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EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is entered into as
of March 24, 2000 ("Agreement Date"), by and among Xxxxxxxx.xxx, Inc., a
Delaware corporation ("Acquirer"), EquipMD, Inc., a Georgia corporation
("Target"), and Augustacorp, Inc., a Delaware corporation that is a direct
wholly-owned subsidiary of Acquirer ("Sub").
RECITALS
A. The parties intend that, subject to the terms and conditions
hereinafter set forth, Target will merge with and into Sub in a statutory merger
(the "Merger"), with Sub to be the surviving corporation of the Merger, all
pursuant to the terms and conditions of this Agreement, the applicable
provisions of the General Corporation Law of the State of Delaware ("Delaware
Law") and the applicable provisions of the Georgia Business Corporation Code
("Georgia Law"). Upon the effectiveness of the Merger, all the outstanding
common stock and common stock equivalents of Target will be converted into
common stock and common stock equivalents of Acquirer, all in the manner and on
the basis determined herein.
B. The Merger is intended to be treated in accordance with the purchase
method of accounting and as a tax-free reorganization pursuant to the provisions
of Section 368(a)(1)(A) of the Internal Revenue Code of 1986, as amended (the
"Code"), by virtue of the provisions of Section 368(a)(2)(D) of the Code.
NOW, THEREFORE, the parties hereto agree as follows:
1. PLAN OF MERGER
1.1 The Merger. A Certificate of Merger containing only the
information required by Section 251(d) of the Delaware Law (the "Delaware
Certificate of Merger") will be filed with the Secretary of State of the State
of Delaware as soon as practicable after the Closing (as defined in Section 6.1
below). Articles of Merger containing only the information required by Section
14-2-1105 of the Georgia Law (the "Georgia Articles of Merger") will be filed
with the Secretary of State of the State of Georgia as soon as practicable after
the Closing (as defined in Section 6.1 below). The effective time of the Merger
(the "Effective Time") will occur upon the filing of both the Delaware
Certificate of Merger with the Delaware Secretary of State and the Georgia
Articles of Merger with the Georgia Secretary of State, or on such other date as
the parties hereto may mutually agree upon. Subject to the terms and conditions
of this Agreement, Target will be merged with and into Sub in a statutory merger
pursuant to this Agreement and in accordance with applicable provisions of
Delaware Law and Georgia Law as follows:
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1.1.1 Conversion of Target Capital Stock.
1.1.1.1 Each share of Series A Preferred Stock of
Target, $.001 par value ("Series A Stock") issued and outstanding immediately
prior to the Effective Time, other than shares, if any, for which dissenters'
rights have been or will be perfected in compliance with Georgia Law, will, by
virtue of the Merger and at the Effective Time, and without further action on
the part of any holder thereof, be converted into the right to receive: (A) a
fraction (the "Applicable Fraction") of a fully paid and nonassessable share of
Acquirer Common Stock, $0.001 par value ("Acquirer Common Stock"), the numerator
of which is 5,330,000 shares (the "Merger Consideration") and the denominator of
which is the total number of shares of Target Common Stock Equivalents (as
defined below) outstanding immediately prior to the Effective Time; and (B) a
fraction of a fully paid and nonassessable share of Acquirer Common Stock the
numerator of which is (X)(1) the sum of $1,000,000 plus 8% thereon from November
10, 1999 until Closing, $1,000,000 plus 8% thereon from November 30, 1999 until
Closing and $1,000,000 plus 8% thereon from January 21, 2000 until Closing;
divided by (2) the average closing price of Acquirer Common Stock on the Nasdaq
National Market as reported in the Wall Street Journal for the 5 trading days
ending on the first trading day prior to the date of the execution of this
Agreement; and the denominator of which is (Y) the total number of shares of
Series A Stock outstanding immediately prior to the Effective Time.
1.1.1.2 Each share of Series B Preferred Stock of
Target, $.001 par value ("Series B Stock") issued and outstanding immediately
prior to the Effective Time, other than shares, if any, for which dissenters'
rights have been or will be perfected in compliance with Georgia Law, will, by
virtue of the Merger and at the Effective Time, and without further action on
the part of any holder thereof, be converted into the right to receive a
fraction of a fully paid and nonassessable share of Acquirer Common Stock the
numerator of which is (X)(1) the sum of $300,000 plus 7% thereon from the
original issue date of the Series B Stock until Closing; divided by (2) the
average closing price of Acquirer Common Stock on the Nasdaq National Market as
reported in the Wall Street Journal for the 5 trading days ending on the first
trading day prior to the date of the execution of this Agreement; and the
denominator of which is (Y) the total number of shares of Series B Stock
outstanding immediately prior to the Effective Time.
1.1.1.3 Each share of Common Stock of Target, $.001 par
value ("Target Common Stock", and together with the Series A Stock and Series B
Stock, "Target Stock") issued and outstanding immediately prior to the Effective
Time, other than shares, if any, for which dissenters' rights have been or will
be perfected in compliance with Georgia Law, will, by virtue of the Merger and
at the Effective Time, and without further action on the part of any holder
thereof, be converted into the right to receive the Applicable Fraction of a
fully paid and nonassessable share of Acquirer Common Stock. For purposes of
this Section, "Target Common Stock Equivalents" means the total number of shares
of Target Common Stock and Series A Stock outstanding immediately prior to the
Effective Time, plus the total number of shares of Target Common Stock that
could be obtained through the exercise or conversion of all other outstanding
rights, options, warrants and convertible securities (whether or not exercisable
or convertible), in each case immediately prior to the Effective Time (including
the Target Options, as defined below, but excluding Series B Stock).
1.1.1.4 The number of shares of Acquirer Common Stock to
be issued pursuant to the provisions of this Section 1.1.1 shall be
appropriately adjusted for any split, reclassification, subdivision or
combination of the outstanding shares of Acquirer Common Stock or the payment of
any stock dividend or other noncash distribution in respect of the Acquirer
Common
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Stock occurring after the date of this Agreement and prior to the Effective
Time.
1.1.2 Assumptions of Options. Target has issued to
employees options to purchase an aggregate of 4,277,363 shares of Target Common
Stock, all of which options to purchase Target Common Stock are listed on Item
2.3 (as described in Section 2.3(b) below) (collectively, the "Target Options").
Effective at the Effective Time, Acquirer will assume all of Target Options.
Each Target Option shall be converted into an option (an "Acquirer Option"), to
purchase that number of shares of Acquirer Common Stock that is equal to the
number of shares of Target Common Stock that could be purchased pursuant to
Target Option immediately prior to the Effective Time multiplied by the
Applicable Fraction (determined in accordance with Section 1.1.1 hereof), with
fractional shares being rounded down to the nearest whole share. The exercise
price per share of Acquirer Common Stock purchasable under each such Acquirer
Option shall be equal to the exercise price per share of Target Common Stock
under the corresponding Target Option divided by the Applicable Fraction,
rounded up to the nearest tenth of a cent. No cash will be paid in lieu of
fractional shares which are rounded down pursuant to this Section. Except as
contemplated by the offer letters referred to in Section 8.12 hereof, the term,
exercisability, vesting schedule, status as an "incentive stock option" under
Section 422 of the Code, if applicable, and all other terms of Target Options
will otherwise be unchanged. Continuous employment with Target will be credited
to an optionee for purposes of determining the number of shares subject to
exercise after the Effective Time. Acquirer will exercise best efforts to cause
the Acquirer Common Stock issued upon exercise of the assumed Target Options to
be registered on Form S-8 of the Securities and Exchange Commission ("SEC") as
soon as practicable after the Effective Time and to file such Form S-8 with the
SEC within 15 business days after the Effective Time, will exercise best efforts
to maintain the effectiveness of such registration statement for so long as such
assumed Target Options remain outstanding and will reserve and list a sufficient
number of shares of Acquirer Common Stock for issuance upon exercise thereof.
Promptly after the Effective Time, Acquirer shall deliver to the holders of
Target Options appropriate notices setting forth such holders' rights pursuant
to the agreements evidencing the grants of Target Options and stating that such
Target Options and agreements have been assumed by Acquirer and shall continue
in effect on the same terms and conditions, subject to the adjustments provided
for in this Section 1.1.2.
1.1.3. Conversion of Capital Stock of Sub. Each share of
common stock of Sub issued and outstanding immediately prior to the Effective
Time will remain outstanding and be one share of common stock of the surviving
corporation and Sub shall remain a direct wholly-owned subsidiary of Acquirer.
1.2 Fractional Shares. No fractional shares of Acquirer Common
Stock will be issued in connection with the Merger, but in lieu thereof each
holder of Target Stock who would otherwise be entitled to receive a fraction of
a share of Acquirer Common Stock will receive from Acquirer, promptly after the
Effective Time, an amount of cash equal to the per share market value of
Acquirer Common Stock (based on the closing sale price of Acquirer Common Stock
as quoted on the Nasdaq National Market on the date before the Closing Date (as
defined in Section 6.1), as reported in the Wall Street Journal) multiplied by
the fraction of a share of Acquirer Common Stock to which such holder would
otherwise be entitled.
1.3 Escrow Agreement. Pursuant to an Escrow Agreement to be
entered into on or before the Closing Date (as defined in Section 6.1 below) in
the form of Exhibit A (the "Escrow Agreement"), among Acquirer, Target, the
Representative (as defined in the preamble paragraph of
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the Escrow Agreement hereof) of the shareholders of Target ("Target
Shareholders") and State Street Bank and Trust Company of California, N.A., (the
"Escrow Agent"), Acquirer will withhold on a pro rata basis from the shares of
Acquirer Common Stock otherwise distributable to Target Shareholders as a result
of the Merger an aggregate of 262,500 shares of Acquirer Common Stock issued in
the Merger (the "Escrow Shares"). Promptly after the Closing Date, Acquirer, on
behalf of Target Shareholders, will deposit or cause to be deposited in escrow
pursuant to the Escrow Agreement, the Escrow Shares. The Escrow Shares will be
held in escrow as collateral for the indemnification obligations of Target under
Section 10.2 below and pursuant to the Escrow Agreement pending release from
escrow to Target Shareholders or Acquirer when and as provided in the Escrow
Agreement.
1.4 Effects of the Merger. At the Effective Time, the parties
agree that the following shall occur, whether by law or by action of Acquirer:
(a) the separate existence of Target will cease and Target will be merged with
and into Sub and Sub will be the surviving corporation pursuant to the terms of
this Agreement (the "Surviving Corporation"); (b) the Certificate of
Incorporation and Bylaws of Sub will be the Articles of Incorporation and Bylaws
of the Surviving Corporation; (c) each share of Target Common Stock and each
share of Series A Stock and Series B Stock and each of Target Options will be
converted and assumed as provided in this Section 1; (d) the directors and
officers of Sub will be the directors and officers of the Surviving Corporation;
(e) each share of Target Common Stock, owned by Target as treasury stock,
automatically shall be cancelled and retired and shall cease to exist and (f)
the Merger will, at and after the Effective Time, have all of the effects
provided by applicable law.
1.5 Further Assurances. Target agrees that if, at any time after
the Effective Time, Acquirer determines or is advised that any further deeds,
assignments or assurances are reasonably necessary or desirable to vest, perfect
or confirm in Acquirer or the Surviving Corporation title to any property or
rights of Target as provided herein, Acquirer and any of its officers are hereby
authorized by Target to execute and deliver all such proper deeds, assignments
and assurances and do all other things necessary or desirable to vest, perfect
or confirm title to such property or rights in Acquirer or the Surviving
Corporation and otherwise to carry out the purposes of this Agreement, in the
name of Target or otherwise.
1.6 Fairness Hearing; Section 3(a)(10) Exemption; Rule 145
Resale Restrictions For Affiliates. The Merger will be subject to the approval
of the California Commissioner of Corporations (the "Commissioner") and the
issuance by the Commissioner of a permit authorizing the Merger after a fairness
hearing (the "California Fairness Hearing") to be conducted by the Commissioner
in compliance with Section 3(a)(10) of the Securities Act of 1933 (the
"Securities Act"). Assuming favorable action by the Commissioner, all shares of
Acquirer Common Stock issued in the Merger shall be freely tradable subject only
to the restrictions imposed by SEC Rule 145(d) on former affiliates of Target
and the underwriter lock-up agreement and resale restriction agreement described
in Section 8.12 hereof.
1.7 Tax-Free Reorganization. The parties intend to adopt this
Agreement as a tax-free plan of reorganization and to consummate the Merger in
accordance with the provisions of Section 368(a)(1)(A) of the Code, by virtue of
the provisions of Section 368(a)(2)(D) of the Code. For purposes of this Section
1.7, Acquirer and Target agree to report the transactions contemplated in this
Agreement in a manner consistent with the reorganization treatment they intend
and will not take any position inconsistent therewith in any tax return, refund
claim, litigation or otherwise unless required to do so by any governmental
authority. The shares of Acquirer Common Stock and the
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Acquirer Options issued in the Merger will be issued solely in exchange for
Target Stock and Target Options pursuant to this Agreement, and no transaction
other than the Merger represents, provides for or is intended to be an
adjustment to the consideration paid for Target Stock and Target Options. No
consideration that could constitute "other property" within the meaning of
Section 356 of the Code will be paid by Acquirer for shares of Target Stock or
Target Options in the Merger. Acquirer, Sub and Target will use all reasonable
best efforts prior to the Effective Time to cause the Merger to qualify as a
reorganization under Sections 368(a)(1)(A) and 368(a)(2)(D) of the Code. At the
Closing (as defined in Section 6.1 hereof), officers of Target and officers of
Acquirer will execute and deliver officers' certificates in substantially the
forms attached hereto as Exhibit 7.4 and Exhibit 8.10. Following the Effective
Time, Acquirer and Target will not take any action (or fail to take any action)
where such action (or failure to take such action) would result in a breach of
the representations and covenants contained in the Officers' Certificates
described in Sections 7.4 and 8.10.
1.8 Purchase Accounting. The parties intend that the Merger be
treated as a purchase for accounting purposes.
1.9 Dissenting Shares. Holders of shares of Target Stock who
have complied with all requirements for perfecting shareholders' rights of
appraisal, as set forth in Article 13 of Chapter 2 of Title 14 of the Georgia
Law, shall be entitled to their rights under the Georgia Law with respect to
such shares ("Dissenting Shares").
2. REPRESENTATIONS AND WARRANTIES OF TARGET
Target hereby represents and warrants that, except as disclosed
in Target disclosure letter (the "Target Disclosure Letter") delivered by Target
to Acquirer herewith as amended from time to time in non-material respects prior
to Closing:
2.1 Organization and Good Standing. Except as disclosed in Item
2.1, Target is a corporation duly organized, validly existing and in good
standing under the laws of the State of Georgia, has the corporate power and
authority to own, operate and lease its properties and to carry on its business
as now conducted and is qualified as a foreign corporation in each jurisdiction
where the nature of its business or location of its properties requires such
qualification and where the failure to qualify would have a Material Adverse
Effect (as defined in Section 11.13 below) on Target.
