Exhibit 2.1
AGREEMENT AND PLAN OF MERGER
AMONG
PLANAR SYSTEMS, INC.
ALLBRITE TECHNOLOGIES, INC.
CERTAIN SHAREHOLDERS OF ALLBRITE TECHNOLOGIES, INC.
AND
CORONA ACQUISITION CORPORATION
December 4, 2000
TABLE OF CONTENTS
ARTICLE 1 THE MERGER.......................................................... 2
1.1 Effective Time of the Merger.......................................... 2
1.2 Closing............................................................... 2
1.3 Effects of the Merger................................................. 2
1.4 Directors and Officers................................................ 3
ARTICLE 2 CONVERSION OF SECURITIES............................................ 3
2.1 Conversion of Capital Stock........................................... 3
2.2 Reserved.............................................................. 5
2.3 Dissenting Shares..................................................... 5
2.4 Exchange of Certificates.............................................. 6
2.5 Distributions with Respect to Unexchanged Shares...................... 7
2.6 No Fractional Shares.................................................. 7
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF TARGET............................ 7
3.1 Making of Representations and Warranties.............................. 7
3.2 Organization and Corporate Power...................................... 7
3.3 Corporate Records..................................................... 8
3.4 Authorization and Non-Contravention; Required Filings and Consents.... 8
3.5 Capitalization........................................................ 9
3.6 Target Subsidiaries; Investments...................................... 10
3.7 Financial Statements.................................................. 10
3.8 Absence of Undisclosed Liabilities.................................... 10
3.9 Absence of Certain Developments....................................... 11
3.10 Accounts Receivable and Inventories................................... 12
3.11 Distributions to Shareholders; Transactions with Affiliates........... 13
3.12 Title to Assets....................................................... 13
3.13 Intellectual Property................................................. 14
3.14 Tax Matters........................................................... 16
3.15 Certain Contracts and Arrangements.................................... 16
3.16 Litigation............................................................ 18
3.17 Permits; Compliance with Laws......................................... 18
3.18 Employee and Labor Matters............................................ 19
3.19 Employee Benefit Programs............................................. 20
3.20 Environmental Matters................................................. 21
3.21 Insurance............................................................. 22
3.22 Relationship with Customers and Suppliers............................. 23
3.23 Trade Regulation...................................................... 23
3.24 Products; Product Warranties.......................................... 23
3.25 Information Supplied by Target........................................ 24
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3.26 Brokers............................................................. 24
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND SUB................ 25
4.1 Organization of Acquiror and Sub.................................... 25
4.2 Acquiror Capital Structure.......................................... 25
4.3 Authorization and Non-Contravention; Required Filings and Consents.. 26
4.4 Commission Filings.................................................. 27
4.5 Interim Operations of Sub........................................... 27
4.6 Disclosure.......................................................... 27
4.7 Brokers............................................................. 27
ARTICLE 5 PRECLOSING COVENANTS OF TARGET.................................... 27
5.1 Approval of Target Shareholders..................................... 27
5.2 Advice of Changes................................................... 28
5.3 Operation of Business............................................... 28
5.4 Access to Information............................................... 30
5.5 Satisfaction of Conditions Precedent................................ 30
5.6 Closing Date Balance Sheet.......................................... 30
5.7 Other Negotiations.................................................. 30
ARTICLE 6 PRECLOSING AND OTHER COVENANTS OF ACQUIROR AND SUB................ 32
6.1 Advice of Changes................................................... 32
6.2 Reservation of Acquiror Common Stock................................ 32
6.3 Satisfaction of Conditions Precedent................................ 32
6.4 Nasdaq National Market Listing...................................... 32
6.5 Indemnification of Target Officers and Directors.................... 33
ARTICLE 7 OTHER AGREEMENTS.................................................. 33
7.1 Confidentiality..................................................... 33
7.2 No Public Announcement.............................................. 33
7.3 Regulatory Filings; Consents; Reasonable Efforts.................... 33
7.4 Pooling Accounting.................................................. 34
7.5 Further Assurances.................................................. 34
7.6 Reserved............................................................ 34
7.7 FIRPTA.............................................................. 34
7.8 Blue Sky Laws....................................................... 34
7.9 Information Statement; Other Filings; Board Recommendations......... 34
7.10 Tax-Free Reorganization............................................. 35
ARTICLE 8 CONDITIONS TO MERGER.............................................. 35
8.1 Conditions to Each Party's Obligation to Effect the Merger......... 35
8.2 Additional Conditions to Obligations of Acquiror and Sub........... 36
8.3 Additional Conditions to Obligations of Target..................... 37
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ARTICLE 9 TERMINATION AND AMENDMENT................................. 38
9.1 Termination.................................................. 38
9.2 Effect of Termination........................................ 39
9.3 Fees and Expenses............................................ 40
ARTICLE 10 INDEMNIFICATION.......................................... 40
10.1 Survival of Representations and Covenants.................... 40
10.2 Indemnification by Signing Target Shareholders............... 40
10.3 Indemnification by Acquiror and Sub.......................... 42
10.4 Defense of Third Party Claims................................ 42
10.5 Exclusive Remedy............................................. 43
10.6 Reliance..................................................... 44
ARTICLE 11 MISCELLANEOUS............................................ 44
11.1 Notices...................................................... 44
11.2 Interpretation............................................... 45
11.3 Counterparts................................................. 46
11.4 Entire Agreement; No Third Party Beneficiaries............... 46
11.5 Governing Law................................................ 46
11.6 Assignment................................................... 46
11.7 Amendment.................................................... 46
11.8 Certain Remedies............................................. 46
11.9 Severability................................................. 47
11.10 Attorneys' Fees.............................................. 47
11.11 Extension; Waiver............................................ 47
Exhibit A - Employment Agreements
Exhibit B - Shareholders Agreement
Target Disclosure Schedule
Acquiror Disclosure Schedule
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DEFINED TERMS
Agreement.............................................. Introductory Paragraph
Agreement of Merger.................................... Section 1.1
Acquiror............................................... Introductory Paragraph
Acquiror Commission Reports............................ Section 4.4
Acquiror Common Stock.................................. Section 2.1
Acquiror Disclosure Schedule........................... Article 4
Acquiror Material Adverse Effect....................... Section 4.1
Acquiror Option........................................ Section 2.1
Acquiror Preferred Stock............................... Section 4.2
Acquisition Proposal................................... Section 5.7
Affiliate.............................................. Section 3.10
Agents................................................. Section 5.7
