MERGER AGREEMENT
DATED AS OF DECEMBER 21, 1995
AMONG RADIUS INC.,
SPLASH TECHNOLOGY, INC.,
SUMMIT SUBORDINATED DEBT FUND, L.P.,
SUMMIT VENTURES IV, L.P.,
SUMMIT INVESTORS II, L.P.,
SPLASH TECHNOLOGY HOLDINGS, INC.
AND
SPLASH MERGER COMPANY, INC.
TABLE OF CONTENTS
PAGE
ARTICLE I
THE MERGER; EXCHANGE OF SECURITIES. . . . . . . . . . . . . . . . . . . . 2
1.1 CONTRIBUTION OF CSG ASSETS TO COMPANY. . . . . . . . . . . . . . . . 2
1.2 THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.3 CONVERSION OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . 3
1.4 THE CLOSING OF THE MERGER. . . . . . . . . . . . . . . . . . . . . . 3
1.5 POST-CLOSING CONTRIBUTION BY SELLER. . . . . . . . . . . . . . . . . 4
ARTICLE II
REPRESENTATIONS AND WARRANTIES OFTHE INVESTORS, HOLDCO AND HOLDCO SUB . . 5
2.1 HOLDCO AND HOLDCO SUB. . . . . . . . . . . . . . . . . . . . . . . . 5
2.2 INVESTOR AUTHORIZATION . . . . . . . . . . . . . . . . . . . . . . . 7
2.3 FINDERS OR BROKERS . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER AND COMPANY. . . . . . . . . . . 8
3.1 REPRESENTATIONS AND WARRANTIES OF THE SELLER AND THE COMPANY . . . . 8
ARTICLE IV
CONDITIONS PRECEDENT TO THE OBLIGATIONS . . . . . . . . . . . . . . . . .20
4.1 REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . .20
4.2 ABSENCE OF LITIGATION. . . . . . . . . . . . . . . . . . . . . . . .20
4.3 PERFORMANCE OF OBLIGATIONS . . . . . . . . . . . . . . . . . . . . .20
4.4 DOCUMENTATION AT CLOSING . . . . . . . . . . . . . . . . . . . . . .20
4.5 MATERIAL ADVERSE CHANGE. . . . . . . . . . . . . . . . . . . . . . .23
4.6 CONDUCT OF BUSINESS; REVENUES. . . . . . . . . . . . . . . . . . . .23
4.7 CONSENTS, WAIVERS, ETC.. . . . . . . . . . . . . . . . . . . . . . .23
4.8 ACCOUNTING REVIEW. . . . . . . . . . . . . . . . . . . . . . . . . .24
4.9 PERFORMANCE UNDER RESTRICTED STOCK PURCHASE AGREEMENT. . . . . . . .24
4.10 XXXX-XXXXX-XXXXXX WAITING PERIOD . . . . . . . . . . . . . . . . . .24
4.11 ASSETS TRANSFER. . . . . . . . . . . . . . . . . . . . . . . . . . .24
4.12 ELECTION UNDER SECTION 338(H)(10). . . . . . . . . . . . . . . . . .24
4.13 NUBUS EQUIPPED COMPUTERS.. . . . . . . . . . . . . . . . . . . . . .25
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ARTICLE V
CONDITIONS PRECEDENT TO SELLER'S AND COMPANY'S OBLIGATIONS. . . . . . . .25
5.1 REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . .25
5.2 ABSENCE OF LITIGATION. . . . . . . . . . . . . . . . . . . . . . . .25
5.3 PERFORMANCE OF OBLIGATIONS . . . . . . . . . . . . . . . . . . . . .25
5.4 FAIRNESS OPINION . . . . . . . . . . . . . . . . . . . . . . . . . .25
5.5 CONSENTS, WAIVERS, ETC.. . . . . . . . . . . . . . . . . . . . . . .25
5.6 BOARD OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . .26
5.7 HOLDCO CASH. . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
5.8 XXXX-XXXXX XXXXXX WAITING PERIOD . . . . . . . . . . . . . . . . . .26
5.9 DOCUMENTATION AT CLOSING . . . . . . . . . . . . . . . . . . . . . .26
5.10 PERFORMANCE UNDER RESTRICTED STOCK PURCHASE AGREEMENT. . . . . . . .28
ARTICLE VI
POST-CLOSING COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . .28
6.1 AFFIRMATIVE COVENANTS OF HOLDCO OTHER THAN REPORTING REQUIREMENTS. .28
6.2 NEGATIVE COVENANTS OF HOLDCO . . . . . . . . . . . . . . . . . . . .30
6.3 REPORTING REQUIREMENTS OF HOLDCO . . . . . . . . . . . . . . . . . .32
6.4 CONFIDENTIALITY. . . . . . . . . . . . . . . . . . . . . . . . . . .33
6.5 COVENANTS OF SELLER. . . . . . . . . . . . . . . . . . . . . . . . .34
ARTICLE VII
OBLIGATIONS PENDING THE CLOSING . . . . . . . . . . . . . . . . . . . . .35
7.1 ACCESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35
7.2 CONDUCT OF COMPANY'S BUSINESS. . . . . . . . . . . . . . . . . . . .36
7.3 CONSENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38
7.4 NOTICE OF BREACH . . . . . . . . . . . . . . . . . . . . . . . . . .38
7.5 SELLER AND INVESTORS AS STOCKHOLDERS . . . . . . . . . . . . . . . .39
7.6 RETENTION OF CSG EARNINGS. . . . . . . . . . . . . . . . . . . . . .39
ARTICLE VIII
OBLIGATIONS AT OR PRIOR TO THE CLOSING. . . . . . . . . . . . . . . . . .40
8.1 EXCLUSIVITY/OTHER OFFERS . . . . . . . . . . . . . . . . . . . . . .40
8.2 OTHER DELIVERIES . . . . . . . . . . . . . . . . . . . . . . . . . .40
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ARTICLE IXNATURE AND SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS . .41
9.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . .41
ARTICLE XINDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . .41
10.1 INDEMNIFICATION BY THE SELLER FOR BREACH OF THIS AGREEMENT . . . . .41
10.2 INDEMNIFICATION BY THE SELLER FOR EFI LITIGATION . . . . . . . . . .41
10.3 CLAIMS FOR INDEMNIFICATION OF INVESTORS. . . . . . . . . . . . . . .42
10.4 DEFENSE BY SELLER. . . . . . . . . . . . . . . . . . . . . . . . . .42
10.5 TIME LIMITATION ON INDEMNIFICATION OF INVESTORS, HOLDCO AND COMPANY.43
10.6 MONETARY LIMITATION ON INDEMNIFICATION OF INVESTORS, HOLDCO AND
COMPANY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43
10.7 DAMAGES TO INVESTORS . . . . . . . . . . . . . . . . . . . . . . . .43
10.8 NO WAIVER BY INVESTORS, HOLDCO AND COMPANY. . . . . . . . . . . . .44
10.9 MATERIALITY. . . . . . . . . . . . . . . . . . . . . . . . . . . .44
10.10 INDEMNIFICATION BY HOLDCO AND INVESTORS. . . . . . . . . . . . . . .44
10.11 CLAIMS FOR INDEMNIFICATION OF SELLER . . . . . . . . . . . . . . . .44
10.12 DEFENSE BY HOLDCO AND INVESTORS. . . . . . . . . . . . . . . . . . .44
10.13 TIME LIMITATION ON INDEMNIFICATION OF SELLER . . . . . . . . . . . .45
10.14 MONETARY LIMITATION ON INDEMNIFICATION OF SELLER . . . . . . . . . .45
10.15 NO WAIVER BY SELLER. . . . . . . . . . . . . . . . . . . . . . . . .45
ARTICLE XIDEFINITIONS AND ACCOUNTING TERMS . . . . . . . . . . . . . . . . . .46
11.1 CERTAIN DEFINED TERMS. . . . . . . . . . . . . . . . . . . . . . . .46
11.2 ACCOUNTING TERMS . . . . . . . . . . . . . . . . . . . . . . . . . .52
ARTICLE XIIMISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . .52
12.1 NO WAIVER; CUMULATIVE REMEDIES . . . . . . . . . . . . . . . . . . .52
12.2 TERMINATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . .52
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12.3 AMENDMENTS, WAIVERS AND CONSENTS. . . . . . . . . . . . . . . . . .52
12.4 ADDRESSES FOR NOTICES, ETC. . . . . . . . . . . . . . . . . . . . .53
12.5 COSTS, EXPENSES AND TAXES . . . . . . . . . . . . . . . . . . . . .54
12.6 BINDING EFFECT; ASSIGNMENT. . . . . . . . . . . . . . . . . . . . .54
12.7 PRIOR AGREEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . .54
12.8 SEVERABILITY. . . . . . . . . . . . . . . . . . . . . . . . . . . .54
12.9 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . .54
12.10 HEADINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .54
12.11 COUNTERPARTS. . . . . . . . . . . . . . . . . . . . . . . . . . . .54
12.12 FURTHER ASSURANCES. . . . . . . . . . . . . . . . . . . . . . . . .54
12.13 CONFIDENTIALITY . . . . . . . . . . . . . . . . . . . . . . . . . .55
12.14 PRESS RELEASE . . . . . . . . . . . . . . . . . . . . . . . . . . .55
12.15 INDEMNIFIED PARTIES. . . . . . . . . . . . . . . . . . . . . . . .55
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EXHIBITS
EXHIBIT
EXHIBIT NAME NUMBER
------------ --------
CSG Assets 1.1A
Company Certificate of Incorporation 1.1B
Company By-Laws 1.1C
Assumed Liabilities 1.1D
Holdco Certificate of Incorporation 2.1A
Holdco By-Laws 2.1B
Form of Subordinated Note 2.1C
Invention Assignment and Non-Disclosure Agreement 4.4A
Registration Rights Agreement 4.4B
Stockholders Agreement 4.4C
Consents and Waivers for CSG Asset Transfer 4.7
Projected CSG Financial Statements 7.6
Restricted GAAP Principles 11.0
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MERGER AGREEMENT
THIS MERGER AGREEMENT (the "Agreement") is made and entered into as of
December 21, 1995, by and among RADIUS INC., a California corporation (the
"Seller"), SPLASH TECHNOLOGY, INC., a Delaware corporation (the "Company"),
SPLASH TECHNOLOGY HOLDINGS, INC., a Delaware corporation ("Holdco"), SPLASH
MERGER COMPANY, INC., a Delaware corporation, ("Holdco Sub") and the
entities listed as Investors on the signature page(s) hereof (the
"Investors").
RECITALS
A. The Seller currently operates a Color Server Group ("CSG") which
is engaged in the business of the design, manufacture and sale of color
servers for the color printing market, which such color servers are
comprised of computer software, computer hardware, hardware interfaces to
computers and color photocopying, scanning and printing devices, and the
integration of such elements with computers, computer networks, software
and color photocopying, scanning and printing devices.
B. Immediately prior to the Merger described below, Seller shall
contribute the assets and certain liabilities of CSG to the Company, which
shall be a wholly-owned subsidiary of Seller. Immediately prior to the
closing of the Merger described below, all of Holdco's capital stock shall
be held by the Investors and Holdco Sub shall be a wholly-owned subsidiary
of Holdco.
C. Immediately following the transfer of the assets and certain
liabilities of CSG to the Company described above, Holdco Sub shall merge
into and with the Company, with the Company surviving, and the Seller shall
receive from Holdco Series B Redeemable and Convertible Preferred Stock,
par value $0.001, of the Company ("Series B Preferred Stock") convertible
into approximately 19.9% of Holdco Common Stock (post-closing and without
considering dilution by management options) and $21,945,175 in cash. Prior
to such Merger, the management of the Company shall have purchased
approximately 6.1% of Holdco Common Stock (post-closing and without
considering dilution by management options) from Holdco pursuant to a
Restricted Stock Purchase Agreement, thus leaving approximately 74% of
Holdco Common Stock (post-closing and without considering dilution by
management options) in the hands of the Investors.
D. The respective boards of directors and stockholders of Holdco Sub
and the Company have approved the merger (the "Merger") of Holdco Sub into
and with the Company pursuant to the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual promises and agreements
herein, and subject to the terms and conditions hereinafter set forth, the
parties hereby agree as follows:
ARTICLE I
THE MERGER; EXCHANGE OF SECURITIES
1.1 CONTRIBUTION OF CSG ASSETS TO COMPANY. Immediately prior to the
Effective Time (as hereinafter defined), the Seller shall transfer, assign
and deliver to the Company, and the Company shall accept and receive from
the Seller, all right, title and interest of the Seller, free and clear of
all Liens, other than as specified on Exhibit 1.1A or in the Disclosure
Letter (as hereinafter defined), in and to those tangible and intangible
rights, properties and assets set forth on Exhibit 1.1A hereto (the
"Assets"). Immediately prior to the Effective Time, the Certificate of
Incorporation of the Company shall be in the form of Exhibit 1.1B hereto,
and the By-Laws of the Company shall be in the form of Exhibit 1.1C hereto.
The Company shall assume from the Seller all of its obligations under the
contracts, commitments and undertakings which are specifically identified
on Exhibit 1.1A as Contracts (the "Contracts"). Other than the Company's
obligations under the Contracts, the Company shall assume and agree to
perform or discharge, when and as due, only those obligations, claims and
liabilities described on Exhibit 1.1D hereto (the "Assumed Liabilities").
Exhibit 1.1D sets forth all employees and consultants of the Seller that
are realted to CSG and the Business and who will become employees and
consultants of the Company. As part of the same transaction, the Company
and the Seller shall enter into a Corporate Services Agreement mutually
agreeable in form and substance to the Seller and the Investors. Such
Corporate Services Agreement shall specify that the Seller provide the
Company with certain tax, accounting, legal, logistics, shipping,
receiving, storage, warehousing, inventory management, transportation,
repair, field support, maintenance, purchasing, payroll, information
services, human resources and other services (consistent with Past
Practices and the provision of all services and other items provided by the
Seller to CSG immediately prior to the date hereof) for a period extending
for 3 months after the date of the Closing. The consideration to be
provided by the Company shall be based on the level of use of services and
market rates for similar services. Such Corporate Services Agreement shall
allow for termination by the Company with respect to any services or part
thereof upon 30 days prior notice to the Seller. Holdco shall use
reasonable efforts to become independent of the Seller with respect to such
services within 30 days of the Closing. The Corporate Services Agreement
also will provide for payment of consideration to the Seller for such
services, if any, provided by the Seller to CSG from January 1, 1996 to the
date of the Closing, to the extent that the Seller was not compensated for
such services previously. Further, as part of the same transaction, the
Company and the Seller shall enter into a Sub-Lease mutually agreeable in
form and substance to the Seller and the Investors. Such Sub-Lease shall
specify that the Seller provide the Company with rental of the real
property owned or leased by the Seller that is to be occupied by the
Company for a period extending for 3 months after the date of the Closing.
The consideration to be provided by the Company shall be based on the
amount of rental space actually occupied by the Company and the rent paid
by the Seller for such rental space. Such Sub-Lease shall allow for
termination by the Company with respect to any rental space or part thereof
upon 30 days prior notice to the Seller. The Sub-Lease also will provide
for payment of consideration to the Seller for such rental space, if any,
provided by the Seller to CSG from January 1, 1996 to the date of the
Closing, to the extent that the Seller was not compensated for such rental
previously. In addition, as part of the same transaction, the Company and
the Seller shall have entered into a Trademark License Agreement, mutually
agreeable in form and substance to the Seller and the Investors, which
shall permit the Company to use certain Seller trademarks that have been
and are expected to be used in the Business for a period
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extending 18 months after the date of the Closing. Such Trademark License
Agreement shall be in full force and effect and binding upon the parties
thereto. Any sales, use or transfer Taxes or permit or license transfer
fees and expenses relating to the transfer of the Assets from the Seller to
the Company or otherwise due as a result of the transactions contemplated
by this Agreement shall be paid by the Seller.
1.2 THE MERGER.
(a) SURVIVING CORPORATION. Subject to the conditions contained
herein and in accordance with the provisions of this Agreement and the
DGCL, at the Effective Time (as hereinafter defined), Holdco Sub shall be
merged with and into the Company, which, as the corporation surviving in
the Merger (the "Surviving Corporation"), shall continue unaffected and
unimpaired by the Merger to exist under and be governed by the laws of the
State of Delaware. At the Effective Time, the separate existence of Holdco
Sub shall cease except to the extent provided by law in the case of a
corporation after its merger into another corporation.
(b) EFFECTS OF THE MERGER. The Merger shall have the effects
set forth in Sections 259 through 261 of the DGCL.
(c) CERTIFICATE OF INCORPORATION, BY-LAWS, OFFICERS AND
DIRECTORS. The Certificate of Incorporation and By-Laws of the Company, as
in effect immediately prior to the Effective Time, shall continue in full
force and effect as the Certificate of Incorporation and By-Laws of the
Surviving Corporation. The initial board of directors of the Surviving
Corporation shall consist of the initial directors of Holdco Sub and the
initial officers of the surviving corporation shall be as mutually agreed
to by the Seller and the Investors, who all shall serve until their
respective successors are duly elected and qualified.
1.3 CONVERSION OF SHARES. As of the Effective Time, by virtue of the
Merger and without any action on the part of the Seller as the sole
stockholder of the Company or Holdco as the sole stockholder of Holdco Sub:
(a) Each share of common stock, par value of $0.001, of the
Company (the "Company Common Stock") outstanding immediately prior to the
Effective Time shall be converted into (i) 4.282 shares of Series B
Preferred Stock and (ii) the right to receive $21,945.175, payable by wire
transfer of federal clearing house funds.
(b) Each share of the common stock, par value $0.001, of Holdco
Sub (the "Holdco Sub Common Stock") outstanding immediately prior to the
Effective Time shall be converted into one share of Company Common Stock.
1.4 THE CLOSING OF THE MERGER. The closing of the Merger (the
"Closing") shall be held at the office of Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx,
P.C., 000 Xxxx Xxxx Xxxx, Xxxx Xxxx, Xxxxxxxxxx 00000-0000, on such date
and at such time as may be mutually agreed upon, but on or prior to January
31, 1996, unless the parties agree otherwise. At the Closing, subject to
the fulfillment or waiver of the conditions
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set forth in Articles IV and V hereof, (a) the parties shall cause the
Merger to be consummated by the filing of a certificate of merger, executed
and acknowledged in accordance with the DGCL, with the Secretary of State
of Delaware, (b) the Seller shall deliver, assign, convey and transfer each
share of Company Common Stock to Holdco, (c) Holdco shall deliver, assign,
convey and transfer to the Seller the shares of Series B Preferred Stock
that the Seller is entitled to pursuant to Section 1.3 hereof, and (d)
Holdco shall transfer to the Seller (or an agent of the Seller, if
previously designated in writing by the Seller) by wire of federal clearing
house funds to such account or accounts as shall have been previously
designated in writing by the Seller, the amount of cash (the "Cash Purchase
Price") that the Seller is entitled to pursuant to Section 1.3 hereof;
PROVIDED that an amount equal to $4,700,000 shall be wired to the escrow
account subject to the Escrow Agreement referred to in Section 4.4(h)
rather than directly to an account of the Seller. The date and time of the
effectiveness of the Merger pursuant to the DGCL shall be herein called the
"Effective Time."
1.5 POST-CLOSING CONTRIBUTION BY SELLER.
(a) DELIVERY OF YEAR-END BALANCE SHEET. As soon as practicable
(but in no event later than 60 days) after the date of the Closing, the
Investors shall deliver to the Seller a balance sheet for the Company,
prepared by the Investors' Accountants at the expense of Holdco, as of the
close of business on December 31, 1995 (the "Year-End Balance Sheet") that
is prepared in accordance with Restricted GAAP and, to the extent in
accordance with Restricted GAAP, on a consistent basis with the Interim
Balance Sheet.
(b) REVIEW BY SELLER; DISPUTE RESOLUTION.