2.2 Power, Authorization and Validity.
2.2.1 Target has the corporate right, power, legal
capacity and authority to enter into and perform its obligations under this
Agreement and under the Escrow Agreement and the Noncompetition Agreements (the
"Target Ancillary Agreements"). This Agreement and Target Ancillary Agreements
have been or will be duly executed and delivered by Target. The execution,
delivery and performance of this Agreement and Target Ancillary Agreements have
been duly and validly approved and authorized by all necessary corporate action
on the part of Target (other than the approval and adoption of this Agreement by
the Target Shareholders as required under Georgia Law and the holders of Target
Preferred Stock as required under the Articles of Incorporation of Target). The
Board of Directors of Target (at a meeting duly called and held or by action by
unanimous written consent) has (a) unanimously determined that the Merger is
advisable and fair and in the best interests of Target Shareholders, (b)
unanimously approved the execution, delivery and performance of this Agreement
by Target and has unanimously approved the Merger, and (c) unanimously
recommended
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the adoption and approval of this Agreement and the Merger by Target
Shareholders and directed that this Agreement and the Merger be submitted for
consideration by Target Shareholders at the Shareholders' Meeting (as defined in
Section 4.14). The affirmative vote of each of (a) the holders of a majority of
the shares of Target Common Stock and Target Preferred Stock outstanding on the
record date for the Shareholders' Meeting, voting as a single voting group, and
(b) the holders of a majority of the shares of Series A Stock and Series B Stock
outstanding on the record date for the Shareholders' Meeting with each series
voting as a separate group (the "Required Vote") is the only vote of the holders
of any class or series of the Company's capital stock necessary to adopt and
approve this Agreement, the Merger and the other transactions contemplated by
this Agreement.
2.2.2 No filing, authorization or approval with or of
any governmental entity is necessary or required to be made or obtained prior to
the Effective Time to enable Target to enter into, and to perform its
obligations under, this Agreement and Target Ancillary Agreements, except for
(a) the filing of the Georgia Articles of Merger with the Secretary of State of
the State of Georgia, the filing of such officers' certificates and other
documents as are required to effectuate the Merger under Georgia law and the
filing of appropriate documents with the relevant authorities of the states
other than Georgia in which Target is qualified to do business, if any, (b) such
filings as may be required to comply with federal and state securities laws and
(c) actions or filings which, if not taken or made, would not have a Material
Adverse Effect on Target or Target's ability to consummate the Merger.
2.2.3 Assuming the due authorization, execution and
delivery by Acquirer and, if applicable, Sub, this Agreement and Target
Ancillary Agreements are, or when executed and delivered by Target, and the
other parties thereto will be, valid and binding obligations of Target,
enforceable against Target and against the Escrow Shares deposited pursuant to
the Escrow Agreement in accordance with their respective terms, subject to the
Required Vote, except as to the effect, if any, of (a) applicable bankruptcy and
other similar laws affecting the rights of creditors generally, (b) rules of law
governing specific performance, injunctive relief and other equitable remedies,
and (c) the enforceability of provisions requiring indemnification in connection
with the offering, issuance or sale of securities.
2.3 Capitalization.
(a) Authorized/Outstanding Capital Stock. As of the date
hereof, the authorized capital stock of Target consists of 100,000,000 shares of
Common Stock, $.001 par value, of which 12,753,749 shares are issued and
outstanding, and 20,000,000 shares of Preferred Stock, $.001 par value, of which
4,466,667 shares are issued and outstanding, 4,166,667 shares of which are
designated as Series A Stock and 300,000 shares of which are designated as
Series B Stock. An aggregate of 4,166,667 shares of Target Common Stock have
been reserved in respect of the liquidation preference of the Series A Stock. As
of the date hereof, an aggregate of 4,277,363 shares of Target Common Stock are
reserved and authorized for issuance pursuant to Target Options. No shares of
capital stock of Target (the "Target Stock") have been reserved for issuance,
except as provided above. All issued and outstanding shares of Target Stock have
been duly authorized and validly issued, are fully paid and nonassessable, are
not subject to any right of rescission and have been offered, issued, sold and
delivered by Target in compliance
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with all registration or qualification requirements (or applicable exemptions
therefrom) of applicable federal and state securities laws. All outstanding
shares of Target Stock and Target Options have been duly authorized and validly
issued, are not subject to any right of rescission and have been offered and
granted by Target in compliance with all registration or qualification
requirements (or applicable exemptions therefrom) of applicable federal and
state securities laws. A list of all holders of Target Stock and options to
purchase Target Stock, and the number of shares and options held by each, in
each case as of the date hereof, has been delivered by Target to Acquirer
herewith as Item 2.3.
(b) Options/Rights. Except as disclosed in Section
2.3(a) or in Item 2.3, there are no options, warrants, calls, commitments,
conversion privileges or preemptive or other rights or agreements outstanding to
purchase any of Target's authorized but unissued capital stock or any securities
convertible into or exchangeable for shares of Target Stock or obligating Target
to grant, extend, or enter into any such option, warrant, call, right,
commitment, conversion privilege or other right or agreement, and there is no
liability for dividends accrued but unpaid. Except as disclosed in Item 2.3,
there are no voting agreements, rights of first refusal or other restrictions
(other than normal restrictions on transfer under applicable federal and state
securities laws) applicable to any of Target's outstanding securities. Except as
disclosed in Item 2.3 and as provided in this Agreement, Target is not under any
obligation to register under the Securities Act any of its presently outstanding
securities or any securities that may be subsequently issued. All Target Options
other than those granted to the persons named in Sections 8.13 vest over 4
years, with 25% of the shares vesting at the first anniversary of the vesting
commencement date and the balance vesting ratably on a monthly basis over the
second through fourth years after the vesting commencement date.
2.4 Subsidiaries and Guaranties. Except as disclosed in Item
2.4,Target does not have any subsidiaries or any interest, direct or indirect,
in any Entity (as defined in Section 11.14 below). Target is not a guarantor of
any obligation of a third party, whether or not such third party is related to
or affiliated with Target.
2.5 No Violation of Existing Agreements or Laws. Except as
disclosed in Item 2.5, neither the execution and delivery of this Agreement or
any Target Ancillary Agreement, nor the consummation of the transactions
provided for herein or therein (including the effectiveness of the Merger), will
conflict with, or (with or without notice or lapse of time, or both) result in a
termination, breach or violation of (or as to clause (b) below give any party a
right to terminate or adversely modify) (a) any provision of the Articles of
Incorporation or Bylaws of Target, as currently in effect, (b) any instrument or
contract to which Target or any subsidiary is a party or by which Target or any
subsidiary is bound or (c) subject to the matters referred to in Section 2.2.2,
any federal, state, local or foreign judgment, writ, decree, order, statute,
rule or regulation applicable to Target or its assets or properties, except, in
the case of clause (c), for such matters as would not have a Material Adverse
Effect on Target. The consummation of the Merger and succession by the Surviving
Corporation to all material rights, licenses, franchises, leases and agreements
of Target in and of itself will not require the consent of any third party,
except as disclosed in Item 2.5.
2.6 Litigation. There is no action, proceeding or claim or, to
the knowledge of Target, investigation pending against Target before any court
or administrative agency, nor to the knowledge of Target has any party
threatened same, nor to the knowledge of Target is there any basis for any
material litigation against Target that would reasonably be expected to have a
Material Adverse Effect on Target. Except as disclosed in Item 2.6, to the
knowledge of Target there is no basis for any shareholder or former shareholder
of Target, or any other Person (as defined in Section 11.14 below), to assert a
claim against Target, Acquirer or the Surviving Corporation as successor in
interest to Target based upon: (a) ownership or rights to ownership of any
shares of Target Stock or other Target securities, (b) any rights as a Target
securities holder, including, without limitation, any
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option or other right to acquire any Target securities, any preemptive rights or
any rights to notice or to vote or (c) any rights under any agreement between
Target and any Target securities holder or former Target securities holder in
such holder's capacity as such. There is no action, suit, proceeding, claim,
arbitration or to Target's knowledge investigation pending or as to which Target
has received any notice of assertion against Target, which in any manner
challenges or seeks to prevent, enjoin, materially alter or materially delay any
of the transactions contemplated by this Agreement.
2.7 Target Financial Statements. Target has delivered to
Acquirer in Item 2.7 Target's unaudited balance sheet as of December 31, 1999
(respectively, the "Target Balance Sheet" and the "Balance Sheet Date") and
Target's unaudited balance sheet as of March 15, 2000 (respectively, the "Target
Latest Balance Sheet" and the "Latest Balance Sheet Date") and Target's
unaudited income statement for the twelve months ending December 31, 1999 and
unaudited income statements for the 2.5 months ending March 15, 2000
(collectively, the "Target Financial Statements"). The Target Financial
Statements (a) are consistent with the books and records of Target, (b) fairly
and accurately represent in accordance with generally accepted accounting
principles applied on a consistent basis the financial condition of Target at
the respective dates specified therein and the results of operations for the
respective periods specified therein and (c) have been prepared in accordance
with generally accepted accounting principles ("GAAP") applied on a consistent
basis, subject to normal year-end adjustments, the absence of footnotes and the
absence of a statement of cash flows for the twelve months ending December 31,
1999. Except as disclosed in Item 2.7 or Item 2.10, Target has no debt,
liability or obligation of any nature, whether accrued, absolute or contingent,
and whether due or to become due, that would be required under GAAP to be
reflected on the liabilities column of a balance sheet, prepared as of the date
hereof in accordance with GAAP and is not reflected, reserved against or
disclosed in Target Financial Statements, except for those that may have been
incurred after the Latest Balance Sheet Date in the ordinary course of business
consistent with past practice ("Ordinary Course").
2.8 Taxes.
(a) For purposes of this Agreement, the following terms
have the following meanings: "Tax" (and, with correlative meaning, "Taxes" and
"Taxable") means any and all taxes, including without limitation any income,
profits, alternative or add-on minimum tax, gross receipts, sales, use,
value-added, ad valorem, transfer, franchise, profits, license, withholding,
payroll, employment, excise, severance, stamp, occupation, net worth, premium,
property, environmental or windfall profit tax, custom, duty or other tax,
governmental fee or assessment or charge of any kind whatsoever, together with
any interest or any penalty, addition to tax or additional amount imposed by any
governmental entity responsible for the imposition of any such tax (domestic or
foreign) (a "Taxing Authority").
(b) All material Tax returns, statements, reports and
forms (including estimated Tax returns and reports and information returns and
reports) required to be filed with any Taxing Authority with respect to any
Taxable period ending on or before the date hereof, by or on behalf of Target
(collectively, the "Target Returns"), have been filed when due (including any
extensions of such due date), and all amounts shown to be due thereon have been
paid. Target has no material actual or contingent Tax liability that is not
fully accrued on Target Financial Statements with respect to all periods through
the dates thereof.
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(c) Target has timely withheld and paid to the
applicable financial institution or Taxing Authority all material Taxes required
to be withheld in connection with any amounts paid or owing to any employee,
creditor, independent contractor or other third party. Copies of audit reports,
if any, previously have been provided to Acquirer. Target has not granted any
extension or waiver of the limitation period applicable to any Target Returns.
(d) There is no claim, audit, action, suit, proceeding,
or investigation now pending of which Target has received notice or, to the
knowledge of Target, threatened against or with respect to Target in respect of
any Tax, nor to the knowledge of Target is there any basis therefore for
assessment of any Tax liability that would have a Material Adverse Effect on
Target. There are no liabilities for Taxes with respect to any notice of
deficiency or similar document of any Tax Authority received by Target which
have not been satisfied in full (including liabilities for interest, additions
to Tax and penalties thereon and related expenses). Neither Target nor any
person on behalf of Target has entered into any agreement or consent pursuant to
Section 341(f) of the Code. Except as disclosed in Item 2.8, Target has not been
required to include any adjustment in Taxable income for any Tax period (or
portion thereof) pursuant to Section 481 of the Code or any comparable provision
under state or foreign Tax laws as a result of transactions, events or
accounting methods employed prior to the date hereof.
(e) There is no contract, agreement, plan or
arrangement, including without limitation the provisions of this Agreement and
the Employment Agreements, covering any employee, director or independent
contractor or former employee, director or independent contractor of Target
that, individually or collectively, could give rise to the payment of any amount
that would not be deductible pursuant to Section 280G of the Code. Except as
disclosed in Item 2.8, other than pursuant to this Agreement, Target is not a
party to or bound by any tax indemnity, tax sharing or tax allocation agreement.
Target has previously provided or made available to Acquirer true and correct
copies of all Target Returns for all periods ending prior to the date hereof,
and, as reasonably requested by Acquirer, prior to or following the date hereof,
presently existing information statements, reports, work papers, Tax opinions
and memoranda and other Tax data and documents. Target has not been at any time
within the past five years, a "United States real property holding corporation"
within the meaning of Section 897(c)(2) of the Code. Target has not been
distributed in a transaction qualifying under Section 355 of the Code within the
last two years, nor has Target distributed any corporation in a transaction
qualifying under Section 355 of the Code within the last two years.
(f) The nonnegotiable subordinated promissory note
issued by Target in connection with its acquisition of Central Point Services,
LLC (the "Note") bears interest at a market rate of interest with the interest
payable quarterly, and the principal amortized over a period of five years
commencing one year after the date of issue of the Note and with the final
payment of principal due six years following the date that the Note was issued.
Based upon current financial estimates, the Target reasonably expects to be able
to make all interest and principal payments under the Note as they become due
and will be able to repay the Note in full.
2.9 Title to Properties. Except as disclosed in Item 2.9, Target
has good and marketable title to all of its material assets and properties
(including but not limited to those shown on the balance sheet as of the Latest
Balance Sheet Date included in Target Financial Statements), free and clear of
all liens, charges or encumbrances (other than (i) liens for taxes not yet due
and payable; (ii) liens reflected on the Latest Balance Sheet as of the Latest
Balance Sheet Date; (iii) liens reflected on the Balance Sheet Date as of the
Balance Sheet Date; (iv) liens which are not material in character,
10
amount or extent, and which do not materially detract from the value or
materially interfere with the use of the property subject thereto or affected
thereby; and (v) contractor's liens and liens with respect to taxes that are not
yet due and payable (the foregoing (i), (ii), (iii), (iv) and (v), "Permitted
Liens").
