EXHIBIT 2.2
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
AMONG:
HOME DIRECTOR, INC.
A DELAWARE CORPORATION
DI ACQUISITION, INC.
A DELAWARE CORPORATION
DIGITAL INTERIORS, INC.
A CALIFORNIA CORPORATION
AND
XXXXXX X. XXXXXX
AS STOCKHOLDERS' AGENT
DATED AS OF OCTOBER 24, 2000
AGREEMENT AND PLAN
OF MERGER AND REORGANIZATION
THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION ("AGREEMENT") is
made and entered into as of October 24, 2000, by and among: HOME DIRECTOR, INC.
a Delaware corporation ("PARENT"); DI ACQUISITION, INC., a Delaware corporation
("MERGER SUB"); DIGITAL INTERIORS, INC. a California corporation (together with
all predecessor Entities (as defined below) and predecessor individuals, the
"COMPANY"); and XXXXXX X. XXXXXX AS STOCKHOLDERS' AGENT (as defined below).
Certain other capitalized terms used in this Agreement are defined in EXHIBIT A.
RECITALS
A. Parent, Merger Sub and the Company intend to effect a merger of
Merger Sub into the Company in accordance with this Agreement, the Delaware
General Corporation Law and the California Corporations Code (the "MERGER").
Upon the consummation of the Merger, Merger Sub will cease to exist, and the
Company will become a wholly owned subsidiary of Parent.
B. It is intended that the Merger qualify as a tax-free reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "CODE").
C. This Agreement and the Merger have been approved by the respective boards
of directors of Parent, Merger Sub and the Company.
D. Within 5 days after the execution of this Agreement, and as a condition
and inducement to Parent's willingness to enter into this Agreement, each of the
KEY STOCKHOLDERS (as defined in EXHIBIT A) shall enter into a Voting Agreement
and Irrevocable Proxy substantially in the form attached hereto as EXHIBIT B.
AGREEMENT
The parties to this Agreement agree as follows:
1. DESCRIPTION OF TRANSACTION
1.1 MERGER OF MERGER SUB INTO THE COMPANY. Upon the terms and subject
to the conditions set forth in this Agreement, at the Effective Time (as defined
in Section 1.3), Merger Sub shall be merged with and into the Company, and the
separate existence of Merger Sub shall cease. The Company will continue as the
surviving corporation in the Merger (the "SURVIVING CORPORATION").
1.2 EFFECT OF THE MERGER. The Merger shall have the effects set forth in
this Agreement and in the applicable provisions of the Delaware General
Corporation Law (the "DGCL") and the California Corporations Code (the
"CALIFORNIA CODE").
1.3 CLOSING; EFFECTIVE TIME. The consummation of the transactions
contemplated by this Agreement (the "CLOSING") shall take place at the offices
of Xxxx, Xxxx, Xxxx & Freidenrich, LLP, 000 Xxxxxxxx Xxxxxx, Xxxx Xxxx,
Xxxxxxxxxx 00000 at 10:00 a.m. on the first business day after the stockholders
of the Company approve the Merger. The date on which the Closing actually takes
place is referred to in this Agreement as the "CLOSING DATE." Contemporaneously
with the Closing, properly executed Certificates of Merger conforming to the
requirements of the DGCL and the California Code shall be filed with the
Secretary of State of the State of Delaware and the Secretary of State of the
State of California. The Merger shall become effective at the time such
Certificates of Merger are filed with and accepted by the Secretary of State of
the State of Delaware and the Secretary of State of the State of California (the
"EFFECTIVE TIME").
1.4 CERTIFICATE OF INCORPORATION AND BYLAWS; DIRECTORS AND OFFICERS. Unless
otherwise determined by Parent prior to the Effective Time:
(A) the Certificate of Incorporation of the Surviving Corporation shall
be amended and restated as of the Effective Time in a form acceptable to Parent;
(B) the Bylaws of the Surviving Corporation shall be amended and restated as
of the Effective Time to conform to the Bylaws of Merger Sub as in effect
immediately prior to the Effective Time; and
(C) the directors and officers of the Surviving Corporation immediately
after the Effective Time shall be the individuals identified on EXHIBIT C.
1.5 INDEBTEDNESS. At the Closing, Parent shall pay the indebtedness of
the Company listed on Exhibit D.
1.6 CONVERSION OF SHARES.
(A) Subject to Section 1.9(c), at the Effective Time, by virtue of the
Merger and without any further action on the part of Parent, Merger Sub, the
Company or any stockholder of the Company each share of the Company Stock (as
defined below) outstanding immediately prior to the Effective Time shall be
converted into the right to receive shares of the Common Stock (par value $0.001
per share) of Parent ("Parent Common Stock") valued at $1 per share; provided
that, the number of shares of Parent Common Stock issued under Section 1.6(a),
when added to the shares of Parent Common Stock issuable to: (x) the holders of
Company Options (as defined below) pursuant to Section 1.7; (y) the holders of
the Company Warrants (as defined below) pursuant to Section 3.9; and (z) the
holders of the Company Promissory Notes (as defined below) pursuant to Section
3.9; shall equal 14,000,000 shares, less on a dollar for dollar basis: (i) the
amount of the indebtedness listed on EXHIBIT D; (ii) the outstanding principal
amount and accrued interest as of the Effective Time of the Promissory Note,
dated September 14, 2000, made and delivered by the Company to Parent in the
original principal amount of $500,000; (iii) the outstanding principal amount
and accrued interest as of the Effective Time of any additional working capital
loans made by Parent or any other individual or Entity to the Company prior to
the Closing; (iv) the amount of any payments made with respect to Dissenting
Shares pursuant to section 1.11; (v) the amount of legal fees and expenses owed
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by the Company to Xxxx, Xxxx, Xxxx & Friedenrich, LLP through the Closing; and
(vii) the amount of any payments, fees or expenses (including legal fees and
expenses) made or owed by the Company with respect to Druml Litigation (as
defined below); as follows:
(I) the holders of shares of the Series A Preferred Stock (no par value
per share) of the Company (the "COMPANY SERIES A STOCK") outstanding immediately
prior to the Effective Time, pari pasu with the holders of the Company Series B
Stock (as defined below) and the Company Series C Stock (as defined below),
shall be converted into the right to receive a pro rata portion of the shares of
Parent Common Stock that are issuable at the Closing pursuant to the first
paragraph of this Section 1.6(a) based upon a liquidation preference of $1.00
per share and shall participate in the distribution of shares of Parent Common
Stock to the holders of Company Common Stock (as defined below) pursuant to
Section 1.6(a)(iv);
(II) the holders of shares of the Series B Preferred Stock (no par value per
share) of the Company (the "COMPANY SERIES B STOCK") outstanding immediately
prior to the Effective Time, pari pasu with the holders of the Company Series A
Stock and the Company Series C Stock, shall be converted into the right to
receive a pro-rata portion of the shares of Parent Common Stock that are
issuable at the Closing pursuant to the first paragraph of this Section 1.6(a)
based upon a liquidation preference of $1.00 per share and shall participate in
the distribution of shares of Parent Common Stock to the holders of Company
Common Stock (as defined below) pursuant to Section 1 .6(a)(iv);
(III) the holders of shares of the Series C Preferred Stock (no par value
per share) of the Company (the "COMPANY SERIES C STOCK") outstanding immediately
prior to the Effective Time, pari pasu with the holders of the Company Series A
Stock and the Company Series C Stock, shall be converted into the right to
receive a pro-rata portion of the shares of Parent Common Stock that are
issuable at the Closing pursuant to the first paragraph of this Section 1.6(a)
based upon a liquidation preference of $2.00 per share and shall participate in
the distribution of shares of Parent Common Stock to the holders of Company
Common Stock pursuant to Section 1 .6(a)(iv);
(IV) after the distributions of shares of Parent Common Stock to the holders
of Company Series A Stock, Company Series B Stock, and Company Series C Stock
pursuant to Sections l.6(a)(i), l.6(a)(ii), and 1.6(a)(iii), the holders of
shares of the Common Stock (no par value per share) of the Company (the "COMPANY
COMMON STOCK") outstanding immediately prior to the Effective Time, along with
(on a pari pasu basis) the holders of the Company Series A Stock, the Company
Series B Stock, and the Company Series C Stock, shall be converted into the
right to receive a pro rata portion of the remaining shares of Parent Common
Stock that are issuable at the Closing pursuant to the first paragraph of this
Section 1.6 (a);
(V) each share of the Common Stock (par value $0.00 1 per share) of Merger
Sub outstanding immediately prior to the Effective Time shall be converted into
one share of Common Stock of the Surviving Corporation; and
(VI) all calculations under this Section 1.6(a) shall be rounded up or down,
as the case may be, to the nearest whole share of Company Common Stock.
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(B) If Parent at any time or from time to time between the date of this
Agreement and the Effective Time declares or pays any dividend on Parent Common
Stock payable in Parent Common Stock or in any right to acquire Parent Common
Stock, or effects a subdivision of the outstanding shares of Parent Common Stock
into a greater number of shares of Parent Common Stock (by stock dividends,
combinations, splits, recapitalizations and the like), or in the event the
outstanding shares of Parent Common Stock shall be combined or consolidated, by
reclassification or otherwise, into a lesser number of shares of Parent Common
Stock, then the number of shares of Parent Common Stock issuable pursuant to
Sections 16(a)(i), 1.6(a)(ii), 1.6(a)(iii), and 1.6(a)(iv) shall be
appropriately adjusted.
(C) If any shares of Company Common Stock, Company Series A Stock, Company
Series B Stock, or Company Series C Stock outstanding immediately prior to the
Effective Time are unvested or are subject to a repurchase option, risk of
forfeiture or other condition under any applicable restricted stock purchase
agreement or other agreement with the Company as listed on Part 2.10 of the
Company Disclosure Schedule, then the shares of Parent Common Stock issued in
exchange for such shares of Company Common Stock, Company Series A Stock,
Company Series B Stock, or Company Series C Stock will also be unvested and/or
subject to the same repurchase option, risk of forfeiture or other condition,
and the certificates representing such shares of Parent Common Stock may
accordingly be marked with appropriate legends.
(D) A portion of the shares of Parent Common Stock issued in the Merger
shall be delivered into escrow and held as specified in Section 1.9 hereof.
1.7 EMPLOYEE STOCK OPTIONS. Prior to the Effective Time, the Company
shall permit the exercise of vested Company Options (as defined below) by either
the payment of the exercise price in cash or through a cashless net exercise,
and in no event shall the Company permit the exercise of vested Company Options
by a promissory note. At the Effective Time, each stock option that is then
outstanding under the Company's 1998 Stock Option Plan, whether vested or
unvested (a "COMPANY OPTION"), shall be converted into an option to purchase
shares of Parent Common Stock. All rights with respect to Company Common Stock
under outstanding Company Options shall thereupon be converted into stock
options with respect to Parent Common Stock. Accordingly, from and after the
Effective Time, (a) each Company Option may be exercised solely for shares of
Parent Common Stock, (b) the number of shares of Parent Common Stock subject to
each such converted Company Option shall be equal to the number of shares of
Parent Stock that the holder of such Company Option would have received pursuant
to Section 1.6(a)(i) hereof if such Company Option had been fully vested and
exercised immediately prior to the Effective Time, rounded up or down, as the
case may be, to the nearest whole number of shares of Parent Common Stock, (c)
the per share exercise price for the Parent Common Stock issuable upon exercise
of each such converted Company Option shall be $1 per share, (d) each converted
Company Option designated an "incentive stock option" as defined in Section 422
of the Code ("ISO") immediately prior to the Effective Time shall remain an ISO,
(e) each converted Company Option shall be subject to the terms and conditions
of, and the restrictions on transfer set forth in, Parent's 1999 Stock Incentive
Plan, and (f) all restrictions on the exercise of each such converted Company
Option as set forth in each option holder's employment agreement or stock option
agreement or pursuant to the Company's 1998 Stock Option Plan, shall continue in
full force and effect, and the term, exercisability, vesting schedule and other
provisions of such Company Option shall otherwise remain unchanged; provided,
however, that each such converted Company Option shall, in accordance with its
terms, be subject to further adjustment as appropriate to reflect any stock
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split, reverse stock split, stock dividend, recapitalization or other similar
transaction effected by Parent after the Effective Time. The Company and Parent
shall take all action that may be necessary (under the Company's 1998 Stock
Option Plan and otherwise) to effectuate the provisions of this Section 1.7.
Each holder of a Company Option will receive credit for time served as an
employee of the Company for the purposes of the vesting schedule of such Company
Option converted by the Parent. Following the Closing, Parent will send to each
holder of a converted Company Option a written notice setting forth (i) the
number of shares of Parent Common Stock issuable upon exercise of such converted
Company Option and (ii) the exercise price per share of Parent Common Stock
issuable upon the exercise of such converted Company Option.
1.8 CLOSING OF THE COMPANY'S TRANSFER BOOKS. At the Effective Time, holders
of certificates representing shares of the Company's Stock (as defined below)
that were outstanding immediately prior to the Effective Time shall cease to
have any rights as stockholders of the Company, and the stock transfer books of
the Company shall be closed with respect to all shares of such Company Stock
outstanding immediately prior to the Effective Time. No further transfer of any
such shares of the Company's Stock shall be made on such stock transfer books
after the Effective Time. If, after the Effective Time, a valid certificate
previously representing any of such shares of the Company's Stock (a "COMPANY
STOCK CERTIFICATE") is presented to the Surviving Corporation or Parent, such
Company Stock Certificate shall be canceled and shall be exchanged as provided
in Section 1.9.
1.9 EXCHANGE OF CERTIFICATES; ESCROW SHARES.
(A) (I) American Stock and Transfer & Trust Co. shall act as exchange
agent in the Merger (the "EXCHANGE AGENT"). Promptly after the Effective Time,
Parent shall deposit with the Exchange Agent certificates representing the
shares of Parent Common Stock issuable pursuant to this Section 1. The shares of
Parent Common Stock so deposited with the Exchange Agent, together with any
dividends or distributions received by the Exchange Agent with respect to such
shares, are referred to collectively as the "EXCHANGE FUND."
(II) As soon as reasonably practicable after the Effective Time, the
Exchange Agent will mail to the Merger Stockholders (x) a letter of transmittal
in customary form and containing such provisions as Parent may reasonably
specify (including a provision confirming that delivery of Company Stock
Certificates shall be effected, and risk of loss and title to Company Stock
Certificates shall pass, only upon delivery of such Company Stock Certificates
to the Exchange Agent), and (y) instructions for use in effecting the surrender
of Company Stock Certificates in exchange for certificates representing Parent
Common Stock. Upon surrender of a Company Stock Certificate to the Exchange
Agent for exchange, together with a duly executed letter of transmittal and such
other documents as may be reasonably required by the Exchange Agent or Parent,
(1) the Merger Stockholder holding such Company Stock Certificate shall be
entitled to receive in exchange therefore a certificate representing 70% of the
number of whole shares of Parent Common Stock that such Merger Stockholder has
the right to receive pursuant to the provisions of Section 1.6, and (2) the
Company Stock Certificate so surrendered shall be canceled. The Exchange Agent
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shall thereupon also deliver to the escrow agent under the Escrow Agreement in
the form of EXHIBIT E hereto (the "ESCROW AGREEMENT") a certificate representing
30% of the number of whole shares of Parent Common Stock that such Merger
Stockholder has the right to receive pursuant to the provisions of Section 1.6.
Until surrendered as contemplated by this Section 1.9, each Company Stock
Certificate shall be deemed, from and after the Effective Time, to represent
only the right to receive shares of Parent Common Stock as contemplated by
Section 1. II any Company Stock Certificate shall have been lost, stolen or
destroyed, Parent may, in its discretion and as a condition precedent to the
issuance of any certificate representing Parent Common Stock, require the owner
of such lost, stolen or destroyed Company Stock Certificate to provide an
appropriate affidavit and to deliver a bond (in such sum as Parent may
reasonably direct) as indemnity against any claim that may be made against the
Exchange Agent, Parent or the Surviving Corporation with respect to such Company
Stock Certificate.
(B) No dividends or other distributions declared or made with respect
to Parent Common Stock with a record date after the Effective Time shall be paid
to the holder of any unsurrendered Company Stock Certificate with respect to the
shares of Parent Common Stock represented thereby, and no cash payment in lieu
of any fractional share shall be paid to any such holder, until such holder
surrenders such Company Stock Certificate in accordance with this Section 1.9
(at which time such holder shall be entitled to receive all such dividends and
distributions and such cash payment).
(C) No fractional shares of Parent Common Stock shall be issued in
connection with the Merger, and no certificates for any such fractional shares
shall be issued.
(D) Any portion of the Exchange Fund that remains undistributed to holders
of Company Stock Certificates as of the date 180 days after the date on which
the Merger becomes effective shall be delivered to Parent upon demand, and any
holders of Company Stock Certificates who have not theretofore surrendered their
Company Stock Certificates in accordance with this Section 1.9 shall thereafter
look only to Parent for satisfaction of their claims for Parent Common Stock and
any dividends or distributions with respect to Parent Common Stock.
(E) Each of the Exchange Agent, Parent and the Surviving Corporation shall
be entitled to deduct and withhold from any consideration payable or otherwise
deliverable to any holder or former holder of capital stock of the Company
pursuant to this Agreement such amounts as Parent or the Surviving Corporation
is required to deduct or withhold therefrom under the Code or under any
provision of state, local or foreign tax law. To the extent such amounts are so
deducted or withheld, such amounts shall be treated for all purposes under this
Agreement as having been paid to the Person to whom such amounts would otherwise
have been paid.
(F) Neither Parent nor the Surviving Corporation shall be liable to any
holder or former holder of capital stock of the Company for any shares of Parent
Common Stock (or dividends or distributions with respect thereto), or for any
cash amounts, delivered to any public official pursuant to any applicable
abandoned property, escheat or similar law.