Articles of Incorporation.............................. Section 3.2
Bylaws................................................. Section 3.2
California Law......................................... Section 1.1
Certificates........................................... Section 2.4
Closing................................................ Section 1.2
Closing Date........................................... Section 1.2
Closing Date Balance Sheet............................. Section 5.6
Closing Stock Price.................................... Section 2.1
Code................................................... Recitals
Commission............................................. Article 4
Common Stock Exchange Ratio............................ Section 2.1
Confidentiality Agreement.............................. Section 7.1
Constituent Corporations............................... Section 1.3
Control................................................ Section 3.6
Damages................................................ Section 10.2
Disclosing Party....................................... Section 10.7
Dissenting Shares...................................... Section 2.3
Effective Time......................................... Section 1.1
Employee Program....................................... Section 3.19
Employment Agreements.................................. Recitals
Environmental Law...................................... Section 3.20
Exchange Act........................................... Section 4.4
FIRPTA................................................. Section 7.7
GAAP................................................... Section 3.7
HSR Act................................................ Section 7.3
Hazardous Material..................................... Section 3.20
Hazardous Waste........................................ Section 3.20
Indemnified Party...................................... Section 10.5
Indemnifying Party..................................... Section 10.5
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Intellectual Property Rights........................... Section 3.13
IRS.................................................... Section 3.14
Knowledge.............................................. Section 3.15
Material Consents...................................... Section 5.5
Material Customer...................................... Section 3.22
Material Supplier...................................... Section 3.22
Merger................................................. Recitals
Most Recent Balance Sheet.............................. Section 3.7
Other Filings.......................................... Section 7.9
Permits................................................ Section 3.17
Person................................................. Section 3.6
Pro Rata Portion....................................... Section 2.2
Securities Act......................................... Section 4.4
Shareholder Agreements................................. Recitals
Signing Target Shareholder............................. Introductory Paragraph
Sub.................................................... Introductory Paragraph
Subsidiary............................................. Section 2.1
Superior Proposal...................................... Section 5.7
Surviving Corporation.................................. Section 1.3
Target................................................. Introductory Paragraph
Target Common Stock.................................... Section 2.1
Target Disclosure Schedule............................. Section 3.1
Target Intellectual Property Assets.................... Section 3.13
Target Material Adverse Effect......................... Section 3.2
Target Options......................................... Section 2.1
Target Shareholder..................................... Introductory Paragraph
Target Shareholders Meeting............................ Section 5.1
Taxes.................................................. Section 3.14
Transaction Documents.................................. Section 3.4
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER dated as of December 4, 2000 (this
"AGREEMENT"), is entered into by and among Planar Systems, Inc., an Oregon
corporation ("ACQUIROR"), Corona Acquisition Corporation, a California
corporation and a wholly-owned subsidiary of Acquiror ("SUB"), AllBrite
Technologies, Inc., a California corporation ("TARGET"), Xxx Xxxxxx and Xxxxxxx
Xxxxx (each a "SIGNING TARGET SHAREHOLDER" and together, the "SIGNING TARGET
SHAREHOLDERS").
RECITALS:
A. The Boards of Directors of Acquiror, Sub and Target deem it advisable
and in the best interests of each corporation and their respective shareholders
that Acquiror and Target combine in order to advance the long-term business
interests of Acquiror and Target;
B. The combination of Acquiror and Target shall be effected by the terms
of this Agreement through a transaction in which Sub will merge with and into
Target, Target will become a wholly-owned subsidiary of Acquiror and the
shareholders of Target will become shareholders of Acquiror (the "MERGER");
C. For Federal income tax purposes, it is intended that the Merger shall
qualify as a reorganization within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "CODE");
D. For accounting purposes, it is intended that the Merger shall be
accounted for as a pooling of interests transaction;
E. As a condition and inducement to Acquiror's willingness to enter into
this Agreement, certain employees of Target who are also shareholders of Target
(including Xxx Xxxxxx and Xxxxxxx Xxxxx) have, concurrently with the execution
of this Agreement each executed and delivered an Employment Agreement and a
Noncompetition Agreement in the forms attached hereto as Exhibit A (the
---------
"EMPLOYMENT AGREEMENTS"), which agreements shall only become effective at the
Effective Time (as defined in Section 1.1 below).
F. As a further condition and inducement to Acquiror's willingness to
enter into this Agreement, each shareholder of Target (each, a "TARGET
SHAREHOLDER" and, together the "TARGET SHAREHOLDERS") has executed and delivered
to Acquiror a Shareholders Agreement in the form attached hereto as Exhibit B
---------
(the "SHAREHOLDERS AGREEMENTS").
1
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth below, the
parties agree as follows:
ARTICLE 1
THE MERGER
Section 1.1 Effective Time of the Merger. Subject to the provisions of
this Agreement, an agreement of merger (the "AGREEMENT OF MERGER") in such
mutually acceptable form as is required by the relevant provisions of the
California General Corporation Law ("CALIFORNIA LAW") shall be duly executed and
delivered by the parties hereto and thereafter delivered to the Secretary of
State of the State of California for filing on the Closing Date (as defined in
Section 1.2). The Merger shall become effective upon the due and valid filing
of the Agreement of Merger with the Secretary of State of the State of
California or at such time thereafter as is provided in the Agreement of Merger
(the "EFFECTIVE TIME").
Section 1.2 Closing. The closing of the Merger (the "CLOSING") will take
place at 10:00 a.m., Pacific time, on a date to be specified by Acquiror and
Target, which shall be no later than the sixth business day after satisfaction
or waiver of the latest to occur of the conditions set forth in Article 8 (other
than the delivery of the officers certificates and other documents referred to
therein) (the "CLOSING DATE"), at the offices of Xxxx Xxxxx LLP, 000 X.X.
Xxxxxxxx, Xxxxx 0000, Xxxxxxxx, Xxxxxx unless another date or place is agreed to
in writing by Acquiror and Target.
Section 1.3 Effects of the Merger.
(a) At the Effective Time (i) the separate existence of Sub shall
cease and Sub shall be merged with and into Target (Sub and Target are sometimes
referred to below as the "CONSTITUENT CORPORATIONS" and Target following
consummation of the Merger is sometimes referred to below as the "SURVIVING
CORPORATION"), (ii) the Articles of Incorporation of Target shall be the
Articles of Incorporation of the Surviving Corporation, and thereafter may be
amended in accordance with its terms and as provided by law and (iii) the Bylaws
of Target as in effect immediately prior to the Effective Time shall be the
Bylaws of the Surviving Corporation, and thereafter may be amended in accordance
with its terms and as provided by law.
(b) At the Effective Time, the effect of the Merger shall be as
provided in the applicable provisions of California Law. Without limiting the
generality of the foregoing, at and after the Effective Time, the Surviving
Corporation shall possess all the rights, privileges, powers and franchises of a
public as well as of a private nature, and be subject to all the restrictions,
disabilities and duties of each of the Constituent Corporations.
