1
EXHIBIT 2
AGREEMENT AND PLAN OF REORGANIZATION
AMONG
ELECTRONIC TRANSMISSION CORPORATION,
HEALTH PLAN INITIATIVES, INC., AND
ETC ACQUISITION CORP.
2
TABLE OF CONTENTS
ARTICLE I - THE MERGER......................................................................................1
1.1 The Merger......................................................................................1
1.2 Effective Time..................................................................................1
1.3 Effect of the Merger............................................................................2
1.4 Articles of Incorporation; Bylaws...............................................................2
1.5 Directors and Officers of Merger Sub............................................................2
1.6 Merger Consideration; Effect on Capital Stock...................................................2
1.7 Dissenting Shares...............................................................................3
1.8 Surrender of Certificates.......................................................................4
1.9 No Further Ownership Rights in Company Common Stock.............................................4
1.10 Lost, Stolen or Destroyed Certificates..........................................................4
1.11 Tax Consequences................................................................................4
1.12 Dissenting Shares after Payment of Fair Value...................................................4
1.13 Taking of Necessary Action; Further Action......................................................4
1.14 Knowledge.......................................................................................5
ARTICLE II - REPRESENTATIONS AND WARRANTIES OF THE COMPANY..................................................5
2.1 Organization of the Company.....................................................................5
2.2 Company Capital Structure.......................................................................5
2.3 Subsidiaries....................................................................................5
2.4 Authority.......................................................................................5
2.5 Company Financial Statements....................................................................6
2.6 No Undisclosed Liabilities......................................................................6
2.7 No Material Adverse Change......................................................................6
2.8 No Changes......................................................................................7
2.9 Tax and Other Returns and Reports...............................................................8
2.10 Restrictions on Business Activities.............................................................9
2.11 Title to Properties; Absence of Liens and Encumbrances..........................................9
2.12 Intellectual Property..........................................................................10
2.13 Agreements, Contracts and Commitments..........................................................11
2.14 Interested Party Transactions..................................................................13
2.15 Compliance with Laws...........................................................................13
2.16 Litigation.....................................................................................13
2.17 Insurance......................................................................................13
2.18 Representations Complete.......................................................................13
2.19 Minute Books...................................................................................14
2.20 Environmental Matters..........................................................................14
2.21 Brokers' and Finders' Fees; Third Party Expenses...............................................15
2.22 Employee Matters and Benefit Plans.............................................................15
2.23 Warranties; Indemnities........................................................................18
2.24 Complete Copies of Materials...................................................................18
2.25 Compensation...................................................................................18
2.26 Bank Accounts..................................................................................19
AGREEMENT AND PLAN OF REORGANIZATION PAGE i
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ARTICLE III - REPRESENTATIONS AND WARRANTIES
OF PARENT AND MERGER SUB..........................................................................19
3.1 Organization of the Parent and Merger Sub......................................................19
3.2 Authority......................................................................................19
3.3 Capital Structure..............................................................................20
3.4 SEC Documents; Parent Financial Statements.....................................................20
3.5 No Changes.....................................................................................21
3.6 Tax and Other Returns and Reports..............................................................22
3.7 Restrictions on Business Activities............................................................24
3.8 Title to Properties; Absence of Liens and Encumbrances.........................................24
3.9 Intellectual Property..........................................................................24
3.10 Agreements, Contracts and Commitments..........................................................25
3.11 Interested Party Transactions..................................................................27
3.12 Compliance with Laws...........................................................................27
3.13 Litigation.....................................................................................27
3.14 Insurance......................................................................................27
3.15 Minute Books...................................................................................28
3.16 Environmental Matters..........................................................................28
3.17 Brokers' and Finders' Fees; Third Party Expenses...............................................28
3.18 Employee Matters and Benefit Plans.............................................................29
3.19 Warranties; Indemnities........................................................................32
3.20 Complete Copies of Materials...................................................................32
3.21 Representations Complete.......................................................................32
3.22 No Undisclosed Liabilities.....................................................................32
3.23 Form S-3 Eligibility...........................................................................32
3.24 Registration Statement.........................................................................32
3.25 No Material Adverse Change.....................................................................33
3.26 Compensation...................................................................................33
3.27 Bank Accounts..................................................................................33
3.28 No Prior Activities............................................................................33
ARTICLE IV - CONDUCT PRIOR TO THE EFFECTIVE TIME...........................................................33
4.1 Conduct of Business of the Parent..............................................................33
4.2 No Solicitation................................................................................36
4.3 Conduct of Business of the Company.............................................................37
ARTICLE V - ADDITIONAL AGREEMENTS..........................................................................39
5.1 Registration Rights Agreement..................................................................39
5.2 Access to Information..........................................................................39
5.3 Confidentiality................................................................................39
5.4 Expenses.......................................................................................40
5.5 Public Disclosure..............................................................................40
5.6 Consents.......................................................................................40
5.7 Reasonable Efforts.............................................................................40
5.8 Notification of Certain Matters................................................................40
5.9 Certain Benefit Plans..........................................................................41
5.10 Additional Documents and Further Assurances....................................................41
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5.11 Employee Agreements............................................................................41
5.12 Blue Sky Laws..................................................................................41
5.13 Parent's Auditors..............................................................................41
5.14 Transaction Structure..........................................................................41
5.15 Indemnification Continuation...................................................................41
5.16 Company Benefits...............................................................................42
ARTICLE VI - CONDITIONS TO THE MERGER......................................................................43
6.1 Conditions to Obligations of Each Party to Effect the Merger...................................43
6.2 Additional Conditions to Obligations of the Company............................................43
6.3 Additional Conditions to the Obligations of Parent and Merger Sub..............................44
ARTICLE VII - CLOSING DELIVERIES...........................................................................45
7.1 Deliveries of the Company......................................................................45
7.2 Deliveries of Parent and Merger Sub............................................................46
ARTICLE VIII - SURVIVAL OF REPRESENTATIONS AND WARRANTIES..................................................47
8.1 Survival of Representations and Warranties.....................................................47
ARTICLE IX - TERMINATION, AMENDMENT AND WAIVER.............................................................47
9.1 Termination....................................................................................47
9.2 Effect of Termination..........................................................................48
9.3 Amendment......................................................................................48
9.4 Extension; Waiver..............................................................................48
ARTICLE X - GENERAL PROVISIONS.............................................................................49
10.1 Notices........................................................................................49
10.2 Interpretation.................................................................................49
10.3 Counterparts...................................................................................50
10.4 Entire Agreement; Assignment...................................................................50
10.5 Severability...................................................................................50
10.6 Other Remedies.................................................................................50
10.7 Governing Law..................................................................................50
10.8 Rules of Construction..........................................................................50
LIST OF SCHEDULES..........................................................................................52
LIST OF EXHIBITS...........................................................................................53
AGREEMENT AND PLAN OF REORGANIZATION PAGE iii
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AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made
and entered into as of January 15, 1999, by and among Electronic Transmission
Corporation, a Delaware corporation ("Parent"), ETC Acquisition Corp., a Texas
corporation and wholly-owned subsidiary of Parent ("Merger Sub"), and Health
Plan Initiatives, Inc., a Texas corporation (the "Company").
RECITALS
A. The Boards of Directors of each of the Company, Parent, and Merger
Sub believe it is in the best interests of each company and their respective
stockholders that Parent acquire the Company through the statutory merger of
Merger Sub with and into Company (the "Merger") and, in furtherance thereof,
have approved the Merger.
B. Pursuant to the Merger, among other things, and subject to the terms
and conditions of this Agreement, all of the issued and outstanding shares of
capital stock of the Company ("Company Capital Stock") and all outstanding
options, warrants or other rights to acquire or receive shares of Company
Capital Stock shall be converted into the right to receive shares of voting
Common Stock of Parent ("Parent Common Stock").
C. The Company, Parent, and Merger Sub desire to make certain
representations and warranties 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,
intending to be legally bound hereby the parties agree as follows:
ARTICLE I
THE MERGER
1.1 THE MERGER. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement and the
applicable provisions of the Texas Business Corporation Act ("Texas Law"),
Merger Sub shall be merged with and into the Company, the separate corporate
existence of Merger Sub shall cease, and the Company shall continue as the
surviving corporation and as a wholly-owned subsidiary of Parent. The Company as
the surviving corporation after the Merger is hereinafter sometimes referred to
as the "Surviving Corporation."
1.2 EFFECTIVE TIME. Unless this Agreement is earlier terminated
pursuant to Section 9.1, the closing of the Merger (the "Closing") will take
place as promptly as practicable, but no later than three (3) business days,
following satisfaction or waiver of the conditions set forth in Article VI, at
the offices of Xxxxxxx & Xxxxx, P.C., 000 Xxxxxxxxxxxx Xxxxxx, 1800 Bank Xxx
Xxxxx, Xxxx Xxxxx, Xxxxx, unless another place or time is agreed to by Parent
and the Company. The date upon which the Closing actually occurs is herein
referred to as the "Closing Date." On the Closing Date, the parties hereto shall
cause the Merger to be consummated by filing Articles of Merger (the "Articles
of Merger"), in the form and substance of Exhibit "A" attached hereto (together
with the Plan of Merger attached hereto as Exhibit "B") with the Secretary of
State of the State of Texas (the
AGREEMENT AND PLAN OF REORGANIZATION PAGE 1
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"Certificate of Merger"), in accordance with the relevant provisions of
applicable law (which Certificate of Merger shall indicate an effective time of
11:59 p.m. on January 31, 1999; such effective time being referred to herein as
the "Effective Time").
1.3 EFFECT OF THE MERGER. At the Effective Time, the effect of the
Merger shall be as provided in the applicable provisions of Texas 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 Merger Sub shall vest in the Surviving Corporation, and all debts,
liabilities and duties of the Company and Merger Sub shall become the debts,
liabilities and duties of the Surviving Corporation.
1.4 ARTICLES OF INCORPORATION; BYLAWS.
(a) At the Effective Time, the Articles of Incorporation of
Merger Sub shall be the Articles of Incorporation of the Surviving
Corporation until thereafter amended as provided by law and such
Articles of Incorporation. Immediately after the Effective Time,
Article I of the Articles of Incorporation of the Surviving Corporation
shall be amended to read as follows: "The name of the corporation is
Health Plan Initiatives, Inc."
(b) Unless otherwise determined by Parent, the Bylaws of
Merger Sub, as in effect immediately prior to the Effective Time, shall
be the Bylaws of the Surviving Corporation until thereafter amended.
1.5 DIRECTORS AND OFFICERS OF MERGER SUB. The director(s) of Merger Sub
immediately prior to the Effective Time shall be the initial director(s) of the
Surviving Corporation, each to hold office in accordance with the Articles of
Incorporation and Bylaws of the Surviving Corporation. The officers of Merger
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.
1.6 MERGER CONSIDERATION; EFFECT ON CAPITAL STOCK. The number of shares
of Parent Common Stock to be issued in exchange for the acquisition by Parent of
all outstanding Company Capital Stock and all unexpired and unexercised options,
warrants or other rights to acquire Company Capital Stock shall be the Aggregate
Share Number (as defined in Section 1.6(e)(ii)). Subject to the terms and
conditions of this Agreement, as of the Effective Time, by virtue of the Merger
and without any action on the part of Merger Sub, the Company or the holder of
any shares of the Company Capital Stock, the following shall occur:
(a) Conversion of Company Common Stock. Each share of Common
Stock of the Company (the "Company Common Stock") issued and
outstanding immediately prior to the Effective Time and any Dissenting
Shares (as defined and to the extent provided in Section 1.7(a)) will
be canceled and extinguished and be converted automatically into the
right to receive 3,709,236 shares of Parent Common Stock (the "Exchange
Ratio"), upon surrender of the certificate representing such share of
Company Common Stock in the manner provided in Section 1.8.
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(b) Capital Stock of Merger Sub. Each share of Common Stock of
Merger Sub issued and outstanding immediately prior to the Effective
Time shall be converted into and exchanged for one validly issued,
fully paid and non-assessable share of Common Stock of the Surviving
Corporation. Each stock certificate of Merger Sub evidencing ownership
of any such shares shall continue to evidence ownership of such shares
of capital stock of the Surviving Corporation.
(c) Adjustments to Exchange Ratio. The Exchange Ratio shall be
adjusted to reflect fully the effect of any stock split, reverse split,
stock issuance, stock dividend (including any dividend or distribution
of securities convertible into Parent Common Stock or Company Capital
Stock), reorganization, recapitalization or other like change with
respect to Parent Common Stock or Company Capital Stock occurring after
the date hereof and prior to the Effective Time.
(d) Fractional Shares. No fraction of a share of Parent Common
Stock will be issued, but in lieu thereof, each holder of shares of
Company Capital Stock who would otherwise be entitled to a fraction of
a share of Parent Common Stock (after aggregating all fractional shares
of Parent Common Stock to be received by such holder) shall be entitled
to receive from Parent an amount of cash (rounded to the nearest whole
cent) equal to the product of (i) such fraction, multiplied by (ii) the
closing price of a share of Parent Common Stock on the trading day
immediately prior to the Closing Date, as reported on the Nasdaq
National Market.
(e) Definitions.
(i) Aggregate Common Number. The "Aggregate Common
Number" shall mean the sum of the aggregate number of shares
of Company Common Stock outstanding immediately prior to the
Effective Time.
(ii) Aggregate Share Number. The "Aggregate Share
Number" shall be 3,709,236 shares of Parent Common Stock, as
appropriately adjusted to reflect the effect of any stock
split, stock dividend, reorganization, recapitalization or the
like with respect to the Parent Common Stock occurring after
the date hereof and prior to the Effective Time (a
"Recapitalization of the Parent Common Stock"). The Aggregate
Share Number shall be equal to forty two percent (42%) of the
issued and outstanding shares of Parent Capital Stock,
including any options, warrants, or rights to acquire Parent
Capital Stock, on the Effective Time. In the event it shall be
determined after the Closing that the calculation of the
Aggregate Share Number was inaccurate, an adjustment of shares
shall be made in order to correctly reflect the percentage of
shares that should have been issued.
1.7 DISSENTING SHARES.
(a) Notwithstanding any provision of this Agreement to the
contrary, any shares of Company Capital Stock held by a holder who has
demanded and perfected appraisal or dissenters' rights for such shares
in accordance with Texas Law and who, as of the Effective Time, has not
effectively withdrawn or lost such appraisal or dissenters' rights
("Dissenting
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Shares") shall not be converted into or represent a right to receive
Parent Common Stock pursuant to Section 1.6, but the holder thereof
shall only be entitled to such rights as are granted by Texas Law.