2.10 Absence of Certain Changes. From the Latest Balance Sheet
Date to the date of this Agreement, Target has carried on its business in the
Ordinary Course substantially in accordance with the procedures and practices in
effect on the Balance Sheet Date. Except as disclosed in Item 2.10 or in
connection with the transactions contemplated by this Agreement and Target
Ancillary Agreements, and except as expressly contemplated by this Agreement,
from the Latest Balance Sheet Date there has not been with respect to Target:
(a) any change in the financial condition, properties,
assets, liabilities, results of operations, which change by itself or in
conjunction with all other such changes, whether or not arising in the Ordinary
Course, have had a Material Adverse Effect on Target;
(b) any material contingent liability incurred thereby
as guarantor or surety with respect to the obligations of others;
(c) any mortgage, encumbrance or lien placed on any of
the assets or properties thereof (other than Permitted Liens);
(d) any obligation or liability incurred thereby other
than in the Ordinary Course, which obligations or liabilities incurred other
than in the Ordinary Course do not exceed in the aggregate $250,000;
(e) any purchase, license, sale or other disposition, or
any agreement or other arrangement for the purchase, license, sale or other
disposition, of any of the material properties, assets or goodwill of Target
other than in the Ordinary Course;
(f) any damage, destruction or loss, whether or not
covered by insurance, that has had a Material Adverse Effect on Target;
(g) any declaration, setting aside or payment of any
dividend on, or the making of any other distribution in respect of, the capital
stock thereof, any split, stock dividend, combination or recapitalization of the
capital stock thereof, any direct or indirect redemption, purchase or other
acquisition of the capital stock thereof;
(h) any labor dispute, or to the knowledge of Target,
claim of unfair labor practices, any change in the compensation payable or to
become payable to any of its officers, employees or agents (other than pursuant
to existing agreements disclosed in Item 2.10(h) or, in the case of
non-officers, in the Ordinary Course), or any bonus payment or arrangement made
to or with any of such officers, employees or agents other than amounts paid
pursuant to Employee Plans, as that term is defined in Section 2.15.3, disclosed
in Item 2.15.3 or bonuses in an aggregate amount not to exceed $50,000 for all
persons to whom bonuses are paid;
(i) any loss of key executive, management or development
personnel thereof listed on Item 2.10(i);
11
(j) any payment or discharge of a lien or liability
thereof, which lien or liability was not either (i) shown on Target Balance
Sheet as of the Latest Balance Sheet Date included in Target Financial
Statements or (ii) incurred in the Ordinary Course after the Latest Balance
Sheet Date;
(k) any obligation or liability incurred thereby to any
of its officers, directors, shareholders or affiliates, or any loans or advances
made thereby to any of its officers, directors, shareholders or affiliates,
except normal compensation and expense allowances payable to officers and
employees;
(l) any loss on or prior to the date of this Agreement
of one or more Material Customers (as defined in Section 2.24) or such number of
customers which together represent a material amount of business, other than in
connection with completion of projects and normal customer turnover in the
Ordinary Course, nor has Target received from any such Material Customer any
written notice of its intention to terminate its relations with Target;
(m) any amendment or change in the Articles of
Incorporation or Bylaws of Target;
(n) any issuance or sale of any debt or equity
securities (including but not limited to stock) thereby or of any options or
other rights to acquire from Target, directly or indirectly, any debt or equity
securities (including but not limited to stock) thereof other than the issuance
of Target Options listed in Item 2.3 and shares of Target Common Stock issued
upon exercise of Target Options; or
(o) any termination, or any extension, amendment,
relinquishment, expiration or non-renewal that to Target's knowledge resulted
from third party dissatisfaction with Target's services or contract performance,
of any contract to which Target is a party, or any written request received by
Target for or to effect any of the foregoing, other than, in each such case,
where any such action or requested action would not have a Material Adverse
Effect on Target.
2.11 Agreements and Commitments. As of the date hereof, except
as disclosed in Item 2.11, or as disclosed in Item 2.12, Item 2.15.3 or Item
2.15.6 as required by Section 2.12, Section 2.15.3 or Section 2.15.6, as the
case may be, on the date of this Agreement Target is not a party or subject to
any oral or written executory contract or, to the extent expressly enumerated in
paragraphs below, binding obligation, that is material to Target, its financial
condition, business or prospects, including but not limited to the following:
(a) Any oral or written contract, commitment, letter
agreement or purchase order providing for payments by or to Target in an
aggregate amount of (i) $250,000 or more in the Ordinary Course or (ii) $100,000
or more not in the Ordinary Course;
(b) Any license agreement under which Target is licensor
(except for any nonexclusive software license granted by Target to customers in
the Ordinary Course); or under which Target is licensee (except for standard
"shrink wrap" licenses for off-the-shelf software products with a license fee or
purchase price of under $5,000 per copy or seat);
12
(c) Any material agreement by Target to encumber,
transfer or sell rights in or with respect to any material item of Target
Intellectual Property (as defined in Section 2.12 hereof), excluding
non-exclusive software licenses;
(d) Any agreement for the sale or lease of real or
tangible personal property involving more than $25,000 per year;
(e) Any dealer, distributor, sales representative,
original equipment manufacturer, value-added remarketer or other agreement for
the distribution of Target's products;
(f) Any franchise agreement;
(g) Any stock redemption or agreement obligating Target
to purchase its capital stock;
(h) Any joint venture contract or arrangement or any
other agreement that involves a sharing of profits with other persons or the
payment of royalties to any other person, excluding non-exclusive software
licenses;
(i) Any instrument evidencing indebtedness for borrowed
money by way of direct loan, sale of debt securities, purchase money obligation,
conditional sale, guarantee or otherwise, except for trade indebtedness or any
advance to any employee of Target incurred or made in the Ordinary Course, and
except as disclosed in Target Financial Statements;
(j) Any contract containing covenants purporting to
limit Target's freedom to compete in any line of business, market or industry
and/or in any geographic area; or
(k) Any contract for the employment of any officer,
employee or consultant of Target or any other type of contract or commitment
with any officer, employee or consultant of Target that is not immediately
terminable by Target without cost or other liability.
Except as noted in Item 2.5, all agreements, obligations
and commitments disclosed in Item 2.11, Item 2.12, Item 2.15.3 or Item 2.15.6 as
required by Section 2.11, Section 2.12, Section 2.15.3 or Section 2.15.6, as the
case may be, are valid and in full force and effect, except where the failure to
be such would not have a Material Adverse Effect on Target. Except as noted on
Item 2.11, neither Target nor to the knowledge of Target any other party is in
breach of or default under any material term of any such agreement, obligation
or commitment nor has such other party threatened such a breach or default.
Target is not a party to any contract or arrangement that it believes will have
a Material Adverse Effect on Target. Target does not have liability for
renegotiation of government contracts or subcontracts which can reasonably be
expected to have a Material Adverse Effect on Target.
2.12 Intellectual Property.
(a) For purposes of this Agreement, "Intellectual
Property" means:
(i) all issued patents, reissued or reexamined
patents, revivals of patents, utility models, certificates of invention,
registrations of patents and extensions thereof,
13
regardless of country or formal name (collectively, "Issued Patents");
(ii) all published or unpublished nonprovisional
and provisional patent applications, reexamination proceedings, invention
disclosures and records of invention (collectively "Patent Applications" and,
with the Issued Patents, the "Patents");
(iii) all copyrights, copyrightable works,
including all rights of authorship, use, publication, reproduction,
distribution, performance transformation, moral rights and rights of ownership
of copyrightable works, and all rights to register and obtain renewals and
extensions of registrations, together with all other interests accruing by
reason of international copyright (collectively, "Copyrights");
(iv) trademarks, registered trademarks,
applications for registration of trademarks, service marks, registered service
marks, applications for registration of service marks, trade names, registered
trade names and applications for registrations of trade names (collectively,
"Trademarks");
(v) all inventions, designs, proprietary
information, manufacturing and operating specifications, know-how, formulae,
trade secrets, technical data and proprietary processes;
(vi) all databases and all collected data and
all rights therein throughout the world;
(vii) all computer software, including all
source code, object code firmware, development tools, files, records and data
and all media on which any of the foregoing is recorded; and
(viii) all Web addresses, rights and domain
names and all rights under all Web cross-linking agreements.
(b) With respect to each item of Intellectual Property
incorporated into any product of Target or used in connection with any service
offered or provided by Target or otherwise used in the business of Target and in
each case owned by Target or licensed to Target (except "off the shelf" or other
software widely available through regular commercial distribution channels at a
cost not exceeding $5,000 per copy or seat on standard, non-negotiated terms and
conditions) ("Target Intellectual Property"), Target Disclosure Letter lists as
of the date of this Agreement at Item 2.12:
(i) all Patents, all registered Trademarks, and
all registered Copyrights, including the jurisdictions in which each such
Intellectual Property has been issued or registered or in which any such
application for such issuance and registration has been filed.
(ii) the following agreements relating to the
products or service offerings or capabilities of Target, including products or
service offerings or capabilities currently under development (collectively the
"Target Products and Services") or other Target Intellectual Property: all (A)
agreements granting any right to distribute or sublicense any of Target Products
and Services on any exclusive basis, (B) any exclusive licenses of Intellectual
Property to or from Target, (C) agreements pursuant to which the amounts
actually paid or payable under firm commitments to or by Target are $25,000 or
more, (D) joint development agreements, (E) any agreement by which Target grants
any ownership right to any Intellectual Property owned by Target other than
14
nonexclusive software licenses entered into with customers in the Ordinary
Course, (F) any option relating to any Target Intellectual Property, and (G)
agreements pursuant to which any party is granted any rights to access source
code or to use source code to create derivative works of Target Intellectual
Property.
(c) The Target Disclosure Letter contains an accurate
list as of the date of this Agreement of all licenses, sublicenses and other
agreements to which Target is a party and pursuant to which Target is authorized
to use any Intellectual Property owned by any third party (except "off the
shelf" or other software widely available through regular commercial
distribution channels at a cost not exceeding $5,000 per copy or seat on
standard non-negotiated terms and conditions and any rights implied by law)
("Third Party Intellectual Property"). Following the Closing Date, the Surviving
Corporation will be permitted to exercise all of Target's rights under such
licenses, sublicenses and other agreements to the same extent Target would have
been able to had the transactions contemplated by this Agreement not occurred
and without the payment of any additional amounts or consideration other than
ongoing fees, royalties or payments which Target would otherwise be required to
pay.
(d) To the knowledge of Target, there is no unauthorized
use, disclosure, infringement or misappropriation of any Target Intellectual
Property, including any Third Party Intellectual Property, by any employee or
former employee of Target or by any other third party. Target has not entered
into any agreement to indemnify any other person against any charge of
infringement of any Intellectual Property, other than indemnification provisions
contained in standard sales or agreements to end users arising in the Ordinary
Course, the forms of which have been delivered to Acquirer or its counsel. There
are no royalties, fees or other payments payable by Target to any Person, under
any written or oral contract or understanding or otherwise, by reason of the
ownership, use, sale or disposition of any Intellectual Property.
(e) Target is not in breach of any material provision of
any license, sublicense or other agreement relating to Target Intellectual
Property or Third Party Intellectual Property rights. Neither the execution,
delivery or performance of this Agreement or any ancillary agreement
contemplated hereby nor the consummation of the Merger or any of the
transactions contemplated by this Agreement will contravene, conflict with or
result in an infringement on the Acquirer's right to own or use any Target
Intellectual Property, including any Third Party Intellectual Property.
(f) All Patents, registered Trademarks, registered
service marks and registered copyrights held by Target are valid and subsisting.
Except for such as are not past due, all maintenance and annual fees have been
fully paid and all fees paid during prosecution and after issuance of any patent
comprising or relating to such item have been paid in the correct entity status
amounts. Target has not infringed, misappropriated or made unlawful use of, is
not currently infringing, misappropriating or making unlawful use of, and has
not received any written notice or written communication alleging or relating to
any actual, alleged, possible or potential infringement, misappropriation or
unlawful use of, any copyright or trade secret owned or used by any third party
or, to the knowledge of Target, any other Intellectual Property or other
proprietary right or asset owned or used by any third party. Without limiting
the foregoing, the offering and sale of Target Products and Services by Target
does not, and the offering and sale of Target Products and Services by the
Surviving Corporation immediately after the Effective Time will not, and the
business of Target as conducted as of the date hereof does not, and Target's use
of Intellectual Property as of the date hereof does not, infringe or violate any
copyright or trade secret owned or used by any third party or, to the knowledge
of Target, any other Intellectual Property of any other person. To the knowledge
of Target, there is no proceeding pending or threatened, nor has any written
claim or demand been
15
made, which challenges the legality, validity, enforceability or ownership of
any item of Target Intellectual Property or Third Party Intellectual Property.
Target has not brought a proceeding alleging infringement of Target Intellectual
Property or breach of any license or agreement involving Intellectual Property
against any third party.
(g) All current and former officers and managerial and
technical employees and employees engaged in development of Target products or
services (including all current and former members, officers and employees of
Central Point Services, LLC, a Colorado limited liability company ("CPS")
(including without limitation Xxxxxxx X. Xxxx, Xxxxx X. Xxxxxx, Xxxxxxx X.
Xxxxxxx, and Xxxxx X. Xxxxxxxxx) ("CPS Employees")) have executed and delivered
to Target an agreement (containing no exceptions or exclusions from the scope of
its coverage other than as set forth in the standard form) regarding the
protection of proprietary information and the assignment to Target (or CPS as
the case may be) of any Intellectual Property arising from services performed
for Target by such persons, the form of which has been supplied to Acquirer. All
current and former consultants and independent contractors to Target involved in
the development, modification, marketing and servicing of Target's products
and/or Target Intellectual Property, and all CPS Employees, have executed and
delivered to Target an agreement (containing no exceptions or exclusions from
the scope of its coverage other than as set forth in Item 2.12) regarding the
protection of proprietary information and the assignment to Target (or CPS as
the case may be) of any Intellectual Property arising from services performed
for Target by such persons. To the knowledge of Target, no employee or
independent contractor of Target or CPS is in violation of any term of any such
agreements or contracts relating to Intellectual Property. Other than with
respect to Third Party Intellectual Property that is not used in connection with
Target Products and Services, no current or former officer, director,
shareholder, employee, consultant or independent contractor of Target or CPS has
any right, claim or interest in or with respect to any Target Intellectual
Property. Target is not using any trade secrets, and to the knowledge of Target,
Target is not using any other confidential information, of any former employer
of any past or present employees.
(h) Target or CPS has taken all commercially reasonable
and customary measures and precautions necessary to protect and maintain the
confidentiality of all Target Intellectual Property (except such Target
Intellectual Property whose value would be unimpaired by public disclosure) and
otherwise to maintain and protect in all material respects the full value of all
Intellectual Property it owns. All use, disclosure or appropriation of
confidential and proprietary information of any third party ("Confidential
Information") has, to Target's knowledge, been pursuant to the terms of a
written agreement between Target and the owner of such Confidential Information,
or is otherwise lawful.