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Section 1.4 Directors and Officers. The directors and officers of Target
immediately prior to the Effective Time shall resign as of the Effective Time.
The directors of Sub immediately prior to the Effective Time shall become the
directors of the Surviving Corporation, each to hold office in accordance with
the Articles of Incorporation and Bylaws of the Surviving Corporation, and the
officers of Sub immediately prior to the Effective Time shall become the
officers of the Surviving Corporation, in each case until their respective
successors are duly elected or appointed.
ARTICLE 2
CONVERSION OF SECURITIES
Section 2.1 Conversion of Capital Stock.
(a) At the Effective Time, by virtue of the Merger and without any
action on the part of the holder of any shares of common stock of Target
("TARGET COMMON STOCK") or capital stock of Sub or Acquiror:
(i) Capital Stock of Sub. Each issued and outstanding share of
--------------------
the capital stock of Sub shall be converted into and become one fully paid
and nonassessable share of Common Stock of the Surviving Corporation.
(ii) Cancellation of Acquiror-Owned and Target-Owned Stock. All
-----------------------------------------------------
shares of Target Common Stock that are owned by Acquiror, Sub, Target or
any other direct or indirect Subsidiary (as defined below) of Acquiror or
Target shall be canceled and retired and shall cease to exist and no stock
of Acquiror or other consideration shall be delivered in exchange. All
shares of Common Stock, no par value, of Acquiror ("ACQUIROR COMMON
STOCK"), if any, owned by Target shall remain unaffected by the Merger. As
used in this Agreement, the word "SUBSIDIARY" means, with respect to any
other party, any corporation or other organization, whether incorporated or
unincorporated, of which (i) such party or any other Subsidiary of such
party is a general partner (excluding partnerships, the general partnership
interests of which are held by such party or any Subsidiary of such party
do not have a majority of the voting interest in such partnership) or (ii)
at least a majority of the securities or other interests having by their
terms ordinary voting power to elect a majority of the Board of Directors
or others performing similar functions with respect to such corporation or
other organization or a majority of the profit interests in such other
organization is directly or indirectly owned or controlled by such party or
by any one or more of its Subsidiaries, or by such party and one or more of
its Subsidiaries.
(b) Exchange Ratio.
--------------
3
(i) Subject to Sections 2.2 and 2.4, each issued and
outstanding share of Target Common Stock (other than any Dissenting Shares
as defined in and to the extent provided in Section 2.3) shall be converted
into the right to receive a number of fully paid and nonassessable shares
of Acquiror Common Stock equal to the "Common Stock Exchange Ratio." The
"COMMON STOCK EXCHANGE RATIO" shall be calculated as follows:
(A / B)
-------
(C + D) = E, where
A equals 24,900,000;
B equals the average closing price of Acquiror Common Stock for the ten
(10) trading days ending on the fifth business day before the Closing Date
(the "CLOSING STOCK PRICE");
C equals the total number of shares of Target Common Stock issued and
outstanding at the Effective Time;
D equals the total number of shares of Target Common Stock issuable upon
the exercise of Target Options (as defined below) outstanding, if any, at
the Effective Time; and
E equals the Common Stock Exchange Ratio.
(ii) All shares of Target Common Stock when converted as
provided in this Section 2.1(b), shall no longer be outstanding and shall
automatically be canceled and retired and shall cease to exist, and each
holder of a certificate representing any such shares shall cease to have
any rights with respect thereto, except the right to receive the shares of
Acquiror Common Stock and any cash in lieu of fractional shares of Acquiror
Common Stock to be issued or paid in consideration therefor upon the
surrender of such certificate in accordance with Section 2.4, without
interest.
(iii) If, between the date of this Agreement and the Effective
Time, the outstanding shares of Acquiror Common Stock shall have been
changed into a different number of shares or a different class by reason of
any reclassification, split-up, stock dividend or stock combination, then
the Exchange Ratio shall be correspondingly adjusted.
(c) Target Stock Options. At the Effective Time, all then outstanding
--------------------
unexpired options, if any, to purchase Target Common Stock ("TARGET OPTIONS")
issued under Target's Shareholders Agreement, dated December 31, 1999 shall be
assumed by Acquiror. All of the Target Options are listed in Section 3.5 of the
Target Disclosure Schedule attached hereto. Each outstanding Target Option
assumed by Acquiror shall be deemed to constitute an
4
option (an "ACQUIROR OPTION") to acquire on the same terms and conditions as
were applicable under the Target Option the same number of shares of Acquiror
Common Stock as the holder of such Target Option would have been entitled to
receive pursuant to the Merger had such holder exercised such option in full
immediately prior to the Effective Time, at a price per share (rounded up to the
nearest whole cent) equal to (i) the aggregate exercise price for the shares of
Target Common Stock otherwise purchasable pursuant to such Target Option divided
by (ii) the number of full shares of Acquiror Common Stock deemed purchasable
pursuant to such Acquiror Option in accordance with the foregoing. Acquiror
shall take all corporate action necessary to reserve for issuance a sufficient
number of shares of Acquiror Common Stock for delivery upon exercise of Acquiror
Options assumed by it in accordance with this Section 2.1(c) immediately after
the Effective Time.
Section 2.2 Reserved.
Section 2.3 Dissenting Shares.
(a) Notwithstanding any provision of this Agreement to the contrary,
any shares of Target Common Stock held by a holder who has exercised such
holder's dissenters' rights in accordance with Section 1300 of the California
Law, and who, as of the Effective Time, has not effectively withdrawn or lost
such dissenters' rights ("DISSENTING SHARES"), shall not be converted into or
represent a right to receive Acquiror Common Stock pursuant to Section 2.1, but
the holder of the Dissenting Shares shall only be entitled to such rights as are
granted by Section 1300 of the California Law.
(b) Notwithstanding the provisions of Section 2.3(a), if any holder
of shares of Target Common Stock who asserts his dissenters' rights with respect
to such shares in accordance with Section 1300 of the California law shall
effectively withdraw or lose (through failure to perfect or otherwise) his
rights to receive payment for the fair market value of such shares under
California Law, then, as of the later of the Effective Time or the occurrence of
such event, such holder's shares shall automatically be converted into and
represent only the right to receive Acquiror Common Stock and payment for
fractional shares as provided in Sections 2.1(b) and 2.6, without interest, upon
surrender of the certificate or certificates representing such shares.
(c) Target shall give Acquiror (i) prompt notice of any written
demands for appraisal with respect to any shares of capital stock of Target
pursuant to Section 1300 of the California Law, withdrawals of such demands, and
any other instruments concerning appraisal served pursuant to the California Law
and received by the Target and (ii) the opportunity to participate in all
negotiations and proceedings with respect to dissenters' rights under the
California Law. Target shall not, except with the prior written consent of
Acquiror, voluntarily make any payment with respect to any dissenters' rights
with respect to Target Common Stock or offer to settle or settle any such
demands.