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1.10 EARN OUT. In addition to the shares of Parent Common Stock that
are issuable to the Merger Stockholders pursuant to Section 1.6, the Parent
shall issue to the Merger Stockholders additional shares of Parent Common Stock
having an aggregate Fair Market Value (as defined below) not to exceed
$15,000,000, in accordance with the following provisions:
(A) If the Gross Revenue (as defined below) of the Surviving
Corporation is equal to at least 50% of the Gross Revenue Milestones set forth
on the table below for the applicable Measurement Period set forth on the table
below, then the Parent shall issue to the Merger Stockholders, in accordance
with each Merger Stockholder's Pro-Rata Allocation (as defined below), such
number of shares of Parent Common Stock having an aggregate Fair Market Value,
that is equal to such percentage (which may be greater than 100%) of the
applicable Gross Revenue Milestones times the Earn Out Value associated with
such Measurement Period as set forth on the table below; provided that: (i) if
the Gross Revenue of the Surviving Corporation is less than 50% of the Gross
Revenue Milestone for a Measurement Period, the Earn Out Value as set forth on
the table below for such Measurement Period is not carried forward or added to
the Earn Out Value for any subsequent Measurement Period; (ii) if the foregoing
calculation results in the issuance of shares of Parent Common Stock having a
Fair Market Value greater than the Earn Out Value for such Measurement Period,
then the difference will reduce the Earn Out Value for the last Measurement
Period set forth on the table below; and (iii) the aggregate Fair Market Value
of the shares of Parent Common Stock issued pursuant to this Section 1.10 shall
not exceed 000.
GROSS
MEASUREMENT PERIOD REVENUE MILESTONE EARNOUT VALUE
------------------ ------------------ --------------
10/1/00 - 12/31/00 $ 2,700,000 $ 1,600,000
1/1/01 - 12/31/01. $ 50,000,000 $ 6,700,000
1/1/02 - 12/31/02. $ 164,000,000 $ 6,700,000
(B) The gross revenue of the Surviving Corporation (the "Gross
Revenue") shall be all revenue derived by the Surviving Corporation from
installation services, product sales, consulting services, program/project
management and reoccurring revenue that are undertaken separately by the
Surviving Corporation or managed by the Surviving Corporation on behalf of
Parent that is collected with 120 days of the Applicable Measurement Period as
set forth on the table above. Notwithstanding the foregoing, if a Company
contract provides for payment upon the achievement of certain performance
milestones, then revenue receivable pursuant to such contract shall be included
in Gross Revenue as such revenue is recognized in accordance with generally
accepted accounting principles, less appropriate reserves for doubtful accounts
and without regard to the 120 day collection requirement of the first sentence
of this Section 1.10(b). All books, records, accounts and financial statements
of the Surviving Corporation shall be maintained and prepared in accordance with
generally accepted accounting principles applied on a consistent basis. The
Gross Revenue of the Surviving Corporation shall be audited annually by Ernst
&Young, LLP ("E&Y") and such audit shall be completed within 120 days of the end
of each Measurement Period as set forth on the table above. On or before each of
December 1, 2000 and December 1, 2001, the Surviving Corporation shall submit to
Parent a Business Plan (including a plan for capital expenditures) for the
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Surviving Corporation for the subsequent fiscal year. On or before December 31,
2000 and December 31, 2001, as the case may be, the Board of Directors of Parent
shall approve each such Business Plan with such changes as the Board of
Directors of Parent may determine within its sole discretion taking into account
the overall strategic business plan of Parent.
(C) Within 130 days after each Measurement Period as set forth on the table
above, Parent shall cause E&Y to deliver to Parent its calculation of the Gross
Revenue of the Surviving Corporation for such Measurement Period. Within 150
days after each Measurement Period, the Parent shall deliver to Stockholders'
Agent a statement (the "EARN-OUT STATEMENT") of: (i) E&Y's calculation of the
Gross Revenue of the Surviving Corporation for such Measurement Period; (ii) the
then current Fair Market Value of the Parent Common Stock; and (iii) the number
of additional shares of Parent Common Stock, if any, that are issuable to the
Merger Stockholders.
If the Merger Stockholders dispute the Earn-Out Statement, the
Stockholders' Agent shall notify Parent in writing (the "NOTICE OF DISPUTE") not
more than 30 days after the date that the Stockholders' Agent received the
Earn-Out Statement, specifying in reasonable detail the points of dispute. If
the Stockholders' Agent fails to deliver a Notice of Dispute to Parent within
such 30-day period, the Stockholders' Agent shall be deemed to have accepted the
Earn-Out Statement. Upon receipt of the Notice of Dispute, Parent shall promptly
consult with the Stockholders' Agent with respect to such points of disagreement
in an effort to resolve the dispute. If any such dispute cannot be resolved by
Parent and the Stockholders' Agent within 10 days after Parent receives the
Notice of Dispute, they shall refer the dispute to a mutually acceptable "Big 5"
accounting firm (the "ACCOUNTANT") as an arbitrator to finally determine, as
soon as practicable, and in any event within 30 days after such reference, all
points of disagreement regarding the Earn-Out Statement. If Parent and the
Stockholders' Agent are unable to agree on a firm to serve as the Accountant, a
firm (other than E&Y) shall be selected by lot from the "Big 5" accounting
firms. For purposes of such arbitration, the Stockholders' Agent shall submit
proposed changes to the Earn-Out Statement to the Accountant. The Accountant
shall conduct the arbitration under such procedures as the parties may agree or,
failing such agreement, under the rules of the Judicial Arbitration & Mediation
Services, Inc. ("JAMS"). The fees and expenses of the arbitration and of the
Accountant incurred in connection with the arbitration of the Earn-Out Statement
shall be allocated between Parent and the Merger Stockholders by the Accountant
in proportion to the extent that either of them did not prevail on items in
dispute on the Earn-Out Statement; provided, that such fees and expenses will
not include, so long as a party complies with the procedures of this Section,
the other party's outside counsel and accounting fees. All determinations by the
Accountant shall be final, conclusive, and binding with respect to the Earn-Out
Statement and the allocation of arbitration fees and expenses.
(D) Upon the consummation of an Acquisition Transaction with respect to
Parent or an underwritten initial public offering of shares of the Parent Common
Stock pursuant to the Securities Act, the Parent shall issue to the Merger
Stockholders such number of shares of Common Stock as is equal to the remaining
Revenue Milestones divided by the per share value paid for the shares of parent
Common Stock in such Acquisition Transaction or the price per share at which the
shares of Parent Common Stock were issued in such initial public offering, as
the case may be.
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(E) Promptly after each final determination that additional shares of Parent
Common Stock are issuable to the Merger Stockholders pursuant to this Section
1.10, Parent shall deposit with the Exchange Agent certificates representing
such shares of Parent Common Stock. The Exchange Agent shall distribute such
shares of Parent Common Stock to the Merger Stockholders in accordance with the
written instructions of the Stockholders Agent.
1.11 DISSENTING SHARES. Notwithstanding anything to the contrary
contained in this Agreement, any shares ("DISSENTING SHARES") of Company Common
Stock that are outstanding immediately prior to the Effective Time and that are
held by any Person who is entitled to demand and properly demands payment of the
fair value of such Dissenting Shares pursuant to, and who complies in all
respects with, Section 1300 et. seq. of the California Code ("Section 1300")
shall not be converted into or be exchangeable for the right to receive Parent
Common Stock in accordance with Section 1.6, but rather the holders of
Dissenting Shares shall be entitled to payment of the fair value of such
Dissenting Shares in accordance with Section 1300; provided, however, that if
any such holder shall fail to perfect or otherwise shall waive, withdraw or lose
the right to receive payment of the fair value of such holder's Dissenting
Shares under Section 1300, then the right of such holder to be paid the fair
value of such holder's Dissenting Shares shall cease and such Dissenting Shares
shall be deemed to have been converted as of the Effective Time into, and to
have become exchangeable solely for the right to receive Parent Common Stock in
accordance with Section 1.6. The Company shall give prompt notice to Parent and
Merger Sub of any demands received by the Company for payment of fair value of
any shares of Company Common Stock (including a copy of each demand), and Parent
and Merger Sub shall have the right to participate in and direct all
negotiations and proceedings with respect to such demands. Prior to the
Effective Time, the Company shall not, without the prior written consent of
Parent, make any payment with respect to, or settle or offer to settle, any such
demands or agree to do any of the foregoing. From and after the Effective Time,
Parent shall be responsible for all payments with respect to Dissenting Shares,
including without limitation, all expense associated with negotiations and
proceedings with respect to demands for appraisal required under Delaware
General Corporation Law.
1.12 TAX CONSEQUENCES. For federal income tax purposes, the Merger is
intended to constitute a reorganization within the meaning of Section 368 of the
Code. The parties to this Agreement hereby adopt this Agreement as a "plan of
reorganization" within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the
United States Treasury Regulations.
1.13 FURTHER ACTION. If, at any time after the Effective Time, any further
action is determined by Parent to be necessary or desirable to carry out the
purposes of this Agreement or to vest the Surviving Corporation or Parent with
full right, title and possession of and to all rights and property of Merger Sub
and the Company, the officers and directors of the Surviving Corporation and
Parent shall be fully authorized (in the name of Merger Sub, in the name of the
Company and otherwise) to take such action.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants, to and for the benefit of the
Indemnitees, subject to such exceptions as are specifically disclosed in the
Company Disclosure Schedule (referencing the appropriate section and paragraph
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numbers) supplied by the Company to Parent (the "Company Disclosure Schedule")
and dated the date hereof, that on the date hereof and as of the Effective Time
as though made at the Effective Time as follows (provided, that the
representations and warranties made as of a specified date will be true and
correct as of such date):
2.1 DUE ORGANIZATION; SUBSIDIARIES; ETC.
(A) The Company has been duly organized, and is validly existing and in
good standing under the laws of the State of California, has full power
(corporate and other) and authority: (i) to conduct its business in the manner
in which its business is currently being conducted; (ii) to own and use its
assets in the manner in which its assets are currently owned and used; and (iii)
to perform its obligations under all Material Contracts (as defined below) by
which it is bound.
(B) Except as set forth in Part 2.1(b)(i) of the Company Disclosure
Schedule, the Company has not conducted, and is not conducting, any business
under or otherwise used, or is otherwise using, for any purpose or in any
jurisdiction, any fictitious name, assumed name, trade name or other name. Part
2.1(b)(ii) of the Company Disclosure Schedule lists all predecessor Entities and
predecessor individuals of the Company.
(C) The Company is qualified to do business as a foreign corporation,
and is in good standing, under the laws of all jurisdictions where the property
owned, leased or operated by it or the nature of its business requires such
qualification and where the failure to be so qualified would have a Material
Adverse Effect on the Company. The Company is in possession of and operating in
compliance with all Governmental Authorizations that are material to the conduct
of its business, all of which are valid and in full force and effect.
(D) Part 2.1(d) of the Company Disclosure Schedule accurately sets
forth (i) the names of the members of the Company's board of directors, (ii) the
names of the members of each committee of the Company's board of directors, and
(iii) the names and titles of the Company's officers.
(E) The Company has no subsidiaries (as defined below). The Company has
no equity or other interest in any Entity. As used in this Agreement, the word
"SUBSIDIARY" means any Entity of which the Company directly or indirectly owns
50% or more of the equity or that the Company directly or indirectly controls.
The Company has not agreed and is not obligated to make any future investment in
or capital contribution to any Entity. Except as set forth in Part 2.1(e) of the
Company Disclosure Schedule, the Company has not guaranteed and is not
responsible or liable for any obligation of any Entity.
2.2 CERTIFICATE OF INCORPORATION AND BYLAWS; RECORDS. Except as set
forth on Part 2.2(a) of the Company Disclosure Schedule, the Company has
delivered to Parent accurate and complete copies of: (1) its Articles of
Incorporation and Bylaws, including all amendments thereto (the "INCORPORATION
DOCUMENTS"); (2) the stock records of the Company; and (3) the minutes and other
records of the meetings and other proceedings (including any actions taken by
written consent or otherwise without a meeting) of the stockholders, the board
of directors and all committees of the board of directors of the Company. There
have been no formal meetings or other proceedings of the stockholders, board of
directors, or any committee of the board of directors of the Company that are
10
not fully reflected in such minutes or other records. There has been no
violation of any of the provisions of the Incorporation Documents of the
Company, and the Company has not taken any action that is inconsistent in any
material respect with any resolution adopted by the Company's stockholders,
board of directors or any committee of the Company's board of directors. The
books of account, stock records, minute books and other records of the Company
are complete and have been maintained in accordance with prudent business
practices.
2.3 CAPITALIZATION, ETC.
(A) The authorized capital stock of the Company consists of 33,000,000
shares of Common Stock (no par value per share), of which 12,861,496 shares have
been issued and are outstanding as of the date of this Agreement, 1,142,295
shares of Series A Preferred Stock (no par value per share), of which 767,295
shares have been issued and are outstanding as of the date of this Agreement,
912,500 shares of Series B Preferred Stock (no par value per share), of which
855,000 shares have been issued and are outstanding as of the date of this
Agreement and 10,025,000 shares of Series C Preferred Stock (no par value per
share), of which 1,373,750 shares have been issued and are outstanding as of the
date of this Agreement (the Company's Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock shall be collectively referred to
herein as the "COMPANY PREFERRED STOCK" and, together with the Company Common
Stock, shall be referred to as the "COMPANY STOCK"). Each outstanding share of
Company Preferred Stock is convertible into one share of Company Common Stock.
All of the outstanding shares of Company Stock have been duly authorized and
validly issued, and are fully paid and non-assessable. As of the date of this
Agreement, the outstanding shares of Company Stock are held by the Persons, with
the addresses of record and in the amounts set forth in Part 2.3(a) of the
Company Disclosure Schedule. Part 2.3(a) of the Company Disclosure Schedule also
provides an accurate and complete description of the terms of each repurchase
option which is held by the Company and to which any of such shares is subject.
(B) The Company has reserved 6,137,499 shares of Company Common Stock
for issuance under its 1998 Stock Option Plan, of which options to purchase
3,239,894 shares are outstanding as of the date of this Agreement. Part 2.3(b)
of the Company Disclosure Schedule accurately sets forth, with respect to each
Company Option that is outstanding as of the date of this Agreement: (i) the
name of the holder of such Company Option; (ii) the total number of shares of
Company Common Stock that are subject to such Company Option and the number of
shares of Company Common Stock with respect to which such Company Option is
immediately exercisable; (iii) the date on which such Company Option was granted
and the term of such Company Option; (iv) the vesting schedule for such Company
Option; (v) the exercise price per share of Company Common Stock purchasable
under such Company Option; and (vi) whether such Company Option has been
designated an ISO.
(C) Part 2.3(c)(i) of the Company Disclosure Schedule accurately
sets forth, with respect to each convertible debenture issued to any Person: (A)
the name of the holder of such convertible debenture; (B) the total number of
shares of Company Stock that are subject to such convertible debenture; (C) the
number of shares of Company Stock with respect to which such convertible
11
debenture is immediately exercisable and (D) the term of such convertible
debenture.
(II) Part 2.3(c)(ii) of the Company Disclosure Schedule accurately sets
forth, with respect to each warrant issued to any Person: (A) the name of the
holder of such warrant; (B) the total number of shares of Company Stock that are
subject to such warrant; (C) the number of shares of Company Stock with respect
to which such warrant is immediately exercisable; and (D) the term of such
warrant.
(D) Except as set forth in Parts 2.3(b), 2.3(c), and 2.3(d) of the
Company Disclosure Schedule, there is no: (i) outstanding subscription, option,
call, warrant or right (whether or not currently exercisable) to acquire any
shares of the capital stock or other securities of the Company; (ii) except for
the Company Preferred Stock, outstanding security, instrument or obligation that
is or may become convertible into or exchangeable for any shares of the capital
stock or other securities of the Company; (iii) Contract under which the Company
is or may become obligated to sell or otherwise issue any shares of its capital
stock or any other securities; or (iv) condition or circumstance that may give
rise to or provide a basis for the assertion of a claim by any Person to the
effect that such Person is entitled to acquire or receive any shares of capital
stock or other securities of the Company.
(E) All outstanding shares of Company Stock and all outstanding Company
Options, have been issued and granted in compliance with (i) all applicable
securities laws and other applicable Legal Requirements, and (ii) all
requirements set forth in applicable Contracts.
(I) Except as set forth in Part 2.3(f) of the Company Disclosure
Schedule, the Company has never repurchased, redeemed or otherwise reacquired
any shares of capital stock or other securities of the Company. All such
repurchases, redemptions, and requisitions of shares of capital stock or other
securities of the Company have been in compliance with all Legal Requirements.
2.4 FINANCIAL STATEMENTS.
(A) Except as set forth in Part 2.4(a) of the Company Disclosure
Schedule, the Company has delivered to Parent the following financial statements
and notes (collectively, the "COMPANY FINANCIAL STATEMENTS"):
(I) the unaudited combined balance sheets of the Company as of June 30,
1998, June 30, 1999, and June 30, 2000, and the related unaudited combined
statement of income, combined statement of shareholders' equity and combined
statement of cash flows for the three (3) years ended June 30, 2000, together
with the notes thereto; and
(II) the unaudited balance sheet of the Company, as of August 31, 2000
(the "UNAUDITED INTERIM BALANCE SHEET"), and the related unaudited income
statement of the Company for the 2 months then ended.
(B) Except as disclosed in Part 2.4(b)(i) of the Company Disclosure
Schedule, the Company Financial Statements are accurate and complete in all
material respects and present fairly the financial position of the Company as of
12
the respective dates thereof and the results of operations and (in the case of
the financial statements referred to in Section 2.4(a)(i)) cash flows of the
Company for the periods covered thereby. Except as set forth in Part 2.4(b)(ii)
of the Company Disclosure Schedule, the Company Financial Statements have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods covered.
(C) The books, records and accounts of the Company accurately and
fairly reflect, in reasonable detail, the transactions in and dispositions of
the assets of the Company.