(i) The Target Products and Services currently being
offered by Target, including the performance and results thereof, conform in all
material respects with any published specification, published documentation or
written performance standard provided with respect thereto by Target.
(j) Target is not subject to any outstanding decree,
order, judgment, or stipulation or other proceeding affecting the validity, use
or enforceability of any Target Intellectual Property or restricting in any
manner the use, transfer, or licensing thereof by Target. Target is not subject
to any agreement which restricts in any material respect the use, transfer, or
licensing by Target of Target Intellectual Property or Target Products and
Services, excluding agreements relating to Third Party Intellectual Property.
(k) Target owns all right, title and interest in, or has
the right to use, all Intellectual Property that is material to or reasonably
necessary to the conduct of its business as presently
16
conducted ("Material Target Intellectual Property"). Target is not aware of any
loss, cancellation, termination or expiration of any Patent or Patent
Application, registered Trademark, or registered Copyright relating to any
Material Target Intellectual Property. Copies of all forms of nondisclosure or
confidentiality agreements currently utilized to protect Target Intellectual
Property have been provided to Acquirer. Except as disclosed in Item 2.12(l),
Target has not granted any reseller, distributor, sales representative, original
equipment manufacturer, value added reseller or other third party any right to
reproduce, manufacture, sell, license, furnish or distribute any Target Products
and Services in any market segment or geographic location.
2.13 Compliance with Laws. Except for noncompliance that
would not have a Material Adverse Effect on Target, Target has complied, and is
in compliance, in all material respects, with all applicable laws, ordinances,
regulations and rules, and all orders, writs, injunctions, awards, judgments and
decrees, applicable to Target or to the assets, properties and business thereof,
including, without limitation: (a) all applicable federal and state securities
laws and regulations except as disclosed in Item 2.13, (b) all applicable
federal, state and local laws, ordinances and regulations, and all orders,
writs, injunctions, awards, judgments and decrees, pertaining to (i) the sale,
licensing, leasing, ownership or management of owned, leased or licensed real or
personal property, products or technical data, (ii) employment or employment
practices, terms and conditions of employment, or wages and hours and (iii)
safety, health, fire prevention, environmental protection (including toxic waste
disposal and related matters described in Section 2.21 hereof), building
standards, zoning or other similar matters, (c) the Export Administration Act
and regulations promulgated thereunder and other laws, regulations, rules,
orders, writs, injunctions, judgments or decrees applicable to the export or
re-export of controlled commodities or technical data, (d) the Immigration
Reform and Control Act and (e) all governmental regulations related to the
operation and use of the Internet. Except as disclosed in Item 2.13, Target has
received all permits and approvals from, and has made all filings with,
government agencies and authorities, that are necessary to the conduct of its
business as presently conducted except where the failure to receive such permit
or approval or make such filing would not have a Material Adverse Effect on
Target. Target and Lynx have complied in all material respects, with all
applicable laws, ordinances, regulations and rules relating to the Federal
Anti-Kickback Law and have at all times remained in material compliance with the
safe harbor provisions of the regulations promulgated by the Office of Inspector
General thereunder and have not received notice of any governmental
investigation relating to the foregoing.
2.14 Certain Transactions and Agreements. No person who
is an officer of Target has any direct or indirect ownership interest in or any
employment or consulting agreement with any firm or corporation that competes
with Target (except with respect to any interest in less than 5% of the
outstanding voting shares of any corporation whose stock is publicly traded).
Except as disclosed in Item 2.14, none of the officers or any directors of
Target or any member of their immediate families, is directly or indirectly
interested in any contract with Target, including, but not limited to, any loan
agreements (excluding travel advances), except for normal compensation for
services as an officer (disclosed in Item 2.15.3), director or employee of
Target and except for the normal rights of a shareholder or optionholder. Except
as disclosed in Item 2.14, none of such officers or directors or family members
has, except for the normal rights of a shareholder or an option holder, any
interest in any (a) Target Intellectual Property or (b) any interest in any
property (other than Target Intellectual Property) used in the business of
Target, whether such property is real or personal, tangible or intangible.
17
2.15 Employees.
2.15.1 Except as disclosed in Item 2.15.1, Target does
not have any employment contract or consulting agreement with any officer or
employee of Target currently in effect that is not terminable at will without
penalty or payment of compensation by Target (other than agreements with the
sole purpose of providing for the confidentiality of proprietary information or
assignment of inventions).
2.15.2 Target (a) has not ever been or is now subject to
a union organizing effort, (b) is not subject to any collective bargaining
agreement with respect to any of its employees, (c) is not subject to any other
material contract, written or oral, with any trade or labor union, employees'
association or similar organization or (d) does not have any current labor
dispute.
2.15.3 Item 2.15.3 contains a list of all severance
agreements, pension, retirement, disability, medical, dental or other health
plans, life insurance or other death benefit plans, profit sharing, deferred
compensation agreements, stock, option, bonus or other incentive plans,
vacation, sick, holiday or other paid leave plans, severance plans or other
similar employee benefit plans maintained by Target or any trade or business
which is treated as a single employer with Target within the meaning of Code
Section 414(b), (c), (m) or (o) (each an "ERISA Affiliate") or in which any
employees of Target participate (the "Employee Plans"), including without
limitation all "employee benefit plans" as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), as well
as all employment and consulting agreements to which Target is a party. Except
as disclosed in Item 2.15.3, each of the Employee Plans, and its operation and
administration, is in compliance in all material respects with each of the
respective Employee Plans' terms and with all applicable, federal, state, local
and other governmental laws and ordinances, orders, rules and regulations,
including the requirements of ERISA and the Code. Target has delivered or made
available to Acquirer a true and complete copy of, to the extent applicable, (a)
all Employee Plans as well as all employment and consulting agreements to which
Target is a party as amended, (b) the three most recent annual reports (Form
5500s), (c) each trust agreement related to such Employee Plans, (d) most recent
summary plan description for each Employee Plan for which a description is
required, (e) the most recent Internal Revenue Service determination letter
issued with respect to any Employee Plan, and (f) any material contract
regarding the funding arrangements for any Employee Plan. Except as disclosed in
Item 2.15.3, all such Employee Plans that are "employee pension benefit plans"
(as defined in Section 3(2) of ERISA) which are intended to qualify under
Section 401(a) of the Code have received favorable determination opinion,
notification or advisory letters with respect to such plans that such plans
comply with the Tax Reform Act of 1986 or have remaining a period of time under
applicable Treasury regulations or IRS pronouncements in which to apply for such
a letter and make any amendments necessary to obtain a favorable determination
as to the qualified states of each such Employee Plan. In addition, Target has
not ever been a participant in any "prohibited transaction," within the meaning
of Section 406 of ERISA with respect to any employee pension benefit plan (as
defined in Section 3(2) of ERISA) which Target sponsors as employer or in which
Target participates as an employer, which would impose a material penalty on
Target or which was not otherwise exempt pursuant to Section 408 of ERISA
(including, but not limited to, any individual exemption granted under Section
408(a) of ERISA), or which could result in an excise tax under the Code. The
group health plans, as defined in Section 4980B(g) of the Code, that benefit
employees of Target are in compliance in all material respects with the
continuation coverage requirements of subsection 4980B of the Code. There are no
outstanding violations of Section 4980B of the Code with respect to any Employee
Plan, covered employees or qualified
18
beneficiaries. Except as set forth in Item 2.15.3, no Employee Plans will be
subject to any surrender fees or service fees upon termination other than the
normal and reasonable administrative fees associated with the termination of
benefit plans. Except as disclosed in Item 2.15.3, no employee of Target and no
person subject to any Target health plan has made medical claims through such
health plan during the twelve months preceding the date hereof for more than
$30,000 in the aggregate.
2.15.4 To the knowledge of Target, no employee of Target
is in material violation of any term of any employment contract, patent or trade
secret disclosure agreement or any other contract or agreement, or in violation
of any noncompetition agreement or other restrictive covenant, relating to the
right of any such employee to be employed by Target or to use trade secrets or
proprietary information of others, and the employment of any employee of Target
does not subject Target to any material liability to any third party.
2.15.5 Except as disclosed in Item 2.15.4, Target is not
a party to any (a) agreement with any employee of Target (i) the benefits of
which are contingent, or the terms of which are materially altered, upon the
occurrence of a transaction involving Target in the nature of any of the
transactions contemplated by this Agreement (ii) providing any term of
employment or compensation guarantee or (iii) providing severance benefits or
other benefits after the termination of employment of such employee regardless
of the reason for such termination of employment other than as required by law,
or (b) 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 materially increased, or the vesting of benefits of which will be
materially accelerated, by the occurrence of any of the transactions
contemplated by this Agreement. Except as disclosed in Item 2.15.4, each Target
Option was granted with an exercise price per share equal to the fair market
value of the underlying shares covered by such option, as determined by Target's
Board of Directors after giving due consideration to the advice of its counsel
as to possible compensation charge issues, on the date of grant. All Target
Options granted as incentive stock options met the requirements of Section 422
of the Internal Revenue Code on the date of grant. All Options granted to
individuals who are not identified as independent contractors or non-employee
directors may properly be accounted for under Accounting Principles Bulletin 25.
2.15.6 A list of all employees of Target and their
current base compensation as of the date of this Agreement is disclosed on Item
2.15.6. Copies of all offer letters and other documents reflecting bonus
arrangements of any Target officer, director or employee have been delivered to
Acquirer.
2.15.7 All contributions due from Target with respect to
any of the Employee Plans through the Latest Balance Sheet Date have been made
or accrued on Target's financial statements.
2.16 Corporate Documents. Target has made available to Acquirer
for examination all documents and information disclosed in Items 2.1 through
2.24 or other exhibits called for by this Agreement, including, without
limitation, the following: (a) copies of Target's Articles of Incorporation and
Bylaws as currently in effect; (b) Target's minute book containing all records
of all proceedings, consents, actions and meetings of Target's directors and
shareholders; (c) Target's stock ledger, journal and other records reflecting
all stock issuances and transfers; and (d) all permits, orders and consents
issued by any regulatory agency with respect to Target, or any securities of
Target, and all applications for such permits, orders and consents.
19
2.17 No Brokers. Except as disclosed in Item 2.17, Target is not
obligated for the payment of fees or expenses of any investment banker, broker
or finder in connection with the origin, negotiation or execution of this
Agreement or in connection with any transaction provided for herein or therein.
2.18 Books and Records. The books, records and accounts of
Target (a) are in all material respects correct and complete, and (b) have been
maintained in accordance with reasonable business practices.
2.19 Environmental Matters.
2.19.1 To the knowledge of Target, during the period
that Target has leased or owned its properties or leased, owned or operated any
facilities, there have been no disposals, releases or threatened releases of
Hazardous Materials (as defined below) on, from or under any such properties or
facilities that would have a Material Adverse Effect on Target. Target has no
knowledge of any presence, disposals, releases or threatened releases of
Hazardous Materials on, from or under any of such properties or facilities,
which may have occurred prior to Target having taken possession of any of such
properties or facilities which might reasonably be expected to have a Material
Adverse Effect on Target. For purposes of this Agreement, the terms "disposal,"
"release," and "threatened release" have the definitions assigned thereto by the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42
U.S.C. Section 9601 et seq., as amended ("CERCLA"). For the purposes of this
Section 2.19, "Hazardous Materials" mean any hazardous or toxic substance,
material or waste which is as of the date hereof, regulated under, or defined as
a "hazardous substance," "pollutant," "contaminant," "toxic chemical,"
"hazardous material," "toxic substance" or "hazardous chemical" under (i)
CERCLA; (ii) the Emergency Planning and Community Right-to-Know Act, 42 U.S.C.
Section 11001 et seq.; (iii) the Hazardous Materials Transportation Act, 49
U.S.C. Section 1801, et seq.; (iv) the Toxic Substances Control Act, 15 U.S.C.
Section 2601 et seq.; (v) the Occupational Safety and Health Act of 1970, 29
U.S.C. Section 651 et seq.; (vi) regulations promulgated under any of the above
statutes; or (vii) any other applicable federal, state or local statute,
ordinance, rule or regulation that has a scope or purpose similar to those
identified above.
2.19.2 During the time that Target has owned or leased
the properties and facilities currently occupied by it or any properties and
facilities previously occupied by Target, there has been no material litigation,
proceeding or administrative action brought or to Target's knowledge threatened
against Target, or any material settlement reached by Target with, any party or
parties alleging the presence, disposal, release or threatened release of any
Hazardous Materials on, from or under any of such properties or facilities.
2.20 Warranties, Guarantees and Indemnities. Except as disclosed
in Item 2.20 or in the agreements or contract listed herein, Target has not
provided to its customers or any third parties (i) any warranties or guarantees
regarding Target Products and Services; (ii) any rights to obtain refunds with
respect to Target Products and Services or (iii) any indemnities with respect to
intellectual property infringement or Year 2000 compliance, except as provided
in Target's standard customer license agreement a copy of which is attached to
or set out verbatim in Item 2.20.
2.21 No Shareholder Claims. No Target Shareholder has claimed in
writing any interest in any additional shares of Target Stock, or any options,
warrants or other securities of Target,
20
except for the number of shares of Target Stock which such person is shown to be
the owner of on Item 2.3, and no third party who is not disclosed on Item 2.3
has made in writing, any claim of entitlement to receive any shares of Target
Stock, any warrants or other rights to acquire any Target Stock or any other
securities of Target, and to Target's knowledge no such claim has been made
orally.
2.22 Customer, Supplier and Distributor Relationships. Except as
disclosed in Item 2.22, no customer, supplier or distributor accounting for more
than 2% of Target's revenues, purchases or orders in any month from September
1999 to February 28, 2000 ("Material Partner") has canceled or otherwise
terminated its relationship with Target, decreased or limited materially the
amount of product or services ordered from or supplied to Target (or purchased
through Target's services) or threatened in writing (or to Target's knowledge
orally) to take any such action, and to Target's knowledge, there is no known
material impediment to retaining good relations with each such customer,
supplier or distributor following the Merger.
2.23. Service Quality. All Target Services offered or provided
by Target to customers on or prior to the date hereof conform in material
respects to applicable contractual commitments, implied warranties not
disclaimed, express warranties, and claims in widely circulated marketing
materials published by Target (including on Target's Web site). All recurring
(as to the nature of the complaint), material complaints received since June 30,
1999 from customers regarding Target's Services are summarized in Item 2.23 in
detail reasonably sufficient to understand the nature of the complaint and the
resolution or lack of resolution thereof.
2.24 Insurance. Target maintains the insurance coverage
disclosed on Item 2.24. Item 2.24 sets forth all claims made under such
insurance policies since Target's inception and the premiums that apply with
respect to such insurance policies as of the date of this Agreement.