(b) Notwithstanding the provisions of subsection (a), if any
holder of shares of Company Capital Stock who demands appraisal of such
shares under Texas Law shall effectively withdraw or lose (through
failure to perfect or otherwise) the right to appraisal, then, as of
the later of the Effective Time and the occurrence of such event, such
holder's shares shall automatically be converted into and represent
only the right to receive Parent Common Stock and fractional shares as
provided in Section 1.6, without interest thereon, upon surrender of
the certificate representing such shares.
1.8 SURRENDER OF CERTIFICATES.
(a) Exchange Agent. Securities Transfer Corporation shall act
as exchange agent (the "Exchange Agent") in the Merger.
(b) Parent to Provide Common Stock. At the Closing, Parent
shall make available to the holders of Company Common Stock in
accordance with this Article I, the aggregate number of shares of
Parent Common Stock issuable pursuant to Section 1.6 in exchange for
outstanding shares of Company Capital Stock.
1.9 NO FURTHER OWNERSHIP RIGHTS IN COMPANY COMMON STOCK. All shares of
Parent Common Stock issued upon the surrender for exchange of shares of Company
Capital Stock in accordance with the terms hereof (including any cash paid in
respect thereof) shall be deemed to have been issued in full satisfaction of all
rights pertaining to such shares of Company Capital Stock, and there shall be no
further registration of transfers on the records of the Surviving Corporation of
shares of Company Capital Stock which were outstanding immediately prior to the
Effective Time.
1.10 LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any
Certificates evidencing shares of Company Capital Stock 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 and cash for
fractional shares, if any, as may be required pursuant to Section 1.6.
1.11 TAX CONSEQUENCES. It is intended by the parties hereto that the
Merger shall constitute a reorganization within the meaning of Section 368 of
the Internal Revenue Code of 1986, as amended (the "Code").
1.12 DISSENTING SHARES AFTER PAYMENT OF FAIR VALUE. Dissenting shares
of Company Capital Stock, if any, after payments of fair value in respect
thereto have been made to dissenting stockholders of the Company pursuant to
Texas Law, shall be canceled.
1.13 TAKING OF NECESSARY ACTION; FURTHER ACTION. If, at any time after
the Effective Time, any such 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 Merger Sub, the officers and directors
AGREEMENT AND PLAN OF REORGANIZATION PAGE 4
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of the Company and Merger Sub are fully authorized in the name of their
respective corporations or otherwise to take, and will take, all such lawful and
necessary action.
1.14 KNOWLEDGE. Subject to Section 10.2 herein, as used in this
Agreement, the term "knowledge" or "aware" shall include all information that a
party had actual knowledge of or should reasonably be expected to have known.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Merger Sub
that on the date hereof and as of the Effective Time as though made at the
Effective Time as follows:
2.1 ORGANIZATION OF THE COMPANY. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Texas. 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 or results
of operations of the Company (hereinafter referred to as a "Material Adverse
Effect"). The Company has delivered a true and correct copy of its Articles of
Incorporation and Bylaws, each as amended to date, to Parent.
2.2 COMPANY CAPITAL STRUCTURE.
(a) The authorized capital stock of the Company consists of
1,000,000 shares of authorized Common Stock, of which 1,000 shares are
issued and outstanding. The Company Capital Stock is held of record by
the persons, with the addresses of record and in the amounts set forth
on Schedule 2.2(a). All outstanding shares of Company Capital Stock are
duly authorized, validly issued, fully paid and non-assessable, were
issued in compliance with all applicable federal and state securities
laws, 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 Schedule 2.3, the Company does
not have and has never had any subsidiaries or affiliated companies.
2.4 AUTHORITY. Subject only to the requisite approval of the Merger and
this Agreement by the Company's stockholders, the Company has all requisite
corporate power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution
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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. The Company's Board of Directors has unanimously
approved the Merger and this Agreement. This Agreement has been duly executed
and delivered by the Company and constitutes the valid and binding obligation of
the Company, enforceable in accordance with its terms (except as enforcement
hereof may be limited by (i) bankruptcy, insolvency, reorganization, moratorium
and similar laws, both state and federal, affecting the enforcement of
creditors' rights or remedies in general as from time to time in effect or (ii)
the exercise by courts of equity powers). Except as set forth on Schedule 2.4,
the execution and delivery of this Agreement by the Company does not, and, as of
the Effective Time, 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 or acceleration of any obligation or loss of any
benefit under (any such event, a "Conflict") (i) any provision of the Articles
of Incorporation or Bylaws of the Company or (ii) any mortgage, indenture,
lease, material contract or other material agreement or instrument, permit,
concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to the Company or its properties or
assets. No consent, waiver, approval, order or authorization of, or
registration, declaration or filing with, any court, administrative agency or
commission or other federal, state, county, local or foreign governmental
authority, instrumentality, agency or commission ("Governmental Entity") or any
third party (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) the
filing of the Certificate of Merger with the Secretary of State of Texas, (ii)
such consents, waivers, approvals, orders, authorizations, registrations,
declarations and filings as may be required under applicable federal and state
securities laws, and (iii) such other consents, waivers, authorizations,
filings, approvals and registrations which are set forth on Schedule 2.4.
2.5 COMPANY FINANCIAL STATEMENTS. Schedule 2.5(a) sets forth the
Company's unaudited balance sheets as of September 30, 1998 (the "Current
Balance Sheet") and related statements of operations and cash flows for the
period then ended (collectively, the "Company Financials"). The Company
Financials are correct in all material respects and have been prepared on a
basis consistent throughout the periods indicated and consistent with each
other. The Company Financials present fairly the financial condition and
operating results of the Company as of the dates and during the periods
indicated therein.
2.6 NO UNDISCLOSED LIABILITIES. Other than as disclosed on Schedule
2.6, the Company does not have any material liability, indebtedness, obligation,
expense, claim, deficiency, guaranty or endorsement of any type (whether
accrued, absolute, contingent, matured, unmatured or other) which if known would
be required to be reflected in the financial statements of the Company, except
for such liability, obligation or claim, which (i) has been reflected in the
Company Financials, or (ii) has arisen in the ordinary course of the Company's
business since the date of the Current Balance Sheet, consistent with past
practices.
2.7 NO MATERIAL ADVERSE CHANGE. Since the latest date of the Company
Financials, the Company has conducted its business in the ordinary course and
there has not occurred: (a) any material adverse change in the financial
condition, liabilities, assets or business of the Company; (b) any amendment or
change in the Articles of Incorporation or Bylaws of the Company; or (c) any
AGREEMENT AND PLAN OF REORGANIZATION PAGE 6
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damage to, destruction or loss of any assets of the Company (whether or not
covered by insurance), that materially and adversely affects the financial
condition or business of the Company.
2.8 NO CHANGES. Except as contemplated or permitted by this Agreement
or as set forth in Schedule 2.8, between the date of the 1998 Unaudited Company
Financial Statements and the date of this Agreement, there has not been,
occurred or arisen any:
(a) transaction by the Company except in the ordinary course
of business consistent with past practices;
(b) amendments or changes to the Articles of Incorporation or
Bylaws of the Company;
(c) labor trouble or claim of wrongful discharge or other
unlawful labor practice or action;
(d) change in accounting methods or practices (including any
change in depreciation or amortization policies or rates) by the
Company;
(e) sale, lease, license or other disposition of any of the
material assets or properties of the Company, except in the ordinary
course of business as conducted on that date and consistent with past
practices;
(f) amendment or termination of any material contract,
agreement or license to which the Company is a party or by which it is
bound which would have a Material Adverse Effect on the continuing
operations of the Company;
(g) 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 in the ordinary
course of business;
(h) waiver or release of any material right or claim of the
Company;
(i) to the knowledge of the Company, commencement or notice or
threat of commencement of any lawsuit or proceeding against or
investigation of the Company or its affairs;
(j) notice of any claim of ownership by a third party of the
Company's Intellectual Property (as defined in Section 2.12 below) or
of infringement by the Company of any third party's Intellectual
Property rights;
(k) 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; or
AGREEMENT AND PLAN OF REORGANIZATION PAGE 7
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(l) event or condition of any character that has or could be
reasonably expected to have a Material Adverse Effect on the Company .
2.9 TAX AND OTHER RETURNS AND REPORTS.
(a) Definition of Taxes. For the purposes of this Agreement,
"Tax" or, collectively, "Taxes", means any and all federal, state,
local and foreign taxes, and other similar 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
and 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 Schedule
2.9:
(i) The Company as of the Effective Time will have
timely prepared 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
will have been timely and correctly filed.
(ii) The Company as of the Effective Time: (A) will
have paid or accrued all Taxes it is required to pay or accrue
and (B) will have withheld with respect to its employees all
federal and state income taxes, FICA, FUTA and other Taxes
required to be withheld.
(iii) The Company has not been delinquent in the
payment of any Tax nor is there any Tax deficiency
outstanding, proposed or assessed 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 during the five years preceding the Closing Date.
(iv) The Company knows of no audit or other
examination of any Return of the Company that is currently in
progress, nor has the Company been notified of any request for
such an audit or other examination.
(v) The Company did not have, as of the Current
Balance Sheet date, any material liabilities for unpaid
federal, state, local and foreign Taxes which have not been
accrued or reserved against in accordance with GAAP on the
Current Balance Sheet, whether asserted or unasserted,
contingent or otherwise; the Company has received no written
notice that any such liability has been asserted; and any such
liability which has arisen since the date of the Current
Balance Sheet has arisen in the ordinary course of business
consistent with past practice.
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(vi) The Company has provided to the Parent copies of
all federal and state income and all state sales and use tax
Returns filed during the four years preceding the Closing
Date.
(vii) There are (and as of immediately following the
Effective Time there will be) no liens, pledges, charges,
claims, security interests or other encumbrances of any sort
("Liens") on the assets of the Company relating to or
attributable to Taxes (other than for current taxes not yet
due and payable).
(viii) The Company has no knowledge of any basis for
the assertion of any material claim relating or attributable
to Taxes which, if adversely determined, would result in any
Lien on the assets of the Company.
(ix) None of the Company's assets are treated as
"tax-exempt use property" within the meaning of Section 168(h)
of the Code.
(x) As of the Effective Time, 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 pursuant to Section 280G or 162
of the Code.
(xi) The Company has not filed any consent agreement
under Section 341(f) of the Code or agreed to have Section
341(f)(2) of the Code apply to any disposition of a subsection
(f) asset (as defined in Section 341(f)(4) of the Code) owned
by the Company.
(xii) The Company is not a party to a tax sharing or
allocation agreement nor does the Company owe any amount under
any such agreement.
(xiii) The Company is not, and has not been at any
time, a "United States real property holding corporation"
within the meaning of Section 897(c)(2) of the Code.
2.10 RESTRICTIONS ON BUSINESS ACTIVITIES. There is no agreement
(noncompete or otherwise), commitment, judgment, injunction, order or decree to
which the Company is a party or otherwise binding upon the Company which has or
reasonably could be expected to have the effect of prohibiting or impairing any
business practice of the Company, any acquisition of property (tangible or
intangible) by the Company or the conduct of business by the Company. The
Company has not entered into any agreement under which the Company is restricted
from selling, licensing or otherwise distributing any of its products or
services to any class of customers, in any geographic area, during any period of
time or in any segment of the market.
2.11 TITLE TO PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES.
(a) The Company owns no real property. Schedule 2.11(a) sets
forth a list of all real property leased by the Company, as of the date
of this Agreement, the name of the
AGREEMENT AND PLAN OF REORGANIZATION PAGE 9
14
lessor, the date of the lease and each amendment thereto and the
aggregate annual rental and/or other fees payable under any such lease.
To the knowledge of the Company, all such leases are in full force and
effect, are valid and effective in accordance with their respective
terms, and there is not, on the part of the Company under any of such
leases, any existing default or event of default (or 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 properties and assets, valid leasehold 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 Schedule 2.11(b) and except for liens for taxes not yet
due and payable.
2.12 INTELLECTUAL PROPERTY.
(a) The Company owns, possesses or has rights to use all
Intellectual Property presently used in and material to the business of
the Company as it is now being conducted as of the date of this
Agreement including products currently under development (the "Company
Intellectual Property Rights"). The Company Intellectual Property that
has been developed by the Company is exclusively owned by the Company
(except for material licensed from third parties to the Company for
inclusion and incorporation into the Company Intellectual Property) and
is free and clear of any liens. Schedule 2.12(a) sets forth a complete
list of all material patents, registered and unregistered trademarks,
registered copyrights, trade names and service marks, and any
applications therefor, included in the Company Intellectual Property
Rights, and specifies, where applicable, the jurisdictions in which
each such Company Intellectual Property Right has been issued or
registered or in which an application for such issuance and
registration has been filed, including the respective registration or
application numbers and the names of all registered owners.
(b) Schedule 2.12(b) sets forth a complete list of all
material licenses, sublicenses and other agreements to which the
Company is a party, which results in annual revenues to or payments by
the Company in excess of $5,000.00 and pursuant to which the Company or
to the Company's knowledge any other person is authorized to use any
Company Intellectual Property Right or any trade secret of the Company,
and includes the identity of all parties thereto. No person who has
licensed Intellectual Property to the Company, where such Intellectual
Property is a material component of any product offered by the Company,
has ownership rights or license rights to improvements made by the
Company in such Intellectual Property which has been licensed to the
Company. The execution and delivery of this Agreement by the Company,
and the consummation of the transactions contemplated hereby, will not
cause the Company to be in violation or default under any material
license, sublicense or agreement, nor entitle any other party to any
such license, sublicense or agreement to terminate or modify such
license, sublicense or agreement.
(c) (i) No claims with respect to the Company
Intellectual Property Rights have been asserted or, to the
Company's knowledge, are threatened by any person, nor, to the
Company's knowledge, are there any valid grounds for any bona
fide claims (A) to the effect that the manufacture, sale,
licensing or use of any of the products of; or providing of
any services by, the Company infringes on any
AGREEMENT AND PLAN OF REORGANIZATION PAGE 10
15
copyright, patent, trademark, service xxxx, trade secret or
other proprietary right or Intellectual Property of any other
party, (B) against the use by the Company of any Intellectual
Property used in and material to the Company's business as
currently conducted and, to the Company's knowledge, products
currently under development, or (C) challenging the ownership
by the Company, validity or effectiveness of any of the
Company Intellectual Property Rights. All registered
trademarks, service marks and copyrights held by the Company
are valid and subsisting. The business of the Company as
currently conducted and, to the Company's knowledge, including
products currently under development by the Company has not
and does not infringe on any Intellectual Property of any
third party. To the Company's knowledge, there is no material
unauthorized use, infringement or misappropriation of any of
the Company Intellectual Property Rights by any third party,
including any employee or former employee of the Company. No
Company Intellectual Property Right or product or service of
the Company is subject to any outstanding decree, order,
judgment, or stipulation restricting in any manner the
licensing thereof by the Company.
(ii) Each employee who is currently employed by the
Company and to the Company's knowledge, each employee who has
been employed by the Company and who has played a material
role in the development of the Company's Intellectual Property
has executed a proprietary information and confidentiality
agreement substantially in the Company's standard forms.