5
Section 2.4 Exchange of Certificates.
(a) From and after the Effective Time, each holder of an outstanding
certificate or certificates ("CERTIFICATES") which represented shares of Target
Common Stock immediately prior to the Effective Time shall have the right to
surrender each Certificate to Acquiror, and receive promptly in exchange for all
Certificates surrendered by such holder a certificate representing the number of
whole shares of Acquiror Common Stock into which the Target Common Stock
evidenced by the Certificates so surrendered shall have been converted pursuant
to the provisions of Article 2 of this Agreement. The surrender of Certificates
shall be accompanied by duly completed and executed Letters of Transmittal in
such form as may be mutually agreed by Acquiror and Target. Until surrendered,
each outstanding Certificate which prior to the Effective Time represented
shares of Target Common Stock shall be deemed for all corporate purposes after
the Effective Time to evidence ownership of the number of whole shares of
Acquiror Common Stock into which the shares of Target Common Stock have been
converted but shall, subject to applicable dissenters' rights under the
California Law and Section 2.3, have no other rights. Subject to dissenters'
rights under the California Law and Section 2.3, from and after the Effective
Time, the holders of shares of Target Common Stock shall cease to have any
rights in respect of such shares and their rights shall be solely in respect of
the Acquiror Common Stock into which such shares of Target Common Stock have
been converted. From and after the Effective Time, there shall be no further
registration of transfers on the records of Target of shares of Target Common
Stock outstanding immediately prior to the Effective Time.
(b) If any shares of Acquiror Common Stock are to be issued in the
name of a person other than the person in whose name the Certificate(s)
surrendered in exchange therefor is registered, it shall be a condition to the
issuance of such shares that (i) the Certificate(s) so surrendered shall be
transferable, and shall be properly assigned, endorsed or accompanied by
appropriate stock powers, (ii) such transfer is permitted by applicable law and
(iii) the person requesting such transfer shall pay Acquiror, or its exchange
agent, any transfer or other taxes payable by reason of the foregoing or
establish to the satisfaction of Acquiror that such taxes have been paid or are
not required to be paid.
(c) In the event any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed, Acquiror shall issue in
exchange for such lost, stolen or destroyed Certificate the shares of Acquiror
Common Stock issuable in exchange therefor pursuant to the provisions of this
Article 2. The Board of Directors of Acquiror may in its discretion and as a
condition precedent to the issuance thereof, require the owner of such lost,
stolen or destroyed Certificate to provide to Acquiror an indemnity agreement
against any claim that may be made against Acquiror with respect to the
Certificate alleged to have been lost, stolen or destroyed.
(d) Neither Acquiror or Target shall be liable to a holder of shares
of Target Common Stock for shares of Acquiror Common Stock issuable to such
holder pursuant to the
6
provisions of this Article 2 that are delivered to a public official pursuant to
applicable abandoned property, escheat or similar laws.
Section 2.5 Distributions with Respect to Unexchanged Shares. No dividends
or other distributions declared or made after the Effective Time with respect to
Acquiror Common Stock with a record date after the Effective Time shall be paid
to the holder of any unsurrendered Certificate with respect to the shares of
Acquiror Common Stock represented thereby and no cash payment in lieu of
fractional shares shall be paid to any such holder pursuant to Section 2.6 below
until the holder of record of such Certificate shall surrender such Certificate
or applicable documents in lieu thereof pursuant to Section 2.4(c). Subject to
the effect of applicable laws, following surrender of any such Certificate,
there shall be paid to the record holder of the certificates representing whole
shares of Acquiror Common Stock issued in exchange therefor, without interest,
(i) at the time of such surrender, the amount of any cash payable in lieu of a
fractional share of Acquiror Common Stock to which such holder is entitled
pursuant to Section 2.6 below and the amount of dividends or other distributions
with a record date after the Effective Time previously paid with respect to such
whole shares of Acquiror Common Stock, and (ii) at the appropriate payment date,
the amount of dividends or other distributions with a record date after the
Effective Time but prior to surrender, and a payment date subsequent to
surrender, payable with respect to such whole shares of Acquiror Common Stock.
Section 2.6 No Fractional Shares. No fractional shares of Acquiror
Common Stock shall be issued in the Merger. In lieu of the issuance of any such
fractional shares, Acquiror shall pay to each holder of shares of Target Common
Stock exchanged pursuant to the Merger who would otherwise have been entitled to
receive a fraction of a share of Acquiror Common Stock (after taking into
account all Certificates delivered by such holder) an amount in cash (rounded to
the nearest whole cent and without interest) determined by multiplying (i) the
fraction of a share of Acquiror Common Stock which such holder would otherwise
be entitled to receive by (ii) the Closing Stock Price.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF TARGET
Section 3.1 Making of Representations and Warranties. As a material
inducement to Acquiror and Sub to enter into this Agreement and consummate the
transactions contemplated hereby, Target represents and warrants to Acquiror and
Sub, except as disclosed in the disclosure schedule delivered to Acquiror
pursuant to this Agreement (the "TARGET DISCLOSURE SCHEDULE"), arranged in
paragraphs corresponding to the numbered and lettered paragraphs contained in
this Article 3, as follows:
Section 3.2 Organization and Corporate Power. Target is a corporation
duly organized, validly existing and in good standing under the laws of
California, and has all
7
requisite corporate power to own, lease and operate its property and to carry on
its business as now being conducted, and is duly qualified or registered to do
business as a foreign corporation (a) in each jurisdiction listed in Section 3.2
of the Target Disclosure Schedule and (b) in each jurisdiction in which the
failure to be so qualified or registered could result in a material adverse
effect on the business as presently conducted, assets (including intangible
assets), liabilities, financial condition, property, or results of operations of
Target (a "TARGET MATERIAL ADVERSE EFFECT"). The copies of the articles of
incorporation and bylaws ("ARTICLES OF INCORPORATION" and "BYLAWS,"
respectively) of Target, as amended to date, which have been furnished to
counsel for Acquiror by Target, are correct and complete at the date hereof.
Section 3.3 Corporate Records. The corporate record books of Target
accurately record all corporate action taken by its shareholders and board of
directors and committees. The copies of the corporate records of Target, as
made available to Acquiror for review, are true and complete copies of the
originals of such documents.
Section 3.4 Authorization and Non-Contravention; Required Filings and
Consents.
