In the event Parent or an
---------------------------------
Indemnified Person shall have incurred any Losses, Parent shall deliver to the
Shareholder Representative an Officer's Certificate: (A) stating that Parent or
such Indemnified Person has paid or accrued Losses and (B) specifying in
reasonable detail the individual items of Losses included in the amount so
stated, the date each such item was paid or accrued, or the basis for such
anticipated liability, and the nature of the misrepresentation, breach of
warranty or covenant to which such item is related.
(h) Actions Against Principal Shareholders. In the event that all
--------------------------------------
shares have been paid out of the Escrow Fund to compensate Parent or any other
Indemnified Person for Losses, the Principal Shareholders shall promptly, and in
no event later than 30 days after delivery of the Officer's Certificate, wire
transfer to Parent the amount of such Loss, unless the Company or the Principal
Shareholders, as the case may be, contest such claim by following the procedures
set forth in Section 7.2(j).
(i) Valuation of Parent Common Stock. For the purposes of determining
--------------------------------
the number of shares of Parent Common Stock to be delivered to Parent out of the
Escrow Fund as indemnity pursuant to Section 7.3 hereof, the shares of Parent
Common Stock shall be valued at (i) if the Parent's Common Stock shall be
publicly traded, a price equal to the average closing price of the Parent Common
Stock in trading on the relevant stock exchange or quotation system during the
ten business day period ending three days prior to the date of the Officer's
Certificate stating the claim with respect to which such shares are delivered,
and (ii) if the Parent's Common Stock is not so publicly traded, the fair market
value per share as determined by the Parent's board of directors in good faith
on the date closest to the date of the Officer's Certificate.
(j) Resolution of Conflicts; Arbitration.
------------------------------------
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(i) In case the Shareholder Representative shall object in
writing to any claim or claims made in any Officer's Certificate within thirty
(30) days after delivery of such Officer's Certificate, the Shareholder
Representative and Parent shall attempt in good faith to agree upon the rights
of the respective parties with respect to each of such claims. If the
Shareholder Representative and Parent should so agree, a memorandum setting
forth such agreement shall be prepared and signed by both parties. If any claim
against the Escrow Fund was sought, such memorandum shall be furnished to the
Escrow Agent and the Escrow Agent shall be entitled to rely on any such
memorandum and make payment out of the Escrow Fund in accordance with the terms
thereof.
(ii) If no such agreement can be reached after good faith
negotiation (or in any event after 60 days from the date of the Officer's
Certificate), either Parent or the Shareholder Representative may demand
arbitration of the matter unless the amount of the damage or loss is at issue in
pending litigation with a third party, in which event arbitration shall not be
commenced until such amount is ascertained or both parties agree to arbitration;
and in either such event the matter shall be settled by arbitration conducted by
three arbitrators. Parent and the Shareholder Representative shall each select
one arbitrator, and the two arbitrators so selected shall select a third
arbitrator. The arbitrators shall set a limited time period and establish
procedures designed to reduce the cost and time for discovery while allowing the
parties an opportunity, adequate in the sole judgment of the arbitrators, to
discover relevant information from the opposing parties about the subject matter
of the dispute. The arbitrators shall rule upon motions to compel or limit
discovery and shall have the authority to impose sanctions, including attorneys'
fees and costs, to the same extent as a court of law or equity, should the
arbitrators determine that discovery was sought without substantial
justification or that discovery was refused or objected to without substantial
justification. The decision of a majority of the three arbitrators as to the
validity and amount of any claim in such Officer's Certificate shall be binding
and conclusive upon the parties to this Agreement. Notwithstanding anything in
Section 7.2(e) hereof, the Escrow Agent shall be entitled to act in accordance
with such decision and make or withhold payments out of the Escrow Fund in
accordance therewith. Such decision shall be written and shall be supported by
written findings of fact and conclusions which shall set forth the award,
judgment, decree or order awarded by the arbitrators.
(iii) Judgment upon any award rendered by the arbitrators may be
entered in any court having jurisdiction. Any such arbitration shall be held in
Santa Xxxxx County, California under the rules then in effect of the American
Arbitration Association. The arbitrators shall determine how the fees of each
arbitrator and the administrative fee of the American Arbitration Association
shall be paid. All other expenses shall be paid by the party incurring such
expenses.
(k) Third-Party Claims.
------------------
(i) In the event Parent becomes aware of a third-party claim
which Parent believes may result in Losses, Parent shall notify the Shareholder
Representative of such claim, and the Shareholder Representative shall be
entitled, at the Company Shareholders' expense, to participate in any defense of
such claim.
-40-
(ii) Parent shall have the right in its sole discretion to
settle any such claim; provided, however, that except with the consent of the
Shareholder Representative, no settlement of any such claim with third-party
claimants shall be determinative of the amount of any claim pursuant to this
Section 7.2. In the event that the Shareholder Representative has consented to
any such settlement, the Company Shareholders shall have no standing to object
under any provision of this Section 7.2 to the amount of any claim by Parent
against the Escrow Fund with respect to such settlement.
(iii) Parent shall provide the Shareholder Representative with a
copy of any written settlement proposal (a "Settlement Proposal") received from
a third party claimant promptly following Parent's receipt of such Settlement
Proposal. The Shareholder Representative shall advise Parent in writing within
10 business days following Shareholder Representative's receipt of the
Settlement Proposal whether the Shareholder Representative wishes to agree to
the Settlement Proposal. In the event that the Shareholder Representative
notifies Parent that it wishes to agree to a Settlement Proposal but Parent
declines to do so, then the liability of the Company Shareholders shall be
limited to that amount for which they would have been liable under the
Settlement Proposal, plus the attorneys' fees and other litigation costs of the
Parent incurred prior to the date the Parent provided the Shareholder
Representative with the Settlement Proposal.
(l) Shareholder Representative.