(d) All of the Company's software will record, store, process,
calculate and present calendar dates falling on and after (and if
applicable, spans of time including) January 1, 2000, and will
calculate any information dependent on or relating to such dates in the
same manner, and with the same functionality, data integrity and
performance, as the products record, store, process, calculate and
present calendar dates on or before December 31, 1999, or calculate any
information dependent on or relating to such dates (collectively, "Year
2000 Compliant"). All of the Company's software will lose no
functionality with respect to the introduction of records containing
dates falling on or after January 1, 2000. All of the Company's
internal computer systems which are material to the Company's
operations and proprietary software products are Year 2000 Compliant.
The Company's accounting systems and software are Year 2000 Compliant
and the Company is not aware of any reason why the Company's accounting
Systems and software would not be Year 2000 Compliant.
2.13 AGREEMENTS, CONTRACTS AND COMMITMENTS.
(a) Except as set forth in Schedule 2.13(a), as of the date
hereof the Company is not a party to nor is it bound by:
(i) any employment or consulting agreement, contract
or commitment with an employee or individual consultant or
salesperson or consulting or sales agreement, contract or
commitment under which a firm or other organization provides
services to the Company,
AGREEMENT AND PLAN OF REORGANIZATION PAGE 11
16
(ii) 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,
(iii) any fidelity or surety bond or completion bond,
(iv) any lease of personal property having a value
individually in excess of $5,000.00,
(v) any agreement, contract or commitment containing
any covenant limiting in a material way the freedom of the
Company to engage in any line of business or to compete with
any person,
(vi) any agreement, contract or commitment relating
to capital expenditures and involving future payments in
excess of $5,000.00,
(vii) 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,
(viii) any mortgages, indentures, loans or credit
agreements, security agreements or other agreements or
instruments relating to the borrowing of money or extension of
credit,
(ix) any outstanding purchase order or contract for
the purchase of materials involving in excess of $5,000.00,
(x) any construction contracts,
(xi) any distribution, joint marketing or development
agreement, or
(xii) any other agreement, contract or commitment
that involves $5,000.00 or more or is not cancelable without
penalty within thirty (30) days.
(b) Other than as disclosed on Schedule 2.13(b), the Company
is in material compliance with and has not materially breached,
violated or defaulted under, or received notice that it has breached,
violated or defaulted under, any of the terms or conditions of any
agreement, contract, covenant, instrument, lease, license or commitment
required to be set forth on Schedule 2.13(a) (collectively a
"Contract"), nor is the Company aware of any circumstance which is
likely to cause it to or otherwise create 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
Schedule 2.13(b), 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
AGREEMENT AND PLAN OF REORGANIZATION PAGE 12
17
any Contract as are required thereunder in connection with the Merger
or for such Contracts to remain in effect without modification after
the Closing. Following the Effective Time, the Company will be
permitted to exercise all of the Company's rights under the Contracts
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 had the transactions contemplated by this
Agreement not occurred.
2.14 INTERESTED PARTY TRANSACTIONS. Except as set forth on Schedule
2.14, to the Company's knowledge, no officer, director or stockholder 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) a material
economic interest in any entity which furnished or sold, or furnishes or sells,
a material amount of services or products that the Company furnishes or sells,
or proposes to furnish or sell, (ii) a material economic interest in any entity
that purchases from or sells or furnishes to, the Company, any goods or services
or (iii) a material beneficial interest in any contract or agreement set forth
in Schedule 2.13(a) or Schedule 2.12(b); 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 "economic interest in any entity" for
purposes of this Section 2.14.
2.15 COMPLIANCE WITH LAWS. The Company has complied in all material
respects with, is not in material violation of, and has not received any notice
of violation with respect to, any foreign, federal, state or local statute, law
or regulation.
2.16 LITIGATION. Other than as listed on Schedule 2.16, there is no
action, suit or proceeding of any nature pending or, to the Company's knowledge,
threatened against the Company, its properties or to the Company's knowledge any
of its officers or directors, in their respective capacities as such which in
any manner challenges or seeks to prevent, enjoin, alter or materially delay any
of the transactions contemplated by this Agreement. To the Company's knowledge,
there is no investigation pending or threatened against the Company, its
properties or, to the Company's knowledge, any of its officers and directors by
or before any governmental entity. No governmental entity has at any time
challenged the legal right of the Company to manufacture, offer, sell or deliver
any of its products or services in the present manner or style thereof.
2.17 INSURANCE. With respect to the 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 disrupted by the underwriters of such policies or
bonds. All premiums due and payable under all such policies and bond have been
paid and the Company is otherwise in material compliance with all such policies
and bonds (or all other policies and bonds providing substantial similar
insurance coverage.) The Company has no knowledge of any threatened termination
of, or material premium increase with respect to, any of such policies.
2.18 REPRESENTATIONS COMPLETE. None of the representations or
warranties made by the Company (subject to the qualifications and exceptions
expressed therein), nor any statement made in any Schedule or certificate
furnished by the Company pursuant to this Agreement contains or will contain at
the Effective Time, any untrue statement of a material fact, or omits or will
omit at the
AGREEMENT AND PLAN OF REORGANIZATION PAGE 13
18
Effective Time to state any material fact necessary in order to make the
statements contained herein or therein, in the light of the circumstances under
which made, not misleading.
2.19 MINUTE BOOKS. The minute book of the Company made available to
counsel for the Parent is the only minute book of the Company and contains an
accurate summary of all material meetings of directors (or committees thereof)
and stockholders or actions by written consent since the time of respective
incorporation of the Company.
2.20 ENVIRONMENTAL MATTERS.
(a) Hazardous Material. The Company has not operated any
underground storage tanks, and has no knowledge of the existence, at
any time, of any underground storage tank (or related piping or pumps),
at any property that the Company has at any time owned, operated,
occupied or leased. To the Company's knowledge, the Company has not
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, PCBs, asbestos, oil and
petroleum products, urea-formaldehyde and all substances listed as a
"hazardous substance," "hazardous waste," "hazardous material" or
"toxic substance" or words of similar import, under any law, including
but not limited to, the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended ("CERCLA"); the
Resource Conservation and Recovery Act of 1976, as amended ("RCRA");
the Federal Water Pollution Control Act, as amended ("FWPCA"); the
Clean Air Act, as amended ("CAA"), and the regulations promulgated
pursuant to said laws, but excluding office equipment and supplies and
janitorial supplies properly and safely maintained (a "Hazardous
Material"). To the Company's knowledge, no hazardous materials are
present as a result of the actions or omissions of the Company, or, to
the Company's 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 Effective Time, nor has 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, except
where the failure to hold such an Environmental Permit would not have a
Material Adverse Effect on the financial condition of the Company.
AGREEMENT AND PLAN OF REORGANIZATION PAGE 14
19
(d) Environmental Liabilities. No action, proceeding,
revocation proceeding, amendment procedure, writ, injunction or claim
is pending or, to the Company's knowledge, threatened concerning any
Environmental Permit, Hazardous Material or any Hazardous Materials
Activity of the Company. The Company is not aware of any fact or
circumstance which would be reasonably likely to result in the
imposition upon the Company of any environmental liability.
2.21 BROKERS' AND FINDERS' FEES; THIRD PARTY EXPENSES. The Company has
not incurred, nor will it incur, directly or indirectly, any liability for
brokerage or finders' fees or financial advisory fees or agents' commissions or
any similar charges in connection with this Agreement or any transaction
contemplated hereby.
2.22 EMPLOYEE MATTERS AND BENEFIT PLANS.
(a) Definitions. With the exception of the definition of
"Affiliate" set forth in Section 2.22(a)(i) below (which definition
shall apply only to this Section 2.22 and Section 3.18), for purposes
of this Agreement, the following terms shall have the meanings set
forth below:
(i) "Affiliate" shall mean any other person or entity
under common control with the Company within the meaning of
Section 414(b), (c), (m) or (o) of the Code and the
regulations thereunder;
(ii) "ERISA" shall mean the Employee Retirement
Income Security Act of 1974, as amended;
(iii) "Company Employee Plan" shall refer to any
plan, program, policy, practice, contract, agreement or other
arrangement providing for all forms of deferred compensation
of any kind, severance, termination pay, performance awards,
stock or stock-related awards, fringe benefits or other
employee benefits, whether formal or informal, funded or
unfunded and whether or not legally binding, including without
limitation, each "employee benefit plan", within the meaning
of Section 3(3) of ERISA which is maintained, contributed to,
or required to be contributed to, by the Company or any
Affiliate for the benefit of any "Employee" (as defined
below), and pursuant to which the Company or any Affiliate has
or may reasonably be expected to have any material liability
contingent or otherwise;
(iv) "Employee" shall mean any current, former, or
retired employee, officer, or director of the Company or any
Affiliate;
(v) "Employee Agreement" shall refer to each
management, employment, severance, consulting, relocation,
repatriation, expatriation, visa, work permit or similar
agreement or contract between the Company or any Affiliate and
any Employee or consultant;
(vi) "IRS" shall mean the Internal Revenue Service;
AGREEMENT AND PLAN OF REORGANIZATION PAGE 15
20
(vii) "Multiemployer Plan" shall mean any "Pension
Plan" (as defined below) which is a "multiemployer plan", as
defined in Section 3(37) of ERISA; and
(viii) "Pension Plan" shall refer to each Company
Employee Plan which is an "employee pension benefit plan",
within the meaning of Section 3(2) of ERISA.
(b) Schedule. Schedule 2.22(b) contains an accurate and
complete list of each Company Employee Plan and each Employee
Agreement. The Company does not have any plan or commitment, 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 the Parent in writing, or as required
by this Agreement), or to enter into any Company Employee Plan or
Employee Agreement.
(c) Documents. The Company has made available to Parent, where
applicable, (i) correct and complete copies of all documents, if any,
embodying each Company Employee Plan and each Employee Agreement
including all amendments thereto; (ii) the most recent annual actuarial
valuations, if any, prepared for each Company 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; (iv) if the Company Employee Plan is
funded, the most recent annual and periodic accounting of Company
Employee Plan assets required under ERISA or the Code; (v) 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; (vi) the most recent IRS determination,
opinion, notification or advisory letters, as applicable, and the
related application, and IRS rulings, closing agreements or compliance
statements relating to each Company Employee Plan along with all
related material, applications and correspondence to or from the IRS or
the Department of Labor ("DOL") with respect to any Company Employee
Plan; (vii) all communications material to any Employee or Employees
relating to any Company Employee Plan and any proposed Company Employee
Plans, in each case, relating to any establishments, increases or
decreases in benefits or other events which would result in any
material liability to the Company; and (viii) all registration
statements and prospectuses prepared in connection with each Company
Employee Plan.
(d) Employee Plan Compliance. (i) The Company has performed in
all material respects all obligations required to be performed by it
under each Company Employee Plan, and each Company Employee Plan has
been established in all material respects in accordance with its terms
and in compliance with all applicable laws, statutes, orders, rules and
regulations, including but not limited to ERISA or 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 which may give rise to a material liability; (iii) there
are no actions, suits or claims pending, or, to the knowledge of the
Company, threatened or anticipated (other than routine claims for
benefits) against any Company Employee Plan; and (iv) each Company
Employee Plan can be amended, terminated or otherwise discontinued
after the Effective Time in accordance with its terms, without material
liability to the Company, Parent or any of its Affiliates (other than
ordinary administration expenses); (v)
AGREEMENT AND PLAN OF REORGANIZATION PAGE 16
21
there are no inquiries or proceedings pending or, to the knowledge of
the Company or any affiliates, threatened by the IRS or DOL with
respect to any Company Employee Plan; and (vi) neither the Company nor
any Affiliate is subject to any penalty or tax with respect to any
Company Employee Plan under Section 502(i) of ERISA or Sections 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 obligated to contribute to any Multiemployer
Plan.
(g) No Post-employment Obligations. No Company Employee Plan
provides, or reflects or represents any liability to provide, retiree
life insurance, retiree health or other retiree employee welfare
benefits to any person for any reason, except as may be required by
COBRA or other applicable statute, and the Company has never
represented, promised or contracted (whether in oral or written form)
to any Employee (either individually or to Employees as a group) or any
other person that such Employee(s) or other person would be provided
with retiree life insurance, retiree health or other retiree employee
welfare benefit, except to the extent required by statute.
(h) No Cobra Violation. Neither the Company nor any Affiliate
has, prior to the Effective Time violated in a material way any of the
health care continuation requirements of the Consolidated Omnibus
Budget Reconciliation Act of 1985, as amended, or any similar
provisions of state law applicable to its employees which violation
would result in a material liability for the Company.
(i) Effect of Transaction.
(i) The execution of this Agreement and the
consummation of the transactions contemplated hereby will not
constitute an event under any Company 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.
(ii) No payment or benefit, which will or may be made
by the Company or Parent or any of their respective affiliates
with respect to any Employee in connection with the
transactions or any transaction entered into by Company prior
to the Effective Date contemplated hereby, will be
characterized as an "excess parachute payment", within the
meaning of Section 280G(b)(1) of the Code.
(j) Employment Matters. To the Company's knowledge, the
Company (i) is in compliance in all material respects with all
applicable foreign, federal, state and local 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
AGREEMENT AND PLAN OF REORGANIZATION PAGE 17
22
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 governmental or administrative authority, with respect
to unemployment compensation benefits, or social security benefits or
obligations for Employees (other than routine payments to be made in
the normal course of business and consistent with past practice).
(k) Labor. No work stoppage or labor strike against the
Company is pending or, to the knowledge of the Company, threatened. The
Company is not involved in or, to the knowledge of the Company,
threatened with, any labor dispute, grievance, or litigation relating
to labor, safety or discrimination matters involving any Employee,
including, without limitation, charges of unfair labor practices or
discrimination complaints, which, if adversely determined, would,
individually or in the aggregate, result in liability to the Company.
Neither the Company nor any of its subsidiaries has engaged in any
unfair labor practices within the meaning of the National Labor
Relations Act which would, individually or in the aggregate, directly
or indirectly result in a material liability to the Company. The
Company is not presently, nor has it been in the past, 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.
(l) No Interference or Conflict. To the knowledge of the
Company, no stockholder, officer, employee or consultant of the Company
is obligated under any contract or agreement subject to any judgment,
decree or order of any court or administrative agency, that would
materially interfere with such person's efforts to promote the
interests of the Company or that would materially interfere with the
Company's business. Neither the execution nor delivery of this
Agreement, nor the carrying on of the Company's business as presently
conducted or proposed to be conducted nor any activity of such
officers, directors, employees or consultants in connection with the
carrying on of the Company's business as presently conducted or
proposed to be conducted, will, to the Company's knowledge, conflict
with or result in a breach of the material terms, conditions or
provisions of, or constitute a material default under, any contract or
agreement under which any of such officers, directors, employees or
consultants is now bound.