2.5 ABSENCE OF CHANGES. Except as set forth in Part 2.5 of the Company
Disclosure Schedule, since June 30, 2000:
(A) there has not been any material adverse change in the Company's
business, condition (financial or otherwise), assets, liabilities, operations,
financial performance or overall prospects, and no event has occurred that could
reasonably be expected to, have a Material Adverse Effect on the Company
(B) there has not been any material loss, damage or destruction to, or
any material interruption in the use of, the Company's material assets (whether
or not covered by insurance);
(C) the Company has not declared, accrued, set aside or paid any
dividend or made any other distribution in respect of any shares of its capital
stock, and have not repurchased, redeemed or otherwise reacquired any shares of
its capital stock or other securities;
(D) the Company has not sold, issued or authorized the issuance of (i)
any capital stock or other security (except for Company Common Stock issued upon
the exercise of outstanding Company Options), (ii) any option or right to
acquire any capital stock or any other security, or (iii) any instrument
convertible into or exchangeable for any capital stock or other security;
(E) the Company has not amended or waived any of its rights under, or
permitted the acceleration of vesting under, (i) any provision of its 1998 Stock
Option Plan, (ii) any provision of any agreement evidencing any outstanding
Company Option, or (iii) any restricted stock purchase agreement;
(F) there has been no amendment to any of the Company's Incorporation
Documents, and the Company has not effected or been a party to any Acquisition
Transaction, recapitalization, reclassification of shares, stock split, reverse
stock split or similar transaction;
(G) the Company has not formed any subsidiary or acquired any equity
interest or other interest in any other Entity;
(H) the Company has not made any capital expenditure;
(I) the Company has not (i) entered into or permitted any of the assets
owned or used by it to become bound by any Contract that is or would constitute
13
a Material Contract, or (ii) amended or prematurely terminated, or waived any
material right or remedy under, any such Contract;
(J) the Company has not (i) acquired, leased or licensed any right or
other asset from any other Person, (ii) sold or otherwise disposed of, or leased
or licensed, any right or other asset to any other Person, or (iii) waived or
relinquished any right, except for immaterial rights or other immaterial assets
acquired, leased, licensed or disposed of in the ordinary course of business and
consistent with the Company's past practices;
(K) the Company has not written off as uncollectible, or established
any extraordinary reserve with respect to, any account receivable or other
indebtedness in excess of $10,000 with respect to a single matter, or in excess
of $75,000 in the aggregate;
(L) the Company has not made any pledge of any of its assets or
otherwise permitted any of its assets to become subject to any Encumbrance;
(M) the Company has not (i) lent money to any Person (other than
pursuant to routine travel advances made to employees in the ordinary course of
business), or (ii) incurred or guaranteed any indebtedness for borrowed money;
(N) the Company has not (i) established or adopted any Employee Benefit
Plan, (ii) paid any bonus or made any profit-sharing or similar payment to, or
increased the amount of the wages, salary, commissions, fringe benefits or other
compensation or remuneration payable to, any of its directors, officers or
employees, (iii) other than in the ordinary course of business and consistent
with past practices, hired any new employee, or (iv) received any notice of any
resignation of any employee or received any indication that any employee intends
to resign;
(O) the Company has not changed any of its methods of accounting or
material accounting practices in any respect;
(P) the Company has not made any Tax election;
(Q) the Company has not commenced or settled any Legal Proceeding;
(R) the Company has not entered into any material transaction or taken
any other material action outside the ordinary course of business or
inconsistent with its past practices; and
(S) the Company has not agreed or legally committed to take any of the
actions referred to in clauses "(c)" through "(r)" above".
2.6 TITLE TO ASSETS.
(A) The Company owns, and has good, valid and marketable title to, all
assets purported to be owned by it, including: (i) all tangible and intangible
assets reflected on the Unaudited Interim Balance Sheet; (ii) all intangible
assets referred to in Parts 2.9(a)(i) and 2.9(a)(ii) of the Company Disclosure
14
Schedule and all of the Company's rights under the Contracts identified in Part
2.10 of the Company Disclosure Schedule; and (iii) all other tangible and
intangible assets reflected in the Company's books and records as being owned by
the Company. Except as set forth in Part 2.6(a) of the Company Disclosure
Schedule, all of said assets are owned by the Company free and clear of any
liens or other Encumbrances, except for any lien for current taxes not yet due
and payable.
(B) Part 2.6(b) of the Company Disclosure Schedule identifies all
assets that are material to the business of the Company and that are being
leased or licensed to the Company for which the annual rental payment for each
such asset exceeds $25,000.
2.7 BANK ACCOUNTS; RECEIVABLES.
(A) Part 2.7(a) of the Company Disclosure Schedule describes each
account maintained by or for the benefit of the Company at any bank or other
financial institution.
(B) Part 2.7(b) of the Company Disclosure Schedule provides an accurate
and complete breakdown and aging of all accounts receivable, notes receivable
and other receivables of the Company as of September 30, 2000. Other than as
described in Part 2.7(b) of the Company Disclosure Schedule, all existing
accounts receivable of the Company (including those accounts receivable
reflected on the Unaudited Interim Balance Sheet that have not yet been
collected and those accounts receivable that have arisen since August 31, 2000
and have not yet been collected) (i) represent valid obligations of customers of
the Company arising from bona fide transactions entered into in the ordinary
course of business, (ii) are current and will be collected in full when due,
without any counterclaim or set off (net of an allowance for doubtful accounts
not to exceed $100,000 in the aggregate).
2.8 EQUIPMENT; LEASEHOLD.
(A) All material items of equipment and other tangible assets owned by
or leased to the Company are reasonably adequate for the uses to which they are
being put, are in good condition and repair (ordinary wear and tear excepted).
(B) The Company does not own any real property or any interest in real
property, except for the leasehold created under the real property leases
identified in Part 2.10 of the Company Disclosure Schedule.
2.9 PROPRIETARY ASSETS.
(A) Part 2.9(a)(i) of the Company Disclosure Schedule sets forth, with
respect to each Company Proprietary Asset registered with any Governmental Body
or for which an application has been filed with any Governmental Body, (i) a
brief description of such Proprietary Asset, and (ii) the names of the
jurisdictions covered by the applicable registration or application. Other than
unregistered trademarks, trade names and service marks (collectively, the
"UNREGISTERED TRADEMARKS"), Part 2.9(a)(ii) of the Company Disclosure Schedule
identifies and provides a brief description of all other Company Proprietary
15
Assets owned by the Company. Part 2.9(a)(ii) of the Company Disclosure Schedule
also discloses all Unregistered Trademarks that have been and are currently
being used by the Company in the ordinary course of business. The Company has
not received any notice or other communication (in writing or otherwise) of any
actual, alleged, possible or potential infringement or unlawful use of any
Unregistered Trademark and the Company is entitled to use and will continue to
use such Unregistered Trademarks on and after the Closing. Part 2.9(a)(iii) of
the Company Disclosure Schedule identifies and provides a brief description of
each Proprietary Asset licensed to the Company by any Person (except for any
Proprietary Asset that is licensed to the Company under any third party software
license generally available to the public at a cost of less than $5,000), and
identifies the license agreement under which such Proprietary Asset is being
licensed to the Company. Other than the Unregistered Trademarks identified in
Part 2.9(a)(ii) of the Company Disclosure Schedule, the Company has good, valid
and marketable title to all of the Company Proprietary Assets identified in
Parts 2.9(a)(i) and 2.9(a)(ii) of the Company Disclosure Schedule owned by it,
free and clear of all liens and other Encumbrances, and has a valid right to use
all Proprietary Assets identified in Part 2.9(a)(iii) of the Company Disclosure
Schedule not owned by it. Except as set forth in Part 2.9(a)(iv), the Company is
not obligated to make any payment to any Person for the use of any Company
Proprietary Asset. Except as set forth in Part 2.9(a)(v) of the Company
Disclosure Schedule, the Company has not developed jointly with any other Person
any Company Proprietary Asset with respect to which such other Person has any
rights.
(B) Except as to the absence of registrations referenced in Part
2.9(a)(ii) of the Company Disclosure Schedule, the Company has taken all
measures and precautions reasonably necessary to protect and maintain the
confidentiality and secrecy of all Company Proprietary Assets (except Company
Proprietary Assets whose value would be unimpaired by public disclosure) and
otherwise to maintain and protect the value of all Company Proprietary Assets.
The Company has taken all measures and precautions necessary to protect and
maintain the confidentiality and secrecy of all Company Proprietary Assets that
are trade secrets (the "TRADE SECRETS") and otherwise to maintain and protect
the value of all Trade Secrets. Except as set forth in Part 2.9(b) of the
Company Disclosure Schedule, the Company has not disclosed or delivered to any
Person, or permitted the disclosure or delivery to any Person of, (i) the source
code, or any portion or aspect of the source code, of any Company Proprietary
Asset, or (ii) the object code, or any portion or aspect of the object code, of
any Company Proprietary Asset.
(C) None of the Company Proprietary Assets infringes or conflicts with
any Proprietary Asset owned or used by any other Person. The Company is not
infringing, misappropriating or making any unlawful use of, and the Company has
not at any time infringed, misappropriated or made any unlawful use of, or,
except as set forth in Part 2.9(c) of the Company Disclosure Schedule, received
any notice or other communication (in writing or otherwise) of any actual,
alleged, possible or potential infringement, misappropriation or unlawful use
of, any Proprietary Asset owned or used by any other Person. To the best
knowledge of the Company, except as set forth in Part 2.9(c) of the Company
Disclosure Schedule, no other Person is infringing, misappropriating or making
any unlawful use of, and no Proprietary Asset owned or used by any other Person
infringes or conflicts with, any Company Proprietary Asset.
(D) Each Company Proprietary Asset conforms in all material respects
with any enforceable specification, documentation, performance standard,
representation or statement made or provided with respect thereto by or on
behalf of the Company; and there has not been any claim by any customer or other
Person alleging that any Company Proprietary Asset (including each version
thereof that has ever been licensed or otherwise made available by the Company
to any Person) does not conform in all material respects with any specification,
16
documentation, performance standard, representation or statement made or
provided by or on behalf of the Company, and, to the best of the knowledge of
the Company, there is no basis for any such claim.
(E) The Company Proprietary Assets constitute all the Proprietary
Assets necessary to enable the Company to conduct its business in the manner in
which such business is being conducted. Except as set forth in Part 2.9(e)(i) of
the Company Disclosure Schedule, the Company has not licensed any of the Company
Proprietary Assets to any Person on an exclusive basis, and except as set forth
in Part 2.9(e)(ii), the company has not entered into any covenant not to compete
or Contract limiting its ability to exploit fully any of its Proprietary Assets
or to transact business in any market or geographical area or with any Person.
(F) Except as set forth in Part 2.9(f) of the Company Disclosure
Schedule, all current and former employees of the Company have executed and
delivered to the Company an agreement (containing no exceptions to or exclusions
from the scope of its coverage) that is substantially the same in all material
respects as to the form of the Employee Confidentiality and Proprietary Rights
Agreement previously delivered to Parent, and all current and former consultants
and independent contractors to the Company have executed and delivered to the
Company an agreement (containing no exceptions to or exclusions from the scope
of its coverage) that is substantially the same in all material respects as to
the form of the Company Independent Consultant Agreement previously delivered to
Parent.
(G) The Company Proprietary Assets and all computer software programs,
including operating systems, application programs, software tools, firmware and
software imbedded in equipment of the Company, including both object code and
source code versions thereof, are Year 2000 Compliant (as defined below) in all
material respects and will not cease to be Year 2000 Compliant in all material
respects at any time prior to, during or after the calendar year 2000 AD;
provided, however, that no representation or warranty is made pursuant to this
section with respect to any failure of the Company Proprietary Assets or such
software programs to perform in accordance with the foregoing arising out of any
error, failure, malfunction or incorrect result due to third party equipment,
operating system software, third party tools, application or database software,
or other third party products or materials (in each case, whether or not sold or
licensed by Company). Part 2.9(g) of the Company Disclosure Schedule describes
the steps that the Company has taken, and plans to take, in the review of its
computer equipment and software applications used in its internal business
operations (but not the operations of any other Person), with respect to the
inability of its computerized systems to recognize and properly perform
date-sensitive functions (the "YEAR 2000 PROBLEM"). The Company has and is
continuing to address the impact of the Year 2000 Problem on the Company
Proprietary Assets and its internal business computer systems and software
applications.
As used herein, the term "YEAR 2000 COMPLIANT" means that neither the
performance nor the functionality of any applicable product is or will be
affected by dates prior to, during or after the calendar year 2000 AD and in
particular (but without limitation):
(i) such product accurately receives, provides and processes, and will
accurately receive, provide and process, date/time data (including calculating,
17
comparing and sequencing) from, into and between the twentieth and twenty-first
centuries and including calendar years 1999 and 2000;
(II) such product will not malfunction, cease to function, provide invalid or
incorrect results or cause any interruption in the operation of the business of
Target or its Subsidiaries as a result of any date/time data;
(ii) date-based functionality of such product behaves and will continue
to behave consistently for dates prior to, during and after the year 2000;
(iii) in all interfaces and data storage of such product, the century
in any date is and will be specified either explicitly or by unambiguous
algorithms or inferencing rules; and
(iv) the year 2000 is and will be recognized as a leap year of such
product.
(H) Except with respect to demonstration or trial copies, no product,
system, program or software module designed, developed, sold, licensed or
otherwise made available by the Company to any Person contains any "back door,"
"time bomb," "Trojan horse," "worm," "drop dead device," "virus" or other
software routines or hardware components designed to permit unauthorized access
or to disable or erase software, hardware or data without the consent of the
user.
2.10 CONTRACTS.
(A) Part 2.10 of the Company Disclosure Schedule identifies:
(I) each Company Contract relating to the employment of, or the
performance of services by, any employee, consultant or independent contractor;
any Company Contract pursuant to which the Company is or may become obligated to
make any severance, termination or similar payment to any current or former
employee or director; and any Company Contract pursuant to which the Company is
or may become obligated to make any bonus or similar payment (other than payment
in respect of salary) in excess of $2,000 to any current or former employee or
director;
(II) each Company Contract relating to the voting, registration, and
any other rights or obligations of a stockholder of the Company;
(III) each Company Contract relating to the merger, consolidation,
reorganization or any similar transaction with respect to the Company;
(IV) each Company Contract relating to the acquisition, transfer, use,
development, sharing or license of any technology or any material Proprietary
Asset;
(V) each Company Contract creating or relating to any partnership or
joint venture or any sharing of revenues, profits, losses, costs or liabilities;
18
(VI) each Company Contract relating to the license of any patent,
copyright, trade secret or other Proprietary Asset to or from the Company;
(VII) each Company Contract imposing any restriction on the Company (A)
to compete with any other Person, (B) to acquire any product or other asset or
any services from any other Person, to sell any product or other asset to or
perform any services for any other Person or to transact business or deal in any
other manner with any other Person, or (C) to develop or distribute any
technology
(VIII) each Company Contract creating or involving any agency
relationship, distribution arrangement or franchise relationship;
(IX) each Company Contract regarding the acquisition, issuance or
transfer of any securities and each Company Contract affecting or dealing with
any securities of the Company including, without limitation, any restricted
stock agreements or escrow agreements;
(X) each Company Contract which provides for indemnification of any
officer, director, employee or agent;
(XI) each Company Contract relating to the creation of any Encumbrance
with respect to any material asset of the Company;
(XII) each Company Contract involving or incorporating any loan,
guaranty, any pledge, any performance or completion bond, any indemnity or any
surety arrangement;
(XIII) each Company Contract related to or regarding the performance of
consulting, advisory or other services or work of any type to any third party;
(XIV) each Company Contract relating to the purchase or sale of any
product or other asset by or to, or the performance of any services by or for,
any Related Party (as defined in Section 2.18);
(XV) each Company Contract constituting or relating to a Government
Contract or Government Bid;
(XVI) any other Company Contract that was entered into outside the
ordinary course of business or was inconsistent with the Company's past
practices;
(XVII) any other Company Contract that has a term of more than 60 days
and that may not be terminated by the Company (without penalty) within 60 days
after the delivery of a termination notice by the Company; and
(XVIII) any other Company Contract that contemplates or involves (A)
the payment or delivery of cash or other consideration in an amount or having a
value in excess of $25,000 in the aggregate, or (B) the performance of services
having a value in excess of $25,000 in the aggregate.
19
(Contracts in the respective categories described in clauses "(i)" through
"(xviii)" above are referred to in this Agreement as "Material Contracts.")
(B) The Company has delivered to Parent accurate and complete copies of
all Material Contracts identified in Part 2.10 of the Company Disclosure
Schedule, including all amendments thereto. Part 2.10 of the Company Disclosure
Schedule provides an accurate description of the terms of each Material Contract
that is not in written form. Each Material Contract identified in Part 2.10 of
the Company Disclosure Schedule is valid and in full force and effect, and, to
the best of the knowledge of the Company, is enforceable by the Company in
accordance with its terms, subject to (i) laws of general application relating
to bankruptcy, insolvency and the relief of debtors, and (ii) rules of law
governing specific performance, injunctive relief and other equitable remedies.
(C) Except as set forth in Part 2.10 of the Company Disclosure Schedule:
(I) The Company has not violated or breached in any material respect,
or committed any material default which remains uncured under, any Material
Contract to which it is a party, and, to the best of the knowledge of the
Company, no other Person has violated or breached, or committed any default
under, any Material Contract which remains uncured;
(II) to the best of the knowledge of the Company, no event has
occurred, and no circumstance or condition exists, that (with or without notice
or lapse of time) will, or could reasonably be expected to, (A) result in a
violation or breach of any of the provisions of any Material Contract, (B) give
any Person the right to declare a default or exercise any remedy under any
Material Contract, (C) give any Person the right to accelerate the maturity or
performance of any Material Contract, or (D) give any Person the right to
cancel, terminate or modify any Material Contract;
(III) the Company has not received any notice or other communication
regarding any actual or possible violation or breach of, or default under, any
Material Contract; and
(IV) The Company has not waived any of its respective material rights
under any Material Contract.
(D) No Person is actively renegotiating, or has a contractual right
pursuant to the terms of any Company Contract to renegotiate, any amount paid or
payable in excess of $50,000, to the Company under any Material Contract or any
other material term or provision of any Material Contract.
(E) The Material Contracts identified in Part 2.10 of the Company
Disclosure Schedule collectively constitute all of the Contracts necessary to
enable the Company to conduct its business in the manner in which its business
is currently being conducted.