--------------------------
(i) In the event that the Merger is approved, effective upon
such vote, and without further act of any shareholder, Unicorn Creative
Services, Ltd. shall be appointed as agent and attorney-in-fact (the
"Shareholder Representative") for each Company Shareholder, for and on behalf of
--------------------------
shareholders of the Company, to give and receive notices and communications, to
authorize delivery to Parent of payments from the Escrow Fund in satisfaction of
claims by Parent, to object to such deliveries, to agree to, negotiate, enter
into settlements and compromises of, and demand arbitration and comply with
orders of courts and awards of arbitrators with respect to such claims, and to
take all actions necessary or appropriate in the judgment of the Shareholder
Representative for the accomplishment of the foregoing. Such agency may be
changed by the shareholders of the Company from time to time upon not less than
thirty (30) days prior written notice to Parent; provided that the Shareholder
Representative may not be removed unless a majority-in-interest of the Company
Shareholders agree to such removal and to the identity of the substituted agent.
No bond shall be required of the Shareholder Representative, and the Shareholder
Representative shall not receive compensation for services as such. Notices or
communications to or from the Shareholder Representative shall constitute notice
to or from each of the Company Shareholders or their permitted transferees.
(ii) The Shareholder Representative shall not be liable for any
act done or omitted hereunder as Shareholder Representative while acting in good
faith and in the exercise of reasonable judgment. The Company Shareholders
shall severally indemnify the Shareholder Representative and hold him or her
harmless against any loss, liability or expense incurred without negligence or
bad faith on the part of the Shareholder Representative and arising out of or in
connection with the acceptance or administration of the Shareholders
Representative's duties hereunder, including the reasonable fees and expenses of
any legal counsel retained by the Shareholder Representative.
-41-
(m) Actions of the Shareholder Representative. A decision, act,
-----------------------------------------
consent or instruction of the Shareholder Representative shall constitute a
decision of all the Company Shareholders and shall be final, binding and
conclusive upon each of such Company Shareholder, and the Escrow Agent and
Parent may rely upon any such decision, act, consent or instruction of the
Shareholder Representative as being the decision, act, consent or instruction of
each and every such Company Shareholder. The Escrow Agent and Parent are hereby
relieved from any liability to any person for any acts done by them in
accordance with such decision, act, consent or instruction of the Shareholder
Representative.
(n) Escrow Agent's Duties.
---------------------
(i) The Escrow Agent shall be obligated only for the
performance of such duties as are specifically set forth herein, and as set
forth in any additional written escrow instructions which the Escrow Agent may
receive after the date of this Agreement which are signed by an officer of
Parent and the Shareholder Representative, and may rely and shall be protected
in relying or refraining from acting on any instrument reasonably believed to be
genuine and to have been signed or presented by the proper party or parties. The
Escrow Agent shall not be liable for any act done or omitted hereunder as Escrow
Agent while acting in good faith and in the exercise of reasonable judgment, and
any act done or omitted pursuant to the advice of counsel shall be conclusive
evidence of such good faith.
(ii) The Escrow Agent is hereby expressly authorized to
disregard any and all warnings given by any of the parties hereto or by any
other person, excepting only orders or process of courts of law, and is hereby
expressly authorized to comply with and obey orders, judgments or decrees of any
court. In case the Escrow Agent obeys or complies with any such order, judgment
or decree of any court, the Escrow Agent shall not be liable to any of the
parties hereto or to any other person by reason of such compliance,
notwithstanding any such order, judgment or decree being subsequently reversed,
modified, annulled, set aside, vacated or found to have been entered without
jurisdiction.
(iii) The Escrow Agent shall not be liable in any respect on
account of the identity, authority or rights of the parties executing or
delivering or purporting to execute or deliver this Agreement or any documents
or papers deposited or called for hereunder.
(iv) The Escrow Agent shall not be liable for the expiration
of any rights under any statute of limitations with respect to this Agreement or
any documents deposited with the Escrow Agent.
(v) In performing any duties under the Agreement, the Escrow
Agent shall not be liable to any party for damages, losses, or expenses, except
for gross negligence or willful misconduct on the part of the Escrow Agent. The
Escrow Agent shall not incur any such liability for (A) any act or failure to
act made or omitted in good faith, or (B) any action taken or omitted in
reliance upon any instrument, including any written statement or affidavit
provided for in this Agreement that the Escrow Agent shall in good faith believe
to be genuine, nor will the Escrow Agent be liable or responsible for forgeries,
fraud, impersonations, or determining the scope of any representative authority.
In addition, the Escrow Agent may consult with the legal counsel in connection
with Escrow Agent's
-42-
duties under this Agreement and shall be fully protected in any act taken,
suffered, or permitted by such Escrow Agent in good faith in accordance with the
advice of counsel. The Escrow Agent is not responsible for determining and
verifying the authority of any person acting or purporting to act on behalf of
any party to this Agreement.
(vi) If any controversy arises between the parties to this
Agreement, or with any other party, concerning the subject matter of this
Agreement, its terms or conditions, the Escrow Agent will not be required to
determine the controversy or to take any action regarding it. The Escrow Agent
may hold all documents and the Escrow Amount and may wait for settlement of any
such controversy by final appropriate legal proceedings or other means as, in
the Escrow Agent's discretion, the Escrow Agent may be required, despite what
may be set forth elsewhere in this Agreement. In such event, the Escrow Agent
will not be liable for damage.
Furthermore, the Escrow Agent may at its option, file an
action of interpleader, in arbitration or otherwise, as the circumstances may
require, requiring the Parties to answer and litigate any claims and rights
among themselves. The Escrow Agent is authorized to deposit with the clerk of
the court all documents and shares of Parent Common Stock held in escrow, except
all cost, expenses, charges and reasonable attorney fees incurred by the Escrow
Agent due to the interpleader action and which the parties jointly and severally
agree to pay. Upon initiating such action, the Escrow Agent shall be fully
released and discharged of and from all obligations and liability imposed by the
terms of this Agreement.