2.23 WARRANTIES; INDEMNITIES. The Company has not given any warranties
or indemnities relating to products or technology sold or licensed or services
rendered by the Company except in the ordinary course.
2.24 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 the Parent or its counsel.
2.25 COMPENSATION. Schedule 2.25 attached hereto contains a list of all
officers, employees (both full and part time) and consultants of Company,
together with their current job titles (if currently employed) and aggregate
remuneration rate (salary, bonuses and commission) for each such person.
AGREEMENT AND PLAN OF REORGANIZATION PAGE 18
23
2.26 BANK ACCOUNTS. Schedule 2.26 attached hereto is a list of all bank
and investment accounts and safe deposit boxes in the name of or controlled by
Company and a listing of the persons having signature authority or access
thereto.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF PARENT AND MERGER SUB
Parent and Merger Sub hereby represent and warrant to Xxxxxx Xxxxxxx
and Company that on the date hereof and, except as otherwise specifically
referenced by date, as of the Effective Time as though made at the Effective
Time that the representations and warranties set forth below shall be true and
correct:
3.1 ORGANIZATION OF THE PARENT AND MERGER SUB. Parent is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware. Merger Sub is a corporation duly organized, validly existing
and in good standing under the laws of the State of Texas. Each of Parent and
Merger 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 business, assets (including intangible
assets), financial condition or results of operations of Parent and its
subsidiaries taken as a whole (hereinafter referred to as a "Material Adverse
Effect on the Parent"). A true and correct copy of the Certificate of
Incorporation and Bylaws, each as amended to date, of Parent are attached hereto
as Schedule 3.1.
3.2 AUTHORITY. Parent and Merger Sub have all requisite corporate power
and authority to enter into this Agreement and to consummate the transactions
contemplated hereby. No vote of the Parent's stockholders is required to approve
and consummate the Merger under applicable law or any listing requirement. 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 Merger Sub. The Board of Directors of
each of Parent and Merger Sub have unanimously approved the Merger and this
Agreement. This Agreement has been duly executed and delivered by Parent and
Merger Sub and constitutes the valid and binding obligations of Parent and
Merger Sub, enforceable against Parent and Merger Sub in accordance with its
terms (except as enforcement hereof may be limited by (i) bankruptcy,
insolvency, reorganization, moratorium and similar laws, both state and federal,
affecting the enforcement of creditors' rights or remedies in general as from
time to time in effect or (ii) the exercise by courts of equity powers). The
execution and delivery of this Agreement by Parent and Merger Sub do not, and
immediately prior to the Effective Time, the consummation of the transactions
contemplated hereby will not result in a Conflict with (i) any provision of the
Certificate of Incorporation or Articles of Incorporation, as applicable, or
Bylaws of Parent or Merger Sub or (ii) any mortgage, indenture, lease, contract
or other agreement or instrument, permit, concession, franchise, license,
judgment, order, decree, statute, law, ordinance, rule or regulation applicable
to Parent or Merger Sub or its respective properties or assets. No consent,
waiver, approval, order or authorization of, or registration, declaration or
filing with, any Government Entity or any third party (so as not to trigger any
Conflict), is required at or prior to the Effective Time by or with respect to
Parent or Merger Sub in connection with Parent's and Merger Sub's execution and
delivery of this Agreement or its respective consummation of the transactions
contemplated hereby, except for (i) the filing of the
AGREEMENT AND PLAN OF REORGANIZATION PAGE 19
24
Certificate of Merger with the Texas Secretary of State, (ii) the Filing of a
Form 8-K with the SEC within 15 days after the Closing Date, (iii) compliance
with applicable requirements, if any, for premerger notification under the Xxxx
Xxxxx Xxxxxx Antitrust Improvements Act of 1976, as amended, and (iv) such
consents, waivers, approvals, orders, authorizations, registrations,
declarations and filings as may be required under applicable state securities
laws.
3.3 CAPITAL STRUCTURE.
(a) The authorized stock of Parent consists of 20,000,000
shares of Common Stock, of which 8,831,514 shares were issued and
outstanding as of January 29, 1999, and 2,000,000 shares of Preferred
Stock, none of which is or will be issued or outstanding as of the
Effective Time. The Parent Common Stock is held of record by the
persons, with the addresses of record and in the amounts, set forth on
Schedule 3.3(a). The authorized capital stock of Merger Sub consists of
1,000 shares of Common Stock, 1,000 shares of which, as of the date
hereof, are issued and outstanding and are held by Parent. All such
shares have been duly authorized, and all such issued and outstanding
shares have been validly issued, are fully paid and non-assessable and
are free of any liens or encumbrances other than any liens or
encumbrances created by or imposed upon the holders thereof, and not
subject to any preemptive rights created by statute, the Certificate of
Incorporation or Articles of Incorporation, as applicable, or Bylaws of
Parent or Merger Sub or any agreement to which Parent or Merger Sub is
a party or by which it is bound.
(b) Parent has reserved shares of Parent Common Stock for
issuance to the persons, in the amounts and at the option prices
described in Schedule 3.3(b). Except as described in Schedule 3.3(b),
there are no options, warrants, calls, rights, commitments or
agreements of any character, written or oral, to which the Parent is a
party or by which it is bound obligating the 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 the Parent
or obligating the Parent 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.
(c) 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 SEC DOCUMENTS; PARENT FINANCIAL STATEMENTS. Parent has furnished or
made available to the stockholders of Company true and complete copies of all
reports, registration statements and definitive proxy statements filed by it
(together with any amendments required to be made with respect thereto) with
the SEC under the Securities Act of 1933, as amended (the "Securities Act") and
under Securities Exchange Act of 1934, as amended (the "Exchange Act")
subsequent to December 31, 1996, all in the form so filed (all of the foregoing
together with all exhibits and schedules thereto and documents incorporated by
reference therein being collectively referred to as the "SEC Documents"). As of
their respective filing dates, the SEC Documents complied in all material
respects with the requirements of the Securities Act or the Exchange Act as
applicable and the rules and regulations of the SEC promulgated thereunder,
and, to the knowledge of Parent, none of the SEC Documents contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements
AGREEMENT AND PLAN OF REORGANIZATION PAGE 20
25
made therein, in light of the circumstances in which they were made, not
misleading, except to the extent corrected by a subsequently filed document with
the SEC. The SEC Documents constitute all reports, registration statements,
proxy statements and other filings required to be made by Parent pursuant to the
Securities Act and the Exchange Act. All material contracts and other documents
of Parent and its subsidiaries required to be filed as exhibits to the SEC
Documents have been filed as required. The financial statements of Parent,
including the notes thereto, included in the SEC Documents (the "Parent
Financial Statements") comply as to form in all material respects with
applicable accounting requirements and with the published rules and regulations
of the SEC with respect thereto, have been prepared in accordance with GAAP
consistently applied (except as may be indicated in the notes thereto) and
present fairly in all material respects the consolidated financial position of
Parent at the dates thereof and of its operations and cash flows for the periods
then ended (subject, in the case of unaudited statements, to normal audit
adjustments which will not be material in amount or significance). There has
been no change in Parent accounting policies except as described in the notes to
the Parent Financial Statements.
3.5 NO CHANGES. Except as contemplated or permitted by this Agreement
or as set forth in Schedule 3.5, between the latest date of the Parent Financial
Statements and the date of this Agreement, there has not been, occurred or
arisen any:
(a) transaction by the Parent except in the ordinary course of
business as conducted on the date of the Parent Financial Statements
and consistent with past practices;
(b) amendments or changes to the Certificate of Incorporation
or Bylaws of the Parent;
(c) capital expenditure or commitment to make a capital
expenditure by the Parent, of $5,000.00 in any individual case or
$5,000.00 in the aggregate;
(d) destruction of, damage to or loss of any material assets,
business or customer of the Parent (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
Parent;
(g) revaluation by the Parent of any of its assets;
(h) declaration, setting aside or payment of a dividend or
other distribution with respect to the capital stock of the Parent, or
any direct or indirect redemption, purchase or other acquisition by the
Parent of any of its capital stock;
(i) increase in the salary or other compensation payable or to
become payable to any of Parent's officers, directors, employees or
advisors, or the declaration, payment or commitment or obligation of
any kind for the payment of a bonus or other additional salary or
compensation to any such person except as otherwise contemplated by
this Agreement;
AGREEMENT AND PLAN OF REORGANIZATION PAGE 21
26
(j) sale, lease, license or other disposition of any of the
material assets or properties of the Parent, except in the ordinary
course of business as conducted on that date and consistent with past
practices;
(k) amendment or termination of any material contract,
agreement or license to which the Parent is a party or by which it is
bound;
(l) loan by the Parent to any person or entity, incurring by
the Parent of any indebtedness, guaranteeing by the Parent of any
indebtedness, issuance or sale of any debt securities of the Parent 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;
(m) waiver or release of any right or claim of the Parent,
including any write-off or other compromise of any account receivable
of the Parent;
(n) commencement or notice or threat of commencement of any
lawsuit or proceeding against or investigation of the Parent or its
affairs;
(o) notice of any claim of ownership by a third party of the
Parent's Intellectual Property (as defined in Section 3.9 below) or of
infringement by the Parent of any third party's Intellectual Property
rights;
(p) issuance or sale by the Parent of any of its shares of
capital stock, or securities exchangeable, convertible or exercisable
therefor, or of any other of its securities;
(q) material change in pricing or royalties set or charged by
the Parent to its customers or licensees or in pricing or royalties set
or charged by persons who have licensed Intellectual Property to the
Parent;
(r) event or condition of any character that has or could be
reasonably expected to have a Material Adverse Effect on the Parent; or
(s) negotiation or agreement by the Parent or any executive
officer or, to the Parent's knowledge, employees thereof to do any of
the things described in the preceding clauses (a) through (r) (other
than negotiations with the Company and its representatives regarding
the transactions contemplated by this Agreement).
3.6 TAX AND OTHER RETURNS AND REPORTS. Except as set forth in Schedule
3.6:
(a) The Parent has timely prepared all required Returns
relating to any and all Taxes concerning or attributable to the Parent
or its operations and such Returns will have been timely and correctly
filed.
(b) The Parent as of the Effective Time: (A) will have paid or
accrued all Taxes it is required to pay or accrue and (B) will have
withheld with respect to its employees all federal and state income
taxes, FICA, FUTA and other Taxes required to be withheld.
AGREEMENT AND PLAN OF REORGANIZATION PAGE 22
27
(c) The Parent has not been delinquent in the payment of any
Tax nor is there any Tax deficiency outstanding, proposed or assessed
against the Parent, nor has the Parent executed any waiver of any
statute of limitations on or extending the period for the assessment or
collection of any Tax during the five years preceding the Closing Date.
(d) The Parent knows of no audit or other examination of any
Return of the Parent that is currently in progress, nor has the Parent
been notified of any request for such an audit or other examination.
(e) The Parent did not have, as of the Parent Financial
Statements date, any material liabilities for unpaid federal, state,
local and foreign Taxes which have not been accrued or reserved against
in accordance with GAAP on the Parent Financial Statements, whether
asserted or unasserted, contingent or otherwise; the Parent has
received no written notice that any such liability has been asserted;
and any such liability which has arisen since the date of the Parent
Financial Statements has arisen in the ordinary course of business
consistent with past practice.
(f) The Parent has provided to the Company copies of all
federal and state income and all state sales and use tax Returns filed
during the four years preceding the Closing Date.
(g) There are (and as of immediately following the Effective
Time there will be) no Liens on the assets of the Parent relating to or
attributable to Taxes (other than for current taxes not yet due and
payable).
(h) The Parent has no knowledge of any basis for the assertion
of any material claim relating or attributable to Taxes which, if
adversely determined, would result in any Lien on the assets of the
Parent.
(i) None of the Parent's assets are treated as "tax-exempt use
property" within the meaning of Section 168(h) of the Code.
(j) As of the Effective Time, 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 Parent that, individually or collectively, could give rise to
the payment of any amount that would not be deductible pursuant to
Section 280G or 162 of the Code.
(k) The Parent has not filed any consent agreement under
Section 341(f) of the Code or agreed to have Section 341(f)(2) of the
Code apply to any disposition of a subsection (f) asset (as defined in
Section 341(f)(4) of the Code) owned by the Parent.
(l) The Parent is not a party to a tax sharing or allocation
agreement nor does the Parent owe any amount under any such agreement.
(m) The Parent is not, and has not been at any time, a "United
States real property holding corporation" within the meaning of Section
897(c)(2) of the Code.
AGREEMENT AND PLAN OF REORGANIZATION PAGE 23
28
3.7 RESTRICTIONS ON BUSINESS ACTIVITIES. There is no agreement
(noncompete or otherwise), commitment, judgment, injunction, order or decree to
which the Parent is a party or otherwise binding upon the Parent which has or
reasonably could be expected to have the effect of prohibiting or impairing any
business practice of the Parent, any acquisition of property (tangible or
intangible) by the Parent or the conduct of business by the Parent. Without
limiting the foregoing, except for those restrictions set forth in the contracts
which are disclosed in Schedule 3.7, the Parent has not entered into any
agreement under which the Parent is restricted from selling, licensing or
otherwise distributing any of its products to any class of customers, in any
geographic area, during any period of time or in any segment of the market.
3.8 TITLE TO PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES.
(a) The Parent owns no real property, nor has it ever owned
any real property. Schedule 3.8(a) sets forth a list of all real
property leased by the Parent, as of the date of this Agreement, the
name of the lessor, the date of the lease and each amendment thereto
and the aggregate annual rental and/or other fees payable under any
such lease. To the knowledge of the Parent, all such leases are in full
force and effect, are valid and effective in accordance with their
respective terms, and there is not, on the part of the Parent under any
of such leases, any existing default or event of default (or event
which with notice or lapse of time, or both, would constitute a
default).
(b) The Parent has good and valid title to, or, in the case of
leased properties and assets, valid leasehold 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 (as defined in
Section 2.9(b)(vii)), except as reflected in Schedule 3.8(b) and except
for liens for taxes not yet due and payable.
3.9 INTELLECTUAL PROPERTY.
(a) The Parent owns, possesses or has rights to use all
Intellectual Property presently used in and material to the business of
the Parent as it is now being conducted as of the date of this
Agreement including products currently under development (the "Parent
Intellectual Property Rights"). The Parent Intellectual Property that
has been developed by the Parent is exclusively owned by the Parent
(except for material licensed from third parties to the Parent for
inclusion and incorporation into the Parent Intellectual Property) and
is free and clear of any liens. Schedule 3.9(a) sets forth a complete
list of all material patents, registered and unregistered trademarks,
registered copyrights, trade names and service marks, and any
applications therefor, included in the Parent Intellectual Property
Rights, and specifies, where applicable, the jurisdictions in which
each such Parent Intellectual Property Right has been issued or
registered or in which an application for such issuance and
registration has been filed, including the respective registration or
application numbers and the names of all registered owners.