2.25 Disclosure. The information supplied by Target for
inclusion in the Notice of Hearing, Information Statement and permit application
prepared in connection with the California Fairness Hearing ("Hearing
Materials") shall not as of the respective dates thereof contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading. If at any time
prior to the Effective Time any event relating to Target or any of its
affiliates, officers or directors should be discovered by Target which is
required to be set forth in any of the Hearing Materials, Target shall promptly
inform Acquirer. Notwithstanding the foregoing, Target makes no representation
or warranty with respect to any information supplied by Acquirer which is
contained in any of the Hearing Materials.
3. REPRESENTATIONS AND WARRANTIES OF ACQUIRER AND SUB.
Each of Acquirer and Sub, where applicable, hereby represents
and warrants, that, except as disclosed on the Acquirer disclosure letter
delivered to Target herewith as amended from time to time in non-material
respects prior to Closing:
3.1 Organization and Good Standing. Each of Acquirer and Sub is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has the corporate power and authority to own,
operate and lease its properties and to carry on its business
21
as now conducted and as proposed to be conducted.
3.2 Power, Authorization and Validity; Adverse Changes.
3.2.1 Each of Acquirer and Sub has the corporate right,
power, legal capacity and authority to enter into and perform its obligations
under this Agreement, and under the Escrow Agreement, the Employment Agreements
and the Noncompetition Agreements (the "Acquirer Ancillary Agreements"). This
Agreement and the Acquirer Ancillary Agreements have been or will be duly
executed and delivered by Acquirer and Sub, as applicable. The execution,
delivery and performance of this Agreement and the Acquirer Ancillary Agreements
have been duly and validly approved and authorized by Acquirer's Board of
Directors and Sub's Board of Directors, as applicable, and no other corporate
approvals or proceedings on the part of Acquirer or Sub are necessary to
authorize this Agreement and the transactions contemplated hereby.
3.2.2 No filing, authorization or approval, governmental
or otherwise, is necessary or required to be made or obtained to enable Acquirer
and Sub as applicable, to enter into, and to perform its obligations under, this
Agreement and the Acquirer Ancillary Agreements, except for (a) the filing of
the Delaware Certificate of Merger with the Secretary of State of the State of
Delaware, the filing of such officers' certificates and other documents as are
required to effectuate the Merger under Delaware Law and the filing of
appropriate documents with the relevant authorities of states other than
Delaware in which Acquirer and Sub are qualified to do business, if any, and (b)
such filings as may be required to comply with federal and state securities
laws.
3.2.3 This Agreement and the Acquirer Ancillary
Agreements are, or when executed and delivered by Acquirer and Sub (as
applicable) and the other parties thereto will be, valid and binding obligations
of Acquirer and Sub, enforceable against Acquirer and Sub in accordance with
their respective terms, except as to the effect, if any, of (a) applicable
bankruptcy and other similar laws affecting the rights of creditors generally,
(b) rules of law governing specific performance, injunctive relief and other
equitable remedies; and (c) the enforceability of provisions requiring
indemnification in connection with the offering, issuance or sale of securities.
3.3 No Violations. Neither the execution or delivery of this
Agreement or any Acquirer Ancillary Agreement, nor the consummation of the
transactions contemplated herein or therein, will conflict with, or (with or
without notice or lapse of time, or both) result in a termination, breach or
violation of (a) any provision of the Certificate of Incorporation or Bylaws of
Acquirer of Sub, as currently in effect or (b) any instrument or contract to
which Acquirer or Sub is a party or by which Acquirer or Sub is bound, or (c)
any federal, state, local or foreign judgment, writ, decree, order, statute,
rule or regulation applicable to Acquirer or Sub or their respective assets or
properties, other than, with respect to (a), (b) and (c), any such, conflict,
termination, breach or violation that would not have a Material Adverse Effect
on Acquirer.
3.4 Sub. Sub has been formed for the sole purpose of effecting
the Merger and, except as contemplated by this Agreement, Sub has not conducted
any business activities and does not have any material liabilities or
obligations. Acquirer, as the sole shareholder of Sub, has adopted this
Agreement in accordance with Section 251 of Delaware Law.
3.5 Issued Shares. The shares of Acquirer Common Stock to be
issued pursuant to the Merger will be duly authorized and validly issued, fully
paid and nonassessable, will not be
22
subject to any right of rescission, preemptive or other statutory right of
shareholders.
3.6 Brokers. No broker, finder or investment banker is entitled
to any brokerage, finder's or other fee or commission in connection with the
Merger based upon arrangements made by or on behalf of Acquirer.
3.7 SEC Filings; Acquirer Financial Statements.
(a) Acquirer has filed all forms, reports and documents
required to be filed by Acquirer with the SEC since the effective date of the
registration statement (the "Acquirer Initial Registration Statement") of
Acquirer's initial public offering. All such required forms, reports and
documents (including those that Acquirer may file subsequent to the date hereof)
and the Acquirer Initial Registration Statement are referred to herein as the
"Acquirer SEC Reports." As of their respective dates, the Acquirer SEC Reports
(i) were prepared in accordance with the requirements of the Securities Act or
the Securities Exchange Act of 1934 ("Exchange Act"), as the case may be, and
the rules and regulations of the SEC thereunder applicable to such Acquirer SEC
Reports, and (ii) did not at the time they were filed (or if amended or
superseded by a filing prior to the date of this Agreement, then on the date of
such filing) contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, except to the extent corrected prior to the date of this
Agreement by a subsequently filed Acquirer SEC Report. None of Acquirer's
subsidiaries is required to file any forms, reports or other documents with the
SEC.
(b) Each of the consolidated financial statements
(including, in each case, any related notes thereto) contained in the Acquirer
SEC Reports (the "Acquirer Financials"): (i) complied as to form in all material
respects with the published rules and regulations of the SEC with respect
thereto, (ii) was prepared in accordance with GAAP applied on a consistent basis
throughout the periods involved (except as may be indicated in the notes thereto
or, in the case of unaudited interim financial statements, as may be permitted
by the SEC on Form 1O-Q, 8-K or any successor form under the Exchange Act) and
(iii) fairly presented the consolidated financial position of Acquirer and its
subsidiaries as at the respective dates thereof and the consolidated results of
Acquirer's operations and cash flows for the periods indicated, except that the
unaudited interim financial statements may not contain footnotes and were or are
subject to normal and recurring year-end adjustments. The balance sheet of
Acquirer contained in Acquirer SEC Reports as of December 31, 1999 is
hereinafter referred to as the "Acquirer Balance Sheet." Except as disclosed in
the Acquirer Financials, since the date of the Acquirer Balance Sheet neither
Acquirer nor any of its subsidiaries has any liabilities required under GAAP to
be set forth on a balance sheet (absolute, accrued, contingent or otherwise)
which are, individually or in the aggregate, material to the business, results
of operations or financial condition of Acquirer and its subsidiaries taken as a
whole, except for liabilities incurred since the date of the Acquirer Balance
Sheet in the ordinary course of business consistent with past practices and
liabilities incurred in connection with this Agreement.
3.8 Absence of Certain Changes or Events. From December 31, 1999
to the date of this Agreement, Acquirer has carried on its business in the
Ordinary Course substantially in accordance with the procedures and practices in
effect on December 31, 1999. Since the date of the Acquirer Balance Sheet to the
date hereof there has not been any Material Adverse Change with respect to
Acquirer.
23
3.9 Intellectual Property.
(a) Acquirer owns and has good and exclusive title to,
or has license sufficient for the conduct of its business as currently conducted
to, each material item of Acquirer Intellectual Property free and clear of any
free and clear of all liens, charges or encumbrances (excluding licenses and
related restrictions and Permitted Liens).
(b) The operation of the business of Acquirer as such
business currently is conducted, including Acquirer's design, development,
marketing and sale of the products or services of Acquirer (including with
respect to products currently under development) does not infringe or
misappropriate any trade secret or copyright, or to Acquirer's knowledge, patent
owned by any third party.
(c) Acquirer has not received notice from any third
party that the operation of the business of Acquirer or any act, product or
service of Acquirer, infringes or misappropriates the Intellectual Property of
any third party or constitutes unfair competition or trade practices under the
laws of any jurisdiction, which allegation, if true, would have a Material
Adverse Effect on Acquirer.
(d) No material Acquirer Intellectual Property or
product or service of Acquirer is subject to any proceeding or outstanding
decree, order, judgment, agreement, or stipulation restricting in any manner the
use, transfer, or licensing thereof by Acquirer, or which may affect the
validity, use or enforceability of such Acquirer Intellectual Property.
(e) To the knowledge of Acquirer, no person has or is
infringing or misappropriating any Acquirer Intellectual Property, which
infringement or misappropriation, individually or in the aggregate, would have a
Material Adverse Effect on Acquirer.
(f) Acquirer and its subsidiaries have taken reasonable
steps to protect Acquirer's and its subsidiaries' rights in Acquirer's and such
subsidiaries' confidential information and trade secrets, except where the
failure to do so would have a Material Adverse Effect on Acquirer.
3.10 Compliance with Laws. Except for noncompliance that would
not have a Material Adverse Effect on Acquirer, Acquirer has complied, and is in
compliance, in all material respects, with all applicable laws, ordinances,
regulations and rules, and all orders, writs, injunctions, awards, judgments and
decrees, applicable to Acquirer or to the assets, properties and business
thereof. Acquirer has received all permits and approvals from, and has made all
filings with, government agencies and authorities, that are necessary to the
conduct of its business as presently conducted except where the failure to
receive such permit or approval or make such filing would not have a Material
Adverse Effect on Acquirer.
3.11 Litigation. Except as disclosed in the Acquirer Initial
Registration Statement, there is no suit, claim, action, proceeding or, to the
knowledge of Acquirer, investigation, pending nor, to the knowledge of Acquirer,
threatened, against or affecting Acquirer or any of its material subsidiaries
that individually or in the aggregate could reasonably be expected to have a
Material Adverse Effect on Acquirer or to materially prevent or delay the
consummation of the transactions contemplated by this Agreement, nor is there
any judgment, order, decree, injunction, statute, law, ordinance, rule or
regulation of any judicial, regulatory or other governmental body or arbitrator
outstanding against, or, to the knowledge of Acquirer, investigation by any
judicial, regulatory or other governmental body involving, Acquirer or any of
its material subsidiaries that individually or
24
in the aggregate would have a Material Adverse Effect on Acquirer.
3.12 Investigation. Without limiting the representations of
Target or Acquirer's ability to rely thereon, Acquirer acknowledges that: (a)
Acquirer is effecting the Merger and purchasing Target Stock based solely on the
results of its inspections and investigations, and not on any representation or
warranty of the Target not expressly set forth in this Agreement; and (b)
Acquirer has conducted its own independent review and analysis of the business,
operations, assets, liabilities, results of operations, financial condition,
software, technology and prospects of Target and acknowledges that Acquirer has
been provided all requested access to the personnel, properties, premises and
records of Target for such purposes.
3.13 Fairness Hearing; Section 3(a)(10) Exemption; Rule 145
Resale Restrictions for Affiliates. All shares of Acquirer Common Stock issued
in the Merger shall be issued pursuant to a permit issued by the Commissioner
authorizing the Merger after a fairness hearing to be conducted by the
Commissioner in compliance with Section 3(a)(10) of the Securities Act of 1933.
As a result, all shares of Acquirer Common Stock issued in the Merger shall be
freely tradable subject only to the restrictions imposed by SEC Rule 145(d) on
former affiliates of Target and the underwriter lock-up agreement and resale
restriction agreement described in Section 8.12 hereof.
3.14 Disclosure. The information supplied by Acquirer for
inclusion in the Hearing Materials shall not as of the respective dates thereof
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. If at any time prior to the Effective Time any event relating to
Acquirer or any of its affiliates, officers or directors should be discovered by
Acquirer which is required to be set forth in any of the Hearing Materials,
Acquirer shall promptly inform Target. Notwithstanding the foregoing, Acquirer
makes no representation or warranty with respect to any information supplied by
Target which is contained in any of the Hearing Materials.
4. TARGET PRECLOSING COVENANTS
During the period from the date of this Agreement until the
Effective Time, Target covenants to and agrees with Acquirer as follows:
4.1 Advice of Changes. Target will promptly advise Acquirer in
writing (a) of any event occurring subsequent to the date of this Agreement that
would render any representation or warranty of Target contained in this
Agreement, if made on or as of the date of such event or the Closing Date,
untrue or inaccurate in any material respect (however, no advisory need be
provided regarding any event or action contemplated or permitted under this
Agreement) and (b) of the occurrence of any Material Adverse Change with respect
to Target. To ensure compliance with this Section 4.1, Target shall deliver to
Acquirer within fifteen (15) days after the end of each monthly accounting
period ending after the date of this Agreement and before the Closing Date, an
unaudited balance sheet and statement of operations, which financial statements
shall be prepared in the Ordinary Course, consistent with Target's books and
records and generally accepted accounting principles and shall fairly present
the financial position of Target as of their respective dates and the results of
Target's operations for the periods then ending.
25
4.2 Maintenance of Business. The parties hereto understand and
acknowledge that it is their intent to work closely together during the period
from the date hereof until the Closing Date. Target will use its reasonable best
efforts to carry on and preserve its business and its relationships with
customers, suppliers, employees and others in substantially the same manner as
it has prior to the date hereof.