2.11 LIABILITIES. The Company does not have any accrued, contingent or
other liabilities of any nature, either matured or unmatured (whether or not
required to be reflected in financial statements in accordance with generally
accepted accounting principles, and whether due or to become due), except for:
(a) liabilities identified as such in the "liabilities" column of the Unaudited
20
Interim Balance Sheet; (b) liabilities under the Company Contracts identified in
Part 2.10 of the Company Disclosure Schedule that are expressly set forth and
identifiable by reference to the text of such Company Contracts; and (c) the
liabilities identified in Part 2.11 of the Company Disclosure Schedule.
2.12 COMPLIANCE WITH LEGAL REQUIREMENTS. To the Company's knowledge,
the Company is, and has at all times been, in compliance with all applicable
Legal Requirements, except where the failure to comply with such Legal
Requirements has not had and could not reasonably be expected to have a Material
Adverse Effect on the Company. Except as set forth in Part 2.12(b) of the
Company Disclosure Schedule, the Company has not received any written notice or
written communication from any Governmental Body regarding any actual or
possible violation of, or failure to comply with, any Legal Requirement.
2.13 GOVERNMENTAL AUTHORIZATIONS. Part 2.13 of the Company Disclosure
Schedule identifies each material Governmental Authorization held by the
Company, and the Company has delivered or made available to Parent accurate and
complete copies of all Governmental Authorizations identified in Part 2.13 of
the Company Disclosure Schedule. The Governmental Authorizations identified in
Part 2.13 of the Company Disclosure Schedule are valid and in full force and
effect, and collectively constitute all Governmental Authorizations necessary to
enable the Company to conduct its business in the manner in which its business
is currently being conducted. To the Company's knowledge, the Company is, and at
all times has been, in compliance with the terms and requirements of the
respective Governmental Authorizations identified in Part 2.13 of the Company
Disclosure Schedule. The Company has not received any notice or other
communication from any Governmental Body regarding (a) any actual or possible
violation of or failure to comply with any term or requirement of any
Governmental Authorization, or (b) any actual or possible revocation,
withdrawal, suspension, cancellation, termination or modification of any
Governmental Authorization.
2.14 TAX MATTERS.
(A) Except as set forth in Part 2.14(a) of the Company Disclosure
Schedule, all Tax Returns required to be filed by or on behalf of the Company
with any Governmental Body with respect to any taxable period ending on or
before the Closing Date (the "COMPANY RETURNS") (i) have been or will be filed
on or before the applicable due date (including any extensions of such due
date), and (ii) have been, or will be when filed, accurately and completely
prepared in compliance with all applicable Legal Requirements. All amounts shown
on the Company Returns to be due on or before the Closing Date have been or will
be paid on or before the Closing Date. The Company has delivered to Parent
accurate and complete copies of the Company Returns listed on Part 2.14(a) of
the Company Disclosure Schedule.
(B) The Company Financial Statements fully accrue all actual and
contingent liabilities for Taxes with respect to all periods through the dates
thereof in accordance with generally accepted accounting principles. The Company
will establish, in the ordinary course of business and consistent with its past
practices, reserves adequate for the payment of all Taxes for the period from
January 1, 2000 through the Closing Date, and the Company will disclose the
dollar amount of such reserves to Parent on or prior to the Closing Date. All
21
Taxes incurred since the date of the Unaudited Interim Balance Sheet have been
incurred in the ordinary course of business.
(C) Except as set forth in Part 2.14(c) of the Company Disclosure
Schedule, no Company Return relating to Taxes has ever been examined or audited
by any Governmental Body. There have been no examinations or audits of any
Company Return. No extension or waiver of the limitation period applicable to
any of the Company Returns has been granted (by the Company or any other
Person), and no such extension or waiver has been requested from the Company.
(D) No claim or Proceeding is pending or to the best of the knowledge
of the Company, has been threatened against or with respect to the Company in
respect of any Tax. There are no unsatisfied liabilities for Taxes (including
liabilities for interest, additions to tax and penalties thereon and related
expenses) with respect to any notice of deficiency or similar document received
by the Company with respect to any Tax (other than liabilities for Taxes
asserted under any such notice of deficiency or similar document which are being
contested in good faith by the Company and with respect to which adequate
reserves for payment have been established). There are no liens for Taxes upon
any of the assets of the Company except liens for current Taxes not yet due and
payable. The Company has not entered into or become bound by any agreement or
consent pursuant to Section 341(f) of the Code. Except as set forth in Part
2.14(d) of the Company Disclosure Schedule, the Company has been, and the
Company will not be, required to include any adjustment in taxable income for
any tax period (or portion thereof) pursuant to Section 481 or 263A of the Code
or any comparable provision under state or foreign Tax laws as a result of
transactions or events occurring, or accounting methods employed, prior to the
Closing.
(E) There is no agreement, plan, arrangement or other Contract covering
any employee or independent contractor or former employee or independent
contractor of the Company that, considered individually or considered
collectively with any other such Contracts, will, or could reasonably be
expected to, give rise directly or indirectly to the payment of any amount that
would not be deductible pursuant to Section 280G or Section 162 of the Code. The
Company is not and has not been, a party to or bound by any tax indemnity
agreement, tax- sharing agreement, tax allocation agreement or similar Contract.
(F) The Company has no liability for any Tax pursuant to Treasury
Regulations Section 1.1502-6 or any analogous state, local or foreign law or
regulation or by reason of having been a member of any consolidated, combined or
unitary group on or before the Closing Date.
2.15 EMPLOYEE AND LABOR MATTERS; BENEFIT PLANS.
(A) Part 2.15(a) of the Company Disclosure Schedule identifies each
salary, bonus, deferred compensation, incentive compensation, stock purchase,
stock option, severance pay, termination pay, hospitalization, medical, life or
other insurance, supplemental unemployment benefits, profit-sharing, pension or
retirement plan, program or agreement (collectively, the "PLANS") sponsored,
maintained, contributed to or required to be contributed to by the Company for
the benefit of any employee of the Company ("EMPLOYEE"), except for Plans which
22
would not require the Company to make payments or provide benefits having a
value in excess of $2,000 in the aggregate.
(B) Except as set forth in Part 2.15(b) of the Company Disclosure
Schedule, the Company does not maintain, sponsor or contribute to, and, has not
at any time in the past maintained, sponsored or contributed to, any employee
pension benefit plan (as defined in Section 3(2) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), whether or not excluded from
coverage under specific Titles or Merger Subtitles of ERISA) for the benefit of
Employees or former Employees (a "PENSION PLAN").
(C) The Company maintains, sponsors or contributes only to those
employee welfare benefit plans (as defined in Section 3(1) of ERISA, whether or
not excluded from coverage under specific Titles or Merger Subtitles of ERISA)
for the benefit of Employees or former Employees which are described in Part
2.15(c) of the Company Disclosure Schedule (the "WELFARE PLANS"), none of which
is a multiemployer plan (within the meaning of Section 3(37) of ERISA).
(D) With respect to each Plan, the Company has delivered or made
available to Parent:
(I) an accurate and complete copy of such Plan (including all
amendments thereto);
(II) an accurate and complete copy of the annual report, if required
under ERISA, with respect to such Plan for the last 2 years;
(III) an accurate and complete copy of the most recent summary plan
description, together with each Summary of Material Modifications, if required
under ERISA, with respect to such Plan, and all material employee communications
relating to such Plan;
(IV) if such Plan is funded through a trust or any third party funding
vehicle, an accurate and complete copy of the trust or other funding agreement
(including all amendments thereto) and accurate and complete copies the most
recent financial statements thereof;
(V) accurate and complete copies of all Material Contracts relating to
such Plan, including service provider agreements, insurance contracts, minimum
premium contracts, stop-loss agreements, investment management agreements,
subscription and participation agreements and recordkeeping agreements; and
(VI) an accurate and complete copy of the most recent determination,
opinion, notification, or advisory letter received from the Internal Revenue
Service with respect to such Plan (if such Plan is intended to be qualified
under Section 401(a) of the Code).
(E) Except as set forth in Part 2.15(e) of the Company Disclosure
Schedule, (i) the Company is not required to be, and, has ever been required to
be, treated as a single employer with any other Person under Section 4001(b)(l)
of ERISA or Section 414(b), (c), (m) or (o) of the Code, and (ii) the Company
has not been a member of an "affiliated service group" within the meaning of
Section 414(m) of the Code. The Company has not made a complete or partial
23
withdrawal from a multiemployer plan, as such term is defined in Section 3(3 7)
of ERISA, resulting in "withdrawal liability," as such term is defined in
Section 4201 of ERISA (without regard to subsequent reduction or waiver of such
liability under either Section 4207 or 4208 of ERISA).
(F) The Company does not have any plan or commitment to create any
additional Welfare Plan or any Pension Plan, or to modify or change any existing
Welfare Plan or Pension Plan (other than to comply with applicable law or for
administrative changes) in a manner that would materially affect any Employee.
(G) Except as set forth in Part 2.15(g) of the Company Disclosure
Schedule, no Welfare Plan provides death, medical or health benefits (whether or
not insured) with respect to any current or former Employee after any such
Employee's termination of service (other than (i) benefit coverage mandated by
applicable law, including coverage provided pursuant to Section 4980B of the
Code, (ii) deferred compensation benefits accrued as liabilities on the
Unaudited Interim Balance Sheet, and (iii) benefits the full cost of which are
borne by current or former Employees (or the Employees' beneficiaries).
(H) With respect to each of the Welfare Plans constituting a group
health plan within the meaning of Section 4980B(g)(2) of the Code, the
provisions of Section 4980B of the Code ("COBRA") have been complied with in all
material respects.
(I) Each of the Plans has been operated and administered in all
material respects in accordance with applicable Legal Requirements, including
but not limited to ERISA and the Code.
(J) Each of the Plans intended to be qualified under Section 401(a) of
the Code has either: (i) received a favorable determination from the Internal
Revenue Service, and the Company is not aware of any reason why any such
determination letter should be revoked; or (ii) has remaining a period of time
under applicable Treasury regulations or Internal Revenue Service pronouncements
in which to apply for such letter and make any amendments necessary to obtain a
favorable determination as to the qualification status of each such Plan.
(K) Except as disclosed in Part 2.15(k) of the Company Disclosure
Schedule or as may be required pursuant to the actions contemplated by Section
3.6, neither the execution, delivery or performance of this Agreement, nor the
consummation of the Merger or any of the other transactions contemplated by this
Agreement, will result in any payment (including any bonus, golden parachute or
severance payment) to any current or former Employee or director of any of the
Company (whether or not under any Plan), or materially increase the benefits
payable under any Plan, or result in any acceleration of the time of payment or
vesting of any such benefits.
(L) The Company has previously delivered to Parent an accurate and
complete list of all salaried employees of the Company as of the date of this
Agreement, and correctly reflects, in all material respects, their salaries, any
other compensation payable to them (including compensation payable pursuant to
24
bonus, deferred compensation or commission arrangements), their dates of
employment and their positions. The Company is not a party to any collective
bargaining Contract or other Contract with a labor union involving any of its
Employees. Except as set forth in Part 2.15(1) of the Company Disclosure
Schedule, all of the Company's employees are "at will" employees.
(M) Part 2.15(m) of the Company Disclosure Schedule identifies each
Employee who is not fully available to perform work because of disability or
other leave and sets forth the basis of such leave and the anticipated date of
return to full service.
(N) Except as set forth on Part 2.15(n) of the Company Disclosure
Schedule, the Company is in compliance in all material respects with all
applicable Legal Requirements and Contracts relating to employment, employment
practices, wages, bonuses and terms and conditions of employment, including
employee compensation matters.
(O) The Company has satisfactory labor relations and to the knowledge
of the Company: (i) the consummation of the Merger or any of the other
transactions contemplated by this Agreement will not have a Material Adverse
Effect on the labor relations of the Company, and (ii) none of the Company's
employees intends to terminate his or her employment with the Company within 60
days of the Closing.
2.16 ENVIRONMENTAL MATTERS. The Company is in compliance in all
material respects with all applicable Environmental Laws, which compliance
includes the possession by the Company of all permits and other Governmental
Authorizations required under applicable Environmental Laws, and compliance with
the terms and conditions thereof. The Company has not received any written
notice or written communication, whether from a Governmental Body, citizens
group, employee or otherwise, that alleges that the Company is not in compliance
with any Environmental Law, and, to the best of the knowledge of the Company,
there are no circumstances that could reasonably be expected to prevent or
interfere with the Company's compliance in all material respects with any
Environmental Law in the future. To the best of the knowledge of the Company, no
current or prior owner of any property leased or controlled by the Company has
received any written notice or written communication, whether from a Government
Body, citizens group, employee or otherwise, that alleges that such current or
prior owner or the Company is not in compliance with any Environmental Law. All
Governmental Authorizations currently held by the Company pursuant to
Environmental Laws are identified in Part 2.16 of the Company Disclosure
Schedule. (For purposes of this Section 2.16: (i) "ENVIRONMENTAL LAW" means any
federal, state, local or foreign Legal Requirement relating to pollution or
protection of human health or the environment (including ambient air, surface
water, ground water, land surface or subsurface strata), including any law or
regulation relating to emissions, discharges, releases or threatened releases of
Materials of Environmental Concern, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of Materials of Environmental Concern.); and (ii) "MATERIALS OF
ENVIRONMENTAL CONCERN" means chemicals, pollutants, contaminants, wastes, toxic
substances, petroleum and petroleum products and any other substance that is now
or hereafter regulated by any Environmental Law or that is otherwise a danger to
health, reproduction or the environment.)
2.17 INSURANCE. Part 2.17(a) of the Company Disclosure Schedule
identifies all insurance policies maintained by, at the expense of or for the
25
benefit of the Company and identifies any material claims made thereunder, and
the Company has delivered to Parent accurate and complete copies of the
insurance policies identified on Part 2.17(a) of the Company Disclosure
Schedule. Each of the insurance policies identified in Part 2.17(a) of the
Company Disclosure Schedule is in full force and effect. Except as set forth on
Part 2.17(b) of the Company Disclosure Schedule, the Company has not received
any notice or other communication regarding any actual or possible (a)
cancellation or invalidation of any insurance policy, (b) refusal of any
coverage or rejection of any claim under any insurance policy, or (c) material
adjustment in the amount of the premiums payable with respect to any insurance
policy.
2.18 RELATED PARTY TRANSACTIONS. Except as set forth in Part 2.18 of
the Company Disclosure Schedule: (a) No Related Party has, and no Related Party
has had, any direct or indirect interest in any material asset used in or
otherwise relating to the business of the Company; (b) no Related Party is, or
has been, indebted to the Company; (c) no Related Party has entered into, or has
had any direct or indirect financial interest in, any Material Contract,
transaction or business dealing or involving the Company; (d) no Related Party
is competing, or has at any time competed, directly or indirectly, with the
Company; and (e) no Related Party has any claim or right against the Company
(other than rights under Company Options and rights to receive compensation for
services performed as an employee of the Company). (For purposes of the Section
2.18 each of the following shall be deemed to be a "Related Party": (i) each
stockholder of the Company; (ii) each individual who is, or who has at any time
since inception been, an officer of the Company; (iii) each member of the
immediate family of each of the individuals referred to in clauses "(i)" and
"(ii)" above; and (iv) any trust or other Entity (other than the Company) in
which any one of the individuals referred to in clauses "(i)", "(ii)" and
"(iii)" above holds (or in which more than one of such individuals collectively
hold), beneficially or otherwise, a material voting, proprietary or equity
interest.)
2.19 LEGAL PROCEEDINGS; ORDERS.
(A) Except as set forth in Part 2.19(a), there is no pending Legal
Proceeding, and no Person has threatened verbally or in writing to commence any
Legal Proceeding: (i) that involves the Company or any of the assets owned or
used by the Company or any Person whose liability the Company has or may have
retained or assumed, either contractually or by operation of law; or (ii) that
challenges, or that may have the effect of preventing, delaying, making illegal
or otherwise interfering with, the Merger or any of the other transactions
contemplated by this Agreement. To the best of the knowledge of the Company, no
event has occurred, and no claim, dispute or other condition or circumstance
exists, that could reasonably be expected to, give rise to or serve as a basis
for the commencement of any such Legal Proceeding.
(B) Except as set forth in Part 2.19(b) of the Company Disclosure
Schedule, no Legal Proceeding has been commenced by or is now pending against
the Company.
(C) There is no order, writ, injunction, judgment or decree to which
the Company, or any of the assets owned or used by the Company, is subject. To
the best of the knowledge of the Company, no officer or other employee of the
Company is subject to any order, writ, injunction, judgment or decree that
prohibits such officer or other employee from engaging in or continuing any
conduct, activity or practice relating to the Company's business.
26
2.20 AUTHORITY; BINDING NATURE OF AGREEMENT; INAPPLICABILITY OF
ANTI-TAKEOVER STATUTES.
(A) Except as set forth on Part 2.20(a) of the Company Disclosure
Schedule, the Company has the absolute and unrestricted right, power and
authority to enter into and to perform its obligations under this Agreement; and
the execution, delivery and performance by the Company of this Agreement have
been duly authorized by all necessary action on the part of the Company and its
board of directors. This Agreement constitutes the legal, valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms, subject to (i) laws of general application relating to bankruptcy,
insolvency and the relief of debtors, and (ii) rules of law governing specific
performance, injunctive relief and other equitable remedies.
(B) The Company's board of directors has (i) unanimously determined
that the Merger is advisable and fair and in the best interests of the Company
and its stockholders, (ii) unanimously recommended the approval and adoption of
this Agreement by the holders of Company Stock and directed that this Agreement
and the Merger be submitted for consideration by the Company's stockholders in
accordance with Section 5.2, and (iii) to the extent necessary, adopted a
resolution having the effect of causing the Company not to be subject to any
state takeover law or similar Legal Requirement that might otherwise apply to
the Merger or any of the other transactions contemplated by this Agreement.
(C) No state takeover statute or similar Legal Requirement applies or
purports to apply to the Merger, this Agreement or any of the transactions
contemplated hereby.