(i) Promptly following receipt of the Year-End Balance
Sheet, Seller and Seller's Accountants may review the same and, within 30
days after the date of such receipt, may deliver to the Investors a
certificate signed by a duly authorized officer of the Seller setting forth
its objections to the Year-End Balance Sheet (set forth in reasonable
detail), together with a summary of the reasons therefor and calculations
and modifications which, in its view, are necessary to eliminate such
objections. In the event the Seller does not so object within such 30-day
period, the Year-End Balance Sheet shall be final and binding for the
purposes of this Agreement.
(ii) In the event the Seller so objects within such 30-day
period, then the Seller and the Investors shall jointly select a national
accounting firm acceptable to each of the Seller and the Investors (or if
they cannot agree on such selection, a national "big-six" accounting firm
will be selected by lot after eliminating the Seller's Accountants and the
Investors' Accountants) and the firm so selected (the "Additional
Accounting Firm") shall be directed by the Seller and the Investors to
conduct a review of the objections of the Seller to the Year-End Balance
Sheet as promptly as reasonably practicable (and the Seller and the
Investors shall use reasonable efforts to allow and cause the Additional
Accounting Firm to conduct such review as promptly as reasonably
practicable) and, upon completion of such review, to deliver written notice
to each of the Seller and the Investors setting forth a summary of all
adjustments to the Year-End Balance Sheet determined necessary by the
Additional Accounting Firm to resolve the objections of the Seller to the
Year-End Balance Sheet (such written notice and related summary being
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herein called the "Additional Report"). The Year-End Balance Sheet as
adjusted by any adjustments as set forth in the Additional Report shall be
final and binding, for purposes of this Agreement.
(iii) Each of the Seller, the Investors, the Seller's
Accountants and the Investors' Accountants and, if applicable, the
Additional Accounting Firm, shall promptly make available to any of the
foregoing Persons such books, records and other information (including work
papers) as may be reasonably requested by any such Person to audit or
review the Year-End Balance Sheet or any objections thereto. The fees and
expenses of the Investors' Accountants related to its services under
Section 1.5(a) shall be paid by Holdco, the fees and expenses of the
Investors' Accountants related to its services under Section 1.5(b) shall
be paid by the Investors, the fees and expenses of the Seller's Accountants
related to its services under this Section 1.5 shall be paid by Seller and
the fees and expenses, if applicable, of the Additional Accounting Firm
related to its services under this Section 1.5 shall be paid 50% by the
Seller and 50% by the Investors.
(c) CONTRIBUTION BY SELLER. If the Working Capital of the
Business and the Company as of the date of the Closing as reported in the
final and binding Year-End Balance Sheet, is less than negative $554,825,
then within five (5) days of the date that the Year-End Balance Sheet
becomes final and binding in accordance with Section 1.5(b), the Seller
shall pay to the Company by wire transfer of federal clearing house funds
the amount by which such Working Capital is less than negative $554,825.
If Seller does not pay any amounts due under this Section in accordance
with the terms of this Section, then the Company, Holdco and the Investors
shall receive indemnification from the Seller in accordance with Article X
and, at their sole election, shall receive payments for such amounts from
the escrow fund described in Section 4.4(h).
(d) PAYMENT BY THE COMPANY. If the Working Capital of the
Business and the Company as of the date of the Closing as reported in the
final and binding Year-End Balance Sheet, is greater than negative
$554,825, then within five (5) days of the date that the Year-End Balance
Sheet becomes final and binding in accordance with Section 1.5(b), the
Company shall pay to the Seller by wire transfer of federal clearing house
funds the amount by which such Working Capital is greater than negative
$554,825; provided that, in any event, such payment by the Company to the
Seller shall not exceed $1,554,825. If Company does not pay all amounts
due under this Section in accordance with the terms of this Section, then
the Seller shall receive indemnification from the Investors, Holdco and the
Company in accordance with Article X hereof.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF
THE INVESTORS, HOLDCO AND HOLDCO SUB
2.1 HOLDCO AND HOLDCO SUB. Holdco, Holdco Sub and each Investor,
jointly and severally, represent and warrant to the Seller and the Company
that (as of the date hereof, as of the date of the Closing and as of the
Effective Time):
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(a) ORGANIZATION AND UNDERSTANDING. Each of Holdco and Holdco
Sub is a duly organized and validly existing corporation in good standing
under the laws the State of Delaware. The Certificate of Incorporation and
the By-Laws of Holdco are in the form of Exhibit 2.1A and 2.1B,
respectively.
(b) CORPORATE ACTION. Holdco has all necessary corporate power
and authority and have taken all corporate action required to make all the
provisions of this Agreement, and any other agreements and instruments
executed in connection herewith, the valid and enforceable obligations of
Holdco. Holdco Sub has all necessary corporate power and authority and has
taken all corporate action required to make all the provisions of this
Agreement, and any other agreements and instruments executed in connection
herewith, the valid and enforceable obligations of the Holdco Sub.
(c) CAPITALIZATION. Immediately prior to the Effective Time,
the authorized capital stock of Holdco shall consist of 10,000,000 shares
of common stock, par value $0.001, of Holdco ("Holdco Common Stock"),
2,002,500 shares of which shall be outstanding and issued, 15,426 shares of
Series A Redeemable Preferred Stock, par value $0.001, of Holdco ("Series A
Preferred Stock"), 15,426 shares of which shall be outstanding and issued,
and 4,282 shares of Series B Preferred Stock, none of which shares shall be
issued and outstanding. Immediately prior to the Effective Time, all such
issued shares shall be validly issued, fully paid and non-assessable and
free and clear of all Liens. Immediately prior to the Effective Time, there
will be no options, warrants or rights to purchase shares of capital stock
or other securities authorized, issued or outstanding, nor will Holdco be
obligated in any other manner to issue shares of its capital stock or other
securities. None of the Investors has, and as of the Closing none of them
shall have, granted or sold, and none of the Investors is, or at the time
of Closing neither will be, a party to any agreement, commitment or
understanding, written or oral, providing for the grant or sale of, options
or other rights to purchase or restricting the transfer of, and none of
them is, and at the Closing none will be, obligated to sell or otherwise
transfer, any of securities or capital stock of Holdco to any person or
entity. Immediately prior to the Effective Time, there shall be sufficient
authorized but unissued shares of Holdco Common Stock reserved for issuance
to Seller upon conversion of all shares of Series B Preferred Stock then
held by the Seller into shares of Holdco Common Stock pursuant to the terms
of Holdco's Certificate of Incorporation. Immediately prior to the
Effective Time, the 4,282 shares of Series B Preferred Stock to be issued
to the Seller shall be convertible into 497,465 shares of Holdco Common
Stock (approximately 19.9% of the issued and outstanding Holdco Common
Stock), which shares have been reserved for issuance pursuant to the terms
of the Certificate of Incorporation of Holdco. When issued to the Seller,
the 4,282 shares of Series B Preferred Stock will be validly issued, fully
paid and non-assessable, and free and clear of all Liens and will be issued
in accordance with the registration and qualification requirements of
federal and any applicable state securities laws. The authorized capital
stock of Holdco Sub consists of 1,000 shares of Holdco Sub Common Stock,
1,000 shares of which are outstanding and issued to Holdco. Immediately
prior to the Effective Time, Investors shall be the owners of 1,850,000
shares of Holdco Common Stock, 15,426 shares of Series A Preferred Stock
and certain Subordinated Notes of Holdco having a face value of $8,000,000
(the "Subordinated Notes," together with such shares of Series A Preferred
Stock held by the Investors and the shares of Series B Preferred Stock to
be received by the Seller pursuant to the Merger, are sometimes
collectively referred to as the "Securities") substantially in the form in
Exhibit 2.1C. Immediately prior to the Effective Time, members of the
management of the Company
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shall be the owners of 152,500 shares of Holdco Common Stock, which shares
will have been purchased pursuant to the Restricted Stock Purchase
Agreement referenced in Sections 5.9(h) and 5.10 hereof, assuming delivery,
execution and performance thereunder by the management of the Company of
such Restricted Stock Purchase Agreement and satisfaction of the conditions
specified in Sections 5.9(h) and 5.10 hereof.
(d) GOVERNMENT APPROVAL. No authorization, consent, approval,
permits, licenses, exemption of or filing or registration with any court or
governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, is or will be necessary for, or in
connection with the execution or delivery by the Investors, Holdco or
Holdco Sub of, or for the performance by the Investors, Holdco or Holdco
Sub of their obligations under this Agreement except for filings to be
made, if any to comply with exemptions from registration or qualification
under federal and state security laws and the expiration of any applicable
waiting period pursuant to the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act
of 1976, as amended.
(e) LIABILITIES. Neither Holdco nor Holdco Sub has any material
Liabilities, except as contemplated herein.
2.2 INVESTOR AUTHORIZATION. Each Investor further represents that:
(a) Each Investor has duly authorized, executed and delivered
this Agreement and any other agreements and instruments executed in
connection herewith and has all necessary power and authority to do so.
(b) This Agreement and such other agreements and instruments
constitute the valid and binding obligations of each Investor, enforceable
against it in accordance with their respective terms, and all such action
to make such agreements so has been taken.
(c) No consent or approval of any Person is required in
connection with the execution, delivery and performance of this Agreement
and such other agreements and instruments by each Investor which has not
heretofore been obtained.
(d) Execution and performance of this Agreement shall not result
in a material default of other agreements or instruments or any Law by any
Investor.
2.3 FINDERS OR BROKERS. Each Investor, Holdco and Holdco Sub
represent that no Person has or will have, as a result of the transactions
contemplated by this Agreement, any right, interest or valid claim upon or
against the Company, Holdco or the Seller for any commission, fee or other
compensation as a finder or broker because of any act or omission by such
Investor, Holdco or Holdco Sub, and each Investor agrees to indemnify and
hold the Seller and the Company harmless against any such commissions, fees
or other compensation.
ARTICLE III
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REPRESENTATIONS AND WARRANTIES OF SELLER AND COMPANY
3.1 REPRESENTATIONS AND WARRANTIES OF THE SELLER AND THE COMPANY.
Except as disclosed in a letter delivered by the Company to the Seller
prior to the date hereof (the "Disclosure Letter," which Disclosure Letter
shall, when qualifying a representation or warranty, refer specifically to
the Section number herein of the representation or warranty so qualified),
the Seller and the Company, jointly and severally, represent and warrant to
the Investors that (as of the date hereof, as of the date of the Closing,
and as of the Effective Time):
(a) ORGANIZATION AND STANDING. Each of the Seller and the
Company is a duly organized and validly existing corporation in good
standing under the laws of the jurisdiction in which it is organized and
has all requisite corporate power and authority for the ownership and
operation of its properties and for the carrying on its business,
including, without limitation, the Business as now conducted by CSG and as
now proposed to be conducted by the Company. The Seller, in relation to
CSG and the operation of the Assets, is, and the Company is, or will be as
of the Closing, duly qualified and in good standing as a foreign
corporation authorized to do business in all jurisdictions in which the
character of the property owned or leased, or the nature of the activities
conducted, by it makes such qualification necessary other than where
failure to so qualify would not have a material adverse effect upon CSG,
the Business, the Company or the Assets.
(b) CORPORATE ACTION. The Seller has all necessary corporate
power and authority and has taken all corporate action required to make all
the provisions of this Agreement, and any other agreements and instruments
executed by it in connection herewith, the valid and enforceable
obligations of the Seller. The Company has all necessary corporate power
and authority and has taken all corporate action required to make all the
provisions of this Agreement, and any other agreements and instruments
executed by it in connection herewith the valid and enforceable obligations
of the Company.
(c) GOVERNMENTAL APPROVAL. No authorization, consent, approval,
permits, licenses, exemption of or filing or registration with any court or
governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, is or will be necessary for, or in
connection with the execution or delivery by the Seller or the Company of,
or for the performance by the Seller or the Company of their obligations
under this Agreement except for filings to be made, if any, to comply with
exemptions from registration or qualification under federal and state
securities laws and the expiration of any applicable waiting period
pursuant to the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976, as
amended.
(d) LITIGATION. There is no litigation or governmental
proceeding or investigation pending or, to the best knowledge of the Seller
and the Company, threatened against the Seller, the Company or the Assets
affecting any of the Assets or the Business, or, to the best knowledge of
the Seller or the Company, pending or threatened against any officer or key
employee of the Seller whose duties relate to the Business, or the Company
that might reasonably be expected to result, either in any case or in the
aggregate, in any material adverse change in the business, operations,
affairs or conditions of CSG, the Company, the Business, or the Assets
taken as a whole, or that might reasonably be expected to call into
question the validity of this Agreement or any action taken or to be taken
pursuant hereto.
-8-
(e) COMPLIANCE WITH OTHER INSTRUMENTS. The Seller and the
Company are in compliance (i) in all respects with the terms and provisions
of their certificate or articles of incorporation or bylaws, (ii) in all
respects with the terms and provisions of each mortgage, indenture, lease,
agreement and other instrument relating to obligations of the Seller with
respect to CSG and the Company in excess of $50,000 individually or
$100,000 in the aggregate, and, (iii) with all international, foreign,
federal, state or local judgments, decrees, governmental orders, statutes,
rules, regulations, permits or licenses by which either the Company or the
Seller (with respect to CSG, the Assets or the Business) is bound or to
which the Assets are subject that, in the case of any of clauses (ii) or
(iii) the default or violation of which might have a material adverse
effect on the Business, the Assets, the Company or CSG or that might
reasonably be expected to call into question the validity of this
Agreement, or any action taken or to be taken pursuant hereto. There is no
term or provision in any of the foregoing documents and instruments and
judgments, orders, statutes, rules, regulations, permits or licenses that
materially adversely affects the Business, the Assets, or the financial
condition of CSG or the Company. Neither the execution and delivery of
this Agreement nor the consummation of any transaction contemplated hereby,
has constituted or resulted in or will constitute or result in a material
violation of any term or provision in the certificate or articles of
incorporation or bylaws of the Seller or the Company or has constituted or
resulted in a material default or violation of any term or provision in any
document or instrument to which they are subject.
(f) NO BROKERS OR FINDERS. No Person has or will have, as a
result of the transactions contemplated by this Agreement, any right,
interest or valid claim upon or against the Investors, the Company or
Holdco for any commission, fee or other compensation or as a finder or
broker because of any act or omission by the Seller or the Company or, to
the knowledge of the Seller and the Company, by any other Person.
(g) CAPITALIZATION; STATUS OF CAPITAL STOCK. Immediately
preceding the Effective Time, the Company will have a total authorized
capitalization consisting of 1,000 shares of Company Common Stock, of which
1,000 shares will be issued to the Seller and outstanding. There will be
no options, warrants or rights to purchase shares of capital stock or other
securities authorized, issued or outstanding, nor will the Company be
obligated in any other manner to issue shares of its capital stock or other
securities. Neither of the Seller or the Company, and as of the Closing
neither of them shall have, granted or sold, and neither of the Seller or
the Company is, or at the time of Closing neither will be, a party to any
agreement, commitment or understanding, written or oral, providing for the
grant or sale of, options or other rights to purchase or restricting the
transfer of, and neither of them is, and at the Closing neither will be,
obligated to sell or otherwise transfer, any of securities or capital stock
of the Company to any person or entity except to Holdco pursuant to this
Agreement.
(h) FINANCIAL STATEMENTS. The unaudited pro forma, after giving
effect to the transfer of the Assets to the Company and the assumption by
the Company of the Contracts and the Assumed Liabilities, income statement
of CSG and the Company for the year ended September 30, 1995 (the
"Financial Statements"), and the unaudited pro forma balance sheet of CSG
and the Company as of December 8, 1995 (the "Interim Balance Sheet"),
copies of which Financial Statements and Interim Balance Sheet, along with
any officers reports, have heretofore been delivered to Investors and are
attached to the Disclosure Letter, were prepared in accordance with GAAP
throughout the periods
-9-
involved, and, to the extent consistent with GAAP, in accordance with the
Past Practice, subject to normal year-end adjustments with respect to the
Interim Balance Sheet, and fairly present the financial position and
results of operations of CSG, and on a pro forma basis, the Company for the
periods covered. Notwithstanding the foregoing, the Interim Balance Sheet
was prepared in accordance with Restricted GAAP and fairly presents, as of
its date, the Working Capital of CSG, the Company and the Business,
including all liabilites of CSG, the Company and the Business. The
unaudited income statements and cash flow statements have been presented on
a pro forma basis to reflect recurring results of the Business on a
stand-alone basis. All pro forma adjustments to the Financial Statements
and Interim Balance Sheet are set forth in the Disclosure Letter. The
balance sheets within the Financial Statements and Interim Balance Sheet
reflect all of the assets and liabilities which are necessary to conduct,
operate and maintain the Business, and the related income statements
originated from the books, records and accounts of the Seller and the
Company described in Section 3.1(j).
(i) INVENTORY. Except as would not have a material adverse
effect on the Business, the Assets, the Company or CSG, all inventory of
the Seller and the Company used in the conduct of the Business, including,
without limitation, raw materials, work-in-process and finished goods,
reflected on the Interim Balance Sheet or acquired since the date thereof
was acquired and has been maintained in the ordinary course of the Business
consistent with Past Practice, is of good and merchantable quality,
consists substantially of a quality, quantity and condition usable,
leasable or saleable in the ordinary course of the Business, is valued at
reasonable amounts based on the ordinary course of the Business during the
past six months, and is not subject to any material write-down or write-off
in excess of the inventory reserves set forth on the Interim Balance Sheet.
Neither the Seller nor the Company is under any liability or obligation
with respect to the return of the inventory used in the conduct of the
Business in the possession of wholesalers, retailers or other customers.
(j) BOOKS OF ACCOUNT. The books, records and accounts of the
Seller and the Company maintained with respect to the Business accurately
and fairly reflect, in reasonable detail and in all material respects, the
transactions and the assets and liabilities of the Seller and the Company
related to the Business and being transferred to the Company in accordance
with Section 1.1 hereof.
(k) ACCOUNTS RECEIVABLE. The accounts receivable of the Seller
and the Company arising from the Business as set forth on the Interim
Balance Sheet or arising since the date thereof are valid and genuine, have
arisen solely out of bona fide sales and deliveries of goods, performance
of services and other business transactions in the ordinary course of
business consistent with Past Practice and, to the best knowledge of the
Seller and the Company, are not subject to valid defenses, set-offs or
counterclaims. The allowance for doubtful accounts has been determined in
accordance with Restricted GAAP and, to the extent consistent with
Restricted GAAP, in accordance with the Past Practice. The Disclosure
Letter provides true and complete information with respect to the accounts
receivable of the Seller with respect to the Business as of December 8,
1995. All of the accounts receivable included in the Assets (i) have
arisen in the normal course of business, (ii) represent bona fide
indebtedness incurred by the applicable account debtors in the stated
amounts reflected on the books of Seller, subject to collection and (iii)
will be subject on the date of the Closing, to the best knowledge of the
Seller and the Company, to no prior assignment, lien, set-off or security
interest. To the best of Seller's and the Company's knowledge, such
accounts are not, and as of the date of the Closing will not be, (i) owed
by
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a person or entity that has sought the protection of any bankruptcy or
insolvency laws, or (ii) the subject of any dispute as to payment.