4.3 Conduct of Business. Target will continue to conduct its
business and use its reasonable best efforts to maintain its business
relationships in the Ordinary Course and, except for the actions disclosed in
Item 4.3 of the Target Disclosure Letter or actions expressly contemplated by
this Agreement will not, without the prior written consent of the Chief
Executive Officer or Chief Financial Officer of Acquirer, not to be unreasonably
withheld:
(a) borrow any money other than pursuant to existing
lines of credit;
(b) enter into any capital expenditure by Target in
excess of $25,000 (in the case of transactions or commitments which are neither
made in the Ordinary Course nor contemplated by Target's current capital
expenditure budget) or $50,000 (in the case of transactions or commitments made
in the Ordinary Course or contemplated by Target's current capital expenditure
budget);
(c) encumber or permit to be encumbered any of its
assets except for Permitted Liens arising in the Ordinary Course;
(d) dispose of any of its material assets except in the
Ordinary Course;
(e) enter into any lease or contract for the purchase or
sale of any property, real or personal, tangible or intangible, except in the
Ordinary Course or enter into any agreement of the types described in Section
2.11 to the extent involving amounts in excess of $25,000;
(f) pay any bonus, royalty, increased salary or special
remuneration to any officer, employee or consultant (except pursuant to existing
arrangements heretofore disclosed in writing to Acquirer) or enter into any new
employment or consulting or severance agreement with any such person, or enter
into any new agreement or plan of the type described in Section 2.15.3;
(g) change accounting methods, except as required by
GAAP;
(h) declare, set aside or pay any cash or stock dividend
or other distribution in respect of capital stock, or, except as contemplated in
this Agreement, redeem or otherwise acquire any of its capital stock;
(i) amend or terminate or settle any material disputes
under any contract, agreement or license to which it is a party of a nature
required to be disclosed in Section 2.12;
(j) lend any amount to any person or entity, other than
advances for travel and expenses which are incurred in the Ordinary Course and
which are not material in amount, which travel and expenses shall be reasonably
documented by receipts for the claimed amounts;
(k) guarantee or act as a surety for any obligation
except for the endorsement of checks and other negotiable instruments in the
Ordinary Course;
(l) waive or release any material right or claim except
in the Ordinary Course;
26
(m) except as contemplated by this Agreement, issue or
sell any shares of its capital stock of any class or any other of its securities
(other than the issuance of Target Common Stock upon the exercise of Target
Options), or issue, grant, modify or create any warrants, obligations,
subscriptions, options, convertible securities, stock appreciation rights or
other commitments to issue shares of capital stock or accelerate the vesting of
any outstanding option or other security;
(n) split or combine the outstanding shares of its
capital stock of any class or enter into any recapitalization affecting the
number of outstanding shares of its capital stock of any class or affecting any
other of its securities;
(o) except for the Merger, merge, consolidate or
reorganize with, or acquire any entity;
(p) amend its Articles of Incorporation or Bylaws except
as contemplated by this Agreement;
(q) agree to any material audit assessment by any Taxing
Authority;
(r) license any of its technology or any Target
Intellectual Property, except in the Ordinary Course;
(s) change or terminate any insurance coverage, except
in the Ordinary Course;
(t) terminate the employment of any key employee
disclosed in Item 2.10(i); or
(u) agree to do any of the things described in the
preceding clauses 4.3(a) through 4.3(t).
4.4 Certain Agreements. Target will cause all present employees
and consultants of Target engaged in development activity who have not
previously executed Target's forms of assignments of copyright and other
intellectual property rights and nondisclosure agreements to Target to execute
such forms.
4.5 Regulatory Approvals. Target will execute and file, or join
in the execution and filing, of any application or other document that may be
necessary in order to obtain the authorization, approval or consent of any
governmental body, federal, state, local or foreign, which may be reasonably
required, or which Acquirer may reasonably request, in connection with the
consummation of the transactions provided for in this Agreement. Target will use
its best efforts to obtain or assist Acquirer in obtaining all such
authorizations, approvals and consents. Without limiting the generality of the
foregoing, Target shall respond as promptly as practicable to any inquiries or
requests for additional information or documentation received from the
Commissioner regarding the California Fairness Hearing and (ii) any inquiries or
requests received from any state attorney general or other governmental body in
connection with antitrust or related matters. Target shall following the time it
becomes aware of any of the following matters: (i) give Acquirer prompt notice
of the commencement of any material legal proceeding by or before any court or
other governmental body with respect to the Merger or any of the other
transactions contemplated by this Agreement, (ii) keep Acquirer informed as to
the status of any such legal proceeding and (iii) except
27
as may be prohibited by any governmental body or by any legal requirement,
permit Acquirer to be present at each meeting or conference relating to any such
legal proceeding and to have access to and be consulted in connection with any
document filed with or provided to any governmental body in connection with any
such legal proceeding.
4.6 Necessary Consents. Target will use its reasonable best
efforts to obtain any written consents and waivers (including waivers of any
applicable refusal or co-sale rights that may apply to the transactions hereby
contemplated) and take such other actions as may be necessary or appropriate for
Target, to facilitate and allow the consummation of the transactions provided
for herein and to facilitate and allow Acquirer to carry on Target's business
after the Closing Date.
4.7 Litigation. Target will notify Acquirer in writing promptly
after learning of any material action, suit, proceeding or investigation by or
before any court, board or governmental agency, initiated by or against Target
or threatened against it.
4.8 No Other Negotiations.
4.8.1 Target and its directors and officers shall not,
and Target shall direct and use its best efforts to cause the employees,
representatives and agents of Target not to, directly or indirectly, solicit or
encourage the initiation of (including by way of furnishing information) any
inquiries or proposals regarding any merger, sale of assets, sale of shares of
capital stock (including without limitation by way of a tender offer) or similar
transaction involving Target that if consummated would constitute an Alternative
Transaction (as defined below) (any of the foregoing inquiries or proposals
being referred to herein as a "Target Takeover Proposal"). "Alternative
Transaction" means any of (i) a transaction pursuant to which any Person (or
group of Persons) other than Acquirer or its affiliates (a "Third Party")
acquires or would acquire more than 50% of the outstanding shares of any class
of equity securities of Target, whether from Target or pursuant to a tender
offer or exchange offer or otherwise, (ii) a merger or other business
combination involving Target pursuant to which any Third Party acquires more
than 50% of the outstanding equity securities of Target or the entity surviving
such merger or business combination, (iii) any transaction pursuant to which any
Third Party acquires or would acquire control of assets of Target having a fair
market value (as determined by Target Board in good faith) equal to more than
50% of the fair market value of all the assets of Target immediately prior to
such transaction, or (iv) any other consolidation, business combination,
recapitalization or similar transaction involving Target, other than the
transactions contemplated by this Agreement.
4.8.2 Target shall immediately notify Acquirer after
receipt of any Target Takeover Proposal, or any modification of or amendment to
any Target Takeover Proposal, or any request for nonpublic information relating
to Target in connection with a Target Takeover Proposal or for access to the
properties, books or records of Target by any Person that informs Target Board
that it is considering making, or has made, a Target Takeover Proposal. Such
notice to Acquirer shall be made orally and in writing.
4.8.3 The Target Board will recommend that Target
Shareholders approve the Merger. Neither Target Board nor any committee thereof
shall (i) withdraw or modify, or indicate publicly its intention to withdraw or
modify, in a manner adverse to Acquirer, the approval or recommendation by such
Board of Directors or such committee of the Merger, (ii) approve or recommend,
or indicate publicly its intention to approve or recommend, any Target Takeover
Proposal
28
or (iii) cause Target to enter into any letter of intent, agreement in
principle, acquisition agreement or other similar agreement (each, a "Target
Acquisition Agreement") or any nondisclosure agreement related to any Target
Takeover Proposal.
4.8.4 The Target shall advise the directors, officers
and employees of Target and any investment banker, attorney or other advisor
retained by Target in connection with the transactions contemplated by this
Agreement of the restrictions set forth in this Section 4.8. It is understood
that any violation of the restrictions set forth in this Section 4.8 by any
director or officer of Target, or any such violation by any employee,
representative or agent of Target where Target shall have failed to use its best
efforts to prevent such violation, shall be deemed to be a breach of this
Section 4.8 by Target.
4.8.5 Upon the execution of this Agreement, Target and
its directors, officers, employees, representatives and agents shall immediately
cease any and all existing activities, discussions or negotiations with any
other person or entity conducted previously with respect to any Target Takeover
Proposal or Alternative Transaction.
4.9 Access to Information. Until the Closing Date, Target will
provide Acquirer and its agents with reasonable access to the files, books,
records and offices of Target, including, without limitation, any and all
information relating to Target Taxes, commitments, contracts, leases, licenses,
real, personal and intangible property and financial condition. Target will
cause its accountants to cooperate with Acquirer and its agents in making
available all financial information reasonably requested, including without
limitation the right to examine all working papers pertaining to all financial
statements prepared or audited by such accountants. Such access will be subject
to terms of any existing nondisclosure agreement executed by Target and
Acquirer.
4.10 Satisfaction of Conditions Precedent. Target will use its
reasonable best efforts to satisfy or cause to be satisfied all the conditions
precedent which are set forth in Section 8. Target will use its reasonable best
efforts to cause the transactions provided for in this Agreement to be
consummated, and, without limiting the generality of the foregoing, to obtain
all consents and authorizations of third parties and to make all filings with,
and give all notices to, third parties that may be necessary or reasonably
required on its part in order to effect the transactions provided for herein.
4.11 Blue Sky Laws. Target shall use its reasonable best efforts
to assist Acquirer to the extent necessary to comply with the securities and
Blue Sky laws of all jurisdictions applicable in connection with the Merger.
4.12 Notification of Employee Problems. Target will promptly
notify Acquirer if any of Target's officers becomes aware that any of its key
employees intends to leave its employ.
4.13 Benefit Plans. As soon as practicable after the execution
of this Agreement, Acquirer and Target shall confer and work together in good
faith to agree upon mutually acceptable employee benefit and compensation
arrangements for Target's employees following the Merger, which shall in any
event be no less favorable in the aggregate than those offered to similarly
situated employees of Acquirer. Target shall take such actions as are necessary
to terminate such Employee Plans as are requested by Acquirer to be terminated,
provided that Acquirer shall take such steps as are commercially and
administratively reasonable to ensure that (i) those Target employees who are
29
eligible to participate in each such Employee Plan shall be entitled to
participate in comparable employee benefit plans maintained by Acquirer
effective immediately following the Effective Date and (ii) such employees shall
be credited with prior periods of employment with Target for purposes of
participation in and vesting under Acquirer's employee benefit plans, including,
without limitation, participation in and vesting under all employee pension
benefit plans (as defined in Section 3(2) of ERISA), participation in and
satisfaction of deductibles and co-pays under employee welfare benefit plans (as
defined in Section 3(1) of ERISA), vacation and sick leave entitlement where
service is a factor.
4.14 Shareholder Approval. Target will either hold a special
meeting of its shareholders or distribute to its shareholders a written consent
(the "Shareholders Meeting") at the earliest practicable date following the
California Fairness Hearing ("Latest Date")) to submit this Agreement, the
Merger and related matters for the consideration and approval of Target
Shareholders, which approval will be recommended by Target's Board of Directors.
Such meeting will be called, held and conducted, and any proxies or consent will
be solicited, in compliance with applicable law. Target shall ensure that the
Shareholders' Meeting is called, noticed, convened, held and conducted and the
Merger voted on prior to the Latest Date, and that all proxies and consents
solicited in connection with the Shareholders' Meeting are solicited, in
compliance with all applicable legal requirements. The Target's obligation to
call, give notice of, convene and hold the Shareholders' Meeting and have its
shareholders vote on the Merger prior to the Latest Date in accordance with this
Section 4.15 shall not be limited or otherwise affected by the commencement,
disclosure, announcement or submission to Target of any Alternative Proposal.
Nothing contained in this Section 4.15 shall limit Target's obligation to hold
and convene the Shareholders' Meeting, it being understood that Target shall be
required to hold and convene the Shareholders' Meeting in accordance with this
Section 4.15 unless the holding of such meeting would constitute a violation of
any applicable court order or statute. Target shall use all reasonable efforts
to ensure that the holding of the Shareholders' Meeting will not constitute a
violation of any applicable court order or statute.
4.15 Hearing Materials. Target will send to its shareholders in
a timely manner, for the purpose of considering and voting upon the Merger at
the Stockholders Meeting, the Hearing Materials. Target will promptly provide
all information relating to its business or operations necessary for inclusion
in the Hearing Materials to satisfy all requirements of applicable state and
federal securities laws. Target shall be solely responsible for any statement,
information or omission in the Hearing Materials relating to it or its
affiliates based upon written information furnished by it.
4.16 Preparation of Hearing Materials. As promptly as
practicable after the date hereof (and in any event within 30 days of the date
hereof), Acquirer and Target shall prepare and file with the Commissioner the
Hearing Materials and any other documents required by the California Corporate
Securities Law of 1968, as amended in connection with the Merger. Each of
Acquirer and Target shall use its best efforts to have the Hearing Materials
declared effective under the California Corporate Securities Law of 1968, as
amended, and to have the Permit issued as promptly as practicable after such
filing.
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5. ACQUIRER PRECLOSING COVENANTS
During the period from the date of this Agreement until the
Effective Time, Acquirer covenants to and agrees with Target as follows:
5.1 Access to Information. Until the Closing Date, Acquirer will
allow Target and its agents reasonable access to its management and officers and
material information regarding Acquirer, including without limitation, material
information relating to Acquirer's business and financial condition. Acquirer
will cause its accountants to cooperate with Target's accountants in making
available all financial information reasonably requested to evaluate Acquirer's
financial statements.
5.2 Satisfaction of Conditions Precedent. Acquirer will use all
reasonable best efforts to satisfy or cause to be satisfied all the conditions
precedent which are set forth in Section 7, and Acquirer will use all reasonable
best efforts to cause the transactions provided for in this Agreement to be
consummated, and, without limiting the generality of the foregoing, to obtain
all consents and authorizations of third parties and to make all filings with,
and give all notices to, third parties that may be necessary or reasonably
required on its part in order to effect the transactions provided for herein.
5.3 Regulatory Approvals. Acquirer will execute and file, or join
in the execution and filing, of any application or other document that may be
necessary in order to obtain the authorization, approval or consent of any
governmental body, federal, state, local or foreign, which may be reasonably
required, or which Target may reasonably request, in connection with the
consummation of the transactions provided for in this Agreement. Acquirer will
use reasonable best efforts to obtain all such authorizations, approvals and
consents. Without limiting the generality of the foregoing, Acquirer shall
respond as promptly as practicable to (i) any inquiries or requests for
additional information or documentation received from the California
Commissioner regarding the California Fairness Hearing and (ii) any inquiries or
requests received from any state attorney general or other governmental body in
connection with antitrust or related matters. Acquirer shall (i) give Target
prompt notice of the commencement of any material legal proceeding by or before
any court or other governmental body with respect to the Merger or any of the
other transactions contemplated by this Agreement, (ii) keep Target informed as
to the status of any such legal proceeding and (iii) except as may be prohibited
by any governmental body or by any legal requirement, permit Target to be
present at each meeting or conference relating to any such legal proceeding and
to have access to and be consulted in connection with any document filed with or
provided to any governmental body in connection with any such legal proceeding.
5.4 Cooperation in Obtaining Necessary Consents. Acquirer will
cooperate with Target as reasonably requested by Target in order to assist
Target to obtain such written consents as are contemplated by Section 4.6
hereof.
5.5 Indemnification. From and after the Effective Time, Acquirer
agrees to indemnify and hold harmless each director, officer and employee of
Target, against any costs or expenses (including reasonable attorneys' fees),
judgments, fines, losses, claims, damages or liabilities incurred in connection
with any claim, action, suit, proceeding or investigation, whether civil,
criminal, administrative or investigative, arising out of matters existing or
occurring at or prior to the Effective Time and brought against them related to
actions taken in said capacities with Target,
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asserted or claimed at, prior to or after the Effective Time, to the fullest
extent that Target would have been permitted under its Articles of Incorporation
or Bylaws as in effect on the date hereof to indemnify such person (and in
connection therewith Acquirer shall advance expenses as incurred to the fullest
extent provided for under Acquirer's Certificate of Incorporation and By-Laws as
from time to time in effect, provided the person to whom expenses are advanced
provides an undertaking to repay such advances if it is ultimately determined
that such person is not entitled to indemnification). Target represents that to
Target's knowledge, Target has not received any written claims that could be a
basis for any indemnity claim under this Section 5.5, except as set out in Item
5.5.