(b) Schedule 3.9(b) sets forth a complete list of all
licenses, sublicenses and other agreements to which the Parent is a
party, which results in annual revenues to or payments by the Parent in
excess of $5,000.00 and pursuant to which the Parent or to the Parent's
knowledge any other person is authorized to use any Parent Intellectual
Property Right or
AGREEMENT AND PLAN OF REORGANIZATION PAGE 24
29
any trade secret of the Parent, and includes the identity of all
parties thereto. No person who has licensed Intellectual Property to
the Parent, where such Intellectual Property is a material component of
any product offered by the Parent, has ownership rights or license
rights to improvements made by the Parent in such Intellectual Property
which has been licensed to the Parent. The execution and delivery of
this Agreement by the Parent, and the consummation of the transactions
contemplated hereby, will not cause the Parent to be in violation or
default under any material license, sublicense or agreement, nor
entitle any other party to any such license, sublicense or agreement to
terminate or modify such license, sublicense or agreement.
(c) (i) No claims with respect to the Parent
Intellectual Property Rights have been asserted or, to the
Parent's knowledge, are threatened by any person, nor, to the
Parent's knowledge, are there any valid grounds for any bona
fide claims (A) to the effect that the manufacture, sale,
licensing or use of any of the products of; or providing of
any services by, the Parent infringes on any copyright,
patent, trademark, service xxxx, trade secret or other
proprietary right or Intellectual Property of any other party,
(B) against the use by the Parent of any Intellectual Property
used in and material to the Parent's business as currently
conducted and, to the Parent's knowledge, products currently
under development, or (C) challenging the ownership by the
Parent, validity or effectiveness of any of the Parent
Intellectual Property Rights. All registered trademarks,
service marks and copyrights held by the Parent are valid and
subsisting. The business of the Parent as currently conducted
has not and does not infringe on any Intellectual Property of
any third party. There is no material unauthorized use,
infringement or misappropriation of any of the Parent
Intellectual Property Rights by any third party, including any
employee or former employee of the Parent. No Parent
Intellectual Property Right or product or service of the
Parent is subject to any outstanding decree, order, judgment,
or stipulation restricting in any manner the licensing thereof
by the Parent.
(ii) Each employee who is currently employed by the
Parent and to the Parent's knowledge, each employee who has
been employed by the Parent and who has played a material role
in the development of the Parent's Intellectual Property has
executed a proprietary information and confidentiality
agreement substantially in the Parent's standard forms.
(d) All of the Parent's software are Year 2000 Compliant. All
of the Parent's products will lose no functionality with respect to the
introduction of records containing dates falling on or after January 1,
2000. All of the Parent's internal computer systems which are material
to the Parent's operations and proprietary software products are Year
2000 Compliant. Parent's accounting systems and software are Year 2000
Compliant and the Parent is not aware of any reason why the Parent's
accounting Systems and software would not be Year 2000 Compliant.
3.10 AGREEMENTS, CONTRACTS AND COMMITMENTS.
(a) Except as set forth in Schedule 3.10(a), as of the date
hereof the Parent is not a party to nor is it bound by:
AGREEMENT AND PLAN OF REORGANIZATION PAGE 25
30
(i) any employment or consulting agreement, contract
or commitment with an employee or individual consultant or
salesperson or consulting or sales agreement, contract or
commitment under which a firm or other organization provides
services to the Parent,
(ii) 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,
(iii) any fidelity or surety bond or completion bond,
(iv) any lease of personal property having a value
individually in excess of $5,000.00,
(v) any agreement, contract or commitment containing
any covenant limiting in a material way the freedom of the
Parent to engage in any line of business or to compete with
any person,
(vi) any agreement, contract or commitment relating
to capital expenditures and involving future payments in
excess of $5,000.00,
(vii) 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
Parent's business,
(viii) any mortgages, indentures, loans or credit
agreements, security agreements or other agreements or
instruments relating to the borrowing of money or extension of
credit,
(ix) any outstanding purchase order or contract for
the purchase of materials involving in excess of $5,000.00,
(x) any construction contracts,
(xi) any distribution, joint marketing or development
agreement, or
(xii) any other agreement, contract or commitment
that involves $5,000.00 or more or is not cancelable without
penalty within ninety (90) days.
(b) Other than as disclosed on Schedule 3.10(b), the Parent is
in material compliance with and has not materially breached, violated
or defaulted under, or received notice that it has breached, violated
or defaulted under, any of the terms or conditions of any agreement,
contract, covenant, instrument, lease, license or commitment required
to be set forth on Schedule 3.10(a) (collectively a "Contract"), nor is
the Parent aware of any
AGREEMENT AND PLAN OF REORGANIZATION PAGE 26
31
circumstance which is likely to cause it to or otherwise create 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 Schedule 3.10(b), is not subject to any default
thereunder by any party obligated to the Parent pursuant thereto. The
Parent 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 or for such
Contracts to remain in effect without modification after the Closing.
Following the Effective Time, the Parent will be permitted to exercise
all of the Parent's rights under the Contracts without the payment of
any additional amounts or consideration other than ongoing fees,
royalties or payments which the Parent would otherwise be required to
pay had the transactions contemplated by this Agreement not occurred.
3.11 INTERESTED PARTY TRANSACTIONS. Except as set forth on Schedule
3.11, no officer, director or stockholder of the Parent (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) a material economic interest in any entity
which furnished or sold, or furnishes or sells, a material amount of services or
products that the Parent furnishes or sells, or proposes to furnish or sell,
(ii) a material economic interest in any entity that purchases from or sells or
furnishes to, the Parent, any goods or services or (iii) a material beneficial
interest in any contract or agreement set forth in Schedule 3.10(a) or Schedule
3.9(b); 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
"economic interest in any entity" for purposes of this Section 3.11.
3.12 COMPLIANCE WITH LAWS. Parent has complied in all material respects
with, is not in material violation of, and has not received any notice of
violation with respect to, any foreign, federal, state or local statute, law or
regulation.
3.13 LITIGATION. Except as set forth in Schedule 3.13, there is no
action, suit or proceeding of any nature pending or to the Parent's knowledge
threatened against the Parent, its properties or any of its officers or
directors, in their respective capacities as such. Except as set forth in
Schedule 3.13, to the Parent's knowledge, there is no investigation pending or
threatened against the Parent, its properties or any of its officers or
directors by or before any governmental entity. Schedule 3.13 sets forth, with
respect to any pending or threatened action, suit, proceeding or investigation,
the forum, the parties thereto, the subject matter thereof and the amount of
damages claimed or other remedy requested. No governmental entity has at any
time formally challenged in writing or questioned the legal right of the Parent
to manufacture, offer or sell any of its products or services in the present
manner or style thereof.
3.14 INSURANCE. With respect to the insurance policies and fidelity
bonds covering the assets, business, equipment, properties, operations,
employees, officers and directors of the Parent, there is no claim by the Parent
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 Parent is otherwise in material compliance with the terms of such
policies and bonds (or other policies and bonds providing substantially similar
insurance coverage). The Parent has no knowledge of any threatened termination
of, or material premium increase with respect to, any of such policies.
AGREEMENT AND PLAN OF REORGANIZATION PAGE 27
32
3.15 MINUTE BOOKS. The minute books of the Parent and the Merger Sub
made available to counsel for the Company are the only minute books of the
Parent and the Merger Sub and contain an accurate summary of all meetings of
directors (or committees thereof) and stockholders or actions by written consent
since the time of respective incorporations of the Parent and Merger Sub.
3.16 ENVIRONMENTAL MATTERS.
(a) Hazardous Material. The Parent has not operated any
underground storage tanks, and has no knowledge of the existence, at
any time, of any underground storage tank (or related piping or pumps),
at any property that the Parent has at any time owned, operated,
occupied or leased. To the Parent's knowledge, the Parent has not
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 a Hazardous Material. To the Parent's knowledge, no Hazardous
Materials are present as a result of the actions or omissions of the
Parent, or, to the Parent's 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 Parent has at any time owned, operated, occupied or leased.
(b) Hazardous Materials Activities. The Parent 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 Effective Time, nor has the Parent
disposed of, transported, sold, or manufactured any product containing
a Hazardous Material 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 Parent currently holds all Environmental Permits
necessary for the conduct of the Parent's Hazardous Material Activities
and other businesses of the Parent as such activities and businesses
are currently being conducted, except where the failure to hold such an
Environmental Permit would not have a Material Adverse Effect on the
financial condition of the Parent.
(d) Environmental Liabilities. No action, proceeding, revocation
proceeding, amendment procedure, writ, injunction or claim is pending
or, to the Parent's knowledge, threatened concerning any Environmental
Permit, Hazardous Material or any Hazardous Materials Activity of the
Parent. The Parent is not aware of any fact or circumstance which would
be reasonably likely to result in the imposition upon the Parent of any
environmental liability.
3.17 BROKERS' AND FINDERS' FEES; THIRD PARTY EXPENSES. The Parent has
not incurred, nor will it incur, directly or indirectly, any liability for
brokerage or finders' fees or financial advisory fees or agents' commissions or
any similar charges in connection with this Agreement or any transaction
contemplated hereby.
AGREEMENT AND PLAN OF REORGANIZATION PAGE 28
33
3.18 EMPLOYEE MATTERS AND BENEFIT PLANS.
(a) Definitions. With the exception of the definition of
"Affiliate" set forth in Section 3.18(a)(i) below (which definition
shall apply only to Section 2.22 and this Section 3.18), for purposes
of this Agreement, the following terms shall have the meanings set
forth below:
(i) "Affiliate" shall mean any other person or entity
under common control with the Parent within the meaning of
Section 414(b), (c), (m) or (o) of the Code and the
regulations thereunder;
(ii) "Parent Employee Plan" shall refer to any plan,
program, policy, practice, contract, agreement or other
arrangement providing for all forms of deferred compensation
of any kind, severance, termination pay, performance awards,
stock or stock-related awards, fringe benefits or other
employee benefits, whether formal or informal, funded or
unfunded and whether or not legally binding, including without
limitation, each "employee benefit plan", within the meaning
of Section 3(3) of ERISA which is maintained, contributed to,
or required to be contributed to, by the Parent or any
Affiliate for the benefit of any "Employee" (as defined
below), and pursuant to which the Parent or any Affiliate has
or may reasonably be expected to have any material liability
contingent or otherwise;
(iii) "Employee" shall mean any current, former, or
retired employee, officer, or director of the Parent or any
Affiliate;
(iv) "Employee Agreement" shall refer to each
management, employment, severance, consulting, relocation,
repatriation, expatriation, visa, work permit or similar
agreement or contract between the Parent or any Affiliate and
any Employee or consultant; and
(v) "Pension Plan" shall refer to each Parent
Employee Plan which is an "employee pension benefit plan",
within the meaning of Section 3(2) of ERISA.
(b) Schedule. Schedule 3.18(b) contains an accurate and
complete list of each Parent Employee Plan and each Employee Agreement.
The Parent does not have any plan or commitment, to establish any new
Parent Employee Plan or Employee Agreement, to modify any Parent
Employee Plan or Employee Agreement (except to the extent required by
law or to conform any such Parent Employee Plan or Employee Agreement
to the requirements of any applicable law, in each case as previously
disclosed to the Company in writing, or as required by this Agreement),
or to enter into any Parent Employee Plan or Employee Agreement.
(c) Documents. The Parent has made available to Company, where
applicable, (i) correct and complete copies of all documents, if any,
embodying each Parent Employee Plan and each Employee Agreement
including all amendments thereto; (ii) the most recent annual actuarial
valuations, if any, prepared for each Parent Employee Plan; (iii) the
three most recent annual reports (Series 5500 and all schedules
thereto), if any, required under
AGREEMENT AND PLAN OF REORGANIZATION PAGE 29
34
ERISA or the Code in connection with each Parent Employee Plan; (iv) if
the Parent Employee Plan is funded, the most recent annual and periodic
accounting of Parent Employee Plan assets required under ERISA or the
Code; (v) the most recent summary plan description together with the
most recent summary of material modifications, if any, required under
ERISA with respect to each Parent Employee Plan; (vi) the most recent
IRS determination, opinion, notification or advisory letters, as
applicable, and the related application, and IRS rulings, closing
agreements or compliance statements relating to each Parent Employee
Plan along with all related material, applications and correspondence
to or from the IRS or the DOL with respect to any Parent Employee Plan;
(vii) all communications material to any Employee or Employees relating
to any Parent Employee Plan and any proposed Parent Employee Plans, in
each case, relating to any establishments, increases or decreases in
benefits or other events which would result in any material liability
to the Parent; and (viii) all registration statements and prospectuses
prepared in connection with each Parent Employee Plan.
(d) Employee Plan Compliance. (i) The Parent has performed in
all material respects all obligations required to be performed by it
under each Parent Employee Plan, and each Parent Employee Plan has been
established in all material respects in accordance with its terms and
in compliance with all applicable laws, statutes, orders, rules and
regulations, including but not limited to ERISA or 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 Parent
Employee Plan which may give rise to a material liability; (iii) there
are no actions, suits or claims pending, or, to the knowledge of the
Parent, threatened or anticipated (other than routine claims for
benefits) against any Parent Employee Plan; and (iv) each Parent
Employee Plan can be amended, terminated or otherwise discontinued
after the Effective Time in accordance with its terms, without material
liability to the Parent, the Company or any of its Affiliates (other
than ordinary administration expenses); (v) there are no inquiries or
proceedings pending or, to the knowledge of the Parent or any
affiliates, threatened by the IRS or DOL with respect to any Parent
Employee Plan; and (vi) neither the Parent nor any Affiliate is subject
to any penalty or tax with respect to any Parent Employee Plan under
Section 502(i) of ERISA or Sections 4975 through 4980 of the Code.
(e) Pension Plans. The Parent 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 Parent contributed
to or been obligated to contribute to any Multiemployer Plan.
(g) No Post-employment Obligations. No Parent Employee Plan
provides, or reflects or represents any liability to provide, retiree
life insurance, retiree health or other retiree employee welfare
benefits to any person for any reason, except as may be required by
COBRA or other applicable statute, and the Parent has never
represented, promised or contracted (whether in oral or written form)
to any Employee (either individually or to Employees as a group) or any
other person that such Employee(s) or other person would be provided
with retiree life insurance, retiree health or other retiree employee
welfare benefit, except to the extent required by statute.
AGREEMENT AND PLAN OF REORGANIZATION PAGE 30
35
(h) No Cobra Violation. Neither the Parent nor any Affiliate
has, prior to the Effective Time violated in a material way any of the
health care continuation requirements of the Consolidated Omnibus
Budget Reconciliation Act of 1985, as amended, or any similar
provisions of state law applicable to its employees which violation
would result in a material liability for the Parent.