(l) SEC DOCUMENTS; FINANCIAL STATEMENTS. The Seller has
furnished to the Investors a true and complete copy of each statement,
report, registration statement, definitive proxy statement and other filing
filed with the Securities and Exchange Commission ("SEC") pursuant to the
Exchange Act by Seller since September 30, 1992, and, prior to the
Effective Time, the Seller will have furnished the Investors with true and
complete copies of any additional documents filed with the SEC by the
Seller prior to the Effective Time (collectively, the "Seller SEC
Documents"). In addition, the Seller has made available to the Investors
all exhibits to the Seller SEC Documents filed prior to the date hereof,
and will promptly make available to the Investors all exhibits to any
additional Seller SEC Documents filed or incorporated by reference prior to
the Effective Time, in each case limited to those exhibits which relate to
or otherwise affect the Assets and the Business. All documents required to
be filed as exhibits to the Seller SEC Documents and which relate to or
otherwise affect the Assets or the Business have been so filed. As of
their respective filing dates, the Seller SEC Documents complied in all
material respects as to form with the requirements of the Exchange Act and
the Securities Act, and as of their respective filing dates, none of the
Seller SEC Documents contain or contained any untrue statement of a
material fact, or omit or omitted to state a material fact required to be
stated therein or necessary to make the statements made therein relating to
CSG, the Assets or the Business, in light of the circumstances in which
they were made, not misleading, except to the extent corrected by a
subsequently filed Seller SEC Document. The financial statements,
including the notes thereto, of Seller that relate in any way to CSG, the
Assets or the Business included in the Seller SEC Documents (the "Seller
Financial Statements") were and are complete and correct in all material
respects as of their respective dates, complied as to form in all material
respects with applicable accounting requirements and with the published
rules and regulations of the SEC with respect thereto as of their
respective dates, and have been prepared in accordance with GAAP applied on
a basis consistent throughout the periods indicated and consistent with
each other (except as may be indicated in the notes thereto or, in the case
of unaudited statements included in Quarterly Reports on Form 10-Qs, as
permitted by Form 10-Q of the SEC). The Seller Financial Statements fairly
present the consolidated financial condition and operating results of the
Seller and its subsidiaries with respect to CSG and the Business at the
dates and during the periods indicated therein (subject, in the case of
unaudited statements, to normal, recurring year-end adjustments). There
has been no change in the Seller accounting policies with respect to CSG,
the Assets, or the Business except as described in the notes to the Seller
Financial Statements.
(m) ABSENCE OF CHANGES. Since December 8, 1995 there has not
been any event, occurrence, circumstance, state of facts or condition of
any type, whether or not in the ordinary course of business and whether or
not covered by insurance, that has materially and adversely affected, or
might reasonably be expected to materially and adversely effect, the
Business, the Assets, or the business, properties, Prospects, or financial
condition of CSG or the Company, taken as a whole, except for any change
resulting from general economic conditions.
(n) GOOD AND MARKETABLE TITLE. Each of the Seller, in relation
to the Business, CSG and the Assets (as of the date hereof) has, and the
Company (as of the date of the Closing) will have, good and marketable
title to, or a valid leasehold interest in, the Assets, free and clear of
all Liens and
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Claims and have the right to use all the Assets in the operation of the
Business, or that CSG used in the operation of the Business immediately
prior to the transactions contemplated by Section 1.1 hereof. The Assets
are in all material respects in good condition and repair, ordinary wear
and tear excepted, and are in operating condition for the purpose for which
they are currently being used. The Seller has, and, as of the Closing, the
Company will have, legal rights to all of the intangible Assets, including
the Contracts, free and clear of any Lien.
(o) SUBSIDIARIES. The Company does not control, directly or
indirectly, any other corporation, association, partnership, limited
liability company or other business entity or own any shares of capital
stock or other securities of any other Person. The Company has no
subsidiaries.
(p) TAXES AND TAX RETURNS.
(i) (A) the Seller and the Company have duly filed all Tax
Returns which are required by law to be filed by them; (B) the Company and
the Seller, in relation to CSG and the operation of the Business and the
Assets, have duly paid all Taxes due from them (whether or not shown on any
Tax Return), and there are no assessments or claims for payment of Taxes
now pending or, to the best knowledge of the Seller and the Company,
threatened, nor is there any audit of the records of the Company or the
Seller, in relation to CSG and operation of the Business and the Assets,
being made or, to the best knowledge of the Company and the Seller,
threatened by any taxing authority; (C) to the best knowledge of the
Company, there are no facts or circumstances which could reasonably be
expected to constitute a valid basis for assessments or claims for the
payment of additional Taxes with respect to such Tax Returns; (D) each Tax
Return of the Company and the Seller, in relation to CSG and the operation
of the Business and the Assets, previously filed, or to be filed in the
future relating to any period up to the date of Closing, is or will be (as
the case may be) correct and complete in all material respects; and (E) the
Company and the Seller, in relation to CSG and the operation of the
Business and the Assets, are not currently the beneficiary of any extension
of time within which to file any Tax Return. The amounts set up as
provisions for Taxes, if any, on the pro forma September 30, 1995 and
December 8, 1995 balance sheets of the Company included in the Financial
Statements and Interim Balance Sheet are sufficient for the payment of all
unpaid Taxes of the Company accrued for or applicable to the periods ended
on such date and all years and periods prior thereto and for which the
Company or the Seller in relation to CSG and operation of the Business and
the Assets, at those dates, may have been or is liable. The Company and
the Seller, in relation to CSG and the operation of the Business and the
Assets, have properly withheld and paid, or accrued for payment, when due,
to appropriate state and/or federal authorities, all sales and use taxes,
if any, and all amounts required to be withheld from payments made to its
employees, independent contractors, creditors, stockholders, shareholders
or other third parties and has also paid all employment taxes as required
under applicable laws.
(ii) The Company and the Seller, in relation to CSG, the
Business and the operation of the Assets, have not waived any statute of
limitation in respect of any Taxes or assessments by any federal, state,
county, local, foreign or other taxing jurisdiction or agreed to any
extension of time with respect to an assessment or deficiency in any Tax.
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(iii) The Company has not made any payments, and is not
obligated to make any payments, nor is the Company a party to any agreement
that under any circumstances could obligate it to make any payments, that
would not be deductible under Section 280G of the Code. The Company has
not been a United States real property holding corporation within the
meaning of Section 897(c)(2) of the Code during the applicable period
specified in Section 897(c)(1)(a)(ii) of the Code. The Company is not a
party to any tax allocation or tax sharing agreement.
(iv) The Company (A) is not and never has been required to
file a consolidated or combined state or federal income Tax Return with any
other person or entity and (B) is not liable for the Taxes of any person
under Treas. Reg. Section 1. 1502-6 (or any similar provision of state,
local, or foreign law), as a transferee or successor, by contract or
otherwise.
(v) There are no Tax Liens (other than any Lien for current
Taxes not yet due and payable) on any of the Assets. Neither the Company
nor Holdco has or will become liable for any Taxes of CSG, the Seller or
any present or former Affiliate of Seller as a result of the consummation
of the transactions contemplated by this Agreement.
(vi) Seller shall treat the transfer of the Assets described
in Section 1.1 hereof as a taxable transaction for federal and state income
tax purposes.
(q) INSURANCE. Included in the Disclosure Letter is a complete
list of all insurance policies currently maintained by the Company or by
the Seller on behalf of CSG or the Company and in effect, and, with respect
to each of such policies, a general description of the risks covered and
claims insured; copies of all of such policies have been furnished or made
available to Investors.
(r) CERTAIN TRANSACTIONS. The Company is not indebted, either
directly or indirectly, to any of the officers, directors, or stockholders
of the Company, or, to their respective spouses or children, in any amount
whatsoever, other than for payment of salary for services rendered and
reasonable expenses, and none of said officers, directors, stockholders or
any members of their immediate families, are indebted to the Company. To
the best knowledge of the Seller and the Company, no officer, director or
stockholder of the Company has any direct or indirect ownership interest in
(other than ownership interests of one percent (1%) or less in companies
whose securities are publicly traded), or any contractual relationship
with, any firm, corporation or other Person with which the Company is
Affiliated or with which the Company has a business relationship, or any
firm, corporation or other Person which competes with the Company. To the
best knowledge of the Seller and the Company, no officer, director or
stockholder or shareholder (with respect to the Seller, only if such
shareholder holds greater than 1% of the Seller's voting securities) of the
Seller or the Company, or any member of their immediate families, are a
party to or otherwise an interested party with respect to any material
contract with the Company.
(s) CONTRACTS AND COMMITMENTS.
(i) Except as expressly contemplated by this Agreement,
neither the Seller, in relation to CSG, the Assets or the Business, nor the
Company is and will be, as of the Closing, a party to, or bound by, any
currently effective and executory written or oral:
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(A) collective bargaining agreement with any labor union;
(B) contract for the employment of any officer,
individual employee, or other person or entity on a full-time, part-time,
consulting or other basis which, in any way, restricts or limits its right
to terminate such contract at will (other than the existence of any law,
public policy, or any oral discussions, or oral statements of policy which
might, under current law, be interpreted as imposing upon the Company any
covenant of good faith and fair dealing, or otherwise generally restrict
the Company's ability to terminate its employees other than on an "at-will"
basis or within sixty (60) days following delivery of such notice);
(C) agreement or indenture relating to the borrowing
of money in excess of $50,000 (in aggregate) or to the mortgaging,
pledging, transfer of a security interest, or otherwise placing a Lien on
any Asset or on any material asset or material group of assets of the
Company or the Seller, in relation to CSG, the Assets or the Business;
(D) guarantee of any obligation in excess of $50,000
(in aggregate);
(E) lease or agreement under which it is the lessee of
or holds or operates any property, real or personal, owned by any other
party other than leases or agreements under which the aggregate annual
rental payments of the Company or the Seller, in relation to CSG, the
Assets or the Business, do not, in the aggregate, exceed $25,000;
(F) agreement or group of related agreements with the
same party or any group of parties who, to the best knowledge of the Seller
and the Company, are Affiliated, which requires an aggregate payment by or
to the Company or the Seller, in relation to CSG, the Assets or the
Business, in an amount in excess of (x) with respect to purchase or sales
orders in the ordinary course of business, $25,000, and (y) with respect to
any other contracts, $50,000;
(G) warranty agreement of the Company or the Seller,
in relation to CSG, the Assets or the Business, with respect to services
provided or products sold, licensed or leased by the Company or the Seller,
in relation to CSG, the Assets or the Business, as seller, licensor or
lessor;
(H) contract or agreement prohibiting it from freely
engaging in any business or competing anywhere in the world;
(I) agreement which has not been fully performed and
involves consideration in excess of $25,000 which in the best judgment of
the Seller or the Company is material to the Business;
(J) Contract; or
(K) instrument, document, or written agreement
relating to any of the Assumed Liabilities and to which the Seller or the
Company is a party.
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(ii) The Seller, in relation to CSG, the Business and the
Assets, and the Company have performed in all material respects all
obligations required to be performed by them and are not in material
default under, or in material breach of, or after due inquiry by the
officers of the Seller and the Company, in receipt of any claim of default
under or breach of, any material agreement, all of which are described in
the Disclosure Letter, to which any of them are a party or to which the
Assets are subject; the Seller and the Company have no present expectation
or intention of not fully performing all such obligations; the Seller in
relation to CSG, the Business and the Assets, and the Company do not have
any knowledge of any material breach or anticipatory breach by the other
parties to any material contract or commitment, all of which are described
in the Disclosure Letter, to which it is a party or to which any of CSG or
the Assets are subject; and neither the Seller, in relation to CSG, the
Business and the Assets, nor the Company is a party to any contract or
contracts which, either individually or in the aggregate, are reasonably
likely to result in a material loss to CSG, the Business or the Company.
There are no warranty claims or other uninsured claims under completed
contracts with respect to the Business which might involve a material
monetary liability which is not reserved against in the Financial
Statements.
(iii) To the best knowledge of the Seller and the Company, no
officer of the Company is a party to any oral or written contract which
prohibits, or materially restricts or limits, or will prohibit or
materially restrict or limit his performance of his duties or the
fulfillment of his obligations as an employee and an officer of the Company.
(iv) a true and correct copy of each of the written
contracts and other documents and a description of the oral contracts which
are referred to in the Disclosure Letter, together with any amendments or
written waivers thereto, have been supplied to the Investors' counsel,
Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx, P.C.
(t) ERISA.
(i) The Company does not and has not at any time maintained
any employee benefit plan (as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")), bonus, stock
option, stock purchase, incentive, deferred compensation, supplemental
retirement, severance and other similar fringe or benefit plans, programs
or arrangements (collectively, the "Employee Plans"). Other than as shown
in the Disclosure Letter, neither Seller with respect to the Business nor
any ERISA Affiliate of Seller maintains or has at any time maintained any
Employee Plan for the benefit of any active, retired or former employee of
the Business or their spouses or dependents. For purposes of this
Agreement, the term "ERISA Affiliate" shall refer to all members of the
group consisting of all corporations and all trades or businesses (whether
or not incorporated) under common control with the Seller and/or the
Company within the meaning of Section 414 of the Code.
(ii) No Employee Plan maintained by the Seller or any ERISA
Affiliate of Seller is subject to either Title IV of ERISA or Section 412
of the Code, and no such Employee Plan which is subject to such provisions
has been terminated within the last six years. No Employee Plan of Seller
with respect to the Business or any ERISA Affiliate of Seller has been
administered in
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violation of any of the health care continuation coverage requirements of
the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA"). Each
Employee Plan of Seller with respect to the Business or any ERISA Affiliate
of Seller intended to be qualified under Section 401(a) of the Code has
either obtained a current favorable determination letter as to its
qualified status (including its compliance with the Tax Reform Act of 1986)
from the Internal Revenue Service or still has a remaining period of time
under applicable Treasury Regulations in which to apply for such
determination letter and make amendments necessary to obtain a favorable
determination. To the best knowledge of the Seller, there are no pending
or anticipated claims (other than claims for benefits incurred in the
ordinary course of plan adminstration) or suits brought by or on behalf of
any of the employees of the Business against or otherwise involving
Seller's Employee Plans, and no event has occurred that would likely lead
to any such claims or suits. All contributions, premiums or other payments
due from the Company to (or under) any such Employee Plan have been fully
paid or adequately provided for on the Company's most recent financial
statements.
(u) INTELLECTUAL PROPERTY.
(i) The Disclosure Letter contains a list and description
(showing in each case any product, device, process, service, business or
publication covered thereby, the registered or other owner, expiration date
and number, if any) of all Copyrights, Patent Rights and Trademarks
(including all assumed or fictitious names under which the Seller or the
Company is conducting the Business) owned by, licensed to or used by the
Seller or the Company that are material to the conduct of the Business.
(ii) The Disclosure Letter contains a list and description
(showing in each case any owner, licensor or licensee) of all Software
owned by, licensed to or used by the Seller or the Company that is material
to the conduct of the Business other than "off the shelf" Software obtained
for less than $5,000 individually which are subject to shrink wrap licenses.
(iii) The Disclosure Letter contains a list and description
(showing in each case the parties thereto) of all agreements, contracts,
licenses, sublicenses and assignments which relate to (A) any Copyrights,
Patent Rights or Trademarks listed in the Disclosure Letter, (B) any Trade
Secrets owned by, licensed to or used by the Seller or the Company that are
material to the conduct of the Business or (C) any Software listed in the
Disclosure Letter.
(iv) Except for existing licenses or as disclosed in the
Disclosure Letter, the Seller, as of the date hereof, and the Company, as
of the closing date either: (A) owns or will own the entire right, title
and interest (subject to such exceptions as do not materially adversely
affect CSG, the Assets, the Business, or the Company) in and to the
Intellectual Property and Software listed in the Disclosure Letter free and
clear of any Lien, except as would not have a material adverse effect on
the Business, the Assets, CSG or the Company, or (B) has or will have the
necessary right and license to use the same, and which (together with the
services to be provided by the Seller to the Company pursuant to the
License Agreement described in Section 4.4) will enable the Company to
conduct the Business as it has been conducted in the past and as currently
conducted, without restrictions that materially adversely affect the
Business as it has been conducted and without additional material cost.
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The Seller's Software which is used in the conduct of the Business, as of
the date hereof, and the Company's Software, as of the date of the Closing,
includes those flow charts, diagrams, coding sheets, source code listings
and annotations, programmers' notes, information and work papers that the
Seller or the Company is using to maintain, modify, develop and enhance
such Software.
(v) (A) All registrations for Copyrights, Patent Rights and
Trademarks identified in the Disclosure Letter are valid and in force, and
all applications to register any unregistered copyrights, Patent Rights and
Trademarks so identified are pending and in good standing, and, to the best
knowledge of the Seller and the Company, are all without challenge of any
kind; (B) the Intellectual Property owned by the Seller, in respect of the
Assets, the Business and CSG, and by the Company is valid and enforceable;
and (C) the Seller has, as of the date hereof, and the Company will have,
as of the Closing Date, the sole and exclusive right to bring actions for
infringement or unauthorized use of the Intellectual Property and Software
owned by the Seller or the Company and used in the Business, and, to the
best knowledge of the Seller and the Company, there is no valid basis for
any such action, subject, in the case of each of clause (A), (B) and (C),
to such exceptions as do not materially adversely affect the Business, CSG,
the Assets or the Company. Correct and complete copies of registrations for
all registered Copyrights, Patent Rights and Trademarks identified in the
Disclosure Letter (together with any subsequent correspondence with the
U.S. Copyright Office or the U.S. Patent and Trademark Office, as
applicable, or filings relating to the foregoing) have already been
delivered or made available by the Seller to the Investors.
(vi) (A) No infringement by the Seller with respect to the
conduct of the Business or the Company of any Intellectual Property of any
other Person has occurred within the past five years or results in any way
from the operations of the Business and (B) neither the Seller nor the
Company has had notice of, nor, to the best knowledge of the Seller and the
Company, is there a valid basis for, a claim against it that the
operations, activities, products, Software, equipment, machinery or
processes of the Business infringe any Intellectual Property of any other
Person, other than, in each case, any infringement which does not have a
material adverse effect on the Business, CSG, the Assets or the Company.
(vii) (A) No proceedings are pending or, to the best
knowledge of the Seller and the Company, threatened against the Seller or
the Company that challenge the validity or ownership of any Copyright,
Patent Right or Trademark described in the Disclosure Letter; and (B) to
the knowledge of the Seller and the Company, there is no infringing use of
any of the same by any other Person.
(v) ENVIRONMENTAL MATTERS.
(i) Other than Hazardous Materials reasonably necessary for
the conduct of the Business which are properly stored in material
compliance with applicable Environmental Laws, no Hazardous Material is
present on any Company Facility now owned or leased by the Company or the
Seller during the time such property was owned or leased by the Company or
the Seller and which is or was used for the conduct of the Business.
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(ii) The Hazardous Material Activities of the Company, and
the Seller, with respect to the operations of CSG, the Business and the
Assets, have been conducted in material compliance with applicable
Environmental Laws.
(iii) The Disclosure Letter accurately describes all of the
material Environmental Permits currently held by the Company, and by the
Seller, with respect to the operations of CSG, the Business and the Assets,
and, to the best knowledge of the Seller and the Company, such
Environmental Permits are all of the Environmental Permits necessary for
the continued conduct of any Hazardous Material Activities associated with
CSG, the Business and the Assets as such activities are currently being
conducted. All such Environmental Permits are valid, in full force and
effect, and will survive the Closing. Except as would not have a material
adverse effect on the Business, the Assets, the Company or CSG, to the best
knowledge of the Seller and the Company, no circumstances exist which could
cause any Environmental Permit to be revoked, modified, or rendered
non-renewable upon payment of the permit fee or which could impose upon the
Company the obligation to obtain any additional Environmental Permit.
Except as would not have a material adverse effect on the Business, the
Assets, the Company or CSG, all Environmental Permits and all other
consents and clearances required by any Environmental Law or any agreement
to which the Company is bound as a condition to the performance and
enforcement of this Agreement or which are required by any Governmental
Authority in connection with the transactions contemplated by this
Agreement have been obtained or will be obtained prior to the Closing at no
cost to the Investors or Holdco.
(iv) The Company and the Seller, with respect to the
operations of CSG, the Business and the Assets, have transferred or
released Hazardous Materials only to those Disposal Sites described in the
Disclosure Letter. To the best knowledge of the Seller and the Company, no
action, proceeding, liability or claim by a private party or any
Governmental Authority, exists or is threatened, against any Disposal Site
or against the Seller or the Company with respect to any transfer or
release of Hazardous Materials to a Disposal Site in connection with the
operations of CSG, the Business and the Assets and there is no valid basis
for such claim except for those actions, proceedings, liabilities or claims
which, if adversely determined would not have a material adverse effect on
the Business, the Assets, the Company or CSG.