5.6 Advice of Changes. Acquirer will promptly advise Target in
writing (a) of any event occurring subsequent to the date of this Agreement that
would render any representation or warranty of Acquirer contained in this
Agreement, if made on or as of the date of such event or the Closing Date,
untrue or inaccurate in any material respect (however, no advisory need be
provided regarding any event or action contemplated or permitted under this
Agreement) and (b) of the occurrence of any Material Adverse Change with respect
to Acquirer.
5.7 Preparation of Hearing Materials. As promptly as practicable
after the date hereof, and in any event no later than 30 days after the date of
this Agreement, Acquirer, with Target's assistance, shall prepare and file with
the Commissioner the Hearing Materials and any other documents required by the
California Corporate Securities Law of 1968, as amended in connection with the
Merger. Acquirer, with Target's assistance, shall use its best efforts to have
the Hearing Materials declared effective under the California Corporate
Securities Law of 1968, as amended, as promptly as practicable after such
filing.
5.8 Listing of Stock. Acquirer shall use its reasonable best
efforts to cause the shares of Acquirer Common Stock to be issued in connection
with the Merger to be approved for listing on the Nasdaq National Market on or
prior to the Closing Date, subject to official notice of issuance.
5.9 Registration Statement on Form S-4. In the event that the
Commissioner does not issue a permit with respect to the exchange of securities
in the Merger as contemplated by Section 1.6 hereof, or if for any reason the
shares of Acquirer Common Stock to be issued in the Merger are not freely
tradable (subject only to the restrictions imposed by SEC Rule 145(d) on former
affiliates of Target and the underwriter lock-up agreement and resale
restriction agreement described in Section 8.12 hereof), Acquirer shall register
the shares of Acquirer Common Stock to be issued in the Merger (along with
certain other business combinations) pursuant to a Registration Statement on
Form S-4 as promptly as practicable. In the event the Acquirer is required to
register the shares of Acquirer Common Stock as set forth in this Section 5.9,
(a) it shall be a condition to each party's obligations hereunder that on or
before the Closing, the SEC shall have declared the Registration Statement
effective and no stop order suspending the effectiveness of the Registration
Statement or any part thereof shall have been issued, (b) notwithstanding
Section 9.1(b) herein, the Final Date (as defined in Section 9.1(b)) shall be
extended to September 30, 2000 and (c) the closing conditions set forth in
Sections 7.6 and 8.4 shall be deemed satisfied upon satisfaction of the new
condition described in clause (a) above.
6. CLOSING MATTERS
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6.1 The Closing. Subject to termination of this Agreement as
provided in Section 9 below, the closing of the transactions provided for herein
(the "Closing") will take place at the offices of Fenwick & West LLP, Two Xxxx
Xxxx Xxxxxx, Xxxx Xxxx, Xxxxxxxxxx 00000 at 10:00 a.m., Pacific Time on the
second business day following the date that all closing conditions are satisfied
(except for closing conditions that are to be satisfied as of the Closing Date,
but subject to the waiver or satisfaction of such conditions) ("Closing Date"),
or, if all other conditions to closing have not been met or waived by such date,
then the Closing will take place at such other place and time as Target and
Acquirer may mutually select. Prior to or concurrently with the Closing, the
Delaware Certificate of Merger and such officers' certificates or other
documents as may be required to effectuate the Merger will be filed in the
offices of the Delaware Secretary of State and the Georgia Articles of Merger
and such officers' certificates or other documents as may be required to
effectuate the Merger will be filed in the office of the Georgia Secretary of
State. Accordingly, the Merger will become effective at the Effective Time.
6.2 Exchange of Certificates.
6.2.1 As of the Effective Time, all shares of Target Stock
that are outstanding immediately prior thereto will, by virtue of the Merger and
without further action, cease to exist, and all such shares will be converted as
of the Effective Time into the right to receive from Acquirer the number of
shares of Acquirer Common Stock as set forth in Section 1.1, subject to Sections
1.2 and 1.3 hereof.
6.2.2 At and after the Effective Time, each certificate
representing outstanding shares of Target Stock will represent the number of
shares of Acquirer Common Stock into which such shares of Target Stock have been
converted, and such shares of Acquirer Common Stock will be deemed registered in
the name of the holder of such certificate. At the Closing or as soon as
practicable after the Effective Time, each holder of shares of Target Stock will
surrender (a) the certificates for such shares (the "Target Certificates") to
Acquirer for cancellation or (b) an affidavit of lost certificate (or non-issued
certificate) with appropriate indemnification (the "Affidavit") in form
reasonably satisfactory to Acquirer together with any indemnity bond required by
Acquirer's transfer agent. Upon receipt of Target Certificates and/or the
Affidavit (or any lost certificate bond, if necessary), Acquirer or its transfer
agent will, promptly following the Effective Time issue (or, in the case of any
shareholders of Target who deliver such items to Acquirer's counsel at least 5
days prior to Closing, Acquirer will use its reasonable best efforts to cause to
be issued at Closing), to such surrendering holder certificate(s) for the number
of shares of Acquirer Common Stock to which such holder is entitled pursuant to
Section 1.1, subject to Section 1.2 hereof, less such holder's pro rata portion
of the Escrow Shares deposited into escrow pursuant to Section 1.3 hereof and
any cash payable under Section 1.2.
6.2.3 All shares of Acquirer Common Stock delivered upon
the surrender of Target Certificates in accordance with the terms hereof will be
delivered to the registered holder or placed in escrow with the Escrow Agent, as
applicable. After the Effective Time, there will be no further registration of
transfers of the shares of Target Stock on the stock transfer books of Target.
If, after the Effective Time, Target Certificates are presented for transfer or
for any other reason, they will be canceled and exchanged and certificates
therefor will be delivered or placed in escrow as provided in this Section 6.2.
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6.2.4 Until Target Certificates representing Target Stock
outstanding prior to the Merger are surrendered pursuant to Section 6.2.2 above,
such certificates will be deemed, for all purposes, to evidence ownership of (a)
the number of shares of Acquirer Common Stock into which the shares of Target
Stock will have been converted as set forth in Section 1.1, subject to the
obligation to place a portion thereof in escrow as required hereby, and as set
forth in Section 1.2 hereof.
6.3 Assumption of Options. Promptly after the Effective Time,
Acquirer will notify in writing each holder of a Target Option of: (i) the
assumption of such Target Option by Acquirer, (ii) the conversion of such Target
Options into Acquirer Options, (iii) the number of shares of Acquirer Common
Stock that are then subject to such Acquirer Option and (iv) the exercise price
of such Acquirer Option, all as determined pursuant to Section 1.1.2 hereof.
7. CONDITIONS TO OBLIGATIONS OF TARGET
Target's obligations hereunder are subject to the fulfillment or
satisfaction, on and as of the Closing, of each of the following conditions (any
one or more of which may be waived by Target):
7.1 Accuracy of Representations and Warranties. The
representations and warranties of Acquirer and Sub set forth in Section 3 shall
be true and correct as of the date of this Agreement and as of the Closing Date
as though made on and as of the Closing Date, except to the extent a
representation or warranty expressly relates to an earlier date (in which case
as of such date), and except to the extent the failure of any such
representation to be true and correct, in the aggregate, would not have a
Material Adverse Effect on Acquirer.
7.2 Covenants. Acquirer shall have performed and complied in all
material respects with all of its covenants contained in Section 5 on or before
the Closing Date, and Target shall have received a certificate to such effect
executed on behalf of Acquirer by its Chief Executive Officer or Chief Financial
Officer.
7.3 Compliance with Law. There shall be no order, decree, or
ruling by any court or governmental agency in effect that would prohibit or
render illegal the transactions contemplated by this Agreement.
7.4 Tax Representations. Officers of Acquirer shall have executed
and delivered the Officers' Certificate containing representations regarding Tax
matters in substantially the form attached hereto as Exhibit 7.4.
7.5 Offer Letters. Acquirer shall have executed copies of offer
letters in favor of Xxxxx Xxxxxxx, Xxx Xxxxxxxx and Xxxxx Xxxxxxxx in
substantially the form of Exhibit 7.5.
7.6 California Fairness Hearing. The fairness hearing
contemplated by Section 1.6 shall have taken place in compliance with Section
3(a)(10) of the Securities Act and the Commissioner shall have issued a permit
in conjunction with the Merger such that the provisions of Section 3(a)(10) of
the Securities Act shall be applicable to the issuance of shares of Acquirer
Common Stock in the Merger and such shares of Acquirer Common Stock shall be
freely tradable subject only to the restrictions imposed by SEC Rule 145(d) on
former affiliates of Target and the underwriter lock-up agreement and resale
restriction agreement described in Section 8.12 hereof.
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7.7 Registration Rights. Acquirer shall have granted to Target
Shareholders piggyback registration rights (including on a requested
registration, but with no right to initiate same), and Form S-3 registration
rights, substantially identical to those now held by former holders of Acquirer
Series A-D Preferred Stock as set forth in Acquirer's existing Second Amended
Investors' Rights Agreement attached hereto as Exhibit 7.7; provided, however,
that such rights shall be subordinate to the rights of former holders of
Acquirer Series E Preferred Stock and a previously identified potential
corporate partner as to both requested and piggyback registrations.
7.8 Absence of Material Adverse Change. Since September 30, 1999,
there shall not have been any Material Adverse Change with respect to Acquirer,
provided that this Section 7.8 shall be a closing condition only if Target does
not breach this Agreement.
7.9 No Litigation. No litigation or proceeding shall be
threatened or pending which will have the probable effect of enjoining or
preventing the consummation of any of the transactions provided for in this
Agreement or which have had or could reasonably be expected to have Material
Adverse Effect on Acquirer.
7.10 Tax Opinion. Target shall have received from counsel to
Target an opinion that the Merger qualifies as a reorganization for purposes of
Section 368 of the Code.
8. CONDITIONS TO OBLIGATIONS OF ACQUIRER
The obligations of Acquirer hereunder are subject to the
fulfillment or satisfaction on, and as of the Closing, of each of the following
conditions (any one or more of which may be waived by Acquirer):
8.1 Accuracy of Representations and Warranties. The
representations and warranties of Target set forth in Section 2 shall be true
and correct as of the date of this Agreement and as of the Closing Date as
though made on and as of the Closing Date, except to the extent a representation
or warranty expressly relates to an earlier date (in which case as of such
date), and except to the extent the failure of any such representation to be
true and correct, in the aggregate, would not have a Material Adverse Effect on
Target.
8.2 Covenants. Target shall have performed and complied in all
material respects with all of its covenants contained in Section 4 on or before
the Closing and Acquirer shall have received a certificate to such effect signed
on behalf of Target by its Chief Executive Officer and its Chief Administrative
Officer.
8.3 Compliance with Law. There shall be no order, decree, or
ruling by any court or governmental agency in effect that would prohibit or
render illegal the transactions provided for in this Agreement.
8.4 California Fairness Hearing. The fairness hearing
contemplated by Section 1.6 shall have taken place in compliance with Section
3(a)(10) of the Securities Act and the California Commissioner shall have issued
a permit in conjunction with the Merger such that the provisions of Section
3(a)(10) of the Securities Act shall be applicable to the issuance of shares of
Acquirer Common Stock in the Merger.
35
8.5 Consents. Acquirer shall have received all written consents,
assignments, waivers, authorizations or other certificates necessary to provide
for the continuation in full force and effect of any and all contracts and
leases of Target which if not continued would have a Material Adverse Effect on
Target.
8.6 Absence of Material Adverse Change. Since the Latest Balance
Sheet Date, there shall not have been any Material Adverse Change with respect
to Target.
8.7 Requisite Approvals. The principal terms of this Agreement
shall have been approved and adopted by Target Shareholders and the holders of
the Target Preferred Stock, with such Class and/or Series votes as are required
by applicable law and Target's Articles of Incorporation and Bylaws, and by
Target's Board of Directors.
8.8 No Litigation. No litigation or proceeding shall be
threatened or pending which will have the probable effect of enjoining or
preventing the consummation of any of the transactions provided for in this
Agreement or which have had or could reasonably be expected to have Material
Adverse Effect on Target.
8.9 Escrow. Acquirer shall have received the Escrow Agreement,
executed by the Representative of Target Shareholders and the Escrow Agent,
which agreement provides for the escrow of the Escrow Shares on the terms and
conditions of the Escrow Agreement.
8.10 Tax Representations. Officers of Target shall have executed
and delivered the Officers' Certificate containing representations regarding tax
matters in substantially the form attached hereto as Exhibit 8.10.
8.11 Dissenting Shares. The Dissenting Shares shall not
constitute more than 5% of the total number of shares of Target Stock
outstanding immediately prior to the Effective Time.
8.12 Offer Letter; Underwriters Lock Up; Employee/Shareholder
Resale Restrictions. Acquirer shall have received copies of offer letters in
substantially the form of Exhibit 7.5 executed by Xxxxx Xxxxxxx, Xxx Xxxxxxxx
and Xxxxx Xxxxxxxx. Acquirer shall also have received from all shareholders and
optionholders of Target an executed copy of the Lock Up agreement imposed by
Acquirer's Underwriters in connection with Acquirer's initial public offering,
which is attached as Exhibit 8.12 and which imposes a 180-day lock up expiring
on July 24, 2000. Acquirer shall also have received from each employee of Target
who is also a shareholder of Target an agreement, in substantially the form of
Exhibit 8.12A, imposing on 75% of the shares of Acquirer stock received by such
person in the Merger certain resale restrictions.
8.13 Noncompete Agreements. Acquirer shall have received executed
copies of Noncompete Agreements in the form of Exhibit 8.13 from each of Xxxxx
Xxxxxxx, Xxx Xxxxxxxx and Xxxxx Xxxxxxxx.
8.14 Shareholder Approval. The principal terms of this Agreement
shall have been approved and adopted by Target Shareholders, as required by
applicable law and Target's Articles of Incorporation and Bylaws.
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8.15 Waiver of Option Acceleration. Any rights to accelerate
vesting of Target Options shall have been waived prior to the Effective Time.
8.16 Amendment of Target Charter; Preferred Consent. Prior to
Closing, each of the holders of Target Preferred Stock shall have agreed in
writing that treatment of the Preferred Stock in the manner provided for in this
Agreement constitutes satisfaction in full of all rights of such holders as
against Target or Acquirer, and the Articles of Incorporation of Target shall
have been amended to provide that the treatment of the Preferred Stock shall be
as contemplated in Section 1.1 hereof.