(i) Effect of Transaction.
(i) The execution of this Agreement and the
consummation of the transactions contemplated hereby will not
constitute an event under any Parent 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.
(ii) No payment or benefit, which will or may be made
by the Parent or Company or any of their respective affiliates
with respect to any Employee in connection with the
transactions or any transaction entered into by Parent prior
to the Effective Date contemplated hereby, will be
characterized as an "excess parachute payment", within the
meaning of Section 280G(b)(1) of the Code.
(j) Employment Matters. To the Parent's knowledge, the Parent
(i) is in compliance in all material respects with all applicable
foreign, federal, state and local 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 governmental or administrative
authority, with respect to unemployment compensation benefits, or
social security benefits or obligations for Employees (other than
routine payments to be made in the normal course of business and
consistent with past practice).
(k) Labor. No work stoppage or labor strike against the Parent
is pending or, to the knowledge of the Parent, threatened. The Parent
is not involved in or, to the knowledge of the Parent, threatened with,
any labor dispute, grievance, or litigation relating to labor, safety
or discrimination matters involving any Employee, including, without
limitation, charges of unfair labor practices or discrimination
complaints, which, if adversely determined, would, individually or in
the aggregate, result in liability to the Parent. Neither the Parent
nor any of its subsidiaries has engaged in any unfair labor practices
within the meaning of the National Labor Relations Act which would,
individually or in the aggregate, directly or indirectly result in a
material liability to the Parent. The Parent is not presently, nor has
it been in the past, 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 Parent.
AGREEMENT AND PLAN OF REORGANIZATION PAGE 31
36
(l) No Interference or Conflict. To the knowledge of the
Parent, no stockholder, officer, employee or consultant of the Parent
is obligated under any contract or agreement subject to any judgment,
decree or order of any court or administrative agency, that would
materially interfere with such person's efforts to promote the
interests of the Parent or that would materially interfere with the
Parent's business. Neither the execution nor delivery of this
Agreement, nor the carrying on of the Parent's business as presently
conducted or proposed to be conducted nor any activity of such
officers, directors, employees or consultants in connection with the
carrying on of the Parent's business as presently conducted or proposed
to be conducted, will, to the Parent's knowledge, conflict with or
result in a breach of the material terms, conditions or provisions of,
or constitute a material default under, any contract or agreement under
which any of such officers, directors, employees or consultants is now
bound.
3.19 WARRANTIES; INDEMNITIES. The Parent has not given any warranties
or indemnities relating to products or technology sold or licensed or services
rendered by the Parent except as listed on Schedule 3.19.
3.20 COMPLETE COPIES OF MATERIALS. The Parent has delivered or made
available true and complete copies of each document (or summaries of same) that
has been requested by the Company or its counsel.
3.21 REPRESENTATIONS COMPLETE. None of the representations or
warranties made by Parent (subject to the qualifications and exceptions
expressed therein), nor any statement made in any Schedule or certificate
furnished by Parent pursuant to this Agreement, or furnished in or in connection
with documents mailed or delivered to the Parent's stockholders for use in
soliciting their consent to this Agreement and the Merger, contains or will
contain at the Effective Time, any untrue statement of a material fact, or omits
or will omit at the Effective Time to state any material fact necessary in order
to make the statements contained herein or therein, in the light of the
circumstances under which made, not misleading.
3.22 NO UNDISCLOSED LIABILITIES. Parent does not have any liability,
obligation, expense or claim, deficiency, guaranty or endorsement of any type
(whether accrued, absolute, contingent, matured unmatured or other) which if
known would be required to be reflected in the financial statements of Parent in
accordance with GAAP, except for any such liability, obligation or claim which
(i) has been reflected in Parent's balance sheet at September 30, 1998, or (ii)
has arisen in the ordinary course of Parent's business since September 30, 1998,
consistent with past practices.
3.23 FORM S-3 ELIGIBILITY. Parent is eligible to register the shares of
Parent Common Stock on a registration statement on Form S-3 under the Securities
Act.
3.24 REGISTRATION STATEMENT. None of the information supplied or to be
supplied by Parent for inclusion in the Registration Statement shall, at the
respective times such documents are filed with the SEC, and, in the case of the
Registration Statement, when it becomes effective, be false or misleading with
respect to any material fact, or omit to state any material fact necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading.
AGREEMENT AND PLAN OF REORGANIZATION PAGE 32
37
3.25 NO MATERIAL ADVERSE CHANGE. Since December 31, 1997, the Parent
has conducted its business in the ordinary course and there has not occurred:
(a) any material adverse change in the financial condition, liabilities, assets
or business of the Parent; or (b) any damage to, destruction or loss of any
assets of the Parent, (whether or not covered by insurance) that materially and
adversely affects the financial condition or business of the Parent.
3.26 COMPENSATION. Schedule 3.26 attached hereto contains a list of all
officers, employees (both full and part time) and consultants of Parent during
the calendar year 1997 and 1998, together with their current job titles (if
currently employed) and aggregate remuneration rate (salary, bonuses and
commission) for each such person for such respective period.
3.27 BANK ACCOUNTS. Schedule 3.27 attached hereto is a list of all bank
and investment accounts and safe deposit boxes in the name of or controlled by
Parent and a listing of the persons having signature authority or access
thereto.
3.28 NO PRIOR ACTIVITIES. Merger Sub has not incurred any liabilities
or obligations, except those incurred in connection with its incorporation or
with the negotiation and consummation of this Agreement and the transaction
contemplated hereby. Merger Sub has not engaged in any business or activities of
any type or kind whatsoever, or entered into any agreements or arrangements with
any person or entity, and is not subject to or bound by any obligation or
undertaking which is not contemplated by this Agreement or incurred in
connection with its incorporation.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 CONDUCT OF BUSINESS OF THE PARENT. During the period from the date
of this Agreement and continuing until the earlier of the termination of this
Agreement and the Effective Time, the Parent agrees (except as contemplated by
this Agreement or to the extent that the Company shall otherwise consent in
writing, which consent shall not be unreasonably withheld) to carry on its
business in the usual, regular and ordinary course in substantially the same
manner as heretofore conducted, to pay its debts and Taxes when due, to pay or
perform other obligations when due, and, to the extent consistent with such
business, to use all reasonable efforts consistent with past practice and
policies to preserve intact its present business organization, keep available
the services of its present officers and key employees and preserve their
relationships with customers, suppliers, distributors, licensors, licensees, and
others having business dealings with it, all with the goal of preserving
unimpaired its goodwill and ongoing businesses at the Effective Time. Following
the date of this Agreement, the Parent shall promptly notify the Company of any
material event or occurrence or emergency not in the ordinary course of its
business, and any event involving or adversely affecting the Parent or its
business. Except as expressly contemplated by this Agreement, the Parent shall
not, without the prior written consent of the Company, which consent shall not
be unreasonably withheld:
(a) Enter into any material commitment or transaction not in
the ordinary course of business;
(b) Transfer to any person or entity any material rights to
the Parent Intellectual Property Rights (other than pursuant to
end-user licenses in the ordinary course of business);
AGREEMENT AND PLAN OF REORGANIZATION PAGE 33
38
(c) Enter into any material agreements (or material amendments
thereto) 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 Parent other than in the ordinary course of business
consistent with past practices;
(d) Amend or otherwise modify (or agree to do so), except in
the ordinary course of business, or knowingly violate any terms, which
would be reasonably likely to create a material liability, in any of
the agreements set forth or described in the Schedules referenced in
Article III;
(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 Parent, 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 Certificate 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;
(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 practice;
(k) Incur any indebtedness for borrowed money or guarantee any
such indebtedness or issue or sell any debt securities of the Parent or
guarantee any debt securities of others except for the $500,000 line of
credit from Compass Bank;
(l) Grant any severance or termination pay to any director,
officer, employee or consultant;
(m) Adopt or amend any employee benefit plan, program, policy
or arrangement, or enter into any employment contract, extend any
employment offer to any person, pay or agree to pay any special bonus
or special remuneration to any director, employee or consultant other
than in connection with normal annual bonus and salary adjustments for
all
AGREEMENT AND PLAN OF REORGANIZATION PAGE 34
39
non-officers and directors upon consultation with the Company, or
increase the salaries or wage rates of its employees;
(n) 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 and consistent
with past practice;
(o) Take any action that could jeopardize the tax-free
reorganization hereunder;
(p) Pay, discharge or satisfy, in an amount in any one case,
any claim, liability or obligation (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than the payment, discharge
or satisfaction in the ordinary course of business of liabilities
reflected or reserved against in the Parent Financial Statements;
(q) Make or change any material election in respect of Taxes,
materially change any accounting method in respect of Taxes, enter into
any closing agreement, settle any claim or assessment in respect of
Taxes, except in the ordinary course of business consistent with past
practice; or consent to any extension or waiver of the limitation
period applicable to any claim or assessment in respect of Taxes at a
time later than the Effective Time;
(r) Enter into any strategic alliance, joint development or
joint marketing arrangement or agreement except in the ordinary course
of business;
(s) Fail to pay or otherwise satisfy its monetary obligations
as they become due, except such as are being contested in good faith;
(t) Waive or commit to waive any rights;
(u) Cancel or materially amend any insurance policy other than
in the ordinary course of business;
(v) Alter, or enter into any commitment to alter, its
ownership interest in any corporation, association, joint venture,
partnership or business entity in which the Company directly or
indirectly holds any ownership interest on the date hereof;
(w) Accelerate the vesting schedule of any of the outstanding
options for Parent Capital Stock;
(x) Hire or terminate employees or encourage employees to
resign except in the ordinary course of business;
(y) Take any actions which would be reasonably likely to lead
to destruction of, damage to or loss of any material assets, business
or customer of the Parent (whether or not covered by insurance);
AGREEMENT AND PLAN OF REORGANIZATION PAGE 35
40
(z) Take any actions inconsistent with the human resource and
personnel policies of the Company or Parent that would be reasonably
likely to violate any labor laws or regulations;
(aa) Change the Parent's accounting methods or practices
(including any change in depreciation or amortization policies or
rates);
(bb) Make a material change in the policies regarding pricing
or royalties set or charged by the Parent to its customers or licensees
or agree to a material change in pricing or royalties set or charged by
persons who have licensed Intellectual Property to the Parent; or
(cc) Take, or agree in writing or otherwise to take, or have
any of the Parent's directors, executive officers or employees take, or
agree in writing or otherwise to take, any of the actions described in
Sections 4.1(a) through (bb) above, or any other action that would
prevent the Parent from performing or cause the Parent not to perform
its covenants hereunder.
4.2 NO SOLICITATION. Until the earlier of the Effective Time and the
date of termination of this Agreement pursuant to the provisions of Section 9.1
hereof, the Parent will not (nor will the Parent permit any of the Parent's
officers, directors, agents, representatives or affiliates to) directly or
indirectly, take any of the following actions with any party other than the
Company and its designees: (a) solicit, initiate, entertain, or encourage any
proposals or offers from, or conduct discussions with or engage in negotiations
with, any person relating to any possible acquisition of the Parent or any of
its subsidiaries (whether by way of merger, purchase of capital stock, purchase
of assets or otherwise), any material portion of its or their capital stock or
assets (excluding equity-based compensation for employees and prospective
employees, (collectively "Equity Compensation")), (b) provide information with
respect to it to any person, other than the Company, relating to, or otherwise
cooperate with, facilitate or encourage any effort or attempt by any such person
with regard to, any possible acquisition of the Parent (whether by way of
merger, purchase of capital stock, purchase of assets or otherwise), any
material portion of its or their capital stock or assets or any equity interest
in the Parent or any of its subsidiaries (excluding Equity Compensation), (c)
enter into an agreement with any person, other than the Company, providing for
the acquisition of the Parent (whether by way of merger, purchase of capital
stock, purchase of assets or otherwise), any material portion of its or their
capital stock or assets or any equity interest in the Parent or any of its
subsidiaries (excluding Equity Compensation), or (d) make or authorize any
statement, recommendation or solicitation in support of any possible acquisition
of the Parent or any of its subsidiaries (whether by way of merger, purchase of
capital stock, purchase of assets or otherwise), any material portion of its or
their capital stock or assets or any equity interest in the Parent or any of its
subsidiaries (excluding Equity Compensation) by any person, other than by the
Company. The Parent shall immediately cease and cause to be terminated any such
contacts or negotiations with third parties relating to any such transaction or
proposed transaction. In addition to the foregoing, if the Parent receives prior
to the Effective Time or the termination of this Agreement any offer or proposal
relating to any of the above, the Parent shall immediately notify the Company
thereof, including information as to the identity of the offeror or the party
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 the
Company may reasonably request. Except as contemplated by this Agreement,
AGREEMENT AND PLAN OF REORGANIZATION PAGE 36
41
disclosure by the Parent of the terms hereof (other than the prohibition of this
section) shall be deemed to be a violation of this Section 4.2.