(a) Target has all requisite corporate power and authority to enter
into this Agreement and the other documents and agreements executed or to be
executed by or on behalf of Target or the Target Shareholders pursuant hereto or
contemplated hereby (collectively, the "TRANSACTION DOCUMENTS") and to
consummate the transactions contemplated by this Agreement and such Transaction
Documents. The execution and delivery of this Agreement and such Transaction
Documents and the consummation of the transactions contemplated by this
Agreement and such Transaction Documents have been duly authorized by all
necessary corporate action on the part of Target. This Agreement has been and
such Transaction Documents have been or, to the extent not executed as of the
date hereof, will be duly executed and delivered by Target. This Agreement and
each of the Transaction Documents to which Target is a party constitutes, and
each of the Transaction Documents to which Target will become a party when
executed and delivered by Target will constitute, the valid and binding
obligation of Target, enforceable in accordance with its terms.
(b) The execution and delivery by Target of this Agreement and the
Transaction Documents to which it is or will become a party does not, and
consummation of the transactions contemplated by this Agreement or the
Transaction Documents to which it is or will become a party will not, (i)
conflict with, or result in any violation or breach of any provision of the
Articles of Incorporation or Bylaws of Target, (ii) result in any violation or
breach of, or constitute (with or without notice or lapse of time, or both) a
default (or give rise to a right of termination, cancellation or acceleration of
any obligation or loss of any material benefit), or require any notice or
consent by any party under any of the terms, conditions or provisions of any
note, bond, mortgage, indenture, lease, contract or other agreement, instrument
or obligation to which Target is a party or by which it or any of its properties
or assets may be bound, or (iii) conflict with or violate any permit,
concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Target or any of its properties or
assets.
8
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with, any governmental entity is required by or with
respect to Target in connection with the execution and delivery of this
Agreement or the Transaction Documents to which it is or will become a party or
the consummation of the transactions contemplated hereby or thereby, except for
(i) the filing of the Agreement of Merger with the California Secretary of
State, and (ii) such consents, approvals, orders, authorizations, registrations,
declarations and filings as may be required under applicable federal and state
securities laws and the laws of any foreign country.
Section 3.5 Capitalization. As of the date hereof and as of the Closing
Date, the authorized capital stock of Target consists and will consist only of
10,000,000 shares of Target Common Stock of which 214,900 shares are and will be
issued and outstanding (provided, however, that additional shares of Target
Common Stock may be issued prior to Closing upon the due exercise of any then
outstanding Target Options). Except for the Target Options (all of which are
disclosed in Section 3.5 of the Target Disclosure Schedule) Target has not
issued or agreed to issue nor is obligated to issue any warrants, options or
other rights to purchase or acquire any shares of its capital stock, or any
securities convertible into such shares or any warrants, options or other rights
to acquire any such convertible securities. The issued and outstanding shares
of Target Common Stock are held of record by the shareholders of Target as set
forth and identified in the shareholder list attached as Section 3.5(a)(i) to
the Target Disclosure Schedule. The issued and outstanding Target Options are
held of record by the option holders as set forth and identified in the option
holder list attached as Section 3.5(a)(ii) to the Target Disclosure Schedule.
As of the date hereof, all of the outstanding shares of capital stock of Target
have been duly and validly authorized and issued and are fully paid and
nonassessable and have been offered, issued, sold and delivered in compliance
with applicable federal and state securities laws and are not subject to any
preemptive rights. There are no preemptive rights, rights of first refusal, put
or call rights or obligations, or anti-dilution rights with respect to the
issuance, sale or redemption of Target's capital stock, nor are there any
obligations to repurchase, redeem or otherwise acquire any shares of Target's
capital stock. Except as set forth in Section 3.5 of the Target Disclosure
Schedule, there are no rights to have Target's capital stock registered for sale
to the public in connection with the laws of any jurisdiction, and there are no
agreements relating to the voting of Target's voting securities and no
restrictions on the transfer of Target's capital stock. All Target Options have
been issued in accordance with the terms of the Shareholders Agreement, dated
December 31, 1999, among Target and certain shareholders of Target, and
previously provided to Acquiror or its representatives. No option will by its
terms require an adjustment in connection with the Merger. Except as set forth
in Section 3.5 of the Target Disclosure Schedule, neither the consummation of
the transactions contemplated by this Agreement or the other Transaction
Documents nor any action taken by Target in connection with such transactions
will result in (i) any acceleration of vesting in favor of any optionee under
any Target Option; (ii) any additional benefits for any optionee under any
Target Option; or (iii) the inability of Acquiror after the Effective Time to
exercise any right or benefit held by Target prior to the Effective Time with
respect to any Target Option assumed by Acquiror.
9
Section 3.6 Target Subsidiaries; Investments. Target has no direct or
indirect subsidiaries. Except as set forth on Section 3.6 of the Target
Disclosure Schedule, Target does not own or have any direct or indirect equity
interest in or Control over any corporation, partnership, joint venture or other
entity of any kind. The term "CONTROL" shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting securities, by
contract or otherwise. As used in this Agreement, the term "PERSON" shall mean
an individual, a corporation, an association, a partnership, an estate, a trust
or any other entity or organization.
Section 3.7 Financial Statements. Section 3.7 of the Target Disclosure
Schedule includes the following financial statements and schedules of Target,
all of which statements (including the footnotes and schedules thereto) were
prepared in accordance with generally accepted accounting principles ("GAAP")
consistently applied during the periods covered thereby (subject, in the case of
unaudited financial statements, to normal year-end adjustments, the absence of
footnotes and other disclosure associated with an audited report) and fairly
present in all material respects the financial condition of Target on the dates
of such statements and the results of its operations and their cash flows for
the periods covered thereby: (a) audited balance sheet of Target as of December
31, 1999 and the related statements of income, retained earnings and cash flow
for the fiscal year then ended, in each case certified by the independent
certified public accountants of Target, (b) a balance sheet of Target as of
September 30, 2000 (the "MOST RECENT BALANCE SHEET") and related statements of
income, retained earnings and cash flow for the nine month period then ended,
certified by Target's Chief Financial Officer and reviewed by the independent
certified public accountants of Target, (c) complete and correct copies of all
attorneys' responses to audit inquiry letters and all management letters from
Target's independent certified public accountants, and (d) complete and correct
copies of all management representation letters provided by Target to its
independent certified public accountants. Nothing has come to the attention of
the management of Target since such respective dates which would indicate that
such financial statements and schedules were not true and correct in all
material respects as of the date thereof.
Section 3.8 Absence of Undisclosed Liabilities.