(w) COMPLIANCE WITH LAWS. The Company, and the Seller, with
respect to the operation of CSG, the Business and the Assets, have complied
in all respects with all Laws promulgated by any Governmental Authority,
except for such noncompliance as would not have a material adverse effect
on the Business, the Assets, the Company or CSG.
(x) DISCLOSURE. No representation, warranty or statement by the
Seller or the Company in this Agreement (including the Exhibits hereto), in
the Disclosure Letter, in that certain Business Plan Summary of CSG dated
September 18, 1995 (the "Business Plan," which is in the form previously
furnished to the Investors and is included in the Disclosure Letter), in
the Seller SEC Dcouments (taken as a whole), in the Seller Financial
Statements (taken as a whole) or in any written certificate required by
this Agreement to be furnished to the Investors or their counsel pursuant
to this Agreement contains or will contain any untrue statement of material
fact or, omits or will omit to
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state a material fact necessary to make the statements made herein or
therein, in light of the circumstances under which they were made, not
misleading, it being understood that Investors have not received or been
provided with a "prospectus" (as defined in the Securities Act) with
respect the Company, the Seller, CSG or the Business. To the extent that
the foregoing representation and warranty is interpreted as relating to any
projections which may have been delivered by the Seller or the Company to
Investors, the Seller and the Company represent only that any such
projections were prepared in good faith, that the Seller and the Company
believe that there was at the time of the preparation of such projections a
reasonable basis for such projections, and that the Seller and the Company
are not aware of any change in their circumstances or other fact that has
occurred that causes them to believe that CSG and the Company will be
unable to meet the sales and income forecasts set forth in such
projections. Seller has not failed to disclose to the Investors or the
Company any fact or circumstance known to Seller that could reasonably be
expected to have a material adverse effect on CSG, the Business, the
Company or the Assets.
(y) NO THIRD PARTY OPTIONS. Other than this Agreement, there
are no existing agreements, options, commitments or rights with, of or to
any person to acquire all or any portion of the Business or any of the
Assets or any interest therein, except for those contracts entered into in
the normal course of business consistent with Past Practice for the sale of
inventory of Seller with respect to CSG.
(z) NECESSARY ASSETS. The Assets are sufficient (and on the
date of the Closing will be sufficient) to permit the Company to conduct,
operate and maintain the Business in all material respects consistent with
Past Practice and as contemplated by the Business Plan.
(aa) CONDITIONS AFFECTING SELLER. To the best knowledge of
Seller and the Company, there is no fact or development with respect to the
products, services, customers, facilities, computer software, data bases,
suppliers, operations or assets of CSG, the Business or the Assets which
could materially adversely affect the Business. Seller has used all
commercially reasonable efforts to keep available for the Company the
services of the employees, customers and suppliers of Seller active in the
conduct of the Business and the maintenance and operation of the Assets
whose activities are material to the Business. To the best of Seller's and
the Company's knowledge, the consummation of the transactions contemplated
hereby will not result in any materially adverse loss of any customer or
supplier of the Business.
(bb) PERMITS, LICENSES. (i) There are no governmental permits
necessary for or used by Seller to carry on the Business as now being conducted
or to use and occupy the premises leased or owned by the Seller and used by CSG
or for the Business as now being used, which governmental permits are required
by currently effective laws, rules and regulations which have not yet been
obtained, or if not obtained, would not have a material adverse effect on the
Business, the Assets, the Company or CSG; (ii) all such governmental permits are
in full force and effect and no proceeding is pending or, to the best knowledge
of Seller and the Company, threatened, to revoke or limit any such governmental
permit except for such revocations or limitations which would not have a
material adverse effect on the Business, the Assets, the Company or CSG and
(iii) Seller is in compliance in all respects with the terms and conditions of
all such governmental permits except for
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such non-compliance as could not reasonably be expected to have a material
adverse effect on the Business. No action by Seller, the Investors or the
Company is required in order that all such governmental permits will remain
in full force and effect following the consummation of the transactions
provided for herein.
(cc) SELLER INTENT. The Seller has no present intent to transfer
the Holdco Common Stock that it shall hold after the Closing.
(dd) RETENTION OF CSG EARNINGS. As of the date of the Closing
and the Effective Time, the Seller and the Company have complied in all
respects with all terms of Section 7.6 hereof.
ARTICLE IV
CONDITIONS PRECEDENT TO THE OBLIGATIONS
OF THE INVESTORS, HOLDCO AND HOLDCO SUB
The obligations of the Investors, Holdco and Holdco Sub to effect the
Merger at the Closing shall be subject to the fulfillment, or the waiver by
the Investors and Holdco, at or prior to the Closing, of each of the
following conditions (provided that any such waiver, to be effective, must
be in writing and signed by Holdco and each of the Investors):
4.1 REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties of the Seller and the Company set forth in Article III hereof
shall be true in all respects on the date of the Closing. The Disclosure
Letter delivered to the Investors by the Seller prior to the date hereof
shall not have been altered or withdrawn.
4.2 ABSENCE OF LITIGATION. There shall be no litigation, whether
brought against the Seller, the Company, Holdco, Holdco Sub, or any of the
Investors, seeking to prevent the consummation of the transactions
contemplated by this Agreement, and, to the best knowledge of the Seller
and the Company, no such litigation shall have been threatened. There shall
not be in effect any order restraining or prohibiting the consummation of
the transactions contemplated by this Agreement and there shall be no
proceedings pending with respect thereto. Other than the EFI Litigation,
there shall be no pending or, to the best knowledge of the Seller, the
Company, Holdco, Holdco Sub and the Investors, threatened litigation, or
asserted or unasserted claims, assessments, or other loss contingencies,
materially affecting CSG, the Company, the Business, their Prospects, or
the Assets other than as disclosed in the Exhibits delivered pursuant
hereto as of the date of this Agreement.
4.3 PERFORMANCE OF OBLIGATIONS. The Company and the Seller shall
have performed and complied, in all material respects, with all covenants,
conditions and obligations required by this Agreement to have been
performed by the Company and the Seller at or prior to the Closing.
4.4 DOCUMENTATION AT CLOSING. The Investors shall have received
prior to or at the Closing all of the following, each in form and substance
satisfactory to the Investors and their
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counsel, and all of the following events shall have occurred prior to or
simultaneous with the Closing hereunder:
(a) A copy of all charter documents of the Seller and the
Company certified by the Secretary of State of their respective states of
incorporation, a certified copy of the resolutions of the board of
directors and, if required, the shareholders of the Seller and stockholders
of the Company, evidencing approval of this Agreement and all other matters
contemplated hereby, a certified copy of the bylaws of the Seller and the
Company, and certified copies of all documents evidencing other necessary
corporate or other action and governmental approvals, if any, with respect
to this Agreement and the Merger.
(b) An opinion of Fenwick & West, counsel for the Seller, as to
such matters as counsel to the Investors may reasonably request.
(c) A certificate of the Secretary or an Assistant Secretary of
the Seller stating the names of the officers of the Seller authorized to
sign this Agreement and the other documents or certificates to be delivered
pursuant to this Agreement by the Seller or any of its officers, together
with the true signatures of such officers. A certificate of the Secretary
or an Assistant Secretary of the Company stating the names of the officers
of the Company authorized to sign this Agreement and the other documents or
certificates to be delivered pursuant to this Agreement by the Company or
any of its officers, together with the true signatures of such officers.
The Investors, Holdco and Holdco Sub may conclusively rely on such
certificates until they shall receive a further certificate of the
Secretary or Assistant Secretary of the Seller or the Company, as the case
may be, canceling or amending a prior certificate and submitting the
signatures of the officers named in such further certificate.
(d) A certificate from the Chief Executive Officer of the Seller
stating that the representations and warranties of the Seller and the Company
contained in Article III hereof and otherwise made by the Seller or the Company
in writing in connection with the transactions contemplated hereby are true and
correct as of the date hereof and as of the date of Closing, as if such
representations and warranties were made on the date of Closing, and that all
conditions required to be performed by the Seller or the Company prior to or at
the Closing have been performed, and, to the best of such Person's knowledge,
that no condition or event has occurred or is continuing or will result from the
execution and delivery of this Agreement, which is a breach by the Seller or the
Company of a material term hereof or would constitute a breach by the Seller or
the Company of a material term hereof but for the requirement that notice be
given or time elapse or both. A certificate from the President of the Company
stating that the representations and warranties of the Company contained in
Article III hereof and otherwise made by the Company in writing in connection
with the transactions contemplated hereby are true and correct as of the date
hereof and as of the date of Closing, as if such representations and warranties
were made on the date of Closing, and that all conditions required to be
performed by the Company prior to or at the Closing have been performed, and,
to the best of such Person's knowledge, that no condition or event has occurred
or is continuing or will result from the execution and delivery of this
Agreement, which is a breach by the Company of
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a material term hereof or would constitute a breach by the Company of a
material term hereof but for the requirement that notice be given or time
elapse or both.
(e) An Invention Assignment and Non-Disclosure Agreement between
each Key Employee of the Company and the Company in the form set forth in
Exhibit 4.4A hereto shall have been executed and delivered by such Key
Employee and the Company and shall be in full force and effect and binding
upon the parties thereto.
(f) A Registration Rights Agreement in the form set forth in
Exhibit 4.4B hereto shall have been executed and delivered by the Seller
and the management of the Company and shall be in full force and effect and
binding upon the parties thereto, assuming execution and delivery thereof
by the Investors and Holdco.
(g) A Stockholders Agreement in the form set forth in Exhibit
4.4C hereto shall have been executed and delivered by the Seller and the
management of the Company and shall be in full and effect and binding upon
the parties thereto, assuming execution and delivery thereof by the
Investors and Holdco.
(h) An Escrow Agreement, mutually acceptable in form and
substance to the Seller and the Investors and providing for an escrow of
$4,700,000 for satisfaction of any claim for indemnification by the
Investors, the Company and Holdco against the Seller pursuant to Article X
hereof, shall have been executed and delivered by the Seller. Subject to
any indemnification paid to Holdco, the Company or the Investors pursuant
to Article X hereof, such Escrow Agreement shall specify that the escrow
funds be released to the Seller, and not any other Person, as follows: (i)
50% of the amount initially placed in escrow shall be released after both
(A) the Year-End Balance Sheet becomes final and binding in accordance with
Section 1.5(b) and (B) the payment of any amount due to the Investors in
accordance with Section 1.5(c) and (ii) the remainder of the amount
initially placed in escrow (the "Escrow Remainder") shall be released to
the Seller, and not any other Person, on the later of (C) the date six
months after the date of the Closing and (D) the date of a final,
non-appealable order dismissing with prejudice the EFI Litigation.
Notwithstanding the foregoing, the Escrow Remainder shall be released to
the Seller, and not to any other Person, if, at any time after the first
anniversary of the date of the Closing, each of the three following
conditions are true: (X) the consolidated net worth of the Seller, as
determined in accordance with GAAP, is greater than $5,000,000, (Y) the
Seller has reported positive net income in each of its two most recently
regularly prepared quarterly financial statements, and (Z) to the best
knowledge of the Seller, there are no facts or circumstances that have
occurred or that are reasonably likely to occur, that, taken in aggregate,
that could reasonably be expected to reduce the consolidated net worth of
the Seller, as determined in accordance with GAAP, to an amount less than
$5,000,000 within the next twelve months. In addition, if the Investors
reasonably and in good faith determine that the maximum potential Investor
Damages (as defined in Section 10.1 hereof) that could result from the EFI
Litigation is less than $2,000,000, then the amount of the Escrow Remainder
exceeding such maximum potential Investor Damages shall be released to the
Seller, and not to any other Person. The terms of such Escrow Agreement
shall provide that the escrow amount be kept under the possession and
control of an independent financial institution in a separate account of
such institution, and that Holdco have a
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perfected security interest in the escrow account and the status of a
first-priority secured creditor with respect to the escrow account. Such
Escrow Agreement shall be in full force and effect and binding on the
parties thereto, assuming execution and delivery by the Investors and
Holdco.
(i) A Restricted Stock Purchase Agreement, providing for the
purchase of 152,500 shares of Holdco Common Stock by the management of the
Company at a purchase price of $0.04 per share prior to the Effective Time,
subject to vesting and otherwise mutually agreeable in form and substance
to the Seller and the Investors, shall have been executed and delivered by
the management of the Company. Such Stock Purchase Agreement shall specify
vesting of 50% of the shares purchased by each member of management on the
first anniversary of purchase, and straight-line monthly vesting for the
remainder of shares over the following two years. Such agreement shall be
in full force and effect and binding upon the parties thereto, assuming
execution and delivery thereof by Holdco.
(j) An opinion of patent counsel, addressed to Holdco, the
Company and the Seller, of non-infringement by the Seller and the Company
of U.S. Patent No. 4,941,038, in form and substance acceptable to the
Investors and their legal counsel, which acceptance shall not be
unreasonably withheld.
(k) Such UCC financing statements shall have been filed with
respect to the escrow account established pursuant to the Escrow Agreement
referenced in clause (h) above, as may be necessary to ensure that Holdco
has obtained the status of a secured creditor with respect thereto.
(l) To the extent considered reasonably necessary by the
Investors, consents of the creditors of the Seller and any other consents
to the transactions contemplated hereby shall have been obtained.
4.5 MATERIAL ADVERSE CHANGE. There shall not have been, subsequent
to December 8, 1995, any material adverse change in the financial condition
of the Business, CSG's or the Company's assets, liabilities, business,
results of operations, Prospects or customer, supplier or employee
relations, or the Assets.
4.6 CONDUCT OF BUSINESS; REVENUES. The Business shall have been
conducted up until the date of the Closing as usual and consistent with the
practices of the Company prior to December 8, 1995. All practices of CSG,
the Company and the Business, including procurement of inventory and raw
materials, payment of accounts payable, and fulfillment of customer orders
shall have been conducted to the date of Closing in the ordinary course of
business. The revenues of CSG and the Company for the calendar quarter
ending on December 31, 1995 shall have been at least $7,000,000.
4.7 CONSENTS, WAIVERS, ETC. Prior to the Closing, the Seller, the
Investors, Holdco, Holdco Sub and the Company shall have obtained all
consents or waivers, if any, necessary to transfer assets to the Company in
accordance with Section 1.1 hereof (including, but not limited to, those
consents or waivers listed on Exhibit 4.7 hereto), to issue the Securities,
to effect the Merger, and to
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carry out the transactions contemplated hereby, and all such consents and
waivers shall be in full force and effect. All corporate and other action
and governmental filings necessary to effectuate the terms of this
Agreement, all transactions contemplated by this Agreement (including the
transactions described in Section 1.1) and other agreements and instruments
executed and delivered by the Seller, the Investors, Holdco, Holdco Sub and
the Company in connection herewith shall have been made or taken, except
for any post-sale filing that may be required under federal and state
securities laws. In addition to the documents set forth above, the Seller
and the Company shall have provided or made available to the Investors any
other information or copies of documents that they may reasonably request.
4.8 ACCOUNTING REVIEW. The Investors shall have received, at
Holdco's expense, an accounting review by the Investors' Accountants of all
financial statements relating to CSG, the Business and the Company provided
to the Investors by the Seller or its representatives. Investors'
Accountants, at Holdco's expense, shall have determined that audited
financial statements of the Company, prepared in accordance with GAAP and
Regulation S-X promulgated under the Securities Act throughout the periods
involved and fairly presenting the financial position and result of
operations of CSG, and, on a pro forma basis, the Company for the periods
covered, for the years ended September 30, 1993, 1994 and 1995 (the
"Audited Financial Statements"), could be readily produced by the Company
from its records within 60 days after the Closing.
4.9 PERFORMANCE UNDER RESTRICTED STOCK PURCHASE AGREEMENT. Prior to
the Effective Time, the management of the Company shall have purchased from
Holdco, in accordance with the terms of a Restricted Stock Purchase
Agreement entered into in accordance with Section 4.4(i), 152,500 shares of
Holdco Common Stock at $0.04 per share, assuming performance by Holdco of
its obligations under such Restricted Stock Purchase Agreement.
4.10 XXXX-XXXXX-XXXXXX WAITING PERIOD. Any applicable waiting period
with respect to the Merger under the Xxxx-Xxxxx-Xxxxxx Antitrust
Improvements Act of 1976, as amended, shall have expired.
4.11 ASSETS TRANSFER. All documentation pursuant to which the
transactions described in Section 1.1 shall have been presented to the
Investors and Investors' counsel for review and shall have been consistent
with this Agreement and satisfactory in form and substance to the Investors
and their counsel prior to the consummation of such transactions. The
consummation of the transaction pursuant to such documentation shall have
been satisfactory in form and substance to the Investors and their legal
counsel. All of the Assets, including the Contracts, shall have been
transferred or assigned to the Company free and clear of all Liens, other
than the Assumed Liabilities, and the Investors and their counsel shall
have received evidence of such transfers reasonably satisfactory to them.
4.12 ELECTION UNDER SECTION 338(H)(10). The Seller shall have
executed the Form 8023A prepared in accordance with Section 6.5(d) hereof.
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4.13 NUBUS EQUIPPED COMPUTERS. The Investors shall have received
assurances reasonably satisfactory to them that the Company has been
allocated by Apple Computer, Inc., for sale to the Company, 400 Nubus Apple
computers consistent with the needs of the Company.
ARTICLE V
CONDITIONS PRECEDENT TO SELLER'S AND COMPANY'S OBLIGATIONS
The obligations of the Seller and the Company to cause the
consummation by the Company of the Merger at the Closing, of the Seller to
contribute the Assets to the Company prior thereto, and of the Seller and
the Company to perform their other obligations under this Agreement shall
be subject to the fulfillment, or the waiver by the Seller and the Company,
at or prior to the Closing, of each of the following conditions (provided
that any such waiver, to be effective, must be in writing and signed by the
Seller and the Company):
5.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties made by the Investors, Holdco and Holdco Sub in this Agreement
shall have been true and correct at and as of the date hereof, and they
shall be true and correct at and as of the Closing with the same force and
effect as though made at and as of that time.
5.2 ABSENCE OF LITIGATION. There shall be no litigation, whether
brought against the Seller, the Company, Holdco, Holdco Sub or any of the
Investors, seeking to prevent the consummation of the transactions
contemplated by this Agreement, and, to the best knowledge of Holdco,
Holdco Sub, the Investors, the Seller and the Company, no such litigation
shall have been threatened. There shall not be in effect any order
restraining or prohibiting the consummation of the transactions
contemplated by this Agreement and there shall not be any proceedings
pending with respect thereto. There shall be no pending or, to the best
knowledge of the Investors, Holdco and Holdco Sub, threatened litigation,
asserted claims, assessments or other loss contingencies, materially
affecting Holdco other than as set forth in this Agreement.
5.3 PERFORMANCE OF OBLIGATIONS. Investors, Holdco and Holdco Sub
shall have performed and complied, in all material respects, with all of
their covenants, conditions and obligations required by this Agreement to
be performed or complied with by them at or prior to the Closing.
5.4 FAIRNESS OPINION. Prior to the Closing, the Seller shall have
obtained an opinion by Broadview Associates, L.P. stating that the
transactions contemplated hereby shall be fair to the shareholders of the
Seller from a financial point of view.
5.5 CONSENTS, WAIVERS, ETC. Prior to the Closing, the Seller, the
Investors, Holdco, Holdco Sub, and the Company shall have obtained all
consents or waivers, if any, necessary for the Seller to contribute the
Assets to the Company, for the Company to accept and receive the Assets and
assume the Contracts from the Seller, for the Company to consummate the
Merger, for Holdco to
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issue the Securities and to carry out the transactions contemplated hereby,
and all such consents and waivers shall be in full force and effect. All
corporate and other action and governmental filings necessary to effectuate
the terms of this Agreement, and other agreements and instruments executed
and delivered by the Seller, the Investors, Holdco, Holdco Sub, and the
Company in connection herewith shall have been made or taken, except for
any post-sale filing that may be required under federal and state
securities laws.