2.21 NON-CONTRAVENTION; CONSENTS. Except as set forth in Part 2.21 of
the Company Disclosure Schedule, neither (1) the execution, delivery or
performance of this Agreement or any of the other agreements referred to in this
Agreement, nor (2) the consummation of the Merger or any of the other
transactions contemplated by this Agreement, will directly or indirectly (with
or without notice or lapse of time):
(A) contravene, conflict with or result in a violation of (i) any of
the Incorporation Documents, or (ii) any resolution adopted by the Company's
stockholders, board of directors or any committee of the Company's board of
directors;
(B) contravene, conflict with or result in a violation of, or give any
Governmental Body or other Person the right to challenge any of the transactions
contemplated by this Agreement or to exercise any remedy or obtain any relief
under, any Legal Requirement or any order, writ, injunction, judgment or decree
to which the Company, or any of the assets owned or used by the Company, is
subject;
(C) contravene, conflict with or result in a violation of any of the
terms or requirements of, or give any Governmental Body the right to revoke,
withdraw, suspend, cancel, terminate or modify, any Governmental Authorization
that is held by the Company or that otherwise relates to the Company's business
or to any of the assets owned or used by the Company;
27
(D) contravene, conflict with or result in a violation or breach of, or
result in a default under, any provision of any Company Contract that is or
would constitute a Material Contract, or give any Person the right to (i)
declare a default or exercise any remedy under any such Company Contract, (ii)
accelerate the maturity or performance of any such Company Contract, or (iii)
cancel, terminate or modify any such Company Contract; or
(E) result in the imposition or creation of any lien or other
Encumbrance upon or with respect to any asset owned or used by the Company.
Except as may be required by the DGCL or the California Code, the Company is not
and or will not be required to make any filing with or give any notice to, or to
obtain any Consent from, any Governmental Body or any industry regulatory body
in connection with (x) the execution, delivery or performance of this Agreement
or any of the other agreements referred to in this Agreement, or (y) the
consummation of the Merger or any of the other transactions contemplated by this
Agreement.
2.22 VOTE REQUIRED. The affirmative vote of the holders of a majority
of the Company Common Stock and the Company Preferred Stock, voting as separate
classes, outstanding on the record date for the Company's stockholders' meeting
(or the written consent in lieu thereof) is the only vote of the holders of any
class or series of the Company's capital stock necessary to adopt this Agreement
and approve the Merger and the other transactions contemplated by this
Agreement.
2.23 FULL DISCLOSURE. This Agreement (including the Company Disclosure
Schedule) does not, and the Company Closing Certificate will not, (i) contain
any representation, warranty or information that is false or misleading with
respect to any material fact, or (ii) omit to state any material fact necessary
in order to make the representations, warranties and information contained and
to be contained herein and therein (in the light of the circumstances under
which such representations, warranties and information were or will be made or
provided) not false or misleading.
2.24 BROKERS. No broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the Merger or
the transactions contemplated by this Agreement based upon arrangements made by
or on behalf of the Company.
3. CERTAIN COVENANTS OF THE COMPANY
3.1 ACCESS AND INVESTIGATION. During the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
pursuant to Section 8 or the Effective Time (the "Pre-Closing Period"), the
Company shall, and shall cause its Representatives to: (a) provide Parent and
Parent's Representatives with reasonable access to the Company's
Representatives, personnel and assets and to all existing books, records, Tax
Returns, work papers and other documents and information relating to the
Company; and (b) provide Parent and Parent's Representatives with copies of such
existing books, records, Tax Returns, work papers and other documents and
information relating to the Company, and with such additional financial,
operating and other data and information regarding the Company, as Parent may
reasonably request. During the Pre-Closing Period, Parent and its
28
Representatives will hold any such information that is confidential to the
Company in accordance with the terms of the Confidentiality Agreement, dated
August 10, 2000, between the Company and Parent.
3.2 OPERATION OF THE COMPANY'S BUSINESS. Unless the Company obtains the
prior written consent of Parent (which consent shall not be unreasonably
withheld), during the Pre Closing Period:
(A) the Company shall conduct its business and operations in the
ordinary course and in substantially the same manner as such business and
operations have been conducted prior to the date of this Agreement;
(B) the Company shall use reasonable efforts to preserve intact its
current business organization, keep available the services of its current
officers and employees and maintain its relations and good will with all
suppliers, customers, landlords, creditors, employees and other Persons having
business relationships with the Company;
(C) the Company shall not cancel any of its respective insurance
policies identified in Part 2.17 of the Company Disclosure Schedule;
(D) the Company shall cause its Chief Executive Officer to report
regularly (but in no event less frequently than weekly) to the President of
Parent concerning the status of the Company's business;
(E) the Company shall pay or remit, as the case may be, all Taxes that
are due and payable to any Governmental Body;
(F) the Company shall not declare, accrue, set aside or pay any
dividend or make any other distribution in respect of any shares of capital
stock, nor repurchase, redeem or otherwise reacquire any shares of capital stock
or other securities;
(G) the Company shall not sell, issue or authorize the issuance of (i)
any capital stock or other security, (ii) any option or right to acquire any
capital stock or other security, or (iii) any instrument convertible into or
exchangeable for any capital stock or other security (except that the Company
shall be permitted to issue Company Common Stock to employees upon the exercise
of outstanding Company Options);
(H) other than as provided in the employment agreements listed on Part
2.10 of the Company Disclosure Schedule, the Company shall not amend or waive
any of its rights under, or permit the acceleration of vesting under, (i) any
provision of its 1998 Stock Option Plan, or (ii) any provision of any agreement
evidencing any outstanding Company Option;
(I) the Company shall not amend or permit the adoption of any amendment
to the Incorporation Documents or affect or become a party to any Acquisition
Transaction, recapitalization, reclassification of shares, stock split, reverse
stock split or similar transaction;
(J) (I) the Company shall not form any subsidiary or acquire any equity
interest or other interest in any other Entity;
29
(K) the Company shall not make any capital expenditure;
(L) the Company shall not (1) enter into, or permit any of the assets
owned or used by it to become bound by, any Contract that is or would constitute
a Material Contract, or (ii) amend or prematurely terminate, or waive any
material right or remedy under, any such Material Contract;
(M) other than within the ordinary course of business and consistent
with past practices, the Company shall not (i) acquire, lease or license any
right or other asset from any other Person, (ii) sell or otherwise dispose of,
or lease or license, any right or other asset to any other Person, or (iii)
waive or relinquish any right, except for assets acquired, leased, licensed or
disposed of by the Company pursuant to Contracts that are not Material
Contracts;
(N) the Company shall not (i) lend money to any Person (except that the
Company may make routine travel advances to employees in the ordinary course of
business), or (ii) incur or guarantee any indebtedness for borrowed money;
(O) the Company shall not (i) establish, adopt Or amend any Employee
Benefit Plan, (ii) pay any bonus or make any profit-sharing payment, cash
incentive payment or similar payment to, or increase the amount of the wages,
salary, commissions, fringe benefits or other compensation or remuneration
payable to, any of its directors, officers or employees, or (iii) hire any new
employee whose aggregate annual compensation is expected to exceed $50,000;
(P) the Company shall not change any of its methods of accounting or
accounting practices (including establishing reserves for bad debt) in any
material respect;
(Q) the Company shall not make any Tax election;
(R) other than as contemplated by this Agreement, the Company shall not
commence or settle any material Legal Proceeding;
(S) the Company shall not agree or commit to take any of the actions
described in clauses "(f)" through "(r)" above.
3.3 Notification; Updates to Company Disclosure Schedule.
(A) During the Pre-Closing Period, the Company shall promptly notify
Parent in writing of:
(i) the discovery by the Company of any event, condition, fact or
circumstance that occurred or existed on or prior to the date of this Agreement
and that caused or constitutes an inaccuracy in or breach of any representation
or warranty made by the Company in this Agreement;
(ii) any event, condition, fact or circumstance that occurs, arises or
exists after the date of this Agreement and that would cause or constitute an
inaccuracy in or breach of any representation or warranty made by the Company in
30
this Agreement if (A) such representation or warranty had been made as of the
time of the occurrence, existence or discovery of such event, condition, fact or
circumstance, or (B) such event, condition, fact or circumstance had occurred,
arisen or existed on or prior to the date of this Agreement;
(iii) any material breach of any covenant or obligation of the Company;
and
(iv) any event, condition, fact or circumstance that would make the
timely satisfaction of any of the conditions set forth in Section 6 or Section 7
impossible or unlikely.
(B) If any event, condition, fact or circumstance that is required to
be disclosed pursuant to Section 3.3(a) requires any change in the Company
Disclosure Schedule, or if any such event, condition, fact or circumstance would
require such a change assuming the Company Disclosure Schedule were dated as of
the date of the occurrence, existence or discovery of such event, condition,
fact or circumstance, then the Company shall promptly deliver to Parent an
update to the Company Disclosure Schedule specifying such change. Except as set
forth in Sections 9.2(a)(i) and (ii), no such update shall be deemed to
supplement or amend the Company Disclosure Schedule for the purpose of (i)
determining the accuracy of any of the representations and warranties made by
the Company in this Agreement, or (ii) determining whether any of the conditions
set forth in Section 6 has been satisfied, unless so agreed to in writing by
Parent, which agreement shall not be unreasonably withheld if such supplemental
or amended disclosure is not reasonably likely, individually or in the
aggregate, to result in a Material Adverse Effect on the Company.
3.4 No Negotiation. During the Pre-Closing Period, the Company shall
not, directly or indirectly:
(A) solicit or encourage the initiation of any inquiry, proposal or
offer from any Person (other than Parent) relating to a possible Acquisition
Transaction;
(B) participate in any discussions or negotiations or enter into any
agreement with, or provide any non-public information to, any Person (other than
Parent) relating to or in connection with a possible Acquisition Transaction; or
(C) consider, entertain or accept any proposal or offer from any Person
(other than Parent) relating to a possible Acquisition Transaction.
The Company shall promptly notify Parent in writing of any material inquiry,
proposal or offer relating to a possible Acquisition Transaction that is
received by the Company during the Pre Closing Period.
3.5 RELEASE OF SECURITY. Prior to the Closing Date, the Company shall
take or shall cause to be taken all actions as shall be necessary or advisable
in order to ensure any Encumbrances held by any Person with respect to any
capital stock or securities of the Company are fully discharged. In the event
such Encumbrances cannot be discharged without repayment of any loan or advance
made to the Company by any Person, the Company shall pay or shall cause to be
paid in full any loans, advances or other amounts owing to any Person.
31
3.6 TERMINATION OF 401(K) PLAN. To the extent requested by Parent, the
Company shall ensure that its Profit Sharing/401(k) Plan (the "401(k) Plan")
shall be terminated immediately prior to the Effective Time. The parties agree
that a determination letter shall be filed with the Internal Revenue Service
with respect to the termination of the 401(k) Plan after the Closing Date.
3.7 TERMINATION OF OTHER AGREEMENTS.
(A) To the extent requested by Parent, the Company shall ensure that
the Employment Agreements, the Compensation Agreements, the Consulting
Agreements, and the Special Advisory Board Agreements listed on Part 2.10(a)(i)
of the Company Disclosure Schedule shall be terminated immediately prior to the
Effective Time.
3.8 LITIGATION. Prior to the Closing Date, the Company shall use its
best efforts to enter into a settlement agreement or obtain a dismissal with
prejudice with respect to the litigation listed on Part 2.11 of the Company
Disclosure Schedule (the "Druml Litigation") upon such terms and conditions that
are satisfactory to Parent with Parent's sole discretion.
3.9 WARRANTS AND CONVERTIBLE NOTES. The Company shall use its best
efforts to cause all Warrants listed on Part 2.3 (c)(ii) of the Company
Disclosure Schedule (the "Company Warrants") and all promissory notes listed on
Part 2.3 (c)(i) of the Company Disclosure Schedule to be converted into shares
of the Company Common Stock or Company Preferred Stock, as the case may be (the
"Company Promissory Notes"), prior to the Effective Time. Any Company Warrants
that are not converted into shares of the Company Common Stock or Company
Preferred Stock prior to the Effective Time shall, at the Effective Time, be
converted into warrants to acquire shares of Parent Common Stock in accordance
with the terms and conditions of such Company Warrants. Any Company Notes that
are not converted into shares of the Company Common Stock or Company Preferred
Stock prior to the Effective Time shall, at the Effective Time, be added to
EXHIBIT D and shall be paid by Parent at the Closing in accordance with Section
1.5. The Company shall cause the following promissory notes to be converted into
shares of the Company Common Stock or Company Preferred Stock prior to the
Effective Time:
Promissory Note, dated October 20, 2000, payable to Xxxxxx X. Xxxxxx, in the
original principal amount of $140,000; Promissory Note, dated October 20, 2000,
payable to Xxxxx Xxxxx, in the original principal amount of $25,000; and
Promissory Note, dated October 20, 2000, payable to the Angel's Forum Vifi, LLC,
in the original principal amount of $210,000.
4. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub jointly and severally represent and warrant to the
Company, subject to such exceptions as are specifically disclosed in the
disclosure schedule (referencing the appropriate section and paragraph numbers)
supplied by Parent to the Company (the "PARENT DISCLOSURE SCHEDULE") and dated
the date hereof, that on the date hereof and as of the Effective Time as though
made at the Effective Time as follows (provided, that the representations and
warranties made as of a specified date will be true and correct as of such
date):
4.1 DUE ORGANIZATION.
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(A) Each of Parent and Merger Sub is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has full power (corporate and other) and authority to conduct its business
in the manner in which its business is currently being conducted and to own and
use its assets in the manner in which its assets are currently owned and used.
(B) Parent is qualified to do business as a foreign corporation, and is
in good standing, in each jurisdiction in which the nature of its business and
of its properties makes such qualification necessary, except where the failure
to be so qualified would not have a material adverse effect on Parent's
business, condition (financial or otherwise), assets, liabilities or operations.
4.2 CAPITALIZATION. As of the date hereof and as of the Closing Date,
the authorized capital stock of the Parent consists (and will consist) solely of
150,000,000 shares of Common Stock and 150,000,000 shares of Preferred Stock, of
which 35,000,000 shares are designated as "Series A Convertible Preferred Stock"
("Series A Preferred Stock"), 100,000,000 are designated as "Series B
Convertible Preferred Stock" ("Series B Preferred Stock") and 12,000,000 shares
are designated as "Series C Convertible Preferred Stock" ("Series C Preferred
Stock"). There are 200,000 shares of Common Stock issued and outstanding. There
are 33,333,334 shares of Series A Preferred Stock issued and outstanding,
44,959,249 shares of Series B Preferred Stock issued and outstanding, 10,000,000
shares of Series C Preferred Stock issued and outstanding, and there are no
other shares of capital stock of the Parent outstanding. All of the issued and
outstanding shares of the Parent's capital stock have been duly authorized and
are validly issued, fully paid and nonassessable. Except as set forth on Part
4.2 of the Parent Disclosure Schedule hereto, there are no outstanding
obligations, options, warrants, convertible securities, subscriptions, or other
commitments or rights (matured or contingent) of any nature to which the Parent
is a party to acquire or subscribe for any securities of the Parent. There are
no bonds, debentures, notes or other indebtedness of the Parent having the right
to vote (or convertible into, or exchangeable for, securities having the right
to vote) on any matter on which stockholders of the Parent may vote. Except as
set forth on Part 4.2 of the Parent Disclosure Schedule, there are no preemptive
rights, rights of first refusal, voting rights, change of control or similar
rights, anti-dilution protections or other rights by which the Parent is bound
that any stockholder, officer, employee or director of the Parent or any other
Person is entitled to exercise or invoke as a result of the issuance and sale by
the Parent of the Shares.
4.3 NON-CONTRAVENTION; CONSENTS. Neither (1) the execution, delivery or
performance of this Agreement or any of the other agreements referred to in this
Agreement, nor (2) the consummation of the Merger or any of the other
transactions contemplated by this Agreement, will directly or indirectly (with
or without notice or lapse of time) contravene, conflict with or result in a
violation of (i) any of the provisions of the certificate of incorporation or
bylaws of Parent or Merger Sub, or (ii) any resolution adopted by the
stockholders, the board of directors or any committee of the board of directors
of Parent or Merger Sub. Except as set forth on Part 4.3 of the Parent
Disclosure Schedule, neither Parent nor Merger Sub will be required to make any
filing with or give any notice to, or to obtain any Consent from, any Person in
connection with (x) the execution, delivery or performance of this Agreement or
any of the other agreements referred to in this Agreement, or (y) the
consummation of the Merger or any of the other transactions contemplated by this
Agreement, except for (i) the filing of the Certificates of Merger with the
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Secretary of State of the State of Delaware and with the California Department
of Corporations and (ii) the fairness hearing described in Section 5.11.
4.4 AUTHORITY; BINDING NATURE OF AGREEMENT. Parent and Merger Sub have
the absolute and unrestricted right, power and authority to enter into and
perform their obligations under this Agreement; and the execution, delivery and
performance by Parent and Merger Sub of this Agreement (including the
contemplated issuance of Parent Common Stock in the Merger in accordance with
this Agreement) have been duly authorized by all necessary action on the part of
Parent and Merger Sub and their respective boards of directors. No vote of
Parent's stockholders is needed to approve the Merger. This Agreement
constitutes the legal, valid and binding obligation of Parent and Merger Sub,
enforceable against them in accordance with its terms, subject to (i) laws of
general application relating to bankruptcy, insolvency and the relief of
debtors, and (ii) rules of law governing specific performance, injunctive relief
and other equitable remedies.
4.5 VALID ISSUANCE. The Parent Common Stock to be issued in the Merger
will, when issued in accordance with the provisions of this Agreement, be
validly issued, fully paid and nonassessable.
4.6 FINANCIAL STATEMENTS.
(A) The Private Placement Memorandum related to the offering of shares
of Parent's Series B Convertible Preferred Stock (the "Private Placement
Memorandum") delivered by Parent to the Company contains certain financial
statements of Parent (the "Parent Financial Statements"), which are subject to
the qualifications and disclaimers contained in the Private Placement
Memorandum. The financial information contained in the Private Placement
Memorandum for the years ended 1998 and 1999 was compiled from available records
of IBM Corporation ( including budgets, estimates of operational expenses and
other sources. Neither Parent nor Merger Sub makes any representation or
warranty as to the complete accuracy of information compiled from these sources,
but believes that the financial data contained in the Private Placement
Memorandum is a fair representation of the financial results of the Home
Director business unit of IBM for the periods shown. Except as provided in this
Section 4.6 (a), Parent is not making any representation and warranty to the
Company with respect to the Private Placement Memorandum.