(a) As of the date of the Most Recent Balance Sheet, Target did not
have any liability of any nature, whether accrued, absolute, contingent or
otherwise, asserted or unasserted, known or unknown (including without
limitation, liabilities as guarantor or otherwise with respect to obligations of
others, or liabilities for taxes due or then accrued or to become due or
contingent or potential liabilities relating to activities of Target or the
conduct of its business prior to the date of the Most Recent Balance Sheet
regardless of whether claims in respect thereof had been asserted as of such
date), except the liabilities (i) stated or specifically adequately reserved
against on the Most Recent Balance Sheet, (ii) reflected in Section 3.8(a) of
the Target Disclosure Schedule, or (iii) immaterial liabilities incurred in the
ordinary course of business of Target which are not required to be reflected in
the Most Recent Balance Sheet or the notes thereto under GAAP.
10
(b) As of the Closing Date, Target will not have any liabilities of
any nature, whether accrued, absolute, contingent or otherwise, asserted or
unasserted, known or unknown (including without limitation, liabilities as
guarantor or otherwise with respect to obligations of others, or liabilities for
taxes due or then accrued or to become due or contingent or potential
liabilities relating to activities of Target or the conduct of its business
prior to the date hereof or the Closing, as the case may be, regardless of
whether claims in respect thereof had been asserted as of such date), except
liabilities (i) stated or adequately reserved against on the Most Recent Balance
Sheet or the notes thereto, (ii) reflected in Section 3.8(b) of the Target
Disclosure Schedule, (iii) incurred in the ordinary course of business of Target
consistent with the terms of this Agreement or (iv) which would not be required
to be disclosed by Target on a balance sheet prepared as of the Closing Date
under GAAP.
Section 3.9 Absence of Certain Developments. Since September 30, 2000
Target has conducted its business only in the ordinary course consistent with
past practice and, except as otherwise set forth in Section 3.9 of the Target
Disclosure Schedule, there has not been:
(a) any material change in the financial condition, properties,
assets, liabilities, business or operations of Target;
(b) any material contingent liability incurred by Target as
guarantor or otherwise with respect to the obligations of others or any
cancellation of any material debt or claim owing to, or waiver of any material
right of, Target.
(c) any material mortgage, encumbrance or lien placed on any of the
properties of Target which remains in existence on the date hereof or will
remain on the Closing Date;
(d) any material obligation or liability of any nature, whether
accrued, absolute, contingent or otherwise, asserted or unasserted, since the
date of the Most Recent Balance Sheet, incurred by Target other than obligations
and liabilities incurred in the ordinary course of business and not prohibited
by the terms of this Agreement;
(e) any purchase, sale or other disposition, or any agreement or
other arrangement for the purchase, sale or other disposition, of any of the
material properties or assets of Target other than in the ordinary course of
business or as contemplated by this Agreement;
(f) any damage, destruction or loss of Target properties or assets,
whether or not covered by insurance;
(g) any declaration, setting aside or payment of any dividend by
Target or the making of any other distribution in respect of the capital stock
of Target or any direct or indirect redemption, purchase or other acquisition by
Target of its own capital stock;
11
(h) any material labor trouble or material claim of unfair labor
practices involving Target; any material change in the compensation payable or
to become payable by Target to any of its officers or employees other than
normal merit increases in accordance with its usual practices, or any bonus
payment or arrangement made to or with any of such officers or employees;
(i) any material change with respect to the officers of Target;
(j) any payment or discharge of a material lien or liability of
Target which was not shown on the Most Recent Balance Sheet or incurred in the
ordinary course of business thereafter;
(k) any obligation or liability incurred by Target to any of its
officers, directors, shareholders or employees, including any material increases
in compensation, or any loans or advances made by Target to any of its officers,
directors, shareholders or employees, except normal compensation and expense
allowances payable to directors, officers or employees;
(l) any change in accounting methods or practices of Target;
(m) any other material transaction entered into by Target other
than transactions in the ordinary course of business; or
(n) any agreement or understanding whether in writing or otherwise,
for Target to take any of the actions specified in paragraphs (a) through (m)
above.
Section 3.10 Accounts Receivable and Inventories.
(a) Except to the extent reserved against in the Most Recent
Balance Sheet, all of the accounts receivable of Target are valid and
enforceable claims, Target has not received notice that such claims are subject
to set-off or counterclaim, and such claims are, in the best judgment of Target,
fully collectable in the normal course of business after deducting the allowance
for doubtful accounts stated in the Most Recent Balance Sheet and adjusted since
the date thereof in accordance with GAAP. Target does not have any accounts
receivable from any person which is an Affiliate ("AFFILIATE") as defined in
Rule 12b-2 under the Securities Exchange Act of 1934, as amended, of any of its
directors, officers, employees, or stockholders except as set forth in Section
3.10 of the Target Disclosure Schedule.
(b) The inventories of Target at September 30, 2000 are shown on
the Most Recent Balance Sheet. Such inventories and the inventories acquired by
Target subsequent to the date of such balance sheet consist of items of a
quality and quantity usable and salable in the normal course of its business
over a period of not more than one year from the date of this Agreement, subject
to recorded reserves reflected on the Most Recent Balance Sheet. The values of
obsolete materials and materials below standard quality as they relate to the
business as
12
currently conducted have been written down on its books of account to realizable
market value, or adequate reserves have been provided therefor in accordance
with GAAP. All items included in such inventories are owned by Target, except
for sales made subsequent to the date of such balance sheet in the ordinary
course of business, for all of which either the purchaser has made full payment
or the purchaser is obligated to make payment and such obligation is an asset of
Target in accordance with GAAP. All inventories of raw materials and finished
goods are carried on the Most Recent Balance Sheet and are carried on the books
of Target in accordance with the "average cost" method.
Section 3.11 Distributions to Shareholders; Transactions with Affiliates.
(a) All distributions, dividends and other payments made by Target
to the Target Shareholders during the calendar years 1999 and 2000 are described
in Section 3.11(a) of the Target Disclosure Schedule, including the date,
amount, recipient and purpose of each such distribution, dividend or payment.
(b) Except as set forth in Section 3.11(b) of the Target Disclosure
Schedule, there are no material loans, leases or other continuing transactions
(other than ordinary compensation payments) between Target and any present or
former shareholder, director or officer of Target, or any member of such
officer's, director's or shareholder's immediate family, or any person
controlled by such officer, director or shareholder or his or her immediate
family. Except as set forth in Section 3.11(b) of the Target Disclosure
Schedule, no shareholder, director or officer of Target, any of their respective
spouses or family members, owns directly or indirectly on an individual or joint
basis any material interest in, or serves as an officer or director or in
another similar capacity of, any material competitor or supplier of Target, or
any organization which has a material contract or arrangement with Target.
Section 3.12 Title to Assets. Except as set forth in Section 3.12 of the
Target Disclosure Schedule:
(a) Target owns, free and clear of all liens, restrictions and
encumbrances, and has good, valid and marketable title to all assets purported
to be owned by it, including all assets reflected on the Most Recent Balance
Sheet.