(vii) For any Escrow Agent that is not the secretary or an
employee of Parent, the parties and their respective successors and assigns
agree jointly and severally to indemnify and hold Escrow Agent harmless against
any and all losses, claims, damages, liabilities, and expenses, including
reasonable costs of investigation, counsel fees, including allocated costs of
in-house counsel and disbursements that may be imposed on the Escrow Agent or
incurred by the Escrow Agent in connection with the performance of the Escrow
Agent's duties under this Agreement, including but not limited to any litigation
arising from this Agreement or involving its subject matter other than arising
out of its gross negligence or willful misconduct (the "Escrow Agent
Indemnification Obligation"). For any Escrow Agent that is the secretary or an
employee of Parent, Parent and its successors and assigns agree to assume the
Escrow Agent Indemnification Obligation.
(viii) The Escrow Agent may resign at any time upon giving at
least thirty (30) days written notice to the parties to this Agreement;
provided, however, that no such resignation shall become effective until the
appointment of a successor escrow agent which shall be accomplished as follows:
the parties shall use their best efforts to agree on a successor escrow agent
within thirty (30) days after receiving such notice. If Parent and the
Shareholder Representative fail to agree upon a successor escrow agent within
such time, the Escrow Agent shall have the right to appoint a successor escrow
agent authorized to do business in the state of California. The successor escrow
agent shall execute and deliver an instrument accepting such appointment and it
shall, without further acts, be vested with all the estates, properties, rights,
powers, and duties of the predecessor Escrow Agent as if originally named as
Escrow Agent. Thereafter, the Escrow Agent shall be discharged from any further
duties and liability under this Agreement.
-43-
(o) Fees. All fees of the Escrow Agent for performance of its duties
----
hereunder shall be paid by Parent in accordance with the standard fee schedule
of the Escrow Agent. It is understood that the fees and usual charges agreed
upon for services of the Escrow Agent shall be considered compensation for
ordinary services as contemplated by this Agreement. In the event that the
conditions of this Agreement are not promptly fulfilled, or if the Escrow Agent
renders any service not provided for in this Agreement, or if the parties hereto
request a substantial modification of its terms, or if any controversy arises,
or if the Escrow Agent is made a party to, or intervenes in, any litigation
pertaining to the Escrow Fund or its subject matter, the Escrow Agent shall be
reasonably compensated for such extraordinary services and reimbursed for all
costs, attorney's fees, including allocated costs of in-house counsel, and
expenses occasioned by such default, delay, controversy or litigation. The
Parent promises to pay these sums upon demand.
7.3 Indemnity.
---------
(a) Indemnification by Principal Shareholders. The Principal
-----------------------------------------
Shareholders hereby agree to indemnify and hold Parent and its subsidiaries,
directors, officers and agents (collectively, the "Indemnified Persons")
-------------------
harmless against and in respect of any loss, cost, expense, claim, liability,
deficiency, judgment or damage (hereinafter, individually, a "Loss"; and
----
collectively, "Losses") incurred by Parent, its subsidiaries, officers,
------
directors and agents as a result of any inaccuracy in or breach of a
representation or warranty of the Company or any Principal Shareholder contained
in this Agreement; provided, however, no Principal Shareholder shall have any
liability or indemnification obligation resulting from a breach of a
representation or warranty set forth in Section 2.4, 2.11 or 2.31 by another
Principal Shareholder to the extent the representation relates to such other
Principal Shareholder. In addition, each Principal Shareholder hereby severally
agrees to indemnify and hold harmless the Indemnified Persons against any Loss
which results from a failure by the Company or such Principal Shareholder to
perform or comply with any covenant contained in this Agreement or by reason of
such Principal Shareholder failing to perform any obligation required of it
hereunder; provided, however, that no Principal Shareholder shall have any
liability or indemnification obligation resulting from a breach by another
Principal Shareholder of the provisions of Article V hereof.
(b) Indemnification by Parent. Parent hereby agrees to indemnify and
-------------------------
hold the Company and its subsidiaries, directors, officers and agents harmless
against and in respect of any Loss incurred by the Company, its subsidiaries,
officers, directors and agents (i) as a result of any inaccuracy in or breach of
a representation or warranty of Parent contained in this Agreement or any
failure by Parent to perform or comply with any covenant contained in this
Agreement and (ii) by reason of the failure of Parent to perform its obligations
hereunder.
(c) Expiration of Indemnification. The indemnification obligations
-----------------------------
under this Section 7.3 shall terminate at 5:00 p.m., Pacific Time on the second
anniversary of the Effective Date, but shall not terminate as to any Loss (or a
potential claim by an appropriate party) asserted in good faith prior to such
date.
(d) Procedure for Indemnification. In the event that either party
-----------------------------
shall incur or suffer any Losses in respect of which indemnification may be
sought by such party pursuant to the provisions
-44-
of this Article, the indemnified party shall assert a claim for indemnification
by written notice (a "Notice") to the Parent, or the Surviving Corporation and
the Shareholder Representative, as the case may be, briefly stating the nature
and basis of such claim. In the case of Losses arising by reason of any third-
party claim, the Notice shall be given within 25 days of the filing or other
written assertion of any such claim against Parent, but the failure of Parent to
give the Notice within such time period shall not relieve the Company and the
Principal Shareholders of any liability that the Company and the Principal
Shareholders may have to Parent except to the extent that the Company and the
Principal Shareholders are actually prejudiced thereby; provided, however, that
any such notice shall be given no later than the date of the expiration of the
applicable indemnification obligation of the Company and the Principal
Shareholders as set forth in Section 7.3(c) above. The indemnified party shall
provide the other party on request all information and documentation reasonably
necessary to support and verify any Losses which the indemnified party believes
give rise to a claim for indemnification hereunder and shall give reasonable
access to all books, records and personnel in the possession or under the
control of that party which would have bearing on such claim.