4.3 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 and the Effective Time, the Company agrees (except as contemplated by
this Agreement or to the extent that the Parent shall otherwise consent in
writing, which consent shall not be unreasonably withheld) to carry on its
business in the usual, regular and ordinary course in substantially the same
manner as heretofore conducted, to pay its debts and Taxes when due, to pay or
perform other obligations when due, and, to the extent consistent with such
business, to use all reasonable efforts consistent with past practice and
policies to preserve intact its present business organization, keep available
the services of its present officers and key employees and preserve their
relationships with customers, suppliers, distributors, licensors, licensees, and
others having business dealings with it, all with the goal of preserving
unimpaired its goodwill and ongoing businesses at the Effective Time. Following
the date of this Agreement, the Company shall promptly notify the Parent of any
material event or occurrence or emergency not in the ordinary course of its
business, and any event involving or adversely affecting the Parent or its
business. Except as expressly contemplated by this Agreement, the Company shall
not, without the prior written consent of the Parent, which consent shall not be
unreasonably withheld:
(a) Enter into any material commitment or transaction not in
the ordinary course of business;
(b) Transfer to any person or entity any material rights to
the Company Intellectual Property Rights (other than pursuant to
end-user licenses in the ordinary course of business);
(c) Enter into any material agreements (or material amendments
thereto) 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 other than in the ordinary course of business
consistent with past practices;
(d) Amend or otherwise modify (or agree to do so), except in
the ordinary course of business, or knowingly violate any terms, which
would be reasonably likely to create a material liability, in any of
the agreements set forth or described in the Schedules referenced in
Article II;
(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);
AGREEMENT AND PLAN OF REORGANIZATION PAGE 37
42
(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;
(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 practice;
(k) Incur any indebtedness for borrowed money or guarantee any
such indebtedness or issue or sell any debt securities of the Company
or guarantee any debt securities other than in the ordinary course of
business;
(l) 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 and consistent
with past practice;
(m) Take any action that could jeopardize the tax-free
reorganization hereunder;
(n) Pay, discharge or satisfy any claim, liability or
obligation (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction in the
ordinary course of business;
(o) Make or change any material election in respect of Taxes,
materially change any accounting method in respect of Taxes, enter into
any closing agreement, settle any claim or assessment in respect of
Taxes, except in the ordinary course of business consistent with past
practice; or consent to any extension or waiver of the limitation
period applicable to any claim or assessment in respect of Taxes at a
time later than the Effective Time;
(p) Enter into any strategic alliance, joint development or
joint marketing arrangement or agreement except in the ordinary course
of business;
(q) Fail to pay or otherwise satisfy its monetary obligations
as they become due, except such as are being contested in good faith;
(r) Cancel or materially amend any insurance policy other than
in the ordinary course of business;
AGREEMENT AND PLAN OF REORGANIZATION PAGE 38
43
(s) Alter, or enter into any commitment to alter, its
ownership interest in any corporation, association, joint venture,
partnership or business entity in which the Parent directly or
indirectly holds any ownership interest on the date hereof;
(t) Accelerate the vesting schedule of any of the outstanding
options for Company Capital Stock except as provided for in existing
agreements which have not been amended or modified in anticipation of
the transactions contemplated by this Agreement;
(u) Take any actions which would be reasonably likely to lead
to destruction of, damage to or loss of any material assets, business
or customer of the Company (whether or not covered by insurance);
(v) Take any actions inconsistent with the human resource and
personnel policies of the Company or Parent that would be reasonably
likely to violate any labor laws or regulations;
(w) Change the Company's accounting methods or practices
(including any change in depreciation or amortization policies or
rates);
(x) Take, or agree in writing or otherwise to take, or have
any of the Company's directors, executive officers or employees take,
or agree in writing or otherwise to take, any of the actions described
in Sections 4.1(a) through (w) above, or any other action that would
prevent the Company from performing or cause the Company not to perform
its covenants hereunder.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 REGISTRATION RIGHTS AGREEMENT. At the Effective Time, Parent shall
execute and deliver for execution to the stockholder of the Company the
Registration Rights Agreement in the form attached hereto as Exhibit "C" (the
"Registration Rights Agreement").
5.2 ACCESS TO INFORMATION. Subject to any applicable contractual
confidentiality obligations (which each Party shall use its reasonable best
efforts to cause to be waived) each party shall afford the other parties and
their accountants, counsel and other representatives, reasonable access during
normal business hours during the period prior to the Effective Time to (a) all
of its properties, books, contracts, commitments and records, and (b) all other
information concerning the business, properties and personnel (subject to
restrictions imposed by applicable law) of it as the other party may reasonably
request, subject to reasonable limits on access to technical and other
non-public information. No information or knowledge obtained in any
investigation pursuant to this Section 5.2 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.
5.3 CONFIDENTIALITY. Subject to the terms of Section 4.2 hereof, each
of the parties hereto hereby agrees to keep the terms of this Agreement (except
to the extent contemplated hereby) and such information or knowledge obtained in
any investigation pursuant to Section 5.2, or pursuant to the negotiation and
execution of this Agreement or the effectuation of the transactions
AGREEMENT AND PLAN OF REORGANIZATION PAGE 39
44
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 generally known to the public and did not become so known through
any violation of law, (c) became known to the public through no fault of such
party, (d) is later lawfully acquired by such party without confidentiality
restrictions from other sources, (e) is required to be disclosed by order of
court or government agency with subpoena powers (provided that such party shall
have provided the other party with prior notice of such required disclosure and
an opportunity to object or take other available action) or (f) which is
disclosed in the course of any litigation between any of the parties hereto.
5.4 EXPENSES. Whether or not the Merger is consummated, all reasonable
fees and expenses incurred by both the Parent and the Company in connection with
the Merger including, without limitation, all legal, accounting, financial,
advisory, consulting and all other fees and expenses of third parties incurred
in connection with the negotiation and effectuation of the terms and conditions
of this Agreement and the transactions contemplated hereby, shall be assumed by
and paid for by the Parent.
5.5 PUBLIC DISCLOSURE. Unless otherwise required by law (including,
without limitation, federal and state securities laws) or, as to Parent, by the
rules and regulations of the Nasdaq National Market, prior to the Effective
Time, no disclosure (whether or not in response to an inquiry) of the subject
matter of this Agreement shall be made by any party hereto unless approved by
Parent and the Company prior to release, provided that such approval shall not
be unreasonably withheld.
5.6 CONSENTS. The Parent shall use its best efforts to obtain the
consents, waivers and approvals under any of the material Contracts as may be
required in connection with the Merger (all of such consents, waivers and
approvals are set forth in the Parent's Schedules hereto) so as to preserve all
rights of and benefits to the Company thereunder.
5.7 REASONABLE EFFORTS. Subject to the terms and conditions provided in
this Agreement, each of the parties hereto shall use its reasonable efforts to
ensure that its representations and warranties remain true and correct in all
material respects, and 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, 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.
5.8 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, Parent
or Merger Sub, respectively, contained in this Agreement (as modified by the
Schedules) to be untrue or inaccurate in any material way at or prior to the
Effective Time and (ii) any failure of the Company or Parent or Merger Sub, as
the case may be, to comply with or satisfy in any material way 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 5.8
shall not limit or otherwise affect any remedies available to the party
receiving such notice.
AGREEMENT AND PLAN OF REORGANIZATION PAGE 40
45
5.9 CERTAIN BENEFIT PLANS. Parent shall take such reasonable actions as
are necessary to allow eligible employees of the Company to participate in the
benefit programs of Parent, or alternative benefits programs substantially
comparable to those applicable to employees of Parent on similar terms, as soon
as practicable after the Effective Time.
5.10 ADDITIONAL DOCUMENTS AND FURTHER ASSURANCES. Each party hereto, at
the reasonable request of the other party hereto, shall execute and deliver such
other instruments and do and perform such other acts and things as may be
reasonably necessary or desirable for effecting completely the consummation of
this Agreement and the transactions contemplated hereby.
5.11 EMPLOYEE AGREEMENTS. Simultaneously with the Effective Time,
Xxxxxx Xxxxxxx (collectively, the "Contracted Employees") shall all have entered
into severance, consulting, and/or employment agreements (the "Employee
Agreements") with Parent, containing provisions acceptable to Company.
5.12 BLUE SKY LAWS. Parent shall take such steps as may be necessary to
comply with the securities and blue sky laws of all jurisdictions which are
applicable to the issuance of the Parent Common Stock pursuant hereto. The
Company shall use its best efforts to assist Parent as may be reasonably
necessary to comply with the securities and blue sky laws of all jurisdictions
which are applicable in connection with the issuance of Parent Common Stock
pursuant hereto.
5.13 PARENT'S AUDITORS. The Parent will use its commercially reasonable
efforts to cause its management and its independent auditors to facilitate on a
timely basis (i) the preparation of financial statements (including pro forma
financial statements if required) as required by Parent to comply with
applicable SEC regulations, (ii) the review of any Company papers for up to the
past three years, including the examination of selected interim financial
statements and data, and (iii) the preparation of an audit of Company for filing
with the SEC.
5.14 TRANSACTION STRUCTURE. Parent and the Company shall each use its
reasonable best efforts to cause the Merger to be treated as a tax-free
reorganization within the meaning of Section 368 of the Code.
5.15 INDEMNIFICATION CONTINUATION.
(a) For purposes of this Section 5.15 (i) "Indemnified Person"
means any person who is now, or has been at any time between the date
of this Agreement and prior to the Effective Time, an officer or
director of the Company or who was serving at the request of the
Company as an officer or director of another corporation, joint venture
or other enterprise, or a general partner of any partnership, or a
trustee of any trust and (ii) "Proceeding" means any claim, action,
suit, proceeding or investigation.
(b) From and after the Effective Time, Parent shall, or Parent
shall cause the Surviving Corporation to, provide indemnification to
the same extent and under similar conditions and procedures as offered
to officers and directors of Parent, to each Indemnified Person in
connection with any Proceeding based directly or indirectly (in whole
or in part) on, or arising directly or indirectly (in whole or in part)
out of, the fact that such Indemnified Person is or was an officer or
director of the Company or is or was serving at the request of
AGREEMENT AND PLAN OF REORGANIZATION PAGE 41
46
the Company as an officer or director of another corporation, joint
venture or other enterprise or general partner of any
partnership or a trustee of any trust, whether pertaining to any matter
arising before or after the Effective Time.
(c) The rights of each Indemnified Person hereunder shall be
in addition to any other rights such Indemnified Person may have under
Texas Law, the Company's Articles of Incorporation or Bylaws in effect
prior to the Effective Time, any agreement or otherwise. The provisions
of this Section 5.15 shall survive the consummation of the Merger and
are expressly intended to benefit and may be relied upon each of the
Indemnified Persons; provided, however, that in the event that any
claim or claims for indemnification are asserted or made, all rights to
indemnification in respect of any such claim or claims shall continue
until disposition of any and all such claims.
(d) In the event Parent or the Surviving Corporation or any of
their respective successors or assigns (i) consolidates with or merges
into any other person or entity and shall not be the continuing or
surviving corporation or entity of such consolidation or merger, or
(ii) transfers or conveys all or a substantial portion of its
properties or assets to any person or entity, then, and in each such
case, to the extent necessary to effectuate the purposes of this
Section 5.15 proper provision shall be made so that the successors and
assigns of Parent and the Surviving Corporation assume the obligations
set forth in this Section 5.15.
5.16 COMPANY BENEFITS.
(a) For a period of one year following the Effective Time,
Parent will either (i) cause to remain in effect all Company Employee
Plans as in effect on the date of this Agreement; provided, however,
that to the extent Parent is unable to assume any Company Employee Plan
under comparable terms and conditions existing immediately prior to the
Effective Time, Parent may, in its sole discretion, substitute a
comparable plan or (ii) make available to eligible employees of the
Company employee benefits under plans of Parent that provide benefits
that are no less favorable, taken as a whole, to the benefits provided
to similarly situated employees of Parent.
(b) In the event that Parent permits employees of the Company
to participate in its employee benefit plans (the "Parent Plans"), then
for purposes of determining the eligibility, vesting of benefits, or
entitlement to benefits (including any severance or vacation plans or
arrangements of Parent), the calculation of service credited for
employees of the Company under Parent Plans shall be based on service
credited pursuant to the comparable plan maintained by Company
immediately prior to the Effective Time.
(c) The provisions of this Section 5.16 are intended to
benefit, and may be enforced by the employees covered by such
provisions. This Section 5.16 shall be binding upon all successors and
assigns of the Company, Parent, Merger Sub, and the Surviving
Corporation.
AGREEMENT AND PLAN OF REORGANIZATION PAGE 42
47
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 Closing of the following
conditions:
(a) Stockholder Approval. This Agreement and the Merger shall
have been approved and adopted by the requisite vote of the
stockholders of each of the Company and Merger Sub.
(b) 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 or
regulatory restraint or prohibition preventing the consummation of the
Merger shall be in effect.
6.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF THE COMPANY. The
obligations of the Company to consummate the Merger and the transactions
contemplated by this Agreement shall be subject to the satisfaction at or prior
to the Closing of each of the following conditions, any of which may be waived,
in writing, exclusively by the Company:
(a) Representations and Warranties. The representations and
warranties of Parent and Merger Sub contained in this Agreement shall
be true and correct in all material respects on and as of the date
hereof and as of the Closing Date, as though made on and as of the
Closing Date, except for changes contemplated by this Agreement and
except for those representations and warranties which address matters
only as of a particular date (which shall remain true and correct as of
such date), with the same force and effect as if made on and as of the
Closing Date, except, in all such cases, for such breaches,
inaccuracies or omissions of such representations and warranties which
have neither had nor reasonably would be expected to have a material
adverse change in the business, results of operations or financial
prospects ("Material Adverse Change") of Parent; and the Company shall
have received a certificate to such effect from Parent as required in
Section 7.2.
(b) Agreements and Covenants. Parent and Merger Sub shall have
performed or complied (which performance or compliance shall be subject
to the Parent's and Merger Sub's ability to cure as provided in Section
9.1(e) below) in all material respects with all agreements and
covenants required by this Agreement to be performed or complied with
by them on or prior to the Effective Time, and the Company shall have
received a certificate to such effect as required in Section 7.2.
(c) Third Party Consents. The Company shall have been
furnished with evidence satisfactory to it that Parent has obtained the
consents, approvals and waivers set forth in Schedule 6.2(c).
(d) Legal Opinion. The Company shall have received a legal
opinion from Xxxxxxx & Xxxxxxx, legal counsel to Parent, in the form
attached hereto as Exhibit "D".
AGREEMENT AND PLAN OF REORGANIZATION PAGE 43
48
(e) Material Adverse Change. There shall not have occurred any
Material Adverse Change of Parent since the date of the Parent
Financial Statements.
(f) Registration Rights Agreement. The Parent shall have
delivered an executed copy of the Registration Rights Agreement.
(g) Employment Agreement. The Parent shall have executed and
delivered the Employment Agreement of Xxxxxx Xxxxxxx in substantially
the form attached hereto as Exhibit "E".
6.3 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF PARENT AND MERGER SUB.
The obligations of Parent and Merger Sub to consummate the Merger and the
transactions contemplated by this Agreement shall be subject to the satisfaction
at or prior to the Closing of each of the following conditions, any of which may
be waived, in writing, exclusively by Parent:
(a) Representations and Warranties. The representations and
warranties of the Company contained in this Agreement shall be true and
correct in all material respects on and as of the date hereof and as of
the Closing Date, as though made on and as of the Closing Date, except
for changes contemplated by this Agreement and except for those
representations and warranties which address matters only as of a
particular date (which shall remain true and correct as of such date),
with the same force and effect as if made on and as of the Closing
Date, except, in all such cases, for such breaches, inaccuracies or
omissions of such representations and warranties which have neither had
nor reasonably would be expected to have a Material Adverse Change on
the Company; and Parent and Merger Sub shall have received a
certificate to such effect from the Company as required in Section 7.1.
(b) Agreements and Covenants. The Company shall have performed
or complied (which performance or compliance shall be subject to the
Company's ability to cure as provided in Section 9.1(d) below) in all
material respects with all agreements and covenants required by this
Agreement to be performed or complied with by it on or prior to the
Effective Time, and Parent and Merger Sub shall have received a
certificate to such effect as required in Section 7.1.
(c) Third Party Consents. Parent shall have been furnished
with evidence satisfactory to it that the Company has obtained the
consents, approvals and waivers set forth in Schedule 6.3(c).
(d) Legal Opinion. Parent shall have received a legal opinion
from Xxxxxxx & Xxxxx, P.C., legal counsel to the Company, in the form
attached hereto as Exhibit "F".