(b) Section 3.12(b) of the Target Disclosure Schedule identifies
all equipment, furniture, and other tangible assets with an original cost
greater than $5,000 owned by Target. Each asset identified in Section 3.12(b) of
the Target Disclosure Schedule is free of material defects and deficiencies and
in good condition and repair consistent with its age and intended use (ordinary
wear and tear excepted), and has been maintained consistent with reasonable
maintenance schedules.
(c) Section 3.12(c) of the Target Disclosure Schedule identifies
all assets that are being leased or licensed to Target. All of the assets listed
on Section 3.12(c) are in all
13
material respects in good operating condition and useable in the ordinary course
of business (ordinary wear and tear excepted). All leases pursuant to which
Target leases real or personal property are valid and effective in accordance
with their respective terms and there exists no default thereunder or condition
that could result in a default thereunder or termination thereof.
(d) The assets and properties owned or leased by Target (i)
constitute all the assets and properties currently used by Target in its
business (except for dispositions made in the ordinary course of business), (ii)
constitute all of the properties and assets necessary for Target to conduct its
business in the manner in which it is currently being conducted and is currently
proposed to be conducted by Target, and (iii) are sufficient for the operation
of its business on a basis consistent with past practices.
Section 3.13 Intellectual Property.
(a) Section 3.13(a) of the Target Disclosure Schedule contains an
accurate and complete list of all patents, patent applications, trademarks and
registered copyrights owned by or registered in the name of Target, specifying
as to each the nature of such right, any jurisdiction that has issued a
registration with respect thereto or in which an application for such a
registration is pending, and any applicable registration or application number.
Section 3.13(a) of the Target Disclosure Schedule contains an accurate and
complete list of all other Intellectual Property Rights that are owned by Target
and that are material to the conduct of the business of Target as presently
conducted or proposed to be conducted. Section 3.13(a) of the Target Disclosure
Schedule contains an accurate and complete list of all licenses, sublicenses,
and other agreements as to which Target is a party and pursuant to which any
person other than Target is authorized to use any Intellectual Property Rights
owned by Target. Section 3.13(a) of the Target Disclosure Schedule contains an
accurate and complete list of all licenses, sublicenses, and other agreements as
to which Target is a party and pursuant to which Target is authorized to use any
Intellectual Property Rights owned by any third party other than end-user
licenses granted to Target relating to "off the shelf" personal computer
software that is generally available on commercially reasonable terms from
persons that are unaffiliated with Target and that is not incorporated into any
product marketed, sold, or licensed by, or used in the provision of any service
provided by Target.
(b) Target collectively owns or has the right to use all
Intellectual Property Rights that are used in the conduct of the business of
Target as presently conducted or proposed to be conducted ("TARGET INTELLECTUAL
PROPERTY ASSETS"). Such ownership and right to use are (and upon Closing, will
be) free and clear of, and without liability under, all liens and security
interests of any person. Except for the breaches and events described in Section
3.13(b) of the Target Disclosure Schedule, no party to any license, sublicense,
or agreement listed in Section 3.13 of the Target Disclosure Schedule is (or
upon Closing, will be) in breach or default and no event has occurred (or, upon
Closing, will occur) which with notice or lapse of time would constitute a
breach or default or permit termination, modification or acceleration
thereunder. Except for licenses listed in Section 3.13(b) of the Target
Disclosure Schedule as
14
royalty-bearing, there are (and upon Closing, will be) no royalties, honoraria,
fees, or other payments payable by Target to any person by reason of the
ownership, use, license, sale, or disposition of any Target Intellectual
Property Asset.
(c) To Target's Knowledge, neither the Target Intellectual Property
Assets, nor the conduct of Target's business as presently conducted or proposed
to be conducted by Target uses or discloses in an unauthorized manner,
infringes, or constitutes a misappropriation of any Intellectual Property Right
of any person. No Target Intellectual Property Asset is involved in any
interference, reexamination, cancellation, or opposition proceeding, or any
currently pending or threatened suit, action, or proceeding arising out of a
right or claimed right of any person with respect to any Intellectual Property
Right. Except as set forth in Section 3.13(c) of the Target Disclosure Schedule,
Target has not received any oral, written, or other communication that Target is
using or disclosing in an unauthorized manner, infringing, or misappropriating
in the conduct of Target's business as presently conducted or as proposed to be
conducted by Target the right or claimed right of any person with respect to any
Intellectual Property Right. Target is not aware that any of Target Intellectual
Property Assets listed in Section 3.13(a) of the Target Disclosure Schedule is
being used or disclosed in an unauthorized manner, infringed, or misappropriated
by any person. Except pursuant to a license listed in Section 3.13(a) of the
Target Disclosure Schedule, Target has not entered into any agreement to
indemnify any person against any charge of unauthorized use or disclosure,
infringement, or misappropriation of any Intellectual Property Right. All
patents, registered trademarks, service marks, collective marks, certification
marks, and registered copyrights listed in Section 3.13(a) of the Target
Disclosure Schedule are valid and in full force and were prosecuted in good
faith.
(d) Target has taken reasonable steps sufficient to safeguard and
maintain the secrecy and confidentiality of and its proprietary rights in all of
the Target Intellectual Property Assets not otherwise protected by patents,
patent applications, or copyright or trademark law. Without limitation on the
generality of the foregoing, Target has obtained confidentiality and inventions
assignment agreements from all current employees and independent contractors of
Target involved in the creation or development of the Target Intellectual
Property Assets. No independent contractor who has performed services related
to Target's business has (or upon Closing, will have) any right, title, or
interest in any Target Intellectual Property Asset.
(e) The execution, delivery, and performance of this Agreement, and
the consummation of the transactions contemplated hereby, will not breach,
violate, or conflict with any agreement governing any Target Intellectual
Property Asset, will not cause the forfeiture or termination or give rise to a
right of forfeiture or termination of any Target Intellectual Property Asset, or
in any way impair the right of Target to use or bring any action for the
unauthorized use or disclosure, infringement, or misappropriation of any Target
Intellectual Property Asset.
(f) As used herein, the term "INTELLECTUAL PROPERTY RIGHTS" shall
mean all intellectual property rights, including, without limitation, all
patents, patent applications, patent rights, trademarks, trademark applications,
trade names, service marks,
15
service xxxx applications, copyrights, copyright applications, computer programs
and other computer software, inventions, designs, samples, specifications,
schematics, know-how, trade secrets, proprietary processes and formulae, all
source and object code, algorithms, architecture, structure, display screens,
layouts, development tools, promotional materials, databases, customer lists,
supplier and dealer lists and marketing research, and all documentation and
media constituting, describing or relating to the foregoing, including without
limitation, manuals, memoranda and records.