5.6 BOARD OF DIRECTORS. The number of members of the board of
directors of Holdco Sub shall have been fixed at five and no less than four
of these five members shall have been appointed as follows: (i) Mr. Xxxxxxx
Xxxxxx (as the initial designee of the Seller); (ii) two designees of the
Investors (one such designee as a Series A Director, as defined in the
Certificate of Incorporation of Holdco); and (iii) Xxxxx Xxxxxxxxxxxx (as
the initial designee of the management of the Company).
5.7 HOLDCO CASH. Holdco's accounts shall contain approximately
$23,500,000 in cash and Holdco shall have no Liabilities other than as set
forth in or contemplated by this Agreement and Holdco's authorized officers
shall have executed a certificate to that effect.
5.8 XXXX-XXXXX XXXXXX WAITING PERIOD. Any applicable waiting period
with respect to the Merger under the Xxxx-Xxxxx-Xxxxxx Antitrust
Improvements Act of 1976, as amended, shall have expired.
5.9 DOCUMENTATION AT CLOSING. The Seller and the Company shall have
received prior to or at the Closing all of the following, each in form and
substance satisfactory to the Seller and the Company and their counsel, and
all of the following events shall have occurred prior to or simultaneous
with the Closing hereunder:
(a) A copy of all charter documents of Holdco and Holdco Sub
certified by the Secretary of their respective states of incorporation, a
certified copy of the resolutions of the board of directors and, if
required, the stockholders of Holdco and Holdco Sub, evidencing approval of
this Agreement, and other matters contemplated hereby, a certified copy of
the bylaws of Holdco and Holdco Sub, and certified copies of all documents
evidencing other necessary corporate or other action and governmental
approvals, if any, with respect to this Agreement, the Merger and the
transactions contemplated by this Agreement.
(b) An opinion of Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx, P.C.,
counsel for Investors, as to such matters as counsel to the Seller may
reasonably request.
(c) A certificate of the Secretary or an Assistant Secretary of
Holdco stating the names of the officers of Holdco authorized to sign this
Agreement and the other documents or certificates to be delivered pursuant to
this Agreement by Holdco or any of its officers, together with the true
signatures of such officers. A certificate of the Secretary or an Assistant
Secretary of Holdco Sub stating the names of the officers of Holdco Sub
authorized to sign this Agreement and the other documents or certificates to be
delivered pursuant to this Agreement by Holdco Sub or any of its officers,
together with the true signatures of such officers. The Seller and the Company
may
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conclusively rely on such certificates until they shall receive a further
certificate of the Secretary or Assistant Secretary of Holdco or Holdco
Sub, as the case may be, canceling or amending a prior certificate and
submitting the signatures of the officers named in such further certificate.
(d) A certificate from the Chief Executive Officer of Holdco
stating that the representations and warranties of Holdco and Holdco Sub
contained in Article II hereof and otherwise made by Holdco or Holdco Sub
in writing in connection with the transactions contemplated hereby are true
and correct as of the date hereof and as of the date of Closing, as if such
representations and warranties were made on the date of Closing and that
all conditions required to be performed by Holdco or Holdco Sub prior to or
at the Closing have been performed, and that, to the best of such Person's
knowledge, no condition or event has occurred or is continuing or will
result from the execution and delivery of this Agreement, which is a breach
by Holdco or Holdco Sub of a material term hereof or would constitute a
breach by Holdco or Holdco Sub of a material term hereof but for the
requirement that notice be given or time elapse or both. A certificate
from the Chief Executive Officer of Holdco Sub stating that the
representations and warranties of Holdco Sub contained in Article II hereof
and otherwise made by Holdco Sub in writing in connection with the
transactions contemplated hereby are true and correct as of the date hereof
and as of the date of Closing, as if such representations and warranties
were made on the date of Closing and that all conditions required to be
performed by Holdco Sub prior to or at the Closing have been performed, and
that, to the best of such Person's knowledge, no condition or event has
occurred or is continuing or will result from the execution and delivery of
this Agreement, which is a breach by the Company of a material term hereof
or would constitute a breach by the Company of a material term hereof but
for the requirement that notice be given or time elapse or both.
(e) A Registration Rights Agreement in the form set forth in
Exhibit 4.4B hereto shall have been executed and delivered by the Investors
and Holdco and shall be in full force and effect and binding upon the
parties thereto, assuming execution and delivery thereof by Seller and the
management of the Company.
(f) A Stockholders Agreement in the form set forth in Exhibit
4.4C hereto shall have been executed and delivered by the Investors and
Holdco and shall be in full and effect and binding upon the parties
thereto, assuming execution and delivery thereof by the Seller and the
management of the Company.
(g) Holdco shall have adopted a Management Stock Option Plan
mutually agreeable in form and substance to the Seller and the Investors,
which plan shall reserve for issuance options for 261,758 shares of Holdco
Common Stock. Such plan either shall specify that the board of directors of
Holdco shall specify appropriate vesting for each option granted under the
plan, or shall specify specific vesting provisions for each option issued
thereunder that are mutually agreeable to the Seller and the Investors.
(h) A Restricted Stock Purchase Agreement, providing for the purchase
of 152,500 shares of Holdco Common Stock by the management of the Company at a
purchase price of $0.04 per share, subject to vesting and otherwise mutually
agreeable in form and substance to the
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Seller and the Investors, shall have been executed and delivered by Holdco.
Such Stock Purchase Agreement shall specify vesting of 50% of the shares
purchased by each member of management on the first anniversary of
purchase, and straight-line monthly vesting for the remainder of shares
over the following two years. Such agreement shall be in full force and
effect and binding upon the parties thereto, assuming execution and
delivery thereof by the management of the Company.
5.10 PERFORMANCE UNDER RESTRICTED STOCK PURCHASE AGREEMENT. Holdco
shall have performed all of its obligations under a Restricted Stock
Purchase Agreement entered into in accordance with Section 5.9(h), unless
the management of the Company has not performed all of their obligations
thereunder.
ARTICLE VI
POST-CLOSING COVENANTS
6.1 AFFIRMATIVE COVENANTS OF HOLDCO OTHER THAN REPORTING
REQUIREMENTS. Without limiting any other covenants and provisions hereof,
Holdco covenants and agrees that, after the Closing and for so long as (i)
shares of either series of Preferred Stock or (ii) the Subordinated Notes
remain outstanding, Holdco will perform and observe the following covenants
and provisions and will cause each of its subsidiaries to perform and
observe such of the following covenants and provisions as are applicable to
such subsidiaries, and will not, without approval of the holders of a
majority of the shares of Preferred Stock and of a majority in interest in
principal amount of the holders of the Subordinated Notes, amend or revise
any terms of this Section:
(a) PAYMENT OF TAXES AND TRADE DEBT. Pay and discharge, and
cause each of its subsidiaries to pay and discharge, all taxes,
assessments and governmental charges or levies imposed upon it or upon its
income or profits or business, or upon any properties belonging to it,
prior to the date on which penalties attach thereto, and all lawful claims,
which, if unpaid, might become a lien or charge upon any properties of
Holdco or any of its subsidiaries, provided that neither Holdco nor any
subsidiaries shall be required to pay any such tax, assessment, charge,
levy or claim that is being contested in good faith and by appropriate
proceedings if Holdco or its subsidiary concerned shall have set aside on
its books adequate reserves with respect thereto as shall be determined by
its board of directors. Pay on a timely basis the Subordinated Notes as
and when due. Pay and cause each of its subsidiaries to pay, when due, or
in conformity with customary trade terms, all lease obligations, all trade
debt, and all other Indebtedness incident to the operations of Holdco or
its subsidiaries, except such as are being contested in good faith and by
appropriate proceedings so long as the Company or the subsidiary concerned
shall have set aside on its books adequate reserves with respect thereto as
shall be determined by its board of directors.
(b) MAINTENANCE OF INSURANCE. Maintain, and cause each of its
subsidiaries to maintain, with responsible and reputable insurance
companies or associations, insurance in such amounts and covering such
risks as is usually carried by companies of similar size engaged in similar
businesses and owning similar properties in the same general areas in which
Holdco or such subsidiary
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operates, but in any event in amounts sufficient to allow Holdco or
subsidiaries to replace any of their properties that might be damaged or
destroyed without additional expenditures by Holdco and its subsidiaries
except for reasonable deductibles. Within sixty (60) days of the date of
this Agreement, Holdco shall use all commercially reasonable efforts to
obtain and thereafter maintain term life insurance payable to Holdco in the
amount of $1,000,000 on the life of Xxxxx Xxxxxxxxxxxx.
(c) PRESERVATION OF CORPORATE EXISTENCE. Except as permitted by
Section 6.2(a), Preserve and maintain, and cause each of its subsidiaries
to preserve and maintain, its corporate existence, rights, franchises and
privileges in the jurisdiction of its incorporation, and qualify and remain
qualified, and cause each of its subsidiaries to qualify and remain
qualified, as a foreign corporation in each jurisdiction in which such
qualification is necessary or desirable in view of its business and
operations or the ownership of its properties. Preserve and maintain, and
cause each of its subsidiaries to preserve and maintain, all material
licenses and other rights to use patents, processes, licenses, trademarks,
trade names, inventions, intellectual property rights or copyrights owned
or possessed by it and necessary to the conduct of its business; PROVIDED,
HOWEVER, that nothing contained in this Section 6.1(c) shall require Holdco
to bring or maintain a cause of action with respect to the foregoing.
(d) COMPLIANCE WITH LAWS. Comply, and cause each of its
subsidiaries to comply, in all material respects with all applicable laws,
rules, regulations and orders of any United States' federal or state
governmental authority, noncompliance with which could materially adversely
affect its business or condition, financial or otherwise, except
non-compliance being contested in good faith through appropriate
proceedings so long as Holdco or its subsidiary concerned shall have set up
sufficient reserves required under GAAP with respect to such items and
except for such noncompliance as would not have a material adverse effect
on Holdco, its subsidiaries or its business taken as a whole. Use its best
efforts to comply, and cause each of its subsidiaries to comply, in all
material respects with all applicable foreign laws, rules, regulations and
orders of any foreign governmental authority, noncompliance with which
could materially adversely affect its business or condition, financial or
otherwise, except non-compliance being contested in good faith through
appropriate proceedings so long as Holdco or its subsidiary concerned shall
have set up sufficient reserves required under GAAP with respect to such
items and except for such noncompliance as would not have a material
adverse effect on Holdco, its subsidiaries or its business taken as a whole.
(e) KEEPING OF RECORDS AND BOOKS OF ACCOUNT. Keep, and cause
each of its subsidiaries to keep, adequate records and books of account, in
which complete entries will be made in accordance with GAAP, reflecting all
financial transactions of Holdco and such subsidiary, and in which, for
each fiscal year, all proper reserves for depreciation, depletion,
obsolescence, amortization, taxes, bad debts and other purposes in
connection within its business shall be made.
(f) MAINTENANCE OF PROPERTIES, ETC. Maintain and preserve, and
cause each of its subsidiaries to maintain and preserve, all of its
properties necessary or useful in the proper conduct of its business, in
good repair, working order and condition, ordinary wear and tear excepted.
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(g) BUDGETS AND BOARD APPROVAL. Prior to the commencement
of each fiscal year, prepare and submit to, and obtain the approval of a
majority of the board of directors of Holdco of a budget and operating
plan for the upcoming fiscal year, including projections or forecasts of
capital and operating expenses, cash flow, and profits and losses, all
itemized in reasonable detail and obtain the approval of such budget and
plan not more than sixty (60) days following the end of the prior fiscal
year.
(h) AGREEMENTS. Use its best efforts to cause each officer, Key
Employee, consultant and other personnel, including employees, agents and
contractors who have contributed to or participated in the conception and
development of the intellectual property on behalf of CSG, the Company or
Holdco and all employees now or hereafter employed by Holdco or any of its
subsidiaries promptly to execute an Invention Assignment and Non-Disclosure
Agreement substantially in the form of Exhibit 4.4A hereto or in a form
approved by the board of directors of Holdco.
(i) BOARD OF DIRECTORS; INDEMNIFICATION. The board of directors
of Holdco initially shall consist of five (5) directors. The certificate
of incorporation or bylaws of Holdco and its subsidiaries shall at all
times provide for the indemnification of the board of directors of Holdco
and its subsidiaries to the full extent provided by the law of the
jurisdiction in which Holdco or its concerned subsidiary, as the case may
be, is organized. Holdco and its subsidiaries shall use all commercially
reasonable efforts to obtain and maintain directors and officers liability
insurance with coverage and premium levels consistent with policies carried
by companies of similar size. Holdco and its subsidiaries shall pay for
reasonable travel and living expenses of the members of their board of
directors who are not employees of Holdco or its subsidiaries in attending
meetings of their board of directors and committees thereof and in
conducting other business on behalf of Holdco or its concerned subsidiary,
as the case may be.
(j) RESERVATION FOR SERIES B PREFERRED STOCK. As long as any
shares of Series B Preferred Stock remain outstanding, Holdco shall keep
reserved sufficient shares of Holdco Common Stock to allow all of such
outstanding shares of Series B Preferred Stock to convert into the number
of shares of Holdco Common Stock specified by the terms of the Certificate
of Incorporation of Holdco.
6.2 NEGATIVE COVENANTS OF HOLDCO. Without limiting any other
covenants and provisions hereof, Holdco covenants and agrees that, after
the Closing and for so long as either shares of Preferred Stock or the
Subordinated Notes remain outstanding, it will not without the consent of a
majority in interest in principal amount of the Subordinated Notes and the
holders of a majority of the shares of Preferred Stock take the actions
contained in the following covenants and provisions, and will cause each
subsidiary of Holdco to not, without the consent of a majority in interest
in principal amount of the Subordinated Notes and the holders of a majority
of the shares of Preferred Stock take actions contained in the following
covenants and provisions as are applicable to such subsidiary, and will
not, without the approval of the holders of a majority of the Preferred
Stock and of a majority in interest in principal amount of the holders of
the Subordinated Notes, amend or revise any terms of this Section:
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(a) MERGER, SALE OF ASSETS, ETC. Merge or consolidate with, or
sell, assign, lease or otherwise dispose of or voluntarily part with the
control of (whether in one transaction or in a series of transactions), a
material portion of its assets (whether now owned or hereinafter acquired)
to any Person, or permit any of its subsidiaries to do any of the
foregoing, except for sales or other dispositions of assets in the ordinary
course of business and except that (1) any wholly-owned subsidiary of
Holdco may merge into or consolidate with or transfer assets to any other
wholly-owned subsidiary of Holdco, (2) any wholly-owned subsidiary of
Holdco may merge into or transfer assets to Holdco, and (3) Holdco may
merge any Person into it or otherwise acquire such Person so long as Holdco
is the surviving entity, the holders of voting stock of Holdco immediately
prior to such merger are the holders of more than 50% of Holdco immediately
following such merger, such merger or acquisition does not result in the
violation of any of the provisions of this Agreement and no such violation
exists at the time of such merger or acquisition. The foregoing shall not
prohibit Holdco or any of its subsidiaries from pledging or granting a
security interest in a material portion of its assets, provided that such
transaction has been approved by the board of directors of Holdco.
(b) MAINTENANCE OF OWNERSHIP OF SUBSIDIARIES. Create any
subsidiary that is not a wholly-owned subsidiary, sell or otherwise dispose
of any shares of capital stock of any of its subsidiaries, except to Holdco
or another of its subsidiaries, or permit any of its subsidiaries to issue,
sell or otherwise dispose of any shares of its capital stock or the capital
stock of any of its subsidiaries except to Holdco or another of its
subsidiaries; provided, however, that nothing herein contained shall
prevent any merger, consolidation or transfer of assets permitted by
subsection 6.2(a).
(c) DEALINGS WITH AFFILIATES AND OTHERS. Enter into any
transaction, including, without limitation, any loans or extensions of
credit or royalty agreements, with any officer or director of Holdco or any
officer or director of any of its subsidiaries or holder of any class of
capital stock of Holdco, or any member of their respective immediate
families or any corporation or other entity directly or indirectly
controlled by one or more of such officers, directors or stockholders or
members of their immediate families (other than any such transactions in
the ordinary course of business which are in an amount not in excess of
$50,000 and loans for purchases of Holdco securities by employees,
officers, directors or consultants and housing loans to officers and
directors, so long as approved by a majority of the disinterested members
of the board of directors of Holdco).
(d) CHANGE IN NATURE OF BUSINESS. Make, or permit any of its
subsidiaries to make, any material change in the nature of its business as
carried on at the date hereof by CSG or the Company or as contemplated in
written materials delivered to the Investors prior to the date hereof.
(e) DIVIDENDS. While the Preferred Stock is outstanding,
declare or pay any dividends on any class of Holdco's or any of its
subsidiaries' capital stock now or hereafter outstanding (other than
dividends on the Preferred Stock, dividends payable in Holdco Common Stock
or dividends payable by any of Holdco's subsidiaries to either Holdco or
another subsidiary that is the parent of the paying subsidiary), or
purchase, redeem or otherwise acquire or retire any of Holdco's or any of
its subsidiaries capital stock of any class now or hereafter outstanding or
otherwise return capital or make distributions of assets to stockholders as
such, other than redemption of the Series A Preferred Stock and the Series
B Preferred Stock pursuant to the Certificate of
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Incorporation of Holdco and repurchases of capital stock under other
agreements providing for the repurchase of Holdco stock from employees,
officers, directors or consultants on termination of their relationship
with Holdco.
(f) AGREEMENTS WITH EMPLOYEES FOR THE PURCHASE OF SECURITIES.
Except as set forth herein, without approval of a majority of the
disinterested members of the board of directors of Holdco, accelerate or
terminate the vesting schedules under which restrictions on transfer of
capital stock of Holdco lapse over a period of time with respect to capital
stock held by employees, officers, directors or consultants of Holdco,
increase the number of shares (such number to be equitably adjusted in the
event of any stock split, combination, reclassification or other similar
event occurring on or after the date of this Agreement) currently available
for exercise under Holdco's stock option plan or otherwise, or issue, sell
or exchange, agree to issue, sell or exchange, or reserve or set aside for
issuance, sale or exchange to directors, officers, employees and/or
consultants shares of Holdco Common Stock, or options exercisable therefor,
except as issued at fair market value, or granted with an exercise price
equal to fair market value, at the time of issuance or grant, to directors,
officers, employees or consultants of Holdco and any of its subsidiaries.
(g) ISSUANCES OF SECURITIES AND EMPLOYEE STOCK OPTIONS. Except
as set forth herein, issue, sell or exchange, agree to issue, sell or
exchange, or reserve or set aside for issuance, sale or exchange, (i) any
equity security of Holdco (other than Holdco Common Stock), including,
without limitation, shares of Preferred Stock, (ii) any debt security of
Holdco that by its terms is convertible into or exchangeable for any equity
security of Holdco, (iii) any security of Holdco that is a combination of
debt and equity, or (iv) any option, warrant or other right to subscribe
for, purchase or otherwise acquire any equity security or any such debt
security, except for (x) Holdco Common Stock issued as a stock dividend to
holders of Holdco Common Stock or upon any subdivision or combination of
shares of Holdco Common Stock, and (y) shares of Holdco Common Stock (or
options to purchase such stock), issued pursuant to stock plans or
arrangements approved by all of the disinterested members of the board of
directors of Holdco.