(B) Parent has delivered to the Company the unaudited balance sheet of
Parent, as of September 30, 2000, and the related unaudited income statement of
Parent for the 9 months then ended (the "Parent's September 30, 2000 Financial
Statements"). The Parent's September 30, 2000 Financial Statements are accurate
and complete in all material respects and present fairly the Parent's financial
position of Parent as of the date thereof. The Parent's September 30, 2000
Financial Statements have been prepared in accordance with generally accepted
accounting principals applied on a consistent basis.
4.7 ABSENCE OF CHANGES. From December 31, 1999 to the date of this
Agreement, there has not been any material adverse change in Parent's business,
condition (financial or otherwise), assets, liabilities or operations.
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4.8 LEGAL PROCEEDINGS; ORDERS. There is no pending Legal Proceeding and
to the best knowledge of Parent and Merger Sub, no Person has threatened to
commence any Legal Proceeding: (i) against Parent that could reasonably be
expected to have a material adverse effect on Parent's business, condition
(financial or otherwise), assets, liabilities or operations; or (ii) that
challenges, or that may have the effect of preventing, delaying, making illegal
or otherwise interfering with, the Merger or any of the other transactions
contemplated by this Agreement. Except as set forth on Part 4.8 of the Parent
Disclosure Schedule, to the best of the knowledge of Parent and Merger Sub, no
event has occurred, and no claim, dispute or other condition or circumstance
exists, that will, or that could reasonably be expected to, give rise to or
serve as a basis for the commencement of any such Legal Proceeding.
4.9 BROKERS. Except as set forth on Part 4.9 of the Parent Disclosure
Schedule, no broker, finder or investment banker is entitled to any brokerage,
finder's or other fee or commission in connection with the Merger or the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of Parent.
4.10 CERTIFICATE OF INCORPORATION AND BYLAWS; RECORDS. Parent has
delivered to the Company accurate and complete copies of: (1) its Certificate of
Incorporation and Bylaws, including all amendments thereto (the "Incorporation
Documents"); (2) a detailed listing of the capitalization of Parent; and (3) the
minutes and other records of the meetings and other proceedings (including any
actions taken by written consent or otherwise without a meeting) of the
stockholders, the board of directors and all committees of the board of
directors of Parent.
4.11 PROPRIETARY ASSETS.
(A) Part 4.11 (a)(i) of the Parent Disclosure Schedule sets forth, with
respect to each Parent Proprietary Asset registered with any Governmental Body
or for which an application has been filed with any Governmental Body, (i) a
brief description of such Proprietary Asset, and (ii) the names of the
jurisdictions covered by the applicable registration or application. Other than
unregistered trademarks, trade names and service marks (collectively, the
"Parent Unregistered Trademarks"), Part 4.11 (a)(ii) of the Parent Disclosure
Schedule identifies and provides a brief description of all other Parent
Proprietary Assets owned by the Parent. Part 4.11 (a)(ii) of the Parent
Disclosure Schedule also discloses all Parent Unregistered Trademarks that have
been and are currently being used by the Parent in the ordinary course of
business. Parent has not received any notice or other communication (in writing
or otherwise) of any actual, alleged, possible or potential infringement or
unlawful use of any Parent Unregistered Trademark. Part 4.11 (a)(iii) of the
Parent Disclosure Schedule identifies and provides a brief description of each
Proprietary Asset licensed to Parent by any Person (except for any Proprietary
Asset that is licensed to Parent under any third party software license
generally available to the public at a cost of less than $5,000), and identifies
the license agreement under which such Proprietary Asset is being licensed to
Parent. Other than the Parent Unregistered Trademarks identified in Part 4.1
l(a)(ii) of the Parent Disclosure Schedule, Parent has good, valid and
marketable title to all of the Parent Proprietary Assets identified in Parts
4.11 (a)(i) and 4.1 1(a)(ii) of the Parent Disclosure Schedule owned by it, free
and clear of all liens and other Encumbrances, and has a valid right to use all
Proprietary Assets identified in Part 4.1 1(a)(iii) of the Parent Disclosure
Schedule not owned by it. Except as set forth in Part 4.1 1(a)(iv), Parent is
not obligated to make any payment to any Person for the use of any Parent
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Proprietary Asset. Except as set forth in Part 4.11 (a)(v) of the Parent
Disclosure Schedule, Parent has not developed jointly with any other Person any
Parent Proprietary Asset with respect to which such other Person has any rights.
(B) Except as to the absence of registrations referenced in Part 4.11
(a)(ii) of the Parent Disclosure Schedule, Parent has taken all measures and
precautions reasonably necessary to protect and maintain the confidentiality and
secrecy of all Parent Proprietary Assets (except Parent Proprietary Assets whose
value would be unimpaired by public disclosure) and otherwise to maintain and
protect the value of all Parent Proprietary Assets. Parent has taken all
measures and precautions necessary to protect and maintain the confidentiality
and secrecy of all Parent Proprietary Assets that are trade secrets (the "Parent
Trade Secrets") and otherwise to maintain and protect the value of all Parent
Trade Secrets. Except in the ordinary course of Parent's business, Parent has
not disclosed or delivered to any Person, or permitted the disclosure or
delivery to any Person of, (i) the source code, or any portion or aspect of the
source code, of any Parent Proprietary Asset, or (ii) the object code, or any
portion or aspect of the object code, of any Parent Proprietary Asset.
(C) Except for the potential issues described in Part 4.11(c) of the
Parent Disclosure Schedule, which are expressly understood as not constituting
admissions, (i) Parent is not infringing, misappropriating or making any
unlawful use of, and Parent has not at any time infringed, misappropriated or
made any unlawful use of any Proprietary Asset owned by any other Person,
provided that the representation as to Patents, trademarks or service marks
shall be limited to the best knowledge of Parent, or, (ii) except as set forth
in Part 4.11(c) of the Parent Disclosure Schedule, Parent has not received any
notice or other communication (in writing or otherwise) of any actual, alleged,
possible or potential infringement, misappropriation or unlawful use of, any
Proprietary Asset owned or used by any other Person. To the best knowledge of
the Parent, except as set forth in Part 4.11(c) of the Parent Disclosure
Schedule, no other Person is infringing, misappropriating or making any unlawful
use of, and no Proprietary Asset owned or used by any other Person infringes or
conflicts with, any Parent Proprietary Asset.
(D) To the best knowledge of Parent, each Parent Proprietary Asset
conforms in all material respects with any enforceable specification,
documentation, performance standard, representation or statement made or
provided with respect thereto by or on behalf of Parent; and there has not been
any claim by any customer or other Person alleging that any Parent Proprietary
Asset (including each version thereof that has ever been licensed or otherwise
made available by Parent to any Person) does not conform in all material
respects with any specification, documentation, performance standard,
representation or statement made or provided by or on behalf of Parent, and, to
the best of the knowledge of Parent, there is no basis for any such claim.
4.12 GOVERNMENTAL AUTHORIZATION. To the Knowledge of Parent, each
consent, license, permit, grant or other authorization (i) pursuant to which
Parent currently operates or holds any interest in any of its properties, or
(ii) which is required for the operation of Parent's business as currently
conducted or currently contemplated to be conducted or the holding of any such
interest (collectively, "Parent Authorizations") has been issued or granted to
Parent. The Parent Authorizations are in full force and effect and constitute
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all Parent Authorizations required to permit Parent to operate or conduct its
business or hold any interest in its properties or assets.
4.13 FULL DISCLOSURE. This Agreement (including the Parent Disclosure
Schedule) does not, and the Parent Closing Certificate will not, (i) contain any
representation, warranty or information that is false or misleading with respect
to any material fact, or (ii) omit to state any material fact necessary in order
to make the representations, warranties and information contained and to be
contained herein and therein (in the light of the circumstances under which such
representations, warranties and information were or will be made or provided)
not false or misleading.
5. CERTAIN COVENANTS OF THE PARTIES
5.1 REGULATORY APPROVALS. The Company, Merger Sub, and Parent shall use
all reasonable efforts to file, as soon as practicable after the date of this
Agreement, all notices, reports and other documents required to be filed with
any Governmental Body with respect to the Merger and the other transactions
contemplated by this Agreement, and to submit promptly any additional
information requested by any such Governmental Body.
5.2 STOCKHOLDERS' CONSENT. The Company shall, in accordance with its
Incorporation Documents and the applicable requirements of the California Code,
solicit the consent, either in writing or by a special meeting, of the
stockholders of the Company as promptly as practicable for the purpose of
permitting them to consider and to vote upon, approve and adopt the Merger and
this Agreement. Without limiting the generality or the effect of anything
contained in the Voting Agreements and Irrevocable Proxies in the form of
Exhibit B being executed and delivered by the Key Stockholders to Parent within
5 days after the execution and delivery of this Agreement, the Company shall use
its best efforts to cause each Key Stockholder to vote all shares of the capital
stock of the Company that are owned, beneficially or of record, by such Key
Stockholder on the record date for the solicitation of the consent of the
stockholders of the Company, either in writing or by special meeting, to be
voted in favor of the Merger and this Agreement. For greater certainty, in lieu
of calling and holding a special stockholders' meeting, the Company may solicit
the approval of the stockholders of the Company of the Merger and the other
transactions contemplated by this Agreement by written consent. In any event,
the Company shall solicit by written consent, or hold a special meeting of
stockholders, for the purpose of voting upon the approval and adoption of the
Merger and this Agreement no later 5 days after the Company receives an order
from the California Department of Corporations approving the fairness of the
Merger to the Merger Stockholders pursuant to Section 5.11.
5.3 PUBLIC ANNOUNCEMENTS. During the Pre-Closing Period, (a) the
Company shall not (and shall not permit any of their respective Representatives
to) issue any press release or make any public statement regarding this
Agreement or the Merger, or regarding any of the other transactions contemplated
by this Agreement, without Parent's prior written consent, and (b) Parent will
use reasonable efforts to consult with the Company prior to issuing any press
release or making any public statement regarding this Agreement or the Merger,
or regarding any of the other transactions contemplated by this Agreement.
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5.4 BEST EFFORTS. Prior to Closing, (a) the Company shall use its best
efforts to cause the conditions set forth in Section 6 to be satisfied on a
timely basis (including without limitation to cure any inaccuracy in any
representation or warranty that would exist as of the Scheduled Closing Time),
and (b) Parent and Merger Sub shall use their best efforts to cause the
conditions set forth in Section 7 to be satisfied on a timely basis.
5.5 EMPLOYMENT AGREEMENTS. At or prior to the Closing, the Company
shall cause each of Xxx Xxxxxx and Xxxxxxx Xxxxx to execute and deliver an
Employment Agreement in the form of Exhibit F with the Surviving Corporation.
5.6 EMPLOYEE RELATED MATTERS. The Surviving Corporation shall offer to
employees of the Company as of the Effective Time who are also employees of the
Company immediately prior to the Effective Time employment by the Surviving
Corporation, after the Effective Time, and each such offer shall be in the form
of an individual offer letter prepared in accordance with Parent's customary
form (such letter to confirm such employee's initial position, compensation,
location and reporting relationship). Those employees of the Company that
continue to be employees of the Surviving Corporation or any of its affiliates,
including the Surviving Corporation, following the Closing shall, subject to any
necessary transition period and the terms of such plans, be immediately eligible
to participate in Parent's health, vacation, employee stock purchase, 401(k) and
other plans, to the same extent as comparably situated employees of Parent. As a
condition to employment, each such employee shall execute and deliver a
Non-Disclosure Agreement in a form acceptable to Parent within its sole
discretion.
5.7 FIRPTA MATTERS. At the Closing, (a) the Company shall deliver to
Parent a statement (in such form as may be reasonably requested by counsel to
Parent) conforming to the requirements of Xxxxxxx 0.000 - 0(x)(x)(x) xx xxx
Xxxxxx Xxxxxx Treasury Regulations, and (b) the Company shall deliver to the
Internal Revenue Service the notification required under Xxxxxxx 0.000 - 0(x)(0)
xx xxx Xxxxxx Xxxxxx Treasury Regulations.
5.8 RELEASE. At the Closing, the Company shall cause each Key
Stockholder to execute and deliver to the Company and Parent a Release in the
form of Exhibit G.
5.9 TERMINATION OF EMPLOYEE PLANS. At the Closing, the Company shall
terminate its 1998 Stock Option Plan and 401(k) Plan, and shall ensure that no
employee or former employee of the Company has any rights under such Plans and
that any liabilities of the Company under such Plans (including any such
liabilities relating to services performed prior to the Closing) are fully
extinguished at no cost to the Company, except as otherwise provided in Section
1.7.
5.10 TAX-FREE REORGANIZATION. No party shall take any action either
prior to or after the Effective Time that could reasonably be expected to cause
the Merger to fail to qualify as a "reorganization" under Section 368 of the
Code.
5.11 FAIRNESS HEARING. The Company and the Stockholders' Agent hereby
acknowledge and agree that the shares of Parent Common Stock to be issued in
connection with the Merger will not be registered under the Securities Act or
any state securities law. Therefore, such shares of Parent Common Stock shall be
38
subject to restrictions on transfer pursuant to the Securities Act, applicable
State securities laws, and the Parent's Stockholders' Agreement (as defined
below).The parties hereto expect that the shares of Parent Common Stock to be
issued in connection with the Merger will be issued in a transaction exempt from
registration under the Securities Act by reason of Section 3(a)(1O) thereof, and
that the Parent Common Stock and Parent's conversion of the Company's Stock
Options hereunder will be qualified under the California Code pursuant to
Section 25121 thereof after a fairness hearing has been held pursuant to the
authority granted by Section 25142 of the California Code (the "Fairness Hearing
Law"). Promptly after the execution of this Agreement, the Company and Parent
shall prepare and cause to be filed with the California Department of
Corporations an application under the Fairness Hearing Law, and a related
information statement or other disclosure document (the "Information
Statement"), and shall request a hearing on the fairness of the terms and
conditions of the Merger pursuant to the Fairness Hearing Law. The parties to
this Agreement shall use all commercially reasonable efforts to cause the
California Department of Corporations to approve the fairness of the terms and
conditions of the Merger at such a hearing; provided, however, that Parent shall
not be required to modify any of the terms of the Merger in order to cause the
California Department of Corporations to approve the fairness of such terms and
conditions. The Company shall provide and include in the Information Statement
such information relating to the Company as may be required pursuant to the
Fairness Hearing Law. The Information Statement shall include the recommendation
of the board of directors of the Company in favor of the Merger. Parent shall
prepare and file with appropriate state securities or "Blue Sky" authorities all
applications for qualification or approval (or notices required to perfect
exemptions from such compliance) as may be required in connection with the
Merger. The Company shall use its best efforts to assist Parent as may be
necessary to comply with all appropriate state securities or Blue Sky laws which
may be applicable in connection with the Merger.
5.12 EXCHANGE ACT. The parties acknowledge and agree that they have
entered into this Agreement with the expectation and understanding that Parent
will not become a reporting company under Section 12 (g) of the Exchange Act
unless and until Parent completes an initial public offering. Accordingly, the
parties agree to enter into an amendment or supplement to this Agreement, if
proposed by Parent at any time prior to the Closing, that alters the form or
structure of the transaction and thereby enables the parties to move effectively
provide for resolution of indemnification claims, earn-out issues and other
matters arising in connection with the transactions contemplated by this
Agreement and assists Parent in avoiding or minimizing the likelihood of Parent
becoming obligated under Section 12 (g) of the Exchange Act prior to its initial
public offering, if any; provided that any such supplement or amendment does not
change the form or amount of consideration to be issued by Parent or the timing
of the payment thereof, change or alter the tax free nature of the transaction
or otherwise impair or diminish the economic benefits of the transaction to be
realized by the Merger Stockholders.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND MERGER SUB
The obligations of Parent and Merger Sub to effect the Merger and otherwise
consummate the transactions contemplated by this Agreement are subject to the
satisfaction (or waiver by the Parent), at or prior to the Closing, of each of
the following conditions:
6.1 ACCURACY OF REPRESENTATIONS.
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(A) Each of the representations and warranties made by the Company in
this Agreement and in each of the other agreements and instruments delivered to
Parent in connection with the transactions contemplated by this Agreement shall
have been accurate as of the date of this Agreement.
(B) Each of the representations and warranties made by the Company in
this Agreement and in each of the other agreements and instruments delivered to
Parent in connection with the transactions contemplated by this Agreement shall
be accurate in all material respects as of the Closing Date as if made at the
Closing Date (without giving effect to any update to the Company Disclosure
Schedule).
6.2 PERFORMANCE OF COVENANTS. All of the covenants and obligations that
the Company is required to comply with or to perform at or prior to the Closing
shall have been complied with and performed.
6.3 STOCKHOLDER APPROVAL. The Merger and this Agreement shall have been
duly approved by the affirmative vote of 90% of the shares of Company Stock
entitled to vote with respect thereto. The number of Dissenting Shares shall be
less than 10% of the Company Stock outstanding immediately prior to the Closing
Date.
6.4 CONSENTS. All Consents (a) required to be obtained from any
Governmental Entity, and (b) otherwise required to be obtained, in each case, in
connection with the Merger and the other transactions contemplated by this
Agreement (including the Consents identified in Part 2.21 of the Company
Disclosure Schedule) shall have been obtained and shall be in full force and
effect.
6.5 AGREEMENTS AND DOCUMENTS. Parent shall have received the following
agreements and documents, each of which shall be in full force and effect:
(A) Employment Agreements in the form of Exhibit F executed by each of
Xxx Xxxxxx and Xxxxxxx Xxxxx;
(B) a Release in the form of Exhibit G, executed by each of the Key
Stockholders of the Company;
(C) a legal opinion of Xxxx, Xxxx, Xxxx & Freidenrich, LLP as of the
Closing Date, in a form reasonably acceptable to Parent;
(D) a certificate executed by the Company and containing the
representation and warranty of the Company that each of the representations and
warranties set forth in Section 2 is accurate in all respects as of the Closing
Date as if made as of the Closing Date (subject to such exceptions as are
necessary for accuracy) and that the conditions set forth in Sections 6.1, 6.2,
6.3 and 6.4 have been duly satisfied (the "Company Closing Certificate");
(E) a certificate executed by the Secretary of the Company attaching
and certifying as to the Company's current Certificate of Incorporation and
Bylaws and the resolutions of the Company's Board of Directors and stockholders
approving this Agreement and the transactions relating thereto;
40
(F) written resignations of all officers and directors of the Company,
effective as of the Effective Time;
(G) the Escrow Agreement substantially in the form of Exhibit E,
executed by the Stockholders' Agent and the other parties thereto, and the
Escrow Shares shall have been deposited thereunder;
6.6 FIRPTA COMPLIANCE. The Company shall have filed with the Internal
Revenue Service the notification referred to in Section 5.7.