(e) Arbitration. Any controversy involving a claim by an indemnified
-----------
party pursuant to this Section 7.3 shall be finally settled by arbitration in
Santa Xxxxx County, California in accordance with the then current Commercial
Arbitration Rules of the American Arbitration Association; and judgment upon the
award rendered by the arbitrator may be entered in any court having jurisdiction
thereof. Such arbitration shall be conducted by an arbitrator chosen by mutual
agreement of Parent and the Company and the Principal Shareholders. Failing
such agreement, the arbitration shall be conducted by three independent
arbitrators, none of whom shall have any competitive interest with Parent or the
Company and the Principal Shareholders. Parent shall choose one such
arbitrator, the Company and the Principal Shareholders shall choose one such
arbitrator, and such two arbitrators shall mutually select a third arbitrator.
Any decision of two such arbitrators shall be binding on Parent and the Company
and the Principal Shareholders. Each party shall pay its own costs and expenses
(including counsel fees) of any such arbitration except that the arbitrator can
compel one party to pay all or a portion of the other party's costs and
expenses.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
8.1 Termination. Except as provided in Section 8.2 below, this Agreement
-----------
may be terminated and the Merger abandoned at any time prior to the Effective
Time:
(a) by mutual consent of the Company and Parent;
(b) by Parent or the Company if: (i) the Effective Time has not
occurred by September 15, 1997; (ii) there shall be a final nonappealable order
of a federal or state court in effect preventing consummation of the Merger; or
(iii) there shall be any statute, rule, regulation or order enacted, promulgated
or issued or deemed applicable to the Merger by any governmental entity that
would make consummation of the Merger illegal;
-45-
(c) by Parent or the Company if there shall be any action taken, or
any statute, rule, regulation or order enacted, promulgated or issued or deemed
applicable to the Merger by any Governmental Entity, which would: (i) prohibit
Parent's or Sub's ownership or operation of any portion of the business of the
Company or the Sub or (ii) compel Parent or the Company to dispose of or hold
separate all or a portion of the business or assets of the Sub or Parent as a
result of the Merger;
(d) by Parent if it is not in material breach of its obligations under
this Agreement and there has been a material breach of any representation,
warranty, covenant or agreement contained in this Agreement on the part of the
Company or the Principal Shareholders and such breach has not been cured within
ten (10) calendar days after written notice to the Company (provided that, no
cure period shall be required for a breach which by its nature cannot be cured);
(e) by the Company if neither it nor the Principal Shareholders are in
material breach of their respective obligations under this Agreement and there
has been a material breach of any representation, warranty, covenant or
agreement contained in this Agreement on the part of Parent or Sub and such
breach has not been cured within ten (10) calendar days after written notice to
Parent (provided that, no cure period shall be required for a breach which by
its nature cannot be cured); or
(f) by Parent, Sub, Company, or Principal Shareholders if an event
having a Material Adverse Effect on the Company shall have occurred after the
date of this Agreement.
Where action is taken to terminate this Agreement pursuant to this Section
8.1, it shall be sufficient for such action to be authorized by the Board of
Directors (as applicable) of the party taking such action.
8.2 Effect of Termination. In the event of termination of this Agreement
---------------------
as provided in Section 8.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of Parent, Sub or the Company,
or their respective officers, directors or shareholders, provided that each
party shall remain liable for any breaches of this Agreement prior to its
termination; provided further that, the provisions of Sections 5.4 and 5.5 and
Article IX of this Agreement shall remain in full force and effect and survive
any termination of this Agreement.
8.3 Amendment. Except as is otherwise required by applicable law after
---------
the Company Shareholders approve this Agreement, this Agreement may be amended
by the parties hereto at any time by execution of an instrument in writing
signed on behalf of each of the parties hereto.
8.4 Extension; Waiver. At any time prior to the Effective Time, Parent
-----------------
and Sub, on the one hand, and the Company, on the other, may, to the extent
legally allowed, (i) extend the time for the performance of any of the
obligations of the other party hereto, (ii) waive any inaccuracies in the
representations and warranties made to such party contained herein or in any
document delivered pursuant hereto, and (iii) waive compliance with any of the
agreements or conditions for the benefit of such party contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party.
-46-
ARTICLE IX
GENERAL PROVISIONS
9.1 Notices. All notices and other communications hereunder shall be in
-------
writing and shall be deemed given if delivered personally or by commercial
messenger or courier service, or mailed by registered or certified mail (return
receipt requested) or sent via facsimile (with acknowledgment of complete
transmission) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
(a) if to Parent or Sub, to:
USWeb Corporation
0000 Xxxxxxxx Xxxxx
Xxxxx Xxxxx, Xxxxxxxxxx 00000
Attention: Chief Financial Officer
Telecopy No.: (000) 000-0000
with a copy to:
Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx, P.C.
000 Xxxx Xxxx Xxxx
Xxxx Xxxx, Xxxxxxxxxx 00000
Attention: Xxxx Xxxxxx, Esq.
Telecopy No.: (000) 000-0000
(b) if to Company or to a Principal Shareholder, to:
Electronic Images, Inc.
000 X. Xxxxxx Xxxxxx
Xxxxxxxxxx, Xxxxxxxxxxxx 00000
Attention: Xxxxx Xxxxxxxxx
Telecopy No.: (000) 000-0000
with copies to:
Xxxxx & Xxxxxxx, P.C.
2900 CNG Tower
000 Xxxxxxx Xxxxxx
Xxxxxxxxxx, Xxxxxxxxxxxx 00000
Attention: Xxxx Xxxxxxx, Esq.
Telecopy No.: (000) 000-0000
-47-
Xxxxx & Xxxxxxx
0000 Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxx Xxxxxxx, Esq.
Telecopy No.: (000) 000-0000
9.2 Interpretation. The words "include," "includes" and "including" when
--------------
used herein shall be deemed in each case to be followed by the words "without
limitation." The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
9.3 Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
9.4 Entire Agreement; Assignment. This Agreement, and Exhibits hereto;
----------------------------
and the documents and instruments and other agreements among the parties hereto
referenced herein: (a) constitute the entire agreement among the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings both written and oral, among the parties with respect to the
subject matter hereof; (b) except for the rights and obligations of the
Shareholder Representative, are not intended to confer upon any other person any
rights or remedies hereunder; and (c) shall not be assigned by operation of law
or otherwise except as otherwise specifically provided, except that Parent and
Sub may assign their respective rights and delegate their respective obligations
hereunder to their respective affiliates.