6.3 REPORTING REQUIREMENTS OF HOLDCO. Holdco will furnish the
following to each holder of the Subordinated Notes, to each holder who owns
of record or beneficially any Preferred Stock, and to each holder of at
least 10% of the issued and outstanding Holdco Common Stock:
(a) as soon as available and in any event within thirty (30)
days after the end of each fiscal month of Holdco, unaudited Consolidated
balance sheets of Holdco and its subsidiaries as of the end of such month
and Consolidated statements of income and of statements of cash flow of
Holdco and its subsidiaries for the period ending with such month, setting
forth in each case in comparative form the corresponding figures for the
corresponding period of the prior fiscal year, all in reasonable detail and
duly certified (subject to year-end audit adjustments) by the chief
executive officer or chief financial officer of Holdco as having been
prepared in accordance with GAAP except for a lack of customary year end
disclosures, footnotes and year end adjustments;
(b) as soon as available and in any event within ninety (90)
days after the end of each fiscal year of Holdco, a copy of the annual
audit report for such year for Holdco and its
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subsidiaries, including therein consolidated balance sheets of Holdco and
its subsidiaries as of the end of such fiscal year and consolidated
statements of income and retained earnings and of statements of cash flow
of Holdco and its subsidiaries for such fiscal year, setting forth in each
case in comparative form the corresponding figures for the preceding fiscal
year, all duly certified by a "Big Six" independent public accounting firm
selected by Holdco's board of directors;
(c) at the time of delivery of each monthly and annual
statement, a certificate, executed by the chief executive officer or chief
financial officer of Holdco in the case of monthly statements, and Holdco's
independent public accountants in the case of annual statements, stating
that such officer or accountants, as the case may be, has caused Sections
6.1(a) (insofar as it relates to payment of federal and state income
taxes), 6.2(b), 6.2(c), 6.2(f) and 6.2(g) to be reviewed and has no
knowledge of any default by Holdco or any of its subsidiaries in the
performance or observance of any of the provisions of this Agreement or, if
such officer or accountant has such knowledge, specifying such default and
the nature thereof;
(d) promptly upon the request of any holder of at least $250,000
in principal amount of Subordinated Notes or any Person holding an
aggregate of at least 250 shares of Preferred Stock, any written report
submitted to Holdco by independent public accountants in connection with an
annual or interim audit of the books of Holdco and its subsidiaries made by
such accountants;
(e) promptly after the commencement thereof, notice of all
actions, suits and proceedings before any court or governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign,
materially affecting Holdco and its subsidiaries when considered as a whole;
(f) at least thirty (30) days prior to the commencement of each
fiscal year of Holdco, a copy of the operating plan and budget provided
for in Section 6.1(g);
(g) upon request, to any holder of at least $250,000 in
principal amount of Subordinated Notes or any Person holding an aggregate
of at least 250 shares of Preferred Stock, copies of all materials provided
to the committees of the board of directors of Holdco, and to any such
holder or Person who is not a member of the board of directors of Holdco
copies of all materials provided to the board of directors of Holdco and
all other information respecting the business, properties or the condition
or operations, financial or otherwise, of Holdco or any of its subsidiaries
that any Investor may from time to time reasonably request; PROVIDED,
HOWEVER, that Holdco shall not be required to deliver any such information
to the extent that such action would, in the opinion of counsel to Holdco,
be deemed to constitute a waiver of the attorney-client privilege.
Any person receiving the information distributed pursuant to
subsections (f) and (g) above agrees to hold such information in confidence
to the same extent that would be required of a member of Holdco's board of
directors.
6.4 CONFIDENTIALITY. Any confidential information obtained by any
holder of the Subordinated Notes or the Preferred Stock pursuant to this
Agreement shall be treated as confidential
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and shall not be disclosed to a third party without the consent of the
board of directors of Holdco, except that such information shall not be
deemed confidential for the purpose of enforcement of this Agreement or
valuation of the Preferred Stock or Subordinated Notes and except that any
such holder may otherwise disclose such information to its partners if such
partners agree to be bound by the restrictions contained in this Section.
At the request of the board of directors of Holdco, any Person to receive
or receiving any information pursuant to this Agreement shall execute and
deliver a reasonable confidentiality agreement in form and substance
reasonably satisfactory to the board of directors of Holdco.
6.5 COVENANTS OF SELLER.
(a) FURTHER ASSET TRANSFER. From and after the date of the
Closing, the Seller agrees to convey, transfer, and assign to the Company,
free and clear of all Liens, any tangible or intangible rights, properties
or assets then held by the Seller (i) that are necessary to permit the
Company to conduct, operate and maintain the Business consistent with Past
Practice and as it is proposed to be conducted, (ii) that are among the
Assets, including without limitation, the Contracts, (iii) the conveyance,
transfer or assignment of which would have been necessary for
representations and warranties of the Seller herein to be true and correct
as of the date of the Closing, or (iv) the conveyance, transfer or
assignment of which was or is required by the covenants of the Seller
contained in this Agreement. To the extent that any Contract was not
assigned to the Company because of a limit on assignability of such
Contract, the Seller shall take all actions necessary to pass through to
the Company all benefits of such Contracts and the Company shall perform
all obligations of the Seller thereunder and shall indemnify the Seller
with respect to such obligations; PROVIDED that such indemnification shall
be contingent on the passing of all benefits of such Contracts to the
Company; PROVIDED, FURTHER, that compliance of the Seller with this
sentence shall not excuse the Seller from any breach of the
representations, warranties and covenants of the Seller, resulting from
such non-assignment.
(b) EFI NON-INFRINGEMENT OPINION. The Seller shall use its best
efforts to cause the opinion of patent counsel described in Section 4.4(j)
to be updated and delivered to Holdco and the Company if reasonably
requested to do so by Holdco or the Company.
YEAR-END BALANCE SHEET. The Seller shall cooperate with and
give assistance to the Investors and the Investors' Accountants in relation
to the preparation of the Year-End Balance Sheet and the Audited Financial
Statements. Until the Year-End Balance Sheet is final and binding in
accordance with Section 1.5(b) and until the Audited Financial Statements
have been prepared and finalized, the Seller shall give to the Additional
Accounting Firm, the Investors, Holdco, the Company and their counsel,
accountants and other authorized representatives, on prior request therefor
from the Additional Accounting Firm, the Investors, Holdco, the Company or
such representatives, such access during normal business hours to copies of
the Seller's financial statements, books and records so as to allow the
Investors' Accountants to prepare the Year-End Balance Sheet, so as to
allow the Additional Accounting Firm to resolve disputes as specified in
Section 1.5(b), and so as to allow Holdco, the Company and their
accountants to prepare the Audited Financial Statements.
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(d) ELECTION UNDER SECTION 338(H)(10). Seller shall join with
Holdco in preparing a protective joint election on Form 8023A for the
Company under Section 338(h)(10) of the Code and under any applicable
similar provisions of state law with respect to the Merger. The Form 8023A
shall be prepared by advisers of Holdco and executed by those parties
hereto required to execute such form within 90 days after the date of the
Closing and filed by Holdco if it so elects in its sole discretion.
Information accompanying the Form 8023A will reflect the purchase price
allocation determined by Holdco; the parties hereto agree to take no
position for any tax or reporting purposes which is contrary to such
allocation.
(e) TAX TREATMENT. The Seller shall treat the formation of the
Company and the transfer of the Assets described in Section 1.1 hereof as a
taxable transaction for federal and state income tax purposes.
ARTICLE VII
OBLIGATIONS PENDING THE CLOSING
Between the date hereof and the Closing, unless this Agreement is
terminated sooner, pursuant to Section 12.2 hereof:
7.1 ACCESS. The Seller shall give to the Investors and their
counsel, accountants and other authorized representatives from and after
the date of execution of this Agreement, on prior request therefor from the
Investors or such representatives, such access during normal business hours
to the premises, employees, agents and consultants of the Seller relating
to CSG, the Business or the Assets, and of the Company, and such copies of
the Seller's financial statements, books and records, and contracts and
leases and other documentation relating to CSG, the Business, the Assets or
the Company, so as to enable the Investors to inspect and evaluate all
aspects of the business and operations, assets, operating results,
financial condition, future Prospects, capitalization, ownership, and legal
and regulatory affairs of CSG, the Business and the Company and to verify
the accuracy of the information heretofore furnished to the Investors and
the representations and warranties made in this Agreement by the Seller or
the Company with respect to the foregoing matters. The Seller agrees that
it will take no action to prevent or delay CSG or the Company from
furnishing or making available all information reasonably requested by the
Investors. Each of the Investors agrees to conduct its review in a manner
designed to minimize any disruption of the Seller's and the Company's
operations. All information and records obtained by the Investors pursuant
to this Agreement shall be maintained as confidential prior to the Closing
and shall not be disclosed to any third party prior to the Closing without
the prior written consent of the Seller, except (i) in response to legal
process; PROVIDED that Investors shall notify the Seller of such legal
process so as to provide the Seller with a reasonable opportunity to
contest the validity thereof or (ii) to the extent required to comply with
applicable law; PROVIDED, HOWEVER, that prior to making such disclosure,
Investors shall use their best efforts to have such information and records
afforded confidential treatment. Seller may require, as a condition to
providing the access described in Section 7.1, that each Investor and its
representatives execute and deliver a confidentiality agreement in form and
substance reasonably satisfactory to the
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Seller. The Investors shall not be obligated to maintain as confidential
any information obtained from the Seller or the Company which is publicly
available, readily available from public sources, known to it at the time
the information was disclosed, or which was rightly obtained from a third
party. In the event that this Agreement is terminated prior to the date of
the Closing, Investors shall return all information (and any copies
thereof) received by them (from the Seller or its agents or
representatives) and relating to the Seller, the Company, the Assets, the
Business or CSG to the Seller.
7.2 CONDUCT OF COMPANY'S BUSINESS. Unless the Investors give their
prior written consent for actions to be taken to the contrary, from the
date of this Agreement and until the Closing or termination of this
Agreement, whichever first occurs, the Seller and the Company shall, and
the Seller shall take no action to prevent or delay CSG or the Company from
being able to (except that from and after December 31, 1995, all dollar
amounts shown in this Section 7.2 shall be considered to be $0):
(a) OPERATION OF BUSINESS. Operate and conduct CSG's and the
Company's business and operations diligently and only in the ordinary
course of business consistent with Past Practice. The Business shall be
conducted up until the date of the Closing as usual and consistent with the
practices of the Seller with respect to the Business prior to December 8,
1995. All practices of CSG, the Company and the Business, including
procurement of inventory and raw materials, payment of accounts payable,
and fulfillment of customers order, shall be conducted to the date of
Closing in the ordinary course of business consistent with Past Practice.
Neither CSG nor the Company shall (i) incur any new indebtedness or
increase the amount due and owing to any lender for borrowed money, except
it may incur indebtedness for up to $50,000 for purposes of financing
equipment purchases or leases, or (ii) increase the compensation or
benefits of an employee, independent contractor or agent or adopt or amend
any commission plan or arrangement or any employee benefit plan or
arrangement of any type which results or may result in an increase in costs
or liabilities thereunder of more than $10,000 per month, in the aggregate,
above those existing on the date hereof, or otherwise lend or advance any
sum or extend credit to any employee, director, shareholder or stockholder
or any of their respective affiliates;
(b) ORGANIZATION. Preserve intact CSG's and the Company's
organization and use its reasonable best efforts to retain all employees of
and consultants to the Seller, relating to CSG, the Business and the
Assets, and the Company, commensurate with the requirements of the Business;
(c) VENDORS. Use its reasonable best efforts to retain services
of all vendors, suppliers, agents and consultants used in the Business,
commensurate with the requirements of the Business;
(d) INSURANCE. Maintain insurance (either directly or through
the Corporate Services Agreement described in Section 1.1), including
liability and efforts and omissions insurance, consistent with Past
Practice and, unless comparable insurance is substituted therefor or is not
generally available to businesses of the type conducted by CSG and the
Company, not take any action to terminate or modify, nor permit the lapse
or termination of, the present insurance policies and
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coverages of the Seller, relating to CSG, the Business and the Assets, and
the Company as set forth in the Disclosure Letter;
(e) LAWSUITS, CLAIMS. Promptly notify the Investors of, and if
requested by the Investors, diligently defend against, all lawsuits,
claims, proceedings or investigations that are, or which any officers of
the Company or the Seller, as a result of events or circumstances known to
them, has reason to believe may be, threatened, brought, asserted or
commenced against the Seller in relation to CSG or the Company or any of
their officers or directors, involving or affecting in any way CSG's or the
Company's operations, or any of the Assets, or the Business or the
transactions contemplated hereby; and, without the prior written consent of
the Investors, not settle any action or proceeding which would materially
and adversely affect the Business, the Assets, CSG or the Company, their
business, financial condition or operating results and, without the prior
written consent of the Investors, not release, settle, compromise or
relinquish any claims, causes of action or rights involving more than
$50,000 individually or $100,000 in the aggregate which the Company or the
Seller may have against any other persons, including, without limitation,
claims or rights to reimbursement or payment for services rendered by the
Company, CSG or the Seller, in relation to CSG, the Business and the Assets;
(f) CERTAIN CHANGES. Not sell or otherwise dispose, or enter
into any agreement for the sale, of any of the Assets, except for sales of
inventory and obsolete equipment in the ordinary course of business and
consistent with Past Practice, and not permit or allow, or enter into any
agreements providing for or permitting, any of its assets or properties to
be subjected to any option or Lien other than Liens in existence on the
date hereof and statutory liens to secure Taxes that are not yet due and
payable, all of which are listed on the Disclosure Letter;
(g) CONDITION OF ASSETS. Maintain in good working order and
condition, ordinary wear and tear excepted, and in compliance in all
material respects with all applicable laws and regulations, all of the
tangible Assets, wherever located, that are used, leased or owned by the
Seller or by the Company;
(h) AGREEMENTS. Observe and perform all terms, conditions,
covenants and obligations contained in all existing material agreements
between the Seller, in relation to CSG, or the Company and third parties
the violation of which would have, individually or in the aggregate, a
material adverse effect on the Business, the Assets, CSG or the Company or
their business, financial condition, operating results or future Prospects;
and, except as required by any existing agreements, not enter into any new
agreements or transactions with respect to the Company, the Business, the
Assets or CSG, or incur any expenditures, liabilities or obligations,
involving more than $50,000 individually or $100,000 in the aggregate, or
renew, extend, amend or modify any existing agreement involving any
commitments, obligations, liabilities or requiring any expenditures that
would exceed $50,000 individually or $100,000 in the aggregate with respect
to the Company, the Business, the Assets or CSG; not take any action which
would cause a material breach or violation of or material default under any
material agreement, lease, contract, or other written instrument,
commitment or arrangement, or under any material permit, license,
franchise, judgment, writ or order, applicable to or affecting the Seller
in relation to CSG, or the Company or the Business, and promptly notify the
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Investors in writing of the occurrence of any such breach or default; and
not enter into any transaction with respect to the Company, the Business,
the Assets or CSG with any stockholder, shareholder, director or officer or
any person or entity related to or affiliated with any such person other
than those transactions that are described in the Disclosure Letter, if any;
(i) TAXES. Pay, when due, and prior to the imposition or
assessment of any interest, penalties or liens by reason of the non-payment
of, all Taxes assessed against the Seller (as related to the Assets, the
Business, CSG or the Company) or the Company, any of its assets or its
operations other than Taxes, the validity of which is being contested in
good faith and for which adequate reserves have been established in
accordance with GAAP;
(j) DIVIDENDS, ETC. Except as contemplated by this Agreement
not: (i) declare or pay any dividends or make any distributions with
respect to or redeem any shares of the Company's capital stock; (ii)
accelerate the payment of or prepay any indebtedness or other obligations
of the Company; (iii) approve or effect any reclassification or
recapitalization of the Company or its authorized or outstanding shares;
(iv) merge or consolidate the Seller or the Company with or sell any of
their assets to a third party other than sales of assets in the ordinary
course of business and consistent with Past Practice; (v) approve or
commence any proceedings for the liquidation of the Seller or the Company;
or (vi) enter into any agreement to do any of the foregoing;
(k) CORPORATE MATTERS. Except as expressly contemplated by this
Agreement, not: (i) amend in any manner the Certificate of Incorporation or
Bylaws of the Company; (ii) alter the composition or membership of the
Company's board of directors; (iii) except for shares purchased upon
exercise of outstanding options, authorize or issue any shares of capital
stock of the Company of any class or series; (iv) create or issue any
warrants, obligations, subscriptions, options, convertible securities or
other commitments under which any additional shares of the capital stock of
any class or other equity securities of the Company may be directly or
indirectly authorized, issued or transferred; or (v) agree to do any of the
above; and
(l) LIABILITIES AND EXPENSES. Not: with respect to CSG, the
Assets, the Business or the Company, create or incur (whether as principal,
surety or otherwise) any actual or contingent liabilities or expenses in
excess of $25,000 in the aggregate other than liabilities and expenses
incurred in the ordinary course of business consistent with Past Practice.
7.3 CONSENTS. Each party to this Agreement shall use its reasonable
best efforts to obtain or cause to be obtained at the earliest practicable
date, and prior to the Closing, all consents, approvals and licenses, if
any, which such party requires to permit it to consummate the transactions
contemplated hereby without violating any material agreement, contract,
instrument or applicable law or regulation, license or permit, to which it
is a party or to which it or its assets are subject. The parties hereto
shall cooperate with each other in their efforts to obtain all such
consents, approvals and licenses.
7.4 NOTICE OF BREACH. Each party to this Agreement will immediately give
notice to the other parties of the occurrence of any event, or the failure of
any event to occur, that results in a
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breach by it of any representation or warranty or a failure by it to comply
with or fulfill any covenant, condition or agreement contained herein.
7.5 SELLER AND INVESTORS AS STOCKHOLDERS. The Seller agrees, as the
sole stockholder of the Company prior to the Closing, to cause the Company,
and the Investors agree as the controlling stockholders of Holdco prior to
the Closing, to cause Holdco and Holdco Sub to comply with all of their
respective obligations hereunder to be fulfilled prior to the Closing.
7.6 RETENTION OF CSG EARNINGS. It is the intent of the parties
hereto that all assets and liabilities shown on the Year-End Balance Sheet,
all proceeds and obligations relating to such assets and liabilities, and
all earnings, revenues, income and profits earned by CSG and the Business
from and after December 31, 1995 shall be transferred to the Company
immediately prior to the Effective Time. In addition, it is the intent of
the parties hereto that CSG and the Business be run separately from the
remainder of the business of the Seller for the benefit of Holdco and those
who will be Holdco's stockholders immediately after the Effective Time. In
furtherance of these purposes, from and after December 31, 1995, the Seller
shall keep and hold all assets and liabilities related to, and all revenue
and income attributable to, CSG, the Business and the Assets, including but
not limited to those assets and liabilities shown on the Year-End Balance
Sheet, separate from other Seller assets, revenue, income and liabilities.
As of December 31, 1995, all assets related to, and all revenue and income
attributable to CSG, the Business and the Assets, including but not limited
to those assets and liabilities shown on the Year-End Balance Sheet and all
assets, receivables, income and revenue received by the Seller that relates
to CSG, the Business and the Assets, shall be held in trust for transfer to
the Company pursuant to this Agreement. From and after December 31, 1995,
the Seller shall not cause or allow the Company, CSG, the Business, and the
Assets to assume any Liability or to become subject to any Lien other than
pursuant to the assumption of trade payables of CSG and the Business in the
ordinary course of business. From and after December 31, 1995, any
increases in the Working Capital of CSG and any additional receivables
received by the Seller in relation to CSG, the Business and the Assets
shall be held in trust by the Seller for transfer to the Company. From and
after December 31, 1995, all cash shown (or to be shown) on the Year-End
Balance Sheet shall be placed in an account separate from that of all other
funds of the Seller. All cash received by the Seller in relation to CSG,
the Business and the Assets from and after December 31, 1995, as income,
conversion of accounts receivable or otherwise, shall be placed in such
separate account and held there in trust until transferred to the Company
pursuant to Section 1.1. No cash shall be paid out of this separate
account except for (x) payments (other than those set forth in clauses (y)
and (z) of this sentence) in the ordinary course of business not exceeding
$10,000 in the aggregate, (y) payment in the ordinary course of business of
trade payables shown on (or to be shown on) the final and binding Year-End
Balance Sheet, and (z) payment of the amounts of salary (at the level shown
on Exhibit 1.1D), accruing after December 31, 1995 in the ordinary course
of business, of those employees and consultants of the Seller that are
listed on Schedule 1.1D as to be employees or consultants of the Company.