6.7 NO RESTRAINTS. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the Merger
shall have been issued by any court of competent jurisdiction and remain in
effect, and there shall not be any Legal Requirement enacted or deemed
applicable to the Merger that makes consummation of the Merger illegal.
6.8 NO LEGAL PROCEEDINGS. No Governmental Body or other Person shall
have commenced or threatened to commence any Legal Proceeding (a) challenging or
seeking the recovery of damages in connection with the Merger; (b) seeking to
prohibit or limit the exercise by Parent of any material right pertaining to its
ownership of stock of Merger Sub or the Company; or (c) claiming to own any
capital stock of the Company, or the option or other right to the capital stock
of the Company, or right to receive consideration as a result of the Merger.
6.9 TERMINATION OF EMPLOYEE PLANS. The Company shall have provided
Parent with evidence, reasonably satisfactory to Parent, as to the termination
of the benefit plans referred to in Section 5.9.
6.10 TERMINATION OF AGREEMENTS. Immediately prior to the Closing, the
following agreements and/or provisions of the following agreements shall be
terminated and shall no longer be in effect:
(A) the Employment Agreements, the Consulting Agreements, and the
Special Advisory Board Agreements listed on Part 2.1O(a)(i) of the Company
Disclosure Schedule.
6.11 NO MATERIAL ADVERSE CHANGE. There shall have been no material
adverse change or decline in value in the business, properties, condition
(financial or otherwise), results of operations, or prospects of the Company (or
in any aspect or portion thereof) since the date of this Agreement.
6.12 RELEASE OF SECURITY. Prior to the Closing Date, the Company shall
have provided to Parent evidence reasonably satisfactory to Parent that any and
all Encumbrances held by any Person with respect to any capital stock or
securities of the Company have been fully discharged and that all of the capital
stock of the Company is free and clear of all Encumbrances. In the event such
Encumbrances cannot be discharged without repayment of any loan or advance made
to the Company by any Person, on or prior to the Closing Date, the Company shall
have provided to Parent evidence satisfactory to Parent that any and all loans
or other advances made by any Person in favor of the Company has been paid in
full and any Encumbrances held by any Person with respect to any assets of the
Company has been fully discharged.
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6.13 COMPLIANCE WITH SEC.3(A)(10) OF THE SECURITIES ACT. The California
Department of Corporations shall have issued an approval under the Fairness
Hearing Law (following a hearing upon the fairness of the terms and conditions
of the Merger, conducted pursuant to the Fairness Hearing Law) for the issuance
of the Parent Common Stock to be issued in the Merger, and all applicable
requirements of Section 3(a)(10) of the Securities Act shall have been
satisfied.
6.14 DUE DILIGENCE. The results of the Parent's accounting, financial,
and legal due diligence review of the Company shall be satisfactory to Parent,
within its sole discretion. In the event that the Parent does not give written
notice to the Company of the failure of this contingency by the earlier of (i)
the Closing Date or (ii) December 31, 2000; then this contingency shall
conclusively be considered satisfied or waived by Parent. If Parent elects to
give a notice pursuant to this Section 6.14, then such notice must include a
detailed list of items that require further review by Parent and dates when
Parent expects to complete its review. Notwithstanding the foregoing, Parent
must complete its due diligence review of the Company and raise and resolve any
objections arising from such due diligence no later than 10 calendar days from
the date of Parent's notice, if Parent's objections are not resolved within such
10 calendar days then the transactions contemplated by this Agreement shall be
terminated unless such termination is waived in writing by the Company.
6.15 STOCKHOLDERS AGREEMENT. Stockholders' Agent shall have executed
and delivered to Parent an Agreement to Join as a Party to Stockholders'
Agreement in the form attached as Exhibit H on behalf of the Merger Stockholders
(the "Parent's Stockholders' Agreement").
6.16 LITIGATION. The Company shall have entered into a settlement
agreement or obtained a dismissal with prejudice with respect to the Druml
litigation upon such terms and conditions that are satisfactory to Parent within
Parent's sole discretion. if the Company has not entered into such settlement
agreement or obtained such dismissal, Parent shall hold back 480,000 shares of
Parent Common Stock that are otherwise issuable to the Merger Stockholders'
pursuant to Section 1.6 (a). Parent may issue such shares of Parent Common Stock
to settle the Druml Litigation, within Parent's sole discretion. Any such shares
of Parent Common Stock that are not issued by Parent to settle the Druml
litigation shall be issued by Parent to the Merger Stockholders immediately
after the effectiveness of such settlement agreement in accordance with each
Merger Stockholders' ProRata Allocations. In addition, Parent shall deduct all
costs, expenses, and fees (including Attorneys' fees) incurred by Parent in
connection with the Druml litigation on a dollar for dollar basis, from any
amounts payable to the Merger Stockholders pursuant to Section 1.10.
6.17 EXCHANGE ACT. Nothing shall have occurred to cause the Company to
conclude, in the exercise of its good faith judgment, that (i) as a result of
closing of the Merger, and (ii) after giving effect to any other financing or
transaction that the Company may reasonably foresee completing within 24 months
of the Closing Date, the Company will become, or reasonably could be expected to
become, subject to periodic reporting obligation under Section 12 (g) of the
Exchange Act prior to December 31, 2003.
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7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY
The obligations of the Company to effect the Merger and otherwise
consummate the transactions contemplated by this Agreement are subject to the
satisfaction (or waiver), at or prior to the Closing, of the following
conditions:
7.1 ACCURACY OF REPRESENTATIONS. Each of the representations and
warranties made by Parent and Merger Sub in this Agreement shall have been
accurate as of the date of this Agreement and shall be accurate in all material
respects as of the Closing Date as if made at the Closing Date.
7.2 PERFORMANCE OF COVENANTS. All of the covenants and obligations that
Parent and Merger Sub are required to comply with or to perform at or prior to
the Closing shall have been complied with and performed in all material
respects.
7.3 DOCUMENTS. The Company shall have received the following documents:
(A) a legal opinion of Xxxxxxxxx & Xxxxx PLLC, dated as of the Closing
Date, in a form reasonably acceptable to the Company;
(B) a certificate executed by Parent and containing the representation
and warranty of Parent that each of the representations and warranties set forth
in Section 4 is accurate in all respects as of the Closing Date (subject to such
exceptions as are necessary for accuracy) as if ma as of the Closing Date; and
(C) a certificate executed by the Secretaries of Parent and Merger Sub
attaching and certifying as to the current Certificates of Incorporation and
Bylaws of Parent and Merger Sub and the resolutions of the Boards of Directors
and stockholders of Parent and Merger Sub approving this Agreement and the
transactions relating thereto.
7.4 NO RESTRAINTS. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the Merger
shall have been issued by any court of competent jurisdiction and remain in
effect, and there shall not be any Legal Requirement enacted or deemed
applicable to the Merger that makes consummation of the Merger illegal.
7.5 COMPLIANCE WITH SEC.3(A)(10) OF THE SECURITIES ACT. The California
Department of Corporations shall have issued an approval under the Fairness
Hearing Law (following a hearing upon the fairness of the terms and conditions
of the Merger, conducted pursuant to the Fairness Hearing Law) for the issuance
of the Parent Common Stock to be issued in the Merger, and all applicable
requirements of Section 3(a)(10) of the Securities Act shall have been
satisfied.
7.6 NO MATERIAL ADVERSE CHANGE. There shall have been no material
adverse change or decline in value in the business, properties, condition
(financial or otherwise), results of operations, or prospects of Parent (or in
any aspect or portion thereof) since the date of this Agreement.
43
7.7 PARENT BOARD OF DIRECTORS. Parent shall have taken all such action
necessary to elect Xxx Xxxxxx and Xxx Xxxx to the Board of Directors of Parent.
8. TERMINATION
8.1 TERMINATION EVENTS. This Agreement may be terminated prior to the
Closing:
(A) by Parent if Parent reasonably determines that the timely
satisfaction of any condition set forth in Section 6 has become not reasonably
likely (other than as a result of any failure on the part of Parent or Merger
Sub to comply with or perform any covenant or obligation of Parent or Merger Sub
set forth in this Agreement);
(B) by the Company if the Company reasonably determines that the timely
satisfaction of any condition set forth in Section 7 has become not reasonably
likely (other than as a result of any failure on the part of the Company or any
of the stockholders of the Company to comply with or perform any covenant or
obligation set forth in this Agreement or in any other agreement or instrument
delivered to Parent);
(C) by Parent if the Closing has not taken place on or before December
31, 2000 (other than as a result of any failure on the part of Parent to comply
with or perform any covenant or obligation of Parent set forth in this
Agreement);
(D) by the Company if the Closing has not taken place on or before
December 31, 2000 (other than as a result of any failure on the part of the
Company to comply with or perform any covenant or obligation of the Company as
set forth in this Agreement); or
(E) by the mutual written consent of Parent and the Company.
8.2 TERMINATION PROCEDURES. If Parent wishes to terminate this
Agreement pursuant to Section 8.1(a) or Section 8.1(c), Parent shall deliver to
the Company a written notice stating that Parent is terminating this Agreement
and setting forth a brief description of the basis on which Parent is
terminating this Agreement. If the Company wishes to terminate this Agreement
pursuant to Section 8.1(b) or Section 8.1(d), the Company shall deliver to
Parent a written notice stating that the Company is terminating this Agreement
and setting forth a brief description of the basis on which the Company is
terminating this Agreement.
8.3 EFFECT OF TERMINATION. If this Agreement is terminated pursuant to
Section 8.1, all further obligations of the parties under this Agreement shall
terminate; provided, however, that: (a) neither the Company nor Parent shall be
relieved of any obligation or liability arising from any prior breach by such
party of any provision of this Agreement; (b)the parties shall, in all events,
remain bound by and continue to be subject to the provisions set forth in
Section 10; and (c) each of the parties shall, in all events, remain bound by
and continue to be subject to Section 5.3.
9. INDEMNIFICATION, ETC
9.1 SURVIVAL OF REPRESENTATIONS, ETC.
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(A) The representations and warranties made by the Company (including
the representations and warranties set forth in Section 2 and the
representations and warranties set forth in the Company Closing Certificate)
shall survive the Closing and shall expire on the second anniversary of the
Closing Date; provided, however, that this provision shall not limit any rights
or claims based upon fraudulent or intentional misrepresentation.
Notwithstanding the foregoing, if, at any time prior to the second anniversary
of the Closing Date, any Indemnitee (acting in good faith) delivers to the
Stockholders' Agent a written notice alleging the existence of an inaccuracy in
or a breach of any of the representations and warranties made by the Company
(and setting forth in reasonable detail the basis for such Indemnitee's belief
that such an inaccuracy or breach may exist) and asserting a claim for recovery
under Section 9.2 based on such alleged inaccuracy or breach, then the claim
asserted in such notice shall survive the second anniversary of the Closing
until such time as such claim is fully and finally resolved. The representations
and warranties made by Parent and Merger Sub in Sections 4.4 and 4.5 shall
survive the Closing and shall expire on the second anniversary of the Closing
Date. All other representations and warranties made by Parent and Merger Sub in
this Agreement shall terminate and expire as of the Effective Time, and any
liability of Parent or Merger Sub with respect to such representations and
warranties shall thereupon cease; provided, however, that this provision shall
not limit any rights or claims based on fraudulent or intentional
misrepresentation.
(B) Notwithstanding any provision of this Agreement to the contrary,
after the Effective Time no party shall be entitled to indemnification or to
obtain any proceeds from the Escrow Shares or to otherwise recover any amount
unless and until one or more written notices (pursuant to Section 9.2 below)
identifying Damages in excess of $100,000 in the aggregate (the "Basket Amount")
has or have been delivered to the Stockholders' Agent as provided in this
Section 9.1, in which case Parent shall be entitled to recover all Damages so
identified including the damages that had previously been below the Basket
Amount. In the event the Indemnitor shall have any liability for indemnification
to any Indemnitee under this Agreement, the sole satisfaction of such liability
shall be from the Escrow Shares; provided, however, that this provision shall
not limit any rights or claims based on fraudulent or intentional
misrepresentation.
(C) Except for information expressly set forth in an update to the
Company Disclosure Schedule (identified as such), the representations and
warranties made by the Company, the covenants and obligations of the Company,
and the rights and remedies that may be exercised by the Indemnitees, shall not
be limited or otherwise affected by or as a result of any information furnished
to, or any investigation made by or knowledge of, any of the Indemnitees or any
of their Representatives.
(D) For purposes of this Agreement, each statement or other item of
information set forth in the Company Disclosure Schedule or in any update to the
Company Disclosure Schedule shall be deemed to be a representation and warranty
made by the Company in this Agreement.
9.2 INDEMNIFICATION BY STOCKHOLDERS.
(A) From and after the Effective Time (but subject to Section 9.1(a)),
the stockholders of the Company who shall have received, or shall be entitled to
45
receive, Parent Common Stock pursuant to Section 1.6 (the "Indemnitors"),
severally but not jointly, shall hold harmless and indemnify each of the
Indemnitees from and against, and shall compensate and reimburse (through the
Escrow Shares) each of the Indemnitees for, any Damages which are directly or
indirectly suffered or incurred by any of the Indemnitees or to which any of the
Indemnitees may otherwise become subject (regardless of whether or not such
Damages relate to any third-party claim) and which arise from or as a result of,
or are directly or indirectly connected with: (i) any inaccuracy in or breach of
any representation or warranty set forth in Section 2 made as of the date of
this Agreement; (ii) any inaccuracy in or breach of any representation or
warranty set forth in the Company Closing Certificate; (iii) any breach of any
covenant or obligation of the Company (including the covenants set forth in
Sections 3 and 5); (iv) the matters listed on Part 2.12, Part 2.14(a) and Part
2.15(n) of the Company Disclosure Schedule; or (v) any Legal Proceeding relating
to any inaccuracy or breach of the type referred to in clause "(1)", "(ii)" or
"(iii)" above or related to the matters described in clause "(iv)" above
(including any Legal Proceeding commenced by any Indemnitee for the purpose of
enforcing any of its rights under this Section 9).
(B) Any obligation on the part of an Indemnitor pursuant to Section
9.2(a) shall be satisfied by the delivery of a sufficient number of shares of
Parent Common Stock valued at the then current Fair Market Value (the "Stock
Delivery Obligation") to satisfy Indemnitors' obligations. Under the Stock
Delivery Obligation, the Indemnitors shall deliver shares of Parent Common Stock
and the Indemnitees shall be required to accept shares of Parent Common Stock in
all cases valued at the then current Fair Market Value of the Parent Common
Stock.
(C) The Indemnitors acknowledge and agree that, if the Surviving
Corporation suffers, incurs or otherwise becomes subject to any Damages as a
result of or in connection with any inaccuracy in or breach of any
representation, warranty, covenant or obligation, then (without limiting any of
the rights of the Surviving Corporation as an Indemnitee) Parent shall also be
deemed, by virtue of its ownership of the stock of the Surviving Corporation, to
have incurred Damages as a result of and in connection with such inaccuracy or
breach.
9.3 NO CONTRIBUTION. Each Indemnitor waives, and acknowledges and
agrees that he shall not have and shall not exercise or assert (or attempt to
exercise or assert), any right of contribution, right of indemnity or other
right or remedy against Merger Sub or the Company in connection with any
indemnification obligation or any other liability to which he may become subject
under or in connection with this Agreement or the Company Closing Certificate.
9.4 INTEREST. Any Indemnitor who is required to hold harmless,
indemnify, compensate or reimburse any Indenmitee pursuant to this Section 9
with respect to any Damages shall also be liable to such Indemnitee for interest
on the amount of such Damages (for the period commencing as of the date on which
such Indemnitor first received notice of a claim for recovery by such Indemnitee
and ending on the date on which the liability of such Indemnitor to such
Indemnitee is fully satisfied by such Indemnitor) at a floating rate equal to
the rate of interest publicly announced by Wachovia Bank, N.A. from time to time
as its prime, base or reference rate.
46
9.5 MITIGATION OF LOSS. Indemnitees shall use their reasonable efforts
to mitigate any Damages in connection with an indemnity claim made pursuant to
Section 9.2(a) with the scope to be as required by applicable law, if the amount
of Damages, at any time prior to or subsequent to the payment thereof by an
Indemnitor to an Indemnitee pursuant to this Section 9 is reduced pursuant to
any insurance coverage, the amount of such reduction (net of (i) any out-
of-pocket expenses, (ii) increases in premiums or (iii) any deductible incurred
in obtaining such reduction) shall promptly be repaid by the Indemnitee to the
Indemnitor. Notwithstanding any other provision in this Agreement including this
Section 9.5, there shall be no affirmative obligation or duty on the part of
either Parent or Merger Sub to obtain insurance with respect to any aspect of
their respective business, operations or assets.
9.6 DEFENSE OF THIRD PARTY CLAIMS. In the event of the assertion or
commencement by any Person of any claim or Legal Proceeding (whether against
Merger Sub or the Company, against Parent or against any other Person) with
respect to which any Indemnitor may become obligated to hold harmless,
indemnify, compensate or reimburse any Indemnitee pursuant to this Section 9,
Parent shall have the right, at its election, to proceed with the defense of
such claim or Legal Proceeding on its own with counsel reasonably satisfactory
to the Stockholders' Agent. If Parent so proceeds with the defense of any such
claim or Legal Proceeding:
(A) all reasonable expenses relating to the defense of such claim or
Legal Proceeding shall be borne and paid exclusively by the Indemnitors;
(B) each Indemnitor shall make available to Parent any documents and
materials in his possession or control that may be necessary to the defense of
such claim or Legal Proceeding; and
(C) Parent shall have the right to settle, adjust or compromise such
claim or Legal Proceeding with the consent of the Stockholders' Agent (as
defined in Section 10.1); provided, however, that such consent shall not be
unreasonably withheld.