9.5 Severability. In the event that any provision of this Agreement or
------------
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to
replace such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
9.6 Other Remedies. Except for a cause of action arising out of the fraud
--------------
of a party to this Agreement and the right of any party not to close this
transaction if a closing condition is not met, the indemnification provisions
set forth in Article 7 of this Agreement shall be the sole and exclusive remedy
of the parties hereto and in lieu of all other rights and remedies for Losses
arising out of any party's breach of any representation or warranty or failure
to perform any covenant or agreement contained in or made pursuant to this
Agreement. Except as otherwise provided herein, any and all remedies herein
expressly conferred upon a party will be deemed cumulative with and not
exclusive of any other remedy conferred hereby, or by law or equity upon such
party, and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy.
-48-
9.7 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of California, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
Each of the parties hereto irrevocably consents to the exclusive jurisdiction
and venue of any court within Santa Xxxxx County, State of California, in
connection with any matter based upon or arising out of this Agreement or the
matters contemplated herein, agrees that process may be served upon them in any
manner authorized by the laws of the State of California for such persons and
waives and covenants not to assert or plead any objection which they might
otherwise have to such jurisdiction, venue and such process.
9.8 Rules of Construction. The parties hereto agree that they have been
---------------------
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
-49-
IN WITNESS WHEREOF, Parent, Sub, the Company and the Principal Shareholders
have caused this Agreement to be signed by their duly authorized respective
officers, all as of the date first written above.
ELECTRONIC IMAGES, INC. USWEB CORPORATION
Signature: Signature:
--------------------------- -------------------------
Name: Name:
--------------------------- -------------------------
Title: Title:
--------------------------- -------------------------
ESCROW AGENT USWEB ACQUISITION CORPORATION 108
Signature: Signature:
--------------------------- -------------------------
Name: Name:
--------------------------- -------------------------
Title: Title:
--------------------------- -------------------------
PRINCIPAL SHAREHOLDERS
------------------------------------
(Name of Shareholder)
Signature:
--------------------------
Name:
-------------------------------
Title:
-------------------------------
------------------------------------
(Name of Shareholder)
Signature:
--------------------------
Name:
-------------------------------
Title:
------------------------------
------------------------------------
(Name of Shareholder)
Signature:
--------------------------
Name:
-------------------------------
Title:
------------------------------
EXHIBIT A
---------
PRINCIPAL SHAREHOLDERS
Image Design and Technology, Inc.
Xxxxx Xxxxxxxxx
Unicorn Creative Services, Ltd.
Xxxxxx Xxxxxxx
EXHIBIT B
---------
VALUATION MODEL
EXHIBIT C
---------
SCHEDULE OF EXCEPTIONS
EXHIBIT D
---------
FORM OF SHAREHOLDER CERTIFICATE
SHAREHOLDER CERTIFICATE
[WORDS IN BOLD AND BRACKETS ARE FOR UNICORN CERTIFICATE ONLY]
The undersigned is aware that pursuant to an Agreement and Plan of
Reorganization, dated as of August ____, 1997, as amended (the "Agreement"),
---------
entered into by and among USWeb Corporation, a Utah corporation ("Parent"),
------
Electronic Images, Inc., a Pennsylvania corporation (the "Company"), USWeb
-------
Acquisition Corporation 108, a Delaware corporation and wholly owned subsidiary
of Parent ("Sub"), the Company will merge (the "Merger") with and into Sub and
--- ------
all shares of the Company's Common Stock will be exchanged for certain
consideration set forth in the Agreement (the "Merger Consideration"). Unless
--------------------
otherwise indicated, capitalized terms not defined herein have the meanings set
forth in the Agreement.
The undersigned understands that the execution of this Certificate is a
condition precedent to Parent and Sub's obligation to consummate the Merger and
to the receipt of Merger Consideration in the Merger (pursuant to the terms and
conditions of the Agreement).
The undersigned hereby represents and warrants as follows:
(a) Investment Representations.
--------------------------
(i) The Parent Common Stock issued to the undersigned will be
acquired for investment for the undersigned's own account, not as a nominee or
agent, and not with a view to the sale or distribution of any part thereof, and
the undersigned has no present intention of selling, granting any participation
in, or otherwise distributing the same, [OTHER THAN PURSUANT TO THE
"ARRANGEMENT" (AS DEFINED BELOW)]. The undersigned represents that the entire
legal and beneficial interest of the Parent Common Stock will be held for the
undersigned's account only, and neither in whole or in part for any other
person. By executing this Shareholder's Certificate, the undersigned further
represents that the undersigned has no present contract, undertaking, agreement
or arrangement with any person to sell, transfer, or grant participation to such
person or to any third person, with respect to any of the Parent Common Stock[,
OTHER THAN AN ARRANGEMENT (THE "ARRANGEMENT") WITH ONE INDIVIDUAL PURSUANT TO
-----------
WHICH THE UNDERSIGNED INTENDS TO SELL NO MORE THAN 1,250,000 SHARES OF PARENT
COMMON STOCK TO SUCH INDIVIDUAL OR TO A BUSINESS ENTITY OWNED OR CONTROLLED BY
SUCH INDIVIDUAL. THE UNDERSIGNED REPRESENTS THAT IN CONNECTION WITH THE CLOSING
OF THE ARRANGEMENT, THE PURCHASER OF THE SHARES OF PARENT COMMON STOCK WILL
EXECUTE AND DELIVER TO PARENT A CERTIFICATE IN THE FORM ATTACHED HERETO A
EXHIBIT A.]