In no event shall cash from such separate account be used to pay
obligations accruing on or before December 31, 1995 that are not shown on
the Year-End Balance Sheet, and, to the extent that any such obligations
exist, such obligations shall remain obligations only of the Seller after
the Effective Time. The Company shall not transfer assets or cash, whether
as a dividend, an assumption of liabilities, a payment for deemed or actual
federal or state income taxes, a loan or otherwise, or
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obligate itself to transfer any assets or cash, to the Seller (and the
Seller shall not receive such from the Company), prior to the Effective
Time. As of and after December 31, 1995, the Seller and its directors
shall owe the Investors the same fiduciary duties with respect to CSG, the
Assets and the Business that the Company and its directors will owe the
holders of Company Common Stock and that Holdco and its directors will owe
the holders of Holdco Common Stock after the Closing. From and after
December 31, 1995 and until the Effective Time, the Seller shall use its
best efforts to cause CSG and the Business to achieve the financial results
for the period from January 1, 1996 to the Effective Time shown in the
projected financial statements set forth in Exhibit 7.6 hereto. From and
after December 31, 1995 and until the Effective Time, the Seller shall not
take any action that, and shall not fail to take any action that the
failure to take, could reasonably be expected to have a material adverse
effect on the ability of the Company to achieve the financial results for
the period from and after the Effective Time shown in the projected
financial statements set forth in Exhibit 7.6 hereto. The Seller shall
take all actions necessary to insure, that, as of the moment immediately
prior to the Effective Time, the Company shall hold all profits, earnings,
revenue, and cash held by the Seller as of December 31, 1995 and shown or
to be shown and the Year-End Balance Sheet, or received by the Seller from
and after December 31, 1995 in relation to the operation of CSG, the
Business, the Assets, and the Company or related to any of the items shown
on the Year-End Balance Sheet including, with limitations, accounts
receivable. Any of the requirements of this Section 7.6 may be waived with
the prior written consent of the Investors. In the event of any conflict
between this Section 7.6 and any other provision of this Article VII, the
provisions of this Section 7.6 shall control.
ARTICLE VIII
OBLIGATIONS AT OR PRIOR TO THE CLOSING
8.1 EXCLUSIVITY/OTHER OFFERS. Unless and until this Agreement has
been terminated in accordance with Section 12.2 below, none of the
Investors, Holdco, Holdco Sub, the Company, or the Seller, or any of their
respective representatives, agents, officers, directors, shareholders,
stockholders, partners or employees, will solicit or accept offers from,
provide information or assistance to, or negotiate or enter into any
agreement or understanding (written or oral) with, any other person or
entity regarding (i) the sale, merger, initial public offering or
reorganization of the Company; the sale or other disposition of, or the
granting of any security interest, lien or encumbrance on, any of the
Assets, the Business or CSG other than dispositions of inventory in the
ordinary course of business; or (iii) any other transaction which would
cause or result in any change, other than of an immaterial nature, in or
adversely affect the Business, the Assets, or the business of CSG or the
Company or otherwise interfere with the consummation of the transactions
contemplated herein.
8.2 OTHER DELIVERIES. At the Closing, the parties hereto shall also
execute and deliver all agreements and instruments referred to in Articles
IV, V and otherwise provided herein.
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ARTICLE IX
NATURE AND SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS
9.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties made by Holdco, Holdco Sub and the Investors in Section
2.1(c) hereof and by the Seller in this Agreement or any other instrument
or document delivered in connection herewith, including the documents
contained the Exhibits hereto and the Disclosure Letter, shall survive
until the date one year after the date of the Closing. Other than as set
forth above, all representations and warranties made by the Investors,
Holdco, Holdco Sub, and the Company in this Agreement or any other
instrument or document delivered in connection herewith shall terminate
upon the Closing and shall not survive the Closing. All covenants made in
the Agreement and any other instrument or document delivered in connection
with the Agreement shall survive indefinitely unless this Agreement or such
instrument or document specifically specifies otherwise.
ARTICLE X
INDEMNIFICATION
10.1 INDEMNIFICATION BY THE SELLER FOR BREACH OF THIS AGREEMENT.
Subject to the limitations set forth in this Article, the Seller shall
indemnify and hold harmless the Investors, the Company, Holdco and their
respective officers, directors, employees, successors and assigns (the
"Indemnified Investor Parties") in respect of any and all claims, actions,
suits or other proceedings and any and all losses, costs, expenses,
liabilities, fines, penalties, interest and damages, whether or not arising
out of any claim, action, suit or other proceeding (and including
reasonable counsel and accountants' fees and expenses and all other
reasonable costs and expenses of investigation, defense or settlement of
claims and amounts paid in settlement) incurred by, imposed on or borne by
the Indemnified Investor Parties ("Investor Damages") resulting from the
breach of any of the representations, warranties or covenants (including,
but not limited to, the covenant in Section 1.5 hereof) made by the Seller
in this Agreement, the Disclosure Letter, or any agreement, instrument or
document that is attached as an Exhibit to this Agreement. Investor
Damages shall exclude (i) any amount with respect to which the Indemnified
Investor Parties shall be entitled to receive and shall have received
payment under any insurance policy which provides coverage for the
liability to which such amount relates and (ii) the amount of any tax
benefit actually received by the Indemnified Investor Parties as a result
of such Investor Damages, after taking into account the tax consequences of
the indemnification payment for such Investor Damages.
10.2 INDEMNIFICATION BY THE SELLER FOR EFI LITIGATION AND BULK SALES
VIOLATIONS. The Seller shall indemnify and hold harmless the Indemnified
Investor Parties in respect of any and all Investor Damages resulting from the
EFI Litigation and from any violation by the Seller or the Company of the
requirements and provisions of any "bulk-transfer" laws of any jurisdiction in
connection with any of the transactions contemplated herein. Investor Damages
shall exclude any amount with respect to which the Indemnified Investor Parties
shall be entitled to receive and shall have received payment under any insurance
policy which provides coverage for the liability to which such amount relates.
Investor Damages shall exclude (i) any amount with respect to which the
Indemnified Investor Parties shall be entitled to receive and shall
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have received payment under any insurance policy which provides coverage
for the liability to which such amount relates and (ii) the amount of any
tax benefit actually received by the Indemnified Investor Parties as a
result of such Investor Damages, after taking into account the tax
consequences of the indemnification payment for such Investor Damages.
10.3 CLAIMS FOR INDEMNIFICATION OF INVESTORS. Whenever any claim
shall arise for indemnification hereunder, the Indemnified Investor Parties
making such claim shall promptly notify the Seller in writing of the claim
and, when known, the facts constituting the basis for such claim and use
its reasonable efforts to cooperate with the Seller to mitigate the
Investor Damages suffered or to be suffered by the such Indemnified
Investor Parties; PROVIDED that failure to give such notice shall not
affect any rights or remedies of the Indemnified Investor Parties hereunder
with respect to indemnification for Investor Damages except to the extent
that the Seller is materially prejudiced thereby. In the event of any
claim for indemnification hereunder resulting from or in connection with
any claim or legal proceedings by a third party, the notice to the Seller
shall specify, if known, the amount or an estimate of the amount of the
liability arising therefrom. None of the Indemnified Investor Parties
shall settle or compromise any claim by a third party for which they are
entitled to indemnification hereunder, without the prior written consent of
the Seller (which shall not be unreasonably withheld).
10.4 DEFENSE BY SELLER. In connection with any claim giving rise to
indemnity hereunder or resulting from or arising out of any claim or legal
proceeding by a person who is not a party to this Agreement, the Seller at
its sole cost and expense may, upon written notice to the Indemnified
Investor Parties, assume the defense of any such claim or legal proceeding
if it acknowledges to the Indemnified Investor Parties in writing its
obligation to indemnify the Indemnified Investor Parties with respect to
all elements of such claim, and thereafter diligently conduct the defense
thereof with counsel reasonably acceptable to the Indemnified Investor
Parties. The Indemnified Investor Parties shall be entitled to participate
in (but not control) the defense of any such action with their counsel and
at their own expense. If the Seller does not assume or fails to conduct in
a diligent manner the defense of any such claim or litigation resulting
therefrom, (a) the Indemnified Investor Parties may defend against such
claim or litigation, in such manner as they may deem appropriate,
including, but not limited to, settling such claim or litigation, after
giving reasonable notice of the same to the Seller, on such terms as the
Indemnified Investor Parties may deem appropriate (with the Seller's prior
written consent, which consent shall not be unreasonably withheld), and (b)
the Seller shall be entitled to participate in (but not control) the
defense of such action, with its counsel and at its own expense. If the
Seller thereafter seeks to question the manner in which the Indemnified
Investor Parties defended such third party claim or the amount or nature of
any such settlement, the Seller shall have the burden to prove by a
preponderance of the evidence that the Indemnified Investor Parties did not
defend or settle such third party claim in a reasonably prudent manner.
Notwithstanding the foregoing, no party shall consent to entry of any
judgment or enter into any settlement (or have any liability for Investor
Damages with respect thereto) which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such indemnified
and indemnifying party of a release
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from all liability in respect to such Claim. Each party agrees to
cooperate fully with the other, with such cooperation to include, without
limitation, attendance at depositions and the provision of relevant
documents as may be reasonably requested by the Seller, provided that the
Seller will hold the Indemnified Investor Parties harmless from all of
their reasonable expenses, including reasonable attorneys' fees, incurred
in connection with such cooperation by the Indemnified Investor Parties.
10.5 TIME LIMITATION ON INDEMNIFICATION OF INVESTORS, HOLDCO AND
COMPANY. Except for indemnification claims for Investor Damages resulting
from (a) the EFI litigation, (b) the violation of "bulk-transfer" laws of
any jurisdiction by the Seller or the Company in connection with any of the
transactions contemplated hereby, (c) the violation of any covenants of the
Seller made in this Agreement, the Disclosure Letter, or any agreement,
instrument or document that is attached as an Exhibit to this Agreement, or
(d) the failure of the Seller to pay any obligation greater than $2,000,000
pursuant to Section 1.5(c) hereof (collectively the "Unlimited Claims"), no
claim for indemnification under this Article may be made or suit instituted
by the Indemnified Investor Parties after the date one year after the date
of the Closing. Notwithstanding the foregoing, this Agreement shall place
no such limitation on the Unlimited Claims.
10.6 MONETARY LIMITATION ON INDEMNIFICATION OF INVESTORS, HOLDCO AND
COMPANY. With respect to any indemnification claims, except for any
Unlimited Claims, made by the Indemnified Investor Parties under this
Article, the Seller shall have no obligation to indemnify the Indemnified
Investor Parties for any Investor Damages which exceed an aggregate
cumulative amount equal to the amount, at the time of such claim, in the
escrow fund established in accordance with the terms of the Escrow
Agreement described in Section 4.4(h). Further, with respect to any
indemnification claims, except for the Unlimited Claims, made by the
Indemnified Investor Parties under this Article, the Seller have no
obligation to indemnify the Indemnified Investor Parties until the
aggregate cumulative amount of Investor Damages exceeds $250,000; provided
that if the aggregate cumulative amounts of Investor Damages exceeds
$250,000, this Article X shall provide for payment of indemnification
claims for all Investor Damages. Payment of indemnification pursuant to
this Article (except for the Unlimited Claims, which claims may be made
directly against the Seller or the such escrow fund at the option of the
Indemnified Investor Parties, as the case may be, seeking indemnification),
shall be made only from such escrow fund. Notwithstanding the foregoing,
there shall be no limit on the amount of the Unlimited Claims that may be
recovered by the Investors, Holdco and the Company from the Seller.
10.7 DAMAGES TO INVESTORS. The Seller acknowledges and agrees that,
if the Company suffers, incurs or otherwise becomes subject to any Investor
Damages as a result of or in connection with any inaccuracy in or breach of
any representation, warranty, covenant or obligation of the Seller or as a
result of the EFI Litigation or violation by the Seller or the Company of
"bulk-transfer" laws, then Holdco and the Investors also shall be deemed,
by virtue of their ownership of the stock of the Company, to have incurred
Investor Damages as a result of or in connection with such inaccuracy or
breach in the same amount and to the same extent as has the Company;
PROVIDED that the terms of this Section 10.7 shall not permit the Company,
Holdco and the Investors to receive from the Seller, pursuant to this
Article X, an aggregate of indemnification payments greater than such
Investor Damages.
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10.8 NO WAIVER BY INVESTORS, HOLDCO AND COMPANY. The Indemnified
Investor Parties shall not be barred from receiving indemnification under
this Article X because any of them had knowledge, prior to the date of
Closing or at any other time, of a breach of representation, warranty or
covenant of the Seller or a violation by the Seller or the Company of any
"bulk-transfer" laws by the Seller or the Company.
10.9 MATERIALITY. For the purposes of determining the amount of
Investor Damages under this Article X, all representations and warranties
of the Seller contained herein or in any instrument, document or agreement
contemplated hereby shall be deemed to be without any materiality or
material adverse effect exceptions or qualifications or any similar
exceptions or qualifications that may be present in such representations
and warranties.
10.10 INDEMNIFICATION BY HOLDCO AND INVESTORS. Subject to the
limitations set forth in this Article, the Holdco and the Investors shall
indemnify and hold harmless the Seller and its officers, directors,
employees successors and assigns (the "Indemnified Seller Parties") in
respect of any and all claims, actions, suits or other proceedings and any
and all losses, costs, expenses, liabilities, fines, penalties, interest
and damages, whether or not arising out of any claim, action, suit or other
proceeding (and including reasonable counsel and accountants' fees and
expenses and all other reasonable costs and expenses of investigation,
defense or settlement of claims and amounts paid in settlement) incurred
by, imposed on or borne by the Indemnified Seller Parties ("Seller
Damages") resulting from the breach of any of the representations or
warranties of Holdco and the Investors contained in Section 2.1(c) hereof
or of any of the covenants set forth in Section 1.5(d) hereof. Seller
Damages shall exclude (i) any amount with respect to which the Indemnified
Seller Parties shall be entitled to receive and shall have received payment
under any insurance policy which provides coverage for the liability to
which such amount relates and (ii) the amount of any tax benefit actually
received by the Indemnified Seller Parties as a result of such Seller
Damages, after taking into account the tax consequences of the
indemnification payment for such Seller Damages.
10.11 CLAIMS FOR INDEMNIFICATION OF SELLER. Whenever any claim
shall arise for indemnification hereunder, the Indemnified Seller Parties
making such claim shall promptly notify Holdco and the Investors in writing
of the claim and, when known, the facts constituting the basis for such
claim and use its reasonable efforts to cooperate with the indemnifying
party to mitigate the Seller Damages suffered or to be suffered by such
Indemnified Seller Parties; PROVIDED that failure to give such notice shall
not affect any rights or remedies of the Indemnified Seller Parties
hereunder with respect to indemnification for Seller Damages except to the
extent that Holdco and the Investors are materially prejudiced thereby. In
the event of any claim for indemnification hereunder resulting from or in
connection with any claim or legal proceedings by a third party, the notice
to Holdco and the Investors shall specify, if known, the amount or an
estimate of the amount of the liability arising therefrom. The Indemnified
Seller Parties shall settle or compromise any claim by a third party for
which they are entitled to indemnification hereunder, without the prior
written consent of Holdco and the Investors (which shall not be
unreasonably withheld).
10.12 DEFENSE BY HOLDCO AND INVESTORS. In connection with any claim
giving rise to indemnity hereunder or resulting from or arising out of any claim
or legal proceeding by a person who
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is not a party to this Agreement, Holdco and the Investors at their sole
cost and expense may, upon written notice to the Indemnified Seller
Parties, assume the defense of any such claim or legal proceeding if they
acknowledge to the Indemnified Seller Parties in writing their obligation
to indemnify the Indemnified Seller Parties with respect to all elements of
such claim, and thereafter diligently conduct the defense thereof with
counsel reasonably acceptable to the Indemnified Seller Parties. The
Indemnified Seller Parties shall be entitled to participate in (but not
control) the defense of any such action with its counsel and at its own
expense. If Holdco and the Investors do not assume or fails to conduct in
a diligent manner the defense of any such claim or litigation resulting
therefrom, (a) the Indemnified Seller Parties may defend against such claim
or litigation, in such manner as they may deem appropriate, including, but
not limited to, settling such claim or litigation, after giving reasonable
notice of the same to Holdco and the Investors, on such terms as the
Indemnified Seller Parties may deem appropriate (with the prior written
consent of Holdco and the Investors, which consent shall not be
unreasonably withheld), and (b) Holdco and the Investors shall be entitled
to participate in (but not control) the defense of such action, with their
counsel and at their own expense. If Holdco and the Investors thereafter
seek to question the manner in which the Indemnified Seller Parties
defended such third party claim or the amount or nature of any such
settlement, Holdco and the Investors shall have the burden to prove by a
preponderance of the evidence that the Indemnified Seller Parties did not
defend or settle such third party claim in a reasonably prudent manner.
Notwithstanding the foregoing, no party shall consent to entry of any
judgment or enter into any settlement (or have any liability for Seller
Damages with respect thereto) which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such indemnified
and indemnifying party of a release from all liability in respect to such
Claim. Each party agrees to cooperate fully with the other, with such
cooperation to include, without limitation, attendance at depositions and
the provision of relevant documents as may be reasonably requested by
Holdco and the Investors, provided that Holdco and the Investors will hold
the Indemnified Seller Parties harmless from all of their reasonable
expenses, including reasonable attorneys' fees, incurred in connection with
such cooperation by the Indemnified Seller Parties.
10.13 TIME LIMITATION ON INDEMNIFICATION OF SELLER. No claim for
indemnification under this Article may be made or suit instituted by the
Indemnified Seller Parties after the date one year after the date of the
Closing.
10.14 MONETARY LIMITATION ON INDEMNIFICATION OF SELLER. With
respect to any indemnification claims made by the Indemnified Seller
Parties under this Article, Holdco and the Investors shall have no
obligation to indemnify the Indemnified Seller Parties for any Seller
Damages which exceed an aggregate cumulative amount equal to the
$4,282,000. Further, with respect to any indemnification claims made by
the Indemnified Seller Parties under this Article, Holdco and the Investors
have no obligation to indemnify the Indemnified Seller Parties until the
aggregate cumulative amount of Seller Damages exceeds $250,000; provided
that if the aggregate cumulative amounts of Seller Damages exceeds
$250,000, this Article X shall provide for payment of indemnification
claims for all Seller Damages.
10.15 NO WAIVER BY SELLER. The Indemnified Seller Parties shall not be
barred from receiving indemnification under this Article X because any of them
had knowledge, prior to the date
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of Closing or at any other time, of a breach of the representations and
warranties of Holdco and the Investors made in Section 2.1(c).
ARTICLE XI
DEFINITIONS AND ACCOUNTING TERMS
11.1 CERTAIN DEFINED TERMS. As used in this Agreement, the following
terms shall have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
"Additional Accounting Firm" has the meaning specified in Section
1.5.
"Additional Report" has the meaning specified in Section 1.5.
"Affiliate" (and, with a correlative meaning, "Affiliated") shall
mean, with respect to any Person, any other Person that directly, or
through one or more intermediaries, controls or is controlled by or is
under common control with such first Person, and, if such a Person is an
individual, any member of the immediate family of such individual and any
trust whose principal beneficiary is such individual or one or more members
of such immediate family and any Person who is controlled by any such
member or trust. As used in this definition, "control" (including, with
correlative meanings, "controlled by" and "under common control with")
shall mean possession, directly or indirectly, of power to direct or cause
the direction of management or policies (whether through ownership of
securities or partnership or other ownership interests, by contract or
otherwise), and "immediate family" shall mean parents, spouse and children.
"Agreement" means this Merger Agreement as from time to time
amended and in effect between the parties hereto.
"Assets" has the meaning specified in Section 1.1.
"Assumed Liabilities" has the meaning specified in Section 1.1.
"Audited Financial Statements" has the meaning specified in
Section 4.8.
"Business" means the business of CSG as operated as of December
8, 1995 and the business of the Company as now proposed or contemplated,
including the operations of the Assets.