Parent shall give the Stockholders' Agent prompt notice of the commencement
of any such Legal Proceeding against Parent, Merger Sub or the Company and shall
keep the Stockholders' Agent informed at all stages thereof; provided, however,
that any failure on the part of Parent to so notify or inform the Stockholders'
Agent shall not limit any of the obligations of the Indemnitors under this
Section 9 (except to the extent such failure materially prejudices the defense
of such Legal Proceeding). If Parent does not elect to proceed with the defense
of any such claim or Legal Proceeding, the Stockholders' Agent may proceed with
the defense of such claim or Legal Proceeding with counsel reasonably
satisfactory to Parent; provided, however, that the Stockholders' Agent may not
settle, adjust or compromise any such claim or Legal Proceeding without the
prior written consent of Parent (which consent may not be unreasonably
withheld).
9.7 SETOFF. In addition to any rights of setoff or other similar rights
that Parent or any of the other Indemnitees may have at common law or otherwise,
Parent shall have the right to withhold and deduct any sum that may be owed to
any Indemnitee under this Section 9 or pursuant to any other provision of this
Agreement from any amount otherwise payable by any Indemnitor to the
Stockholders' Agent or any stockholder of the Company.
47
9.8 EXERCISE OF REMEDIES BY INDEMNITEES OTHER THAN PARENT. No
Indemnitee (other than Parent or any successor thereto or assign thereof) shall
be permitted to assert any indemnification claim or exercise any other remedy
under this Agreement unless Parent (or any successor thereto or assign thereof)
shall have consented to the assertion of such indemnification claim or the
exercise of such other remedy.
10. MISCELLANEOUS PROVISIONS
10.1 STOCKHOLDERS' AGENT. By virtue of their approval of the Merger and
this Agreement, the Merger Stockholders shall have approved the indemnification
and escrow terms set forth in this Agreement and shall have agreed to
irrevocably appoint Xxxxxx X. Xxxxxx as their agent and attorney-in-fact, as
Stockholders' Agent coupled with an interest, to: (i) modify, amend or otherwise
change this Agreement or any of the terms or provisions included therein
(including modifications, amendments or changes subsequent to Closing); (ii)
take all actions and execute all documents under this Agreement necessary or
desirable to consummate the Merger and the transactions contemplated by this
Agreement, and to take all actions and to execute all documents which may be
necessary or desirable in connection therewith; (iii) give and receive consents
and all notices hereunder; (iv) to authorize delivery to Parent of Parent Common
Stock, cash or other property from the Escrow Fund, to object to such
deliveries, to agree to, negotiate, enter into settlements and compromises of,
and demand dispute resolution pursuant to Section 9 of this Agreement and comply
with orders of courts and awards of arbitrators with respect to such claims, and
to take all actions necessary or appropriate in the judgment of the
Stockholders' Agent for the accomplishment of the foregoing; and (v) deal with
Parent exclusively on all matters relating to any provision of this Agreement.
Parent shall be entitled to deal exclusively with the Stockholders' Agent on all
matters set forth in this Section
10.2 (a) and shall be entitled to rely exclusively (without further
evidence of any kind whatsoever) on any document executed or purported to be
executed on behalf of any Merger Stockholder by the Stockholders' Agent, and on
any other action taken or purported to be taken on behalf of any Merger
Stockholder by the Stockholders' Agent, as fully binding on such Merger
Stockholder, without any obligation to notify or make inquiries with respect to
any Merger Stockholder. THE MERGER STOCKHOLDERS AND EACH OF THEM INDIVIDUALLY,
AGREE THAT SERVICE OF PROCESS UPON THE STOCKHOLDERS' AGENT IN ANY ACTION OR
PROCEEDINGS ARISING UNDER OR PERTAINING TO THIS AGREEMENT SHALL BE DEEMED TO BE
VALID SERVICE OF PROCESS UPON EACH OF THE MERGER STOCKHOLDERS AND ANY CLAIM BY
PARENT AGAINST THE MERGER STOCKHOLDERS, OR ANY OF THEM, IN RESPECT OF THIS
AGREEMENT MAY BE ASSERTED AGAINST AND SETTLED ON BEHALF OF ANY OF THEM BY, THE
STOCKHOLDERS' AGENT. The Stockholders' Agent shall be deemed to have accepted
his appointment herein upon his execution of this Agreement.
10.3 LIABILITY OF STOCKHOLDERS' AGENT. Nothing contained herein shall
be deemed to make the Stockholders' Agent liable to the Merger Stockholders
because of service in his capacity as Stockholders' Agent and attorney-in-fact.
In performing any of his duties hereunder, the Stockholders' Agent shall not
incur any liability to the Merger Stockholders for losses, damages, liabilities
or expenses, except for fraud and his own willful misconduct, and shall not
48
receive any remuneration for acting in such capacity. The Merger Stockholders
shall jointly and severally indemnify the Stockholders' Agent and hold the
Stockholders' Agent harmless against any loss, liability or expense incurred
without gross negligence, bad faith or willful misconduct on the part of the
Stockholders' Agent and arising out of or in connection with the acceptance or
administration of the Stockholders' Agent's duties hereunder or pursuant to the
Merger Agreement, including the reasonable fees and expenses of any legal
counsel or other professional retained by the Stockholders' Agent. By virtue of
their approval of the Merger and this Agreement, the Merger Stockholders hereby
agree to pay all costs and expenses, including those of any legal counsel or
other professional retained by the Stockholders' Agent, and all fees of any
Stockholders' Agent appointed by Parent, in each case connection with the
acceptance and administration of the Stockholders' Agent's duties hereunder.
10.4 SUCCESSION OF STOCKHOLDERS' AGENT. The parties acknowledge and
agree that, on or before November 15, 2000, Xxxxxx X. Xxxxxx shall resign as the
Stockholders' Agent. In the event of the death, disability, incompetency or
resignation of the Stockholders' Agent, the Merger Stockholders shall, within
thirty (30) days after notice from Parent, by a majority-in- interest designate
another successor stockholders' agent or agents, as the case may be, who shall
have all of the rights, powers and authority conferred to the Stockholders'
Agent pursuant to this Agreement and the power of attorney set forth hereunder
who shall be approved by Parent which approval shall not be unreasonably
withheld. Notwithstanding the foregoing, if the Merger Stockholders fail to
designate such successor stockholders' agent(s) within such 30-day period,
Parent shall be entitled to designate the successor stockholders' agent for and
on behalf of all of the Merger Stockholders, which Person shall be independent
of Parent or its Affiliates or subsidiaries (except that Parent may pay the fees
charged and expenses incurred by such Person in the event the Merger
Stockholders fail to perform the obligations set forth in Section 10(b) of this
Agreement). Unless and until the Escrow Agent shall receive written notice of
the appointment of a successor Stockholders' Agent, the Escrow Agent may assume
without inquiry that the last Stockholders' Agent of which it has notice remains
in that capacity.
10.5 IRREVOCABLE; BINDING ON SUCCESSORS, ETC. It is expressly
understood and agreed that the power of attorney set forth in this Agreement and
the agency created hereby is coupled with an interest of the respective parties
hereto and shall be binding and enforceable on and against the respective
successors, heirs, personal representatives, and assigns of the Merger
Stockholders and this power of attorney shall not be revoked or terminated by
death, disability, incompetency or bankruptcy of any of the Merger Stockholders,
or any of them, but shall continue to be binding and enforceable by the
Stockholders' Agent, Parent and their respective successors and assigns and on
and against the heirs, personal representatives, successors and assigns of the
Merger Stockholders in the manner provided herein.
10.6 FURTHER ASSURANCES. Each party hereto shall execute and cause to
be delivered to each other party hereto such instruments and other documents,
and shall take such other actions, as such other party may reasonably request
(prior to, at or after the Closing) for the purpose of carrying out or
evidencing any of the transactions contemplated by this Agreement.
10.7 FEES AND EXPENSES. Subject to the provisions of Section 1.6(a),
each party to this Agreement shall bear and pay all fees, costs and expenses
(including legal fees and accounting fees) that have been incurred or that are
incurred by such party in connection with the transactions contemplated by this
49
Agreement, including all fees, costs and expenses incurred by such party in
connection with or by virtue of (a) the investigation and review conducted by
Parent and its Representatives with respect to the Company's business (and the
furnishing of information to Parent and its Representatives in connection with
such investigation and review), (b) the negotiation, preparation and review of
this Agreement (including the Company Disclosure Schedule) and all agreements,
certificates, opinions and other instruments and documents delivered or to be
delivered in connection with the transactions contemplated by this Agreement,
(c) the preparation and submission of any filing or notice required to be made
or given in connection with any of the transactions contemplated by this
Agreement, and the obtaining of any Consent required to be obtained in
connection with any of such transactions, (d) the consummation of the Merger.
10.8 ATTORNEYS' FEES. If any action or proceeding relating to this
Agreement or the enforcement of any provision of this Agreement is brought
against any party hereto, the prevailing party shall be entitled to recover
reasonable attorneys' fees, costs and disbursements (in addition to any other
relief to which the prevailing party may be entitled).
10.9 NOTICES. Any notice or other communication required or permitted
to be delivered to any party under this Agreement shall be in writing and shall
be deemed properly delivered, given and received when delivered (by hand, by
registered mail, by courier or express delivery service or by facsimile) to the
address or facsimile telephone number set forth beneath the name of such party
below (or to such other address or facsimile telephone number as such party
shall have specified in a written notice given to the other parties hereto):
IF TO PARENT OR MERGER SUB:
Home Director, Inc.
0000 Xxxxxxxx Xxxxxxx, Xxxxx 000
Xxxxxxxxxxx, XX 00000
Attention: Xxxx X. Xxxxxx
Fax: (000)000-0000
WITH A COPY TO:
Xxxxxxxxx & Xxxxx PLLC
0000 Xxxxxxx Xxxx Xxxx, Xxxxx 000
Xxxxxxx, XX 00000
Attention: J. Xxxxxx Xxxxx, III
Fax: (000)000-0000
IF TO THE COMPANY:
Digital Interiors, Inc.
0000 Xxxxx Xxxxxx Xxxxxxxxx
Xxx Xxxx,XX 00000
Attention: Xxxxxx X. Xxxxxx
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WITH A COPY TO:
Xxxx, Xxxx, Xxxx & Freidenrich LLP
000 Xxxxxxxx Xxxxxx
Xxxx Xxxx, XX 00000
Attention: Xxxxxxx X. Xxxxx
Fax: (000)000-0000
IF TO THE STOCKHOLDERS' AGENT OR ANY OF THE INDEMNITORS:
Digital Interiors, Inc.
0000 Xxxxx Xxxxxx Xxxxxxxxx
Xxx Xxxx,XX 00000
Attention: Xxxxxx X. Xxxxxx
WITH A COPY TO:
Xxxx, Xxxx, Xxxx & Freidenrich LLP
000 Xxxxxxxx Xxxxxx
Xxxx Xxxx, XX 00000
Attention: Xxxxxxx X. Xxxxx
Fax: (000) 000-0000
10.10 CONFIDENTIALITY. Without limiting the generality of anything
contained in Section 5.3, on and at all times after the Closing Date, the
Company shall keep confidential, and not use or disclose to any other Person,
any non-public document or other non-public information in the Company's
possession that relates to the business of the Company or Parent.
10.11 TIME OF THE ESSENCE. For the purposes of this Agreement and the
transactions contemplated by this Agreement, time is of the essence.
10.12 HEADINGS. The underlined headings contained in this Agreement are
for convenience of reference only, shall not be deemed to be a part of this
Agreement and shall not be referred to in connection with the construction or
interpretation of this Agreement.
10.13 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall constitute an original and all of which, when
taken together, shall constitute one agreement.
10.14 GOVERNING LAW. This Agreement shall be construed in accordance
with, and governed in all respects by, the internal laws of the State of
Delaware (without giving effect to principles of conflicts of laws).
10.15 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon: the
Company and its successors and assigns (if any); Parent and its successors and
assigns (if any); and Merger Sub and its successors and assigns (if any). This
Agreement shall inure to the benefit of: the Company, the Company's stockholders
(to the extent set forth in Section 1.6); Parent; Merger Sub; the other
51
Indemnities (subject to Section 9.8); and the respective successors and assigns
(if any) of the foregoing. After the Closing Date, Parent may freely assign any
or all of its rights under this Agreement (including its indemnification rights
(but not its obligations hereunder) under Section 9), in whole or in part, to
any other Person without obtaining the consent or approval of any other party
hereto or of any other Person.
10.16 REMEDIES CUMULATIVE; SPECIFIC PERFORMANCE. The rights and
remedies of the parties hereto shall be cumulative (and not alternative). The
parties to this Agreement agree that, in the event of any breach or threatened
breach by any party to this Agreement of any covenant, obligation or other
provision set forth in this Agreement for the benefit of any other party to this
Agreement, such other party shall be entitled (in addition to any other remedy
that may be available to it) to (a) a decree or order of specific performance or
mandamus to enforce the observance and performance of such covenant, obligation
or other provision, and (b) an injunction restraining such breach or threatened
breach.
10.17 WAIVER.
(A) No failure on the part of any Person to exercise any power, right,
privilege or remedy under this Agreement, and no delay on the part of any Person
in exercising any power, right, privilege or remedy under this Agreement, shall
operate as a waiver of such power, right, privilege or remedy; and no single or
partial exercise of any such power, right, privilege or remedy shall preclude
any other or further exercise thereof or of any other power, right, privilege or
remedy.
(B) No Person shall be deemed to have waived any claim arising out of
this Agreement, or any power, right, privilege or remedy under this Agreement,
unless the waiver of such claim, power, right, privilege or remedy is expressly
set forth in a written instrument duly executed and delivered on behalf of such
Person; and any such waiver shall not be applicable or have any effect except in
the specific instance in which it is given.
10.18 WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
10.19 AMENDMENTS. This Agreement may not be amended, modified, altered
or supplemented other than by means of a written instrument duly executed and
delivered: (a) prior to the Closing Date, on behalf of Parent, Merger Sub, the
Company and the Stockholders' Agent (acting exclusively for and on behalf of all
of the Merger Stockholders); and (b) after the Closing Date, on behalf of Parent
and the Stockholders' Agent (acting exclusively for and on behalf of all of the
Merger Stockholders).
10.20 SEVERABILITY. In the event that any provision of this Agreement,
or the application of any such provision to any Person or set of circumstances,
shall be determined to be invalid, unlawful, void or unenforceable to any
extent, the remainder of this Agreement, and the application of such provision
to Persons or circumstances other than those as to which it is determined to be
invalid, unlawful, void or unenforceable, shall not be impaired or otherwise
affected and shall continue to be valid and enforceable to the fullest extent
permitted by law.
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10.21 PARTIES IN INTEREST. Except for the provisions of Sections 1.6,
1.7, 9, and 10.20, none of the provisions of this Agreement is intended to
provide any rights or remedies to any Person other than the parties hereto and
their respective successors and assigns (if any).
10.22 ENTIRE AGREEMENT. This Agreement and the other agreements
referred to herein set forth the entire understanding of the parties hereto
relating to the subject matter hereof and thereof and supersede all prior
agreements and understandings among or between any of the parties relating to
the subject matter hereof and thereof; provided, however, that the [
Confidentiality Agreement] shall not be superseded by this Agreement and shall
remain in effect in accordance with its terms until the earlier of (a) the
Effective Time, or (b) the date on which such Mutual Non-Disclosure Agreement is
terminated in accordance with its terms.
10.23 CONSTRUCTION.
(A) For purposes of this Agreement, whenever the context requires: the
singular number shall include the plural, and vice versa; the masculine gender
shall include the feminine and neuter genders; the feminine gender shall include
the masculine and neuter genders; and the neuter gender shall include the
masculine and feminine genders.
(B) The parties hereto agree that any rule of construction to the
effect that ambiguities are to be resolved against the drafting party shall not
be applied in the construction or interpretation of this Agreement.
(C) As used in this Agreement, the words "include" and "including," and
variations thereof, shall not be deemed to be terms of limitation, but rather
shall be deemed to be followed by the words "without limitation."
(D) Except as otherwise indicated, all references in this Agreement to
"Sections", "Schedules" and "Exhibits" are intended to refer to Sections of this
Agreement and Schedules and Exhibits to this Agreement.
SEPARATE SIGNATURE PAGE TO
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
AMONG: HOME DIRECTOR, INC., DIACQUISITION, INC., DIGITAL
INTERIORS, INC., AND XXXXXX X. XXXXXX
BY THE PARENT:
HOME DIRECTOR, INC.,
a Delaware corporation
By:_________________________________________
Xxxx X. Wa1ker
President & Chief Executive Officer
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BY THE MERGER SUB:
DI ACQUISITION, INC.,
a Delaware corporation
By:_________________________________________
Xxxx X. Xxxxxx
President & Chief Executive Officer
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SEPARATE SIGNATURE PAGE TO
AGREEMENT PLAN OFMERGER AND REORGANIZATION
AMONG: HOME DIRECTOR, INC, DL ACQUISITION, INC, DIGITAL
INTERIORS, INC., AND XXXXXX & XXXXXX
BY THE COMPANY:
DIGITAL INTERIORS, INC.,
a California corporation
By:________________________________________
Printed Name:_____________________________
Title:_____________________________________
STOCKHOLDERS' AGENT
___________________________________________
XXXXXX X. XXXXXX
LIST OF EXHIBITS AND SCHEDULES
Exhibit A - Certain Definitions
Exhibit B - Form of Voting Agreement and Irrevocable Proxy
Exhibit C - Directors and Officers of Surviving Corporation
Exhibit D - Indebtedness of Company
Exhibit E - Form of Escrow Agreement
Exhibit F - Form of Employment Agreement
Exhibit G - Form of Key Stockholder Release
Exhibit H - Form of Agreement to Join as a Party to Stockholders'
Agreement
Exhibit I - Pro Rata Allocation
Parent Disclosure Schedule
Company Disclosure Schedule
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