---------
(ii) The undersigned understands and acknowledges that the issuance
of the Parent Common Stock pursuant to the Agreement is being effected on the
basis that the issuance of such securities is exempt from registration pursuant
to Section 4(2) of the Securities Act of 1933, as amended (the "1933 Act") and
--------
that the Parent's reliance upon such exemption is predicated upon the
undersigned's representations.
(iii) The undersigned further represents that he: (i) has such
knowledge and experience in financial and business matters as to be capable of
evaluating the merits and risks of the undersigned's prospective investment in
the shares of Parent Common Stock; (ii) has received all the information it has
requested from the Parent and the Company it considers necessary or appropriate
for deciding whether to accept the Parent Common Stock; (iii) has the ability to
bear the economic risks of the undersigned's prospective investment; (iv) is
able, without materially impairing his financial condition, to hold the Parent
Common Stock for an indefinite period of time and to suffer complete loss on his
investment; and (v) if applicable, is an "accredited investor" within the
-------------------
meaning of Rule 501 of Regulation D promulgated under the 0000 Xxx.
(iv) Each certificate representing Parent Company Stock issued
pursuant hereto to the undersigned and any shares issued or issuable in respect
of any such Parent Common Stock upon any stock split, stock dividend,
recapitalization, or similar event, shall be stamped or otherwise imprinted with
legends in the following form (in addition to any legend required under
applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933. THESE SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF
SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT. COPIES
OF THE AGREEMENT COVERING THE PURCHASE OF THESE SHARES AND RESTRICTING
THEIR TRANSFER MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY
THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE
CORPORATION AT THE PRINCIPAL EXECUTIVE OFFICES OF THE CORPORATION.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS UPON TRANSFER, AS SET FORTH IN AN AGREEMENT BETWEEN THE
CORPORATION AND THE REGISTERED HOLDER, A COPY OF WHICH IS ON FILE AT
THE PRINCIPAL OFFICE OF THE CORPORATION. SUCH TRANSFER RESTRICTIONS
ARE BINDING ON TRANSFEREES OF THESE SHARES.
(v) The certificates evidencing the Parent Common Stock shall also
bear any legend required pursuant to any state, local or foreign law governing
such securities.
(vi) The undersigned understands and acknowledges that the Parent
Common Stock has not been registered under the 1933 Act and Parent Common Stock
must be held indefinitely unless subsequently registered under the 1933 Act or
an exemption from such
registration is available and neither Parent nor the Company is under any
obligation to register the Parent Common Stock.
(vii) The undersigned acknowledges that the Parent Common Stock shall
not be transferable except upon the conditions specified in this Certificate and
in the Agreement. Each Company Shareholder will cause any proposed transferee
of the Parent Company Stock held by such Company Shareholder to agree to take
and hold such Parent Company Stock subject to the provisions and upon the
conditions specified in this Certificate and in the Agreement.
(viii) Prior to any proposed transfer of any Parent Common Stock,
unless there is in effect a registration statement under the Securities Act
covering the proposed transfer, the undersigned shall give written notice to the
Company of his intention to effect such transfer. Each such notice shall
describe the manner and circumstances of the proposed transfer in sufficient
detail, and shall, if the Parent so requests, be accompanied (except in
transactions in compliance with Rule 144) by either (i) a written opinion of
legal counsel reasonably satisfactory to Parent, addressed to Parent, to the
effect that the proposed transfer of Parent Common Stock may be effected without
registration under the 1933 Act, or (ii) a "No Action" letter from the
---------
Commission to the effect that the transfer of such securities without
registration will not result in a recommendation by the staff of the Commission
that action be taken with respect thereto, whereupon the holder of such Parent
Common Stock shall be entitled to transfer such shares of Parent Common Stock in
accordance with the terms of the notice delivered by the holder to Parent,
subject to any right of first refusal on transfer in favor of the Parent. Each
certificate evidencing the shares of Parent Common Stock transferred as above
provided shall bear the appropriate restrictive legend set forth in Section (d)
above, except that such certificate shall not bear such restrictive legend if in
the opinion of counsel for Parent such legend is not required in order to
establish compliance with any provisions of the 1933 Act, which opinion will not
be unreasonably withheld.
(ix) The undersigned has had an opportunity to review with his own
tax advisors the tax consequences to the undersigned of the Merger and the
transactions contemplated by the Agreement. The undersigned understands that he
must rely solely on his advisors and not on any statements or representations by
Parent, the Company or any of their agents. The undersigned understands that,
except as set forth in Section 7.3(c) of the Agreement, he (and not Parent or
the Company) shall be responsible for his own tax liability that may arise as a
result of the Merger or the transactions contemplated by the Agreement.
(x) The undersigned will have sufficient assets, after completion
of the Merger, to satisfy all of the undersigned's obligations to its creditors
as the same become due and payable.
(b) Acknowledgment of Escrow Setoff and Market Standoff Agreement. The
-------------------------------------------------------------
undersigned has carefully reviewed the Agreement, and understands and agrees
that:
(i) Pursuant to such Agreement, 45% of the Original Purchase Price
which would otherwise be payable to the undersigned at the Effective Time of the
Merger will be deemed to have been received by the undersigned and deposited
with the Escrow Agent, without any act of the
undersigned, and that the amounts deposited with the Escrow Agent shall be
available to satisfy Losses and adjustments to the Original Purchase Price as
set forth in the Agreement.
(ii) Each Company Shareholder hereby agrees that if so requested by
the Company or any representative of the underwriters in connection with any
registration of the offering of any Shares of the Company under the Securities
Act, such Company Shareholder shall not sell or otherwise transfer, pledge,
hypothecate or otherwise decrease his market risk or beneficial ownership in any
Shares or other securities of the Company during the 180-day period following
the date of the final Prospectus contained in a registration statement of the
Company filed under the Securities Act; provided, however, that such restriction
shall only apply to the first registration statement of the Company to become
effective under the Securities Act which includes securities to be sold on
behalf of the Company to the general public in an underwritten public offering
under the Securities Act. The Company may impose stop-transfer instructions
with respect to securities subject to the foregoing restrictions until the end
of such 180-day period.