"Business Plan" has the meaning specified in Section 3.1.
"Cash Purchase Price" has the meaning specified in Section 1.4.
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"Claims" means any and all personal injury, property damage,
nuisance, tort, contract or other claims, actions or demands brought at any
time by any Person, any and all demands, actions or claims for
investigation, remediation, removal, closure or other action with respect
to Hazardous Materials, and any and all other investigations, suits,
demands, actions, fines, penalties, claims, enforcement actions, Liens,
Liabilities, damages, deficiencies, injunctions, reasonable attorneys'
fees, reasonable experts' fees, costs and expenses actually paid, imposed
or incurred.
"Closing" has the meaning specified in Section 1.4.
"COBRA" has the meaning specified in Section 3.1.
"Code" has the meaning specified in Section 3.1.
"Company" means and shall include Splash Technology, Inc., a
Delaware corporation, and its successors and assigns.
"Company Common Stock" has the meaning specified in Section 1.3.
"Company Facility" shall mean any real property asset (including
the land, the improvements and fixtures thereon, and the ambient air ground
water and surface water thereof and including, but not limited to, the
Assets), that the Seller, the Company or any of their past or present
subsidiaries has at any time owned, operated, occupied, controlled or
leased in connection with CSG, the Business or the Assets.
"Consolidated" when used with reference to any term defined
herein shall mean that term as applied to the accounts of the Company or
Holdco, as appropriate in the context, and its subsidiaries consolidated
in accordance with GAAP after eliminating intercompany items and minority
interests.
"Contracts" has the meaning specified in Section 1.1.
"Copyrights" mean U.S. and foreign copyrights, whether registered
or unregistered, and pending applications to register the same.
"CSG" has the meaning specified in the Recitals.
"DGCL" means the State of Delaware General Corporation Law, as
amended.
"Disclosure Letter" has the meaning specified in Section 3.1.
"Disposal Site" shall mean a landfill, incinerator, disposal
agent, waste hauler or recycler of Hazardous Materials.
"Effective Time" has the meaning specified in Section 1.4.
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"EFI Litigation" means any and all litigation or other claims
arising out of or related to U.S. Patent No. 4,941,038 and any divisionals,
continuations in part, or reissues thereof, to case number C95-04110 DLG
pending in United States District Court in the Northern District of
California and any amendments thereto, and any claims for indemnification
related to the foregoing.
"Employee Plans" has the meaning specified in Section 3.1.
"Environmental Law" means any Law pertaining to land use, air,
soil, surface water, groundwater (including the protection, cleanup,
removal, remediation or damage thereof), public or employee health or
safety or any other environmental matter, including, without limitation,
the following laws as in effect on the date of the Closing: (a) Clean Air
Act (42 U.S.C. Section 7401, et seq.); (b) Clean Water Act (33 U.S.C.
Section 1251, et seq.); (c) Resource Conservation and Recovery Act (42
U.S.C. Section 6901, et seq.); (d) Comprehensive Environmental Response
Compensation and Liability Act (42 U.S.C. Section 9601, et seq.); (e) Safe
Drinking Water Act (42 U.S.C. Section 300f, et seq.); (f) Toxic Substances
Control Act (15 U.S.C. Section 2601, et seq.); (g) Rivers and Harbors Act
(33 U.S.C. Section 401, et seq.); (h) Endangered Species Act (16 U.S.C.
Section 1531, et seq.); and (i) Occupational Safety and Health Act (29
U.S.C. Section 651, et seq.); together with any other foreign or domestic
laws (federal, state, provincial or local) relating to Hazardous Materials
of Hazardous Materials Activities.
"Environmental Permit" shall mean any approval, permit, license,
clearance or consent required to be obtained from any Person or any
Governmental Authority with respect to a Hazardous Materials Activity which
is or was conducted by the Seller in relation to CSG, the Business, the
Assets or the Company, by the Company or by any of their past or present
subsidiaries.
"ERISA" has the meaning specified in Section 3.1.
"ERISA Affiliate" has the meaning specified in Section 3.1.
"Escrow Remainder" has the meaning specified in Section 4.4.
"Exchange Act" means the Securities Exchange Act of 1934, or any
similar federal statute, and the rules and regulations of the Securities
and Exchange Commission (or of any other Federal Agency then administering
the Exchange Act) thereunder, all as the same shall be in effect at the
time.
"Financial Statements" has the meaning specified in Section 3.1.
"GAAP" means generally accepted accounting principles,
consistently applied.
"Governmental Authority" means any local, state, federal, foreign
or international governmental authority, agency or entity, including, but
not limited to, any court, commission, tribunal or panel having
jurisdiction over the matter at issue.
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"Hazardous Materials Activity" shall mean the handling
transportation, transfer, recycling, storage, use, treatment, manufacture,
investigation, removal, remediation, release, exposure of others to, sale,
or distribution of any Hazardous Material or any product containing a
Hazardous Material.
"Hazardous Material" shall mean any material or substance that is
prohibited or regulated by any Environmental Law or that has been
designated by any Governmental Authority to be radioactive, toxic,
hazardous or otherwise a danger to health, reproduction or the environment,
including without limitation asbestos, petroleum, radon gas, and
radioactive matter.
"Holdco" has the meaning specified in the Preamble.
"Holdco Common Stock" has the meaning specified in Section 2.1.
"Holdco Sub Common Stock" has the meaning specified in Section
1.3.
"Holdco Sub" has the meaning specified in the Preamble.
"Indemnified Investor Parties" has the meaning specified in
Section 10.1.
"Indemnified Seller Parties" has the meaning specified in Section
10.10.
"Intellectual Property" means Copyrights, Patent Rights,
Trademarks and Trade Secrets.
"Interim Balance Sheet" has the meaning specified in Section 3.1.
"Investor Damages" has the meaning specified in Section 10.1.
"Investors" has the meaning specified in the Preamble.
"Investors' Accountants" means Coopers & Xxxxxxx, L.L.P.
"Key Employee" means and includes the Chairman of the board of
directors, the President, any Vice-President and the Chief Financial
Officer of the Company, Holdco, or any of their subsidiaries, or any person
who is not an officer of Company, Holdco or any of their subsidiaries and
is in charge of one or more of the following functions: sales, marketing,
production, or engineering and technical development or any employee with
access to the confidential information of Holdco or the Company.
"Law" means any national, international, state, or local law,
statute, rule, regulation, ordinance, requirement for approval or permit,
judgment, injunction, decree of any court of applicable jurisdiction, or
any treaty, international understanding, or other rule which has the force
of law, including, without limitation, any Environmental Law.
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"Liability" means any direct or indirect liability, indebtedness,
obligation, guarantee or endorsement, either accrued, absolute, contingent
or otherwise, as determined in accordance with GAAP.
"Lien" means any mortgage, deed of trust, pledge, hypothecation,
security interest, encumbrance, lien, charge or Claim of any kind, whether
voluntarily incurred or arising by operation of Law or otherwise, including
any agreement to give any of the foregoing, any conditional sale or other
title retention agreement, any lease in the nature thereof, and/or the
filing of or agreement to give any financing statement under the Uniform
Commercial Code or comparable law of any jurisdiction.
"Merger" has the meaning specified in Recitals.
"Past Practice" shall mean the Past Practice of the Seller with
respect to CSG, excluding any practices of the Seller after September 30,
1995 that were not consistent with practices of the Seller prior to
September 30, 1995.
"Patent Rights" means U.S. and foreign patents, patent
applications pending or filed between the date hereof and the date of the
Closing, continuations, continuations-in-part, divisions, reissues or
patent disclosures.
"Person" means an individual, corporation, partnership, limited
liability company, joint venture, trust, or unincorporated organization, or
a government or any agency or political subdivision thereof.
"Preferred Stock" shall mean the Series A Preferred Stock and the
Series B Preferred Stock.
"Prospects" means the prospects of the Business as described in
and contemplated by the Business Plan.
"Restricted GAAP" means GAAP, as further limited to those
accounting principles and methods, all consistent with GAAP (except as
disclosed on Exhibit 11.0), shown on Exhibit 11.0 hereto.
"SEC" has the meaning specified in Section 3.1.
"Securities Act" means the Securities Act of 1933, as amended, or
any similar Federal statute, and the rules and regulations of the
Securities and Exchange Commission (or of any other Federal agency then
administering the Securities Act) thereunder, all as the same shall be in
effect at the time.
"Securities" has the meaning specified in Section 2.1.
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"Seller" has the meaning specified in the Preamble.
"Seller Damages" has the meaning specified in Section 10.10.
"Seller Financial Statements" has the meaning specified in Section
3.1.
"Seller SEC Documents" has the meaning specified in Section 3.1.
"Seller's Accountants" shall mean the Seller's auditors and any
other accounting firm otherwise engaged by the Seller.
"Series A Preferred Stock" has the meaning specified in Section 2.1.
"Series B Preferred Stock" has the meaning specified in Section 1.3.
"Software" means computer software programs and software systems,
including, without limitation, all databases, compilations, tool sets,
compilers, higher level "proprietary" languages, related documentation and
materials, whether in source code, object code or human readable form.
"Subordinated Notes" has the meaning specified in Recitals.
"Surviving Corporation" has the meaning specified in Section 1.2.
"Tax Return" means any return, declaration, report, claim for
refund, or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof.
"Tax" or "Taxes" shall mean any federal, state, local, or foreign
income, gross receipts, license, payroll, employment, excise, severance,
stamp, occupation, premium, windfall profits, environmental (including
taxes under Code Section 59A), customs duties, capital stock, franchise
profits, withholding, social security, unemployment, disability, real
property, personal property, sales, use, transfer, registration, value
added, alternative or add-on minimum, estimated, or other tax of any kind
whatsoever, including any interest, penalty, or addition thereto, whether
disputed or not.
"Trademarks" mean United States, state and foreign trademarks,
service marks, logos, trade dress and trade names, whether registered or
unregistered, and pending applications to register the foregoing and all
goodwill associated therewith.
"Trade Secrets" mean confidential ideas, trade secrets, know-how,
concepts, methods, processes, formulae, inventions (whether or not
patentable), reports, data, customer lists, mailing lists, business plans,
or other proprietary information that provides the owner with a competitive
advantage.
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"Unlimited Claims" shall have the meaning set forth in Section
10.5.
"Working Capital" means the aggregate of the cash, net accounts
receivable (less any allowances for doubtful accounts), net value of
inventory (adjusted for all applicable write-downs and write-offs) less
liabilities of any kind, which liabilities will include, but not be limited
to, accounts payable, royalties payable, warranty reserves, accrued
bonuses, accrued vacation, employee expense obligations, deferred revenue,
open purchase order commitments, other commitments or obligations to
customers, and liabilities under development agreements.
"Year-End Balance Sheet" has the meaning specified in Section 1.5.
11.2 ACCOUNTING TERMS. All accounting terms not specifically defined
herein shall be construed in accordance with GAAP, and all other financial
data submitted pursuant to this Agreement shall be prepared and calculated
in accordance with such principles.
ARTICLE XII
MISCELLANEOUS
12.1 NO WAIVER; CUMULATIVE REMEDIES. No failure or delay on the part
of the Seller, the Company, Holdco Sub, Holdco, any Investor, any
Indemnified Party, or any holder of the Subordinated Notes or the Preferred
Stock, in exercising any right, power or remedy hereunder shall operate as
a waiver thereof; nor shall any single or partial exercise of any such
right, power or remedy preclude any other or further exercise thereof or
the exercise of any other right, power or remedy hereunder. The remedies
herein provided are cumulative and not exclusive of any remedies provided
by law.
12.2 TERMINATION. This Agreement may be terminated prior to the
Closing (i) by the mutual consent of the parties hereto; (ii) by the Seller
and the Company if there has been a material misrepresentation or material
breach on the part of any of the Investors, Holdco or Holdco Sub in the
representations and warranties of the Investors, Holdco or Holdco Sub set
forth herein, which, if curable, has not been cured within 10 business days
after notice thereof by Seller; (iii) by Investors, Holdco, Holdco Sub, if
there has been a material misrepresentation or material breach on the part
of the Company or the Seller in the representations, warranties and
covenants of Seller or the Company set forth herein, which, if curable, has
not been cured within 10 business days after notice thereof by Investors;
and (iv) by any party hereto, if the Closing does not occur by January 31,
1996 for any reason. Upon termination of this Agreement, no party shall
have any further obligations or liability hereunder. Sections 12.5, 12.13
and 12.14 alone shall survive the termination of this Agreement.
12.3 AMENDMENTS, WAIVERS AND CONSENTS. Any provision in this
Agreement to the contrary notwithstanding, changes in or additions to this
Agreement may be made, and compliance with any covenant or provision herein
or therein set forth may be omitted or waived, if each of the Seller, the
Company, Holdco, Holdco Sub and the Investors shall consent in writing.
Any waiver or
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consent may be given subject to satisfaction of conditions stated therein
and any waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given.
12.4 ADDRESSES FOR NOTICES, ETC. Any notices and other communications
required or permitted under this Agreement shall be effective if in writing
and delivered personally or sent by telecopier, Federal Express or
registered or certified mail, postage prepaid, addressed as follows:
If to the Seller or the Company Radius Inc.
(prior to the Closing), to: 000 Xxxxxx Xxxx Xxxxx
Xxxxxxxxx, Xxxxxxxxxx 00000-0000
Telecopier: (000) 000-0000
Attention: Xxxxxxx Xxxxxx
with a copy to: Xxxxxx Xxxxxxxx, Esq.
Fenwick & West
Two Xxxx Xxxx Xxxxxx, Xxxxx 000
Xxxx Xxxx, Xxxxxxxxxx 00000
Telecopier: (000) 000-0000
If to the Company or Holdco Splash Technology, Inc. or Splash Technology
(after the Closing), to: Holdings, Inc.
c/o Radius Inc.
000 Xxxxxx Xxxx Xxxxx
Xxxxxxxxx, Xxxxxxxxxx 00000-0000
Telecopier: (000) 000-0000
Attention: Xxxxx Xxxxxxxxxxxx
If to the Investors, Holdco (before Summit Partners
the Closing), or Holdco Sub, to: 000 Xxxxxxxx Xxxxxx, Xxxxx 000
Xxxx Xxxx, Xxxxxxxxxx 00000
Telecopier: (000) 000-0000
Attention: Xxxxxxx X. Xxxx
with a copy to: Xxxxxxx X. Xxxxx, Esq.
Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx
000 Xxxx Xxxx Xxxx
Xxxx Xxxx, Xxxxxxxxxx 00000-0000
Telecopier: (000) 000-0000
Unless otherwise specified herein, such notices or other
communications shall be deemed effective (a) on the date delivered, if
delivered personally, (b) two business days after being sent, if sent by
Federal Express, (c) one business day after being sent, if sent by
telecopier with confirmation of good transmission and receipt, and (d)
three business days after being sent, if sent by registered or
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certified mail. Each of the parties herewith shall be entitled to specify
another address by giving notice as aforesaid to each of the other parties
hereto.
12.5 COSTS, EXPENSES AND TAXES. Holdco agrees to pay on demand all
costs and expenses of the Investors in connection with the investigation,
preparation, execution and delivery of this Agreement and any other
instruments and documents to be delivered hereunder and the consummation of
the Merger and all other transactions contemplated hereby and thereby,
including the fees and out-of-pocket expenses of Xxxxxx Xxxxxxx Xxxxxxxx &
Xxxxxx, P.C., counsel for Investors, fees for any government filings
required by any of the transactions contemplated hereby, and to pay the
legal expenses of the Investors, if this transaction is completed. In
addition, if the Closing occurs, the Seller shall pay any and all stamp and
other taxes payable or determined to be payable in connection with the
execution and delivery of this Agreement and instruments and documents to
be delivered hereunder and the consummation of the transactions hereunder,
and agrees to hold the Investors harmless from and against any and all
liabilities with respect to or resulting from any delay in paying or
omission to pay such taxes and filing fees.
12.6 BINDING EFFECT; ASSIGNMENT. This Agreement shall be binding upon
and inure to the benefit of the Company, the Seller, Holdco, Holdco Sub and
Investors and their respective successors and assigns, except that no party
shall have the right to assign its rights hereunder or any interest herein
without the prior written consent of the other parties.
12.7 PRIOR AGREEMENTS. This Agreement, including all Exhibits hereto
and the Disclosure Letter, constitutes the entire agreement between the
parties and supersedes any prior understandings or agreements concerning
the subject matter hereof.
12.8 SEVERABILITY. The invalidity or unenforceability of any
provision hereto shall in no way affect the validity or enforceability of
any other provision.
12.9 GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the internal laws of the State of California
without regard to principles of conflicts of law.
12.10 HEADINGS. Article, Section and subsection headings in this
Agreement are included herein for convenience of reference only and shall
not constitute a part of this Agreement for any other purpose.
12.11 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one
and the same instrument, and any of the parties hereto may execute this
Agreement by signing any such counterpart.
12.12 FURTHER ASSURANCES. From and after the date of this
Agreement, upon the reasonable request of the Investors, the Seller, the
Company and each of their subsidiaries shall execute and deliver such
instruments, documents and other writings as may be necessary or desirable
to confirm and carry out and to effectuate fully the intent and purposes of
this Agreement.
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12.13 CONFIDENTIALITY. Until the date of Closing, any information
relating to the terms of this Agreement and the transactions contemplated
hereby shall be treated as confidential and shall not be disclosed, by any
of the parties hereto, to a third party without the consent of the board of
directors of the Seller and the mutual consent of the Investors except as
otherwise required by federal securities laws. The parties hereto agree to
request that any federal or state security regulator treat as confidential
any information submitted to such regulator with respect to the
transactions contemplated by this Agreement.
12.14 PRESS RELEASE. No party hereto shall release a press
release relating to this Agreement or any of the transactions or documents
contemplated hereby without first submitting a copy of such press release
to the other parties hereto and obtaining the prior approval of such other
parties to any such press release, which approval shall not be unreasonably
withheld.
12.15 INDEMNIFIED PARTIES. The Indemnified Investor Parties and
Indemnified Seller Parties that are not parties to this Agreement shall be
third parties beneficiaries hereof for the purposes of Article X.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized and in
accordance with Section 1102 of the DGCL, as of the date first above
written.
SELLER:
RADIUS INC.,
a California corporation
By: /s/ Xxxxxxx X. Xxxxxx
-----------------------------------
Name: Xxxxxxx X. Xxxxxx
Title: Chairman and CEO
COMPANY:
SPLASH TECHNOLOGY, INC.
a Delaware corporation
By: /s/ Xxxxxxx X. Xxxxxx
-----------------------------------
Name: Xxxxxxx X. Xxxxxx
Title: Chairman and CE
HOLDCO:
SPLASH TECHNOLOGY HOLDINGS, INC.
a Delaware corporation
By: /s/ Xxxxxxx X. Xxxx
-----------------------------------
Name: Xxxxxxx X. Xxxx
Title: President and CEO
HOLDCO SUB:
SPLASH MERGER COMPANY, INC.
a Delaware corporation
By: /s/ Xxxxxxx X. Xxxx
-----------------------------------
Name: Xxxxxxx X. Xxxx
Title: President and CEO
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INVESTORS:
SUMMIT SUBORDINATED DEBT FUND, L.P.
By: Summit Partners SD, L.P., General Partner
By: Stamps, Xxxxxxx & Co., III, General Partner
By: /s/ Xxxxxxx X. Xxxx
-----------------------------------
Name: Xxxxxxx X. Xxxx
General Partner
SUMMIT VENTURES IV, L.P.
By: Summit Partners IV, L.P., General Partner
By: Stamps, Xxxxxxx & Co., IV, General Partner
By: /s/ Xxxxxxx X. Xxxx
-----------------------------------
Name: Xxxxxxx X. Xxxx
General Partner
SUMMIT INVESTORS II, L.P.
By: /s/ Xxxxxxx X. Xxxx
-----------------------------------
Name: Xxxxxxx X. Xxxx
General Partner
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