8.17 Termination of Rights. Except as otherwise provided in this
Agreement, any registration rights or rights of refusal of any Target
Shareholder, including the Shareholder Agreement and the Registration Rights
Agreement, each dated November 11, 1999 and to which Target is a party, shall
have been terminated or waived as of the Closing.
9. TERMINATION OF AGREEMENT
9.1 Termination. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after approval of the Merger by
the Target Shareholders:
(a) by the mutual written consent of Acquirer and Target;
(b) Subject to Section 5.9, notice by either party, if the
Merger shall not have been consummated by July 15, 2000 (the "Final Date") other
than as the result of a breach of this Agreement by the terminating party;
(c) by Target, if there has been a breach by Acquirer of
any representation, warranty, covenant or agreement set forth in this Agreement
on the part of Acquirer which has or can reasonably be expected to have a
Material Adverse Effect on Acquirer and which Acquirer fails to cure within a
reasonable time, not to exceed thirty (30) days, after written notice thereof
(except that no cure period will be provided for a breach by Acquirer which by
its nature cannot be cured);
(d) by Acquirer, if there has been a breach by Target of
any representation, warranty, covenant or agreement set forth in this Agreement
on the part of Target which has or can reasonably be expected to have a Material
Adverse Effect on Target and which Target fails to cure within a reasonable time
not to exceed thirty (30) days after written notice thereof (except that no cure
period will be provided for a breach by Target which by its nature cannot be
cured);
(e) by Acquirer, if the Required Vote is not obtained to
approve the Merger at or by virtue of the Shareholders' Meeting or if the
Shareholders' Meeting is for any reason not held within 30 days of the effective
date of the permit issued following the California Fairness Hearing; or
(f) by either party, if a permanent injunction or other
order by any federal or state court which would make illegal or otherwise
restrain or prohibit the consummation of the Merger will have been issued and
will have become final and nonappealable.
(g) by Acquirer if Target commits a material breach of any
of its obligations
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in Section 4.8 or Section 4.14 hereof.
Any termination of this Agreement under this Section 9.1 will be
effective by the delivery of written notice of the terminating party to the
other party hereto.
9.2 Certain Continuing Obligations. Following any termination of
this Agreement pursuant to this Section 9, the parties hereto will continue to
perform their respective obligations under Section 11 but will not be required
to continue to perform their other covenants under this Agreement. No
termination of this Agreement shall relieve any party of any liability or
damages resulting from any material breach by that party of this Agreement.
10. SURVIVAL OF REPRESENTATIONS, INDEMNIFICATION AND REMEDIES,
CONTINUING COVENANTS
10.1 Survival of Representations.
10.1.1 Representations of Target. All representations,
warranties and covenants of Target contained in this Agreement will remain
operative and in full force and effect after the Closing regardless of any
investigation made by or on behalf of the parties to this Agreement and shall
expire on the first anniversary of the Closing. No claim for indemnification or
breach of representations, warranties or covenants shall be made unless Acquirer
gives written notice to the Representative (as defined below) in reasonable
detail specifying the Claim (as hereinafter defined) on or prior to the first
anniversary of the Closing Date.
Except for the obligations of Target under Section 11, the
representations, warranties and covenants of Target contained in this Agreement
will terminate as of the termination of this Agreement in accordance with its
terms.
10.1.2 Representations of Acquirer. All representations
and warranties of Acquirer contained in this Agreement will expire at Closing.
All covenants will survive the Closing. Except for the obligations of Acquirer
under Section 11, the representations, warranties and covenants of Acquirer
contained in this Agreement will terminate as of termination of this Agreement
in accordance with its terms.
10.2 Agreement to Indemnify.
10.2.1 Indemnification by Target. Subject to the
limitations set forth in this Section 10.2, from and after the Effective Time,
Acquirer and its respective officers, directors, agents and employees, and each
person, if any, who controls or may control Acquirer within the meaning of the
Securities Act (hereinafter in this Section 10.2 referred to individually as an
"Acquirer Indemnified Person" and collectively as "Acquirer Indemnified
Persons") shall be indemnified and held harmless from and against any and all
claims, demands, actions, causes of action, losses, costs, damages, liabilities
and expenses including, without limitation, reasonable legal fees (collectively,
"Claims"):
(a) Arising out of any breach by Target of the
representations, warranties or covenants given or made by Target in this
Agreement;
(b) any and all actions, suits, claims or legal,
administrative, arbitrative, governmental or other proceedings or investigations
against any Acquirer Indemnified Person arising out of such breach.
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10.2.2 Time and Value Limitations. The provisions of this
Section 10.2 shall apply notwithstanding anything to the contrary in the Escrow
Agreement. With respect to any Claim, the indemnification provided for in this
Section 10.2 shall not apply unless the recipient of notice of any Claim gives
written notice to the Representative with respect to such Claim on or prior to
the first anniversary of the Agreement Date. The indemnification provided for in
this Section 10.2 shall not apply unless the aggregate Claims for which one or
more Acquirer Indemnified Persons seeks indemnification exceeds $250,000 (the
"Basket"), after which recovery shall be from the first dollar without regard to
the Basket. The amount of any loss for which indemnification is provided
hereunder shall be net of any insurance proceeds received by Acquirer in
reimbursement of any Claim. Escrow Shares shall be valued for the purposes of
satisfying Claims at the average closing price of Acquirer Common Stock on the
ten trading days ending on the Closing Date.
10.2.3 Exclusive Remedy. The sole and exclusive remedy of
the Acquirer Indemnified Persons for misrepresentation or breach of or default
in connection with any of the representations, warranties or covenants given by
Target pursuant hereto or for any other indemnity claims under this Section 10.2
or relating to this Agreement shall be to exercise their rights to recover,
under and pursuant to the Escrow Agreement, Escrow Shares and any other
securities deposited in escrow pursuant to the Escrow Agreement and no Target
Shareholder shall be personally liable with respect thereto, other than to the
extent of such shareholder' proportionate interest in the Escrow Shares and any
other securities deposited under the Escrow Agreement.
10.2.4 Survival of Claims. Notwithstanding anything to the
contrary, if, prior to the expiration of a particular representation or
warranty, an Acquirer Indemnified Person makes a claim for indemnification under
either this Agreement or the Escrow Agreement with respect to a
misrepresentation or breach of such representation or warranty, then such
Indemnified Person's rights to indemnification under this Section 10.2 for such
claim shall survive any expiration of such representation or warranty.
11. MISCELLANEOUS
11.1 Governing Law. Except to the extent that the corporate
aspects of the Merger and the corporate approvals thereof are governed by the
Delaware Law or Georgia Law, the internal laws of the State of California
(irrespective of its choice of law principles) will govern the validity of this
Agreement, the construction of its terms, and the interpretation and enforcement
of the rights and duties of the parties hereto.
11.2 Assignment; Binding Upon Successors and Assigns. No party
hereto may assign any of its rights or obligations hereunder without the prior
written consent of the other party hereto. This Agreement will be binding upon
and inure to the benefit of the parties hereto and their respective successors
and permitted assigns.
11.3 Severability. If any provision of this Agreement, or the
application thereof, is for any reason held to any extent to be invalid or
unenforceable, the remainder of this Agreement and 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
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 the void or unenforceable provision.
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11.4 Counterparts. This Agreement may be executed in
counterparts, each of which will be an original as regards any party whose name
appears thereon and all of which together will constitute one and the same
instrument. This Agreement will become binding when one or more counterparts
hereof, individually or taken together, bear the signatures of all parties
reflected hereon as signatories.
11.5 Amendment and Waivers. Any term or provision of this
Agreement may be amended, and the observance of any term of this Agreement may
be waived (either generally or in a particular instance and either retroactively
or prospectively), only by a writing signed by the party to be bound thereby.
The waiver by a party of any breach hereof or default in the performance hereof
will not be deemed to constitute a waiver of any other default or any succeeding
breach or default. This Agreement may be amended by the parties hereto at any
time before or after approval of Target Shareholders.
11.6 No Waiver. The failure of any party to enforce any of the
provisions hereof will not be construed to be a waiver of the right of such
party thereafter to enforce such provisions. The waiver by any party of the
right to enforce any of the provisions hereof on any occasion will not be
construed to be a waiver of the right of such party to enforce such provision on
any other occasion.
11.7 Notices. Any notice or other communication required or
permitted to be given under this Agreement will be in writing, will be delivered
personally or by mail or express delivery, postage prepaid, and will be deemed
given upon actual delivery or, if mailed by registered or certified mail, on the
third business day following deposit in the mails, addressed as follows:
(i) If to Acquirer:
Xxxxxxxx.xxx, Inc.
0000-0 Xxxxx Xxxxxxxxx
Xxxxx Xxxxx, XX 00000
Attention: Xxxxxxxxx X. Xxxxxxxxxx, CFO
Phone: (000) 000-0000
Fax: (000) 000-0000
40
with a copy to:
Fenwick & West LLP
Xxx Xxxx Xxxx Xxxxxx
Xxxx Xxxx, XX 00000
Attention: Xxxxx X. Xxxxx, Esq.
Phone: (000) 000-0000
Fax: (000) 000-0000
xxxxxx@xxxxxxx.xxx
(ii) If to Target:
EquipMD, Inc.
0000 Xxxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, XX 00000
Xxxxx X. Xxxxxxx, President and Chief Executive
Officer and Xxxx X. Xxxxxxx, Assistant Secretary
Phone: (000) 000-0000
Fax: (000) 000-0000
with a copy to:
Weil, Gotshal & Xxxxxx LLP
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxx X. Xxxxx, Esq.
Phone: (000) 000-0000
Fax: (000) 000-0000
xxxxxxx.xxxxx@xxxx.xxx
or to such other address as the party in question may have furnished to the
other party by written notice given in accordance with this Section 11.9.
11.8 Construction of Agreement. The language hereof will not be
construed for or against any party based solely on that party being the drafting
party. A reference to an article, section or exhibit will mean an article or
section in, or an exhibit to, this Agreement, unless otherwise explicitly set
forth. The titles and headings in this Agreement are for reference purposes only
and will not in any manner limit the construction of this Agreement. For the
purposes of such construction, this Agreement will be considered as a whole.
11.9 No Joint Venture. Nothing contained in this Agreement will
be deemed or construed as creating a joint venture or partnership between the
parties hereto. No party is by virtue of this Agreement authorized as an agent,
employee or legal representative of any other party. No party will have the
power to control the activities and operations of any other, and the parties'
status is, and at all times, will continue to be, that of independent
contractors with respect to each other. No party will have any power or
authority to bind or commit any other. No party will hold itself out as having
any authority or relationship in contravention of this Section.
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11.10 Further Assurances. Each party agrees to cooperate fully
with the other party and to execute such further instruments, documents and
agreements and to give such further written assurances as may be reasonably
requested by the other party to evidence and reflect the transactions provided
for herein and to carry into effect the intent of this Agreement.
11.11 Public Announcement. Acquirer and Target will issue a press
release approved by both parties announcing the Merger as soon as practicable
following the execution of this Agreement. Acquirer may issue such press
releases, and make such other disclosures regarding the Merger, as it determines
to be required or appropriate after reasonable consultation, where possible,
with Target. Target will not make any other public announcement or disclosure of
the transactions contemplated by this Agreement.
11.12 Time is of the Essence. The parties hereto acknowledge and
agree that time is of the essence in connection with the execution, delivery and
performance of this Agreement.
11.13 Material Adverse Effect" and "Material Adverse Change" For
purposes of this Agreement, the terms "Material Adverse Effect" and "Material
Adverse Change" mean or refer to, with respect to any entity, any adverse
change, circumstance or effect that, individually or in the aggregate with all
other adverse changes, circumstances and effects, is or is reasonably likely to
be materially adverse to the financial condition, properties, assets,
liabilities, business, or operating results of such entity, and its subsidiaries
if any, taken as a whole, except (i) that a change in the market price of a
company's Common Stock shall not, in and of itself, be deemed a "Material
Adverse Effect" or to have resulted in a "Material Adverse Change" with respect
to such company and (ii) that a "Material Adverse Effect" or a "Material Adverse
Change" with respect to a company shall not include any adverse change,
circumstance or effect (a) resulting from or relating to general business,
economic or industry conditions; (b) relating to or resulting directly from the
announcement or implementation of the transactions contemplated by this
Agreement; (c) relating to any other acquisition or investment made by Acquirer
after the date of this Agreement; or (d) to any changes in Target's business
after the date hereof attributable to the actions taken by Acquirer.
11.14 "Person" shall mean any individual, Entity or Governmental
Body. "Entity" shall mean any corporation (including any non-profit
corporation), general partnership, limited partnership, limited liability
partnership, joint venture, estate, trust, company (including any limited
liability company or joint stock company), firm or other enterprise,
association, organization or entity. "Governmental Body" shall mean any: (a)
nation, state, commonwealth, province, territory, county, municipality, district
or other jurisdiction of any nature; (b) federal, state, local, municipal,
foreign or other government; or (c) governmental or quasi-governmental authority
of any nature (including any governmental division, department, agency,
commission, instrumentality, official, organization, unit, body or Entity and
any court or other tribunal).
11.15 Expenses. Each party will bear its respective expenses and
fees of its own accountants, attorneys, investment bankers and other
professionals incurred with respect to this Agreement and the transactions
contemplated hereby; provided that in the event of Closing Acquirer shall pay
the investment banking, accounting and attorneys' fees and expenses incurred by
Target as disclosed in Item 11.15.
11.16 Absence of Third Party Beneficiary Rights. No provisions of
this Agreement are intended, nor will be interpreted, to provide or create any
third party beneficiary rights or any other
42
rights of any kind in any client, customer, affiliate, partner or employee of
any party hereto or any other person or entity, except as specifically otherwise
provided to be for the benefit of officers, directors, employees or shareholders
of Target in Sections 1.1 (as to holders of Target Stock), 1.7 (last sentence)
as to shareholders, 4.13 (as to employees), 5.5 (as to officers, directors and
10% shareholders), and, except as so provided, all provisions hereof will be
personal solely between the parties to this Agreement.
11.17 Entire Agreement. This Agreement and the exhibits hereto
constitute the entire understanding and agreement of the parties hereto with
respect to the subject matter hereof and supersede all prior and contemporaneous
agreements or understandings, inducements or conditions, express or implied,
written or oral, between the parties with respect to the subject matter hereof.
The express terms hereof control and supersede any course of performance or
usage of trade inconsistent with any of the terms hereof.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
ACQUIRER TARGET
XXXXXXXX.XXX, INC. EQUIPMD, INC.
By: By:
------------------------------- -------------------------------
Xxxxxx X. Xxxxxxx, Xxxxx X. Xxxxxxx
CEO & President President & CEO
SUB
AUGUSTACORP, INC.
By:
-------------------------------
Xxxxxxxxx X. Xxxxxxxxxx
President and Secretary
SIGNATURE PAGE TO
AGREEMENT AND PLAN OF MERGER