(c) Election of Shareholder Representative. The undersigned hereby
--------------------------------------
consents to the election and appointment of Unicorn Creative Services, Ltd. as
the Shareholder Representative (as such term is defined in the Agreement) and
authorizes such Shareholder Representative to act as the undersigned's duly
constituted attorney-in-fact in connection with the matters set forth in the
Agreement, until such time as a successor of such Shareholder Representative is
elected by a majority-in-interest of the Company Shareholders. The undersigned
acknowledges and agrees that any decision, act, consent or instruction of the
Shareholder Representative shall constitute a decision, act, consent or
instruction of the undersigned and shall be final, binding and conclusive on the
undersigned, and that Parent and the Escrow Agent may rely upon any such
decision, act, consent or instruction of the Shareholder Representative as being
the decision, act, consent or instruction of the undersigned.
IN WITNESS WHEREOF, the undersigned has executed this Certificate this
_____ day of _________________, 1997.
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Signature
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Print Name
EXHIBIT A
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SHAREHOLDER CERTIFICATE
The undersigned is aware that pursuant to an Agreement and Plan of
Reorganization, dated as of August ___, 1997 (the "Agreement"), entered into by
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and among USWeb Corporation, a Utah corporation ("Parent"), Electronic Images,
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Inc., a Pennsylvania corporation (the "Company"), USWeb Acquisition Corporation
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108, a Delaware corporation and wholly owned subsidiary of Parent ("Sub"), the
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Company will merge (the "Merger") with and into Sub and all shares of the
------
Company's Common Stock, including those shares owned by Unicorn Creative
Services, Ltd. ("Unicorn"), will be exchanged for certain consideration set
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forth in the Agreement (the "Merger Consideration"). Unless otherwise
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indicated, capitalized terms not defined herein have the meanings set forth in
the Agreement.
The undersigned understands that the execution of this Certificate is a
condition precedent to both Parent and Sub's obligation to consummate the Merger
and to the sale of shares of Parent Common Stock by Unicorn to the undersigned
(the "Stock Sale").
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The undersigned hereby represents and warrants as follows:
(a) Investment Representations.
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(i) The Parent Common Stock sold to the undersigned in the Stock
Sale will be acquired for investment for the undersigned's own account, not as a
nominee or agent, and not with a view to the sale or distribution of any part
thereof, and the undersigned has no present intention of selling, granting any
participation in, or otherwise distributing the same. The undersigned represents
that the entire legal and beneficial interest of the Parent Common Stock will be
held for the undersigned's account only, and neither in whole or in part for any
other person. By executing this Shareholder's Certificate, the undersigned
further represents that the undersigned has no present contract, undertaking,
agreement or arrangement with any person to sell, transfer, or grant
participation to such person or to any third person, with respect to any of the
Parent Common Stock.
(ii) The undersigned understands and acknowledges that the issuance
of Parent Common Stock to Unicorn pursuant to the Agreement is being effected on
the basis that the issuance of such securities is exempt from registration
pursuant to Section 4(2) of the Securities Act of 1933, as amended (the "1933
----
Act") and that the Parent's reliance upon such exemption is predicated upon the
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undersigned's representations.
(iii) The undersigned further represents that it: (i) has such
knowledge and experience in financial and business matters as to be capable of
evaluating the merits and risks of the undersigned's prospective the shares of
Parent Common Stock; (ii) has the ability to bear the economic risks of the
undersigned's prospective investment; (iii) is able, without materially
impairing its financial condition, to hold the Parent Common Stock for an
indefinite period of time
and to suffer complete loss on its investment; and (iv) if applicable, is an
"accredited investor" within the meaning of Rule 501 of Regulation D promulgated
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under the 1933 Act.
(iv) Each certificate representing Parent Company Stock sold to the
undersigned and any shares issued or issuable in respect of any such Parent
Common Stock upon any stock split, stock dividend, recapitalization, or similar
event, shall be stamped or otherwise imprinted with legends in the following
form (in addition to any legend required under applicable state securities
laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933. THESE SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF
SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT. COPIES
OF THE AGREEMENT COVERING THE PURCHASE OF THESE SHARES AND RESTRICTING
THEIR TRANSFER MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY
THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE
CORPORATION AT THE PRINCIPAL EXECUTIVE OFFICES OF THE CORPORATION.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS UPON TRANSFER, AS SET FORTH IN AN AGREEMENT BETWEEN THE
CORPORATION AND THE REGISTERED HOLDER, A COPY OF WHICH IS ON FILE AT
THE PRINCIPAL OFFICE OF THE CORPORATION. SUCH TRANSFER RESTRICTIONS
ARE BINDING ON TRANSFEREES OF THESE SHARES.
(v) The certificates evidencing the Parent Common Stock shall also
bear any legend required pursuant to any state, local or foreign law governing
such securities.
(vi) The undersigned understands and acknowledges that the Parent
Common Stock has not been registered under the 1933 Act and Parent Common Stock
must be held indefinitely unless subsequently registered under the 1933 Act or
an exemption from such registration is available and neither Parent nor the
Company is under any obligation to register the Parent Common Stock.
(vii) The undersigned acknowledges that the Parent Common Stock shall
not be transferable except upon the conditions specified in this Certificate and
in the Agreement. The undersigned will cause any proposed transferee of the
Parent Common Stock held by such Company Shareholder to agree to take and hold
such Parent Common Stock subject to the provisions and upon the conditions
specified in this Certificate and in the Agreement.