(e) Material Adverse Change. There shall not have occurred any
Material Adverse Change of the Company since the date of the Current
Balance Sheet.
AGREEMENT AND PLAN OF REORGANIZATION PAGE 44
49
ARTICLE VII
CLOSING DELIVERIES
7.1 DELIVERIES OF THE COMPANY. At or prior to the Closing Date,
the Company shall deliver to Parent the following, all of which shall be in a
form satisfactory to counsel to Parent:
(a) Copies of the resolutions or unanimous consents of the
board of directors and shareholders of the Company authorizing the
execution, delivery, and performance of this Agreement and all related
documents and agreements and consummation of the Merger, each certified
by the Secretary of the Company as being true and correct copies of the
originals thereof subject to no modifications or amendments;
(b) Certificate of the President of the Company, dated as of
the Closing Date, (i) as to the truth and correctness of the
representations and warranties of the Company contained herein; (ii) as
to the performance of and compliance by the Company with all covenants
contained herein; (iii) as to satisfaction of all conditions precedent
of the Company to the Closing; and (iv) that since December 31, 1997,
there has been no adverse change in the business, operations, condition
(financial or otherwise) or results of operations of the Company that
would constitute a Material Adverse Change;
(c) Certificate of the Secretary of the Company certifying as
to the incumbency of the directors and officers of the Company and as
to the signatures of such directors and officers who have executed
documents delivered at the Closing on behalf of the Company;
(d) Certificate dated within ten (10) days prior to the
Closing Date of the Secretary of State of Texas and the Comptroller of
Public Accounts of the State of Texas establishing that the Company is
in existence, has paid all franchise or similar taxes, if any, and
otherwise is in good standing to transact business in the State of
Texas;
(e) All authorizations, consents, approvals, permits and
licenses;
(f) The resignations of the directors and officers of the
Company as requested by Parent;
(g) The Articles of Merger, executed by the Company;
(h) The Employee Agreements, executed by the Contracted
Employees;
(i) The Registration Rights Agreement, executed by Parent;
(j) A legal opinion from Xxxxxxx & Xxxxx, P.C., in the form of
Exhibit "F"; and
(k) Such other instruments and documents as reasonably
requested by Parent to carry out and effect the purpose and intent of
this Agreement.
AGREEMENT AND PLAN OF REORGANIZATION PAGE 45
50
7.2 DELIVERIES OF PARENT AND MERGER SUB. At or prior to the
Closing Date, Parent and Merger Sub shall deliver to the Company the following,
all of which shall be in a form satisfactory to counsel to the Company:
(a) Copies of the resolutions or unanimous consents of the
board of directors of Parent and Merger Sub authorizing the execution,
delivery, and performance of this Agreement, and all related documents
and agreements and the consummation of the Merger, each certified by
the respective Secretary as being true and correct copies of the
originals thereof subject to no modifications or amendments;
(b) Copy of the resolutions or unanimous consent of the
shareholders of Merger Sub authorizing the execution, delivery, and
performance of this Agreement, and all related documents and agreements
and the consummation of the Merger, certified by the Secretary of
Merger Sub as being a true and correct copy of the original thereof
subject to no modifications or amendments;
(c) Certificates of the President of Parent and Merger Sub,
dated as of the Closing Date, (i) as to the truth and correctness of
the representations and warranties of Parent and Merger Sub contained
herein; (ii) as to the performance of and compliance by Parent and
Merger Sub with all covenants contained herein; (iii) as to
satisfaction of all conditions precedent of Parent and Merger Sub to
the Closing; and (iv) that since December 31, 1997, there has been no
adverse change in the business, operations, condition (financial or
otherwise) or results of operations of Parent or Merger Sub that would
constitute a Material Adverse Change;
(d) Certificates of the Secretaries of Parent and Merger Sub,
respectively, certifying as to the incumbency of the respective
directors and officers of Parent and Merger Sub who have executed
documents delivered at the Closing on behalf of Parent and Merger Sub;
(e) Certificates dated within ten (10) days prior to the
Closing Date, of the Secretary of State and Comptroller of Public
Accounts of the State of Texas establishing that Merger Sub is in
existence, has paid all franchise or similar taxes, if any, and
otherwise is in good standing to transact business in the State of
Texas;
(f) Certificate dated within ten (10) days prior to the
Closing Date, of the Secretary of State of Delaware establishing that
Parent is in existence, has paid all franchise or similar taxes, if
any, and otherwise is in good standing to transaction business in the
State of Delaware;
(g) The Articles of Merger, executed by Merger Sub;
(h) The Employee Agreements, executed by Parent;
(i) A legal opinion from Xxxxxxx & Xxxxxxx, in the form of
Exhibit "D";
AGREEMENT AND PLAN OF REORGANIZATION PAGE 46
51
(j) Such other instruments and documents as reasonably
requested by the Company to carry out and effect the purpose and intent
of this Agreement.
ARTICLE VIII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
8.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the Company's
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement and all of Parent's and Merger Sub's representations
and warranties in this Agreement or in any instrument delivered pursuant to this
Agreement shall survive the Closing.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
9.1 TERMINATION. Except as provided in Section 9.2 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 before 5:00 p.m. (Texas time) on December 31, 1998; (ii)
there shall be a final non-appealable order of a federal or state court
in effect preventing consummation of the Merger; (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; or (iv) the approval of
the Merger by the Company's stockholders required by Section 6.1(a)
shall not have been obtained at a meeting duly convened therefor or at
any adjournment thereof;
(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 the Company's ownership
or operation of all or any portion of the business of the Company or
(ii) compel Parent or the Company to dispose of or hold separate all or
a portion of the business or assets of the Company 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 breach of any
representation, warranty, covenant or agreement contained in this
Agreement on the part of the Company and as a result of such breach the
conditions set forth in Section 6.3(a) or 6.3(b), as the case may be,
would not then be satisfied; provided, however, that if such breach is
curable by the Company within (30) days through the exercise of its
reasonable best efforts, then for so long as the Company continues to
exercise such reasonable best efforts Parent may not terminate this
Agreement under this Section 9.1(d) unless such breach is not cured
within thirty (30) days (but no cure period shall be required for a
breach which by its nature cannot be cured);
AGREEMENT AND PLAN OF REORGANIZATION PAGE 47
52
(e) by the Company if it is not in material breach of its
obligations under this Agreement and there has been a breach of any
representation, warranty, covenant or agreement contained in this
Agreement on the part of Parent or Merger Sub and as a result of such
breach the conditions set forth in Section 6.2(a) or 6.2(b), as the
case may be, would not then be satisfied; provided, however, that if
such breach is curable by Parent or Merger Sub within thirty (30) days
through the exercise of its reasonable best efforts, then for so long
as Parent or Merger Sub continues to exercise such reasonable best
efforts the Company may not terminate this Agreement under this Section
9.1(e) unless such breach is not cured within (30) days (but no cure
period shall be required for a breach which by nature cannot be cured);
(f) by the Parent if an event having a Material Adverse Effect
on the Company shall have occurred after the date of this Agreement;
(g) by the Company if an event having a Material Adverse
Effect on the Parent shall have occurred after the date of this
Agreement or the Company believes that the threat of litigation against
the Parent, its directors or officers, or the Company, its directors or
officers is substantial;
(h) by Parent if the Company's Board of Directors shall have
changed its recommendation concerning the Merger or shall have
disclosed in any manner its intention to change such recommendation; or
(i) by the Company if the Parent's Board of Directors shall
have changed its recommendation concerning the Merger or shall have
disclosed in any manner its intention to change such recommendation.
Where action is taken to terminate this Agreement pursuant to this
Section 9.1, it shall be sufficient for such action to be authorized by the
Board of Directors (as applicable) of the party taking such action.
9.2 EFFECT OF TERMINATION. In the event of termination of this
Agreement as provided in Section 9.1, this Agreement shall forthwith become void
and there shall be no liability or obligation on the part of Parent, Merger Sub
or the Company, or their respective officers, directors or stockholders,
provided that each party shall remain liable for any willful breaches of this
Agreement prior to its termination and provided further that, the provisions of
Sections 5.3 and 5.4 and Article IX of this Agreement shall remain in full force
and effect and survive any termination of this Agreement.
9.3 AMENDMENT. Except as is otherwise required by applicable law, 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.
9.4 EXTENSION; WAIVER. At any time prior to the Effective Time, Parent
and Merger 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
AGREEMENT AND PLAN OF REORGANIZATION PAGE 48
53
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.
ARTICLE X
GENERAL PROVISIONS
10.1 NOTICES. Whenever this Agreement requires or permits any notice,
request, or demand from one party to another, the notice, request, or demand
must be in writing to be effective and shall be deemed to be delivered and
received (i) if personally delivered or if delivered by telex, telegram,
facsimile or courier service, when actually received by the party to whom notice
is sent or (ii) if delivered by mail (whether actually received or not), at the
close of business on the third business day next following the day when placed
in the mail, postage prepaid, certified or registered, addressed to the
appropriate party or parties, at the address of such party set forth below (or
at such other address as such party may designate by written notice to all other
parties in accordance herewith):
If to Parent or Merger Sub: Electronic Transmission Corporation
0000 Xxxxxxx Xxxx
Xxxxx 000
Xxxxxx, Xxxxx, 00000
Attention: President
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
With a copy to: Xxxxxxx & Xxxxxxx
0000 X. Xxxxxx Xxxx
Xxxxxx, Xxxxx 00000
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
If to the Company: Health Plan Initiatives, Inc.
000 Xxxxxxx Xxxxxxx, Xxxxx 000
Xxxxx, Xxxxx 00000
Attention: President
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
With a copy to: Xxxxxxx X. Xxxx, Esq.
Xxxxxxx & Xxxxx, P.C.
000 Xxxxxxxxxxxx Xxxxxx
1800 Bank Xxx Xxxxx
Xxxx Xxxxx, Xxxxx 00000
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
10.2 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
AGREEMENT AND PLAN OF REORGANIZATION PAGE 49
54
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. For
purposes of this Agreement, a fact or other matter shall not be deemed to be
within the "knowledge" of the Company unless such fact or other matter is within
the actual knowledge of the President, Chief Executive Officer, any Vice
President or Chief Financial Officer of the Company.
10.3 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.
10.4 ENTIRE AGREEMENT; ASSIGNMENT. This Agreement, the Schedules 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, letters of intent, and understandings, both written and oral,
amended or otherwise, among the parties with respect to the subject matter
hereof, (b) are not intended to confer upon any other person any rights or
remedies hereunder (except with respect to Section 5.16) and (c) shall not be
assigned by operation of law or otherwise except as otherwise specifically
provided.
10.5 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.
10.6 OTHER REMEDIES. 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.
10.7 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Texas, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
Each of the parties hereto agrees that process may be served upon them in any
manner authorized by the laws of the State of Texas for such persons and waives
and covenants not to assert or plead any objection which they might otherwise
have to such jurisdiction and such process. The venue for any action shall be
Dallas County, Texas.
10.8 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.
AGREEMENT AND PLAN OF REORGANIZATION PAGE 50
55
IN WITNESS WHEREOF, Parent, Merger Sub, and the Company have caused
this Agreement to be signed by their duly authorized respective officers, all as
of the date first written above.
ELECTRONIC TRANSMISSION CORPORATION, HEALTH PLAN INITIATIVES, INC.,
A DELAWARE CORPORATION A TEXAS CORPORATION
By: /s/ Xxxxx Xxxxxxxxxxx By: /s/ Xxxxxx Xxxxxxx
---------------------------------------- ----------------------------------------
Xxxxx Xxxxxxxxxxx, Executive Vice Xxxxxx Xxxxxxx, President
President and Chief Operating Officer
ETC ACQUISITION CORP.,
A TEXAS CORPORATION
By: /s/ Xxxxx Xxxxxxxxxxx
----------------------------------------
Xxxxx Xxxxxxxxxxx, President
AGREEMENT AND PLAN OF REORGANIZATION PAGE 51
56
LIST OF SCHEDULES
SCHEDULES DESCRIPTION
--------- -----------
Schedule 2.2(a) Company Shareholders
Schedule 2.3 Company Subsidiaries
Schedule 2.4 Company Conflicts
Schedule 2.5(a) Company Financial Statements
Schedule 2.6 Disclosed Liabilities
Schedule 2.8 Company Changes
Schedule 2.9 Company Tax Exceptions
Schedule 2.11(a) Real Property Leased by Company
Schedule 2.11(b) Exceptions to Company Title
Schedule 2.12(a) Company Intellectual Property Rights
Schedule 2.12(b) Licenses, Sub-licenses and Other Agreements of Company
Schedule 2.13(a) Agreements, Contracts and Commitments of Company
Schedule 2.13(b) Breaches, Violations and Defaults of Company
Schedule 2.14 Company Interested Party Transactions
Schedule 2.16 Company Litigation
Schedule 2.22(b) Company Employee Plans and Employee Agreements
Schedule 2.25 Officers, Employees and Consultants of Company
Schedule 2.26 Company Bank Accounts
Schedule 3.1 Certificate of Incorporation and Bylaws of Parent
Schedule 3.3(a) Parent Shareholders
Schedule 3.3(b) Parent Stock Options
Schedule 3.5 Parent Changes
Schedule 3.6 Parent Tax Exceptions
Schedule 3.7 Parent Restrictions on Business Activities
Schedule 3.8(a) Real Property Leased by Parent
Schedule 3.8(b) Exceptions to Parent Title
Schedule 3.9(a) Parent Intellectual Property Rights
Schedule 3.9(b) Licenses, Sub-licenses and Other Agreements of Parent
Schedule 3.10(a) Agreements, Contracts and Commitments of Parent
Schedule 3.10(b) Breaches, Violations and Defaults of Parent
Schedule 3.11 Parent Interested Party Transactions
Schedule 3.13 Parent Litigation
Schedule 3.18(b) Parent Employee Plans and Employee Agreements
Schedule 3.19 Warranties and Indemnities
Schedule 3.26 Officers' and Employees' Compensation
Schedule 3.27 Parent Bank Accounts
Schedule 6.2(c) Third Party Consents of Parent
Schedule 6.3(c) Third Party Consents of the Company
AGREEMENT AND PLAN OF REORGANIZATION PAGE 52
57
LIST OF EXHIBITS
EXHIBITS SECTION DESCRIPTION
-------- ------- -----------
Exhibit A 1.2 Articles of Merger
Exhibit B 1.2 Plan of Merger
Exhibit C 5.1 Registration Rights Agreement
Exhibit D 6.2(d), 7.2(i) Legal Opinion of Parent's Counsel
Exhibit G 6.2(i) Employment Agreement of Xxxxxx Xxxxxxx
Exhibit H 6.3(d), 7.1(k) Legal Opinion of Company's Counsel
AGREEMENT AND PLAN OF REORGANIZATION PAGE 53