-2-
(viii) Prior to any proposed transfer of any Parent Common Stock,
unless there is in effect a registration statement under the Securities Act
covering the proposed transfer, the undersigned shall give written notice to the
Company of its intention to effect such transfer. Each such notice shall
describe the manner and circumstances of the proposed transfer in sufficient
detail, and shall, if the Parent so requests, be accompanied (except in
transactions in compliance with Rule 144) by either (A) a written opinion of
legal counsel reasonably satisfactory to Parent, addressed to Parent, to the
effect that the proposed transfer of Parent Common Stock may be effected without
registration under the 1933 Act, or (B) a "No Action" letter from the Commission
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to the effect that the transfer of such securities without registration will not
result in a recommendation by the staff of the Commission that action be taken
with respect thereto, whereupon the holder of such Parent Common Stock shall be
entitled to transfer such shares of Parent Common Stock in accordance with the
terms of the notice delivered by the holder to Parent, subject to any right of
first refusal on transfer in favor of the Parent. Each certificate evidencing
the shares of Parent Common Stock transferred as above provided shall bear the
appropriate restrictive legend set forth in paragraph (iv) above, except that
such certificate shall not bear such restrictive legend if in the opinion of
counsel for Parent such legend is not required in order to establish compliance
with any provisions of the 1933 Act, which opinion will not be unreasonably
withheld.
(b) Market Standoff Agreement. The undersigned agrees that if so requested
-------------------------
by the Company or any representative of the underwriters in connection with any
registration of the offering of any Shares of the Parent under the Securities
Act, the undersigned shall not sell or otherwise transfer, pledge, hypothecate
or otherwise decrease its market risk or beneficial ownership in any Shares or
other securities of the Parent during the 180-day period following the date of
the final Prospectus contained in a registration statement of the Parent filed
under the Securities Act; provided, however, that such restriction shall only
apply to the first registration statement of the Parent to become effective
under the Securities Act which includes securities to be sold on behalf of the
Parent to the general public in an underwritten public offering under the
Securities Act. The Parent may impose stop-transfer instructions with respect
to securities subject to the foregoing restrictions until the end of such 180-
day period.
(c) Parent's Right of First Refusal.
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(i) Before any shares acquired by the undersigned pursuant to the
Stock Sale (the "Shares") may be sold or otherwise transferred (including
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transfer by gift or operation of law), or any Shares held by a transferee
(either being sometimes referred to herein as the "Holder") may be sold, the
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Parent or its assignee(s) shall have a right of first refusal to purchase such
Shares on the terms and conditions set forth in this Section (the "Right of
--------
First Refusal").
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(ii) Notice of Proposed Transfer. The Holder of the Shares shall
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deliver to the Parent a written notice (the "Notice") stating: (i) the Holder's
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bona fide intention to sell or otherwise transfer such Shares; (ii) the name of
each proposed purchaser or other transferee ("Proposed Transferee"); (iii) the
-------------------
number of Shares to be transferred to each Proposed Transferee; and (iv) the
-3-
bona fide cash price or other consideration for which the Holder proposes to
transfer the Shares (the "Offered Price"), and the Holder shall offer the Shares
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at the Offered Price to the Parent or its assignee(s).
(iii) Exercise of Right of First Refusal. At any time within (15)
----------------------------------
days after receipt of the Notice, the Parent or its assignee(s) may, by giving
written notice to the Holder, elect to purchase all, but not less than all, of
the Shares proposed to be transferred to any one or more of the Proposed
Transferees, at the purchase price determined in accordance with subsection (iv)
below.
(iv) Purchase Price. The purchase price ("Parent Purchase Price")
-------------- ---------------------
for the Shares purchased by the Parent or its assignee(s) under this Section
shall be the Offered Price. If the Offered Price includes consideration other
than cash, the Parent may match such non-cash consideration with such other cash
or non-cash consideration as shall be mutually agreed to by Parent and the
Holder. If Parent and Holder cannot agree on the value of the proposed non-cash
consideration, then they shall submit the determination of the value of such
consideration to a mutually agreeable third-party appraiser.
(v) Payment. Payment of the Parent Purchase Price shall be made, at
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the option of the Parent or its assignee(s), in cash (by check), by cancellation
of all or a portion of any outstanding indebtedness of the Holder to the Parent
(or, in the case of repurchase by an assignee, to the assignee), or by any
combination thereof within 15 days after receipt of the Notice or in the manner
and at the times set forth in the Notice.
(vi) Holder's Right to Transfer. If all of the Shares proposed in
--------------------------
the Notice to be transferred to a given Proposed Transferee are not purchased by
the Parent or its assignee(s) as provided in this Section, then the Holder may
sell or otherwise transfer such Shares to that Proposed Transferee at the
Offered Price or at a higher price, provided that such sale or other transfer is
consummated within 120 days after the date of the Notice and provided further
that any such sale or other transfer is effected in accordance with any
applicable securities laws and the Proposed Transferee agrees in writing that
the provisions of this Section shall continue to apply to the Shares in the
hands of such Proposed Transferee. If the Shares described in the Notice are not
transferred to the Proposed Transferee within such period, a new Notice shall be
given to the Parent, and the Parent or its assignees shall again be offered the
Right of First Refusal before any Shares held by the Holder may be sold or
otherwise transferred.
(vii) Exception for Certain Family Transfers. Anything to the
--------------------------------------
contrary contained in this Section notwithstanding, the transfer of any or all
of the Shares during the Holder's lifetime or on the Holder's death by will or
intestacy to the Holder's immediate family or a trust for the benefit of the
Holder's immediate family shall be exempt from the provisions of this Section.
"Immediate Family" as used herein shall mean spouse, lineal descendant or
----------------
antecedent, brother or sister. In such case, the transferee or other recipient
shall receive and hold the Shares so transferred subject to the provisions of
this Section, and there shall be no further transfer of such Shares except in
accordance with the terms of this Section.
-4-
(viii) Termination of Right of First Refusal. The Right of First
-------------------------------------
Refusal shall terminate as to any Shares 90 days after the first sale of Common
Stock of the Parent to the general public pursuant to a registration statement
filed with and declared effective by the Securities and Exchange Commission
under the Securities Act.
IN WITNESS WHEREOF, the undersigned has executed this Certificate this
_____ day of August, 1997.
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Signature
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Print Name