Section 3.14 Tax Matters. Target has filed all federal, state, local and
foreign tax returns required to be filed by it through the date hereof, and has
paid or caused to be paid all federal, state, local, foreign and other taxes,
including without limitation income taxes, estimated taxes, excise taxes, sales
taxes, use taxes, gross receipts taxes, franchise taxes, employment and payroll-
related taxes, withholding taxes, stamp taxes, transfer taxes, property taxes,
customs and duties, whether or not measured in whole or in part by net income
(collectively, "TAXES"), required to be paid by it through the date hereof
whether disputed or not, except Taxes which have not yet accrued or otherwise
become due, for which adequate provision has been made in the pertinent
financial statements referred to in Section 3.7 above. The provisions for Taxes
on the Most Recent Balance Sheet are sufficient as of its date for the payment
of all accrued and unpaid Taxes of any nature of Target, and any applicable
Taxes owing by Target to any jurisdiction, whether or not assessed or disputed.
All Taxes and other assessments and levies which Target is required to withhold
or collect have been withheld and collected and have been paid over to the
proper governmental authorities. Neither the Internal Revenue Service ("IRS")
nor any other governmental authority is now asserting or has threatened to
assert against Target any deficiency or claim for additional Taxes. Except as
set forth in Section 3.14 of the Target Disclosure Schedule, there has not been
any audit of any tax return filed by Target. Except as set forth in Section 3.14
of the Target Disclosure Schedule, no waiver or agreement by Target is in force
for the extension of time for the assessment or payment of any Taxes. Target is
not a party to any agreement, contract or arrangement that would result
individually or in the aggregate, in the payment of any "excess parachute
payment" within the meaning of Section 280G of the Code.
Section 3.15 Certain Contracts and Arrangements. Except as set forth in
Section 3.15 of the Target Disclosure Schedule (with true and correct copies
delivered to Acquiror), Target is not currently a party or subject to or bound
by:
(a) any plan or contract providing for collective bargaining or the
like, or any contract or agreement with any labor union;
(b) any contract, lease or agreement creating any obligation of
Target to pay to any third party $50,000 or more with respect to any single such
contract or agreement;
(c) any contract or agreement for the sale, license, lease or
disposition of products in excess of $50,000;
16
(d) any contract containing covenants directly or explicitly
limiting in any material respect the freedom of Target to compete in any line of
business or with any person or entity;
(e) any material license agreement (as licensor or licensee);
(f) any contract or agreement for the purchase of any leasehold
improvements, equipment or fixed assets for a price in excess of $50,000;
(g) any indenture, mortgage, promissory note, loan agreement,
guaranty or other agreement or commitment for borrowing in excess of $50,000 or
any pledge or security arrangement;
(h) any joint venture, partnership, manufacturing, development or
supply agreement;
(i) any employment contracts or agreements with officers, directors
or stockholders of Target;
(j) any stock redemption or purchase agreements or other agreements
affecting or relating to the capital stock of Target, including without
limitation any agreement with any shareholder of Target which includes without
limitation, anti-dilution rights, registration rights, voting arrangements or
operating covenants;
(k) any pension, profit sharing, retirement or stock options plans;
(l) any agreement providing for the payment of any royalty,
dividend or similar arrangement based on the revenues or profits of Target;
(m) any executory acquisition, merger or similar agreement;
(n) any material contract with a governmental body under which
Target may have an obligation for renegotiation;
(o) any sales representative or distributorship agreement;
(p) any dealer, reseller, OEM, value added reseller, agency or
franchise agreement;
(q) any agreement which requires prior approval in connection with
a change in control of Target or which will be in default or which gives rise to
termination rights following a change in control of Target; or
17
(r) any other material contract not executed in the ordinary course
of business.
All material contracts, agreements, leases and instruments to which Target
is a party or by which Target is obligated are valid and are in full force and
effect and constitute legal, valid and binding obligations of Target and are
enforceable in accordance with their respective terms. Target has no Knowledge
of any notice or threat to terminate any such agreements. Target is not in
default in complying with any material provisions of any material contract,
agreement or instrument, and to Knowledge of Target, no condition or event or
fact exists which, with notice, lapse of time or both would constitute a default
thereunder on the part of Target. Except as specifically indicated on the
Target Disclosure Schedule, none of the material contracts of Target provides
for indemnification by Target of any third party. No claims have been made or
threatened that would require indemnification by Target, and Target has not paid
any amounts to indemnify any third party as a result of indemnification
requirements of any kind. Target shall be deemed to have "KNOWLEDGE" of a
particular fact or matter if any officer of Target is actually aware of such
fact or matter or if a prudent individual acting in the capacity of any such
officer could be expected to discover or otherwise become aware of such fact or
matter in the reasonably prudent conduct of his duties and responsibilities.
Section 3.16 Litigation. There is no demand, claim, suit, action or
governmental or administrative proceeding or investigation pending or, to the
Knowledge of Target, threatened against Target or affecting the properties or
assets of Target or, as to matters related to Target, against any officer,
director or shareholder or key employee of Target, nor, to the Knowledge of
Target, has there occurred any event nor does there exist any condition on the
basis of which any such demand, claim, suit, action or proceeding may be
asserted. No claim has ever been asserted against Target for renegotiation or
price redetermination of any material business transaction.
Section 3.17 Permits; Compliance with Laws. Target has all necessary
franchises, authorizations, approvals, orders, consents, licenses, certificates,
permits, registrations, qualifications or other rights and privileges
(collectively "PERMITS") necessary to permit it to own its property and to
conduct its business as it is presently conducted or proposed to be conducted,
and all such Permits are valid and in full force and effect. No Permit is
subject to termination as a result of the execution of this Agreement or
consummation of the transactions contemplated hereby. Target is now and has
heretofore been in compliance with all applicable statutes, ordinances, orders,
rules and regulations promulgated by any federal, state, municipal or other
governmental authority which apply to the conduct of its business, except for
any such non-compliance or violation that, individually or in the aggregate,
would not have a Target Material Adverse Effect. Target has never entered into
or been subject to any judgment, consent decree, compliance order or
administrative order with respect to any environmental or health and safety law
or received any request for information, notice, demand letter, administrative
inquiry or formal or informal complaint or claim with respect to any
environmental or health and safety matter or the enforcement of any such law.
Neither Target, nor, to Target's Knowledge, any of its employees (in their
capacities as such) has directly or indirectly paid or delivered any fee,
commission or other sum of money or item of property, however characterized, to
any finder,
18
agent, government official or other party in the United States or any other
country, that was or is in violation of any federal, state, or local statute or
law or of any statute or law of any other country having jurisdiction. Target
has not participated directly or indirectly in any boycotts or other similar
practices affecting any of its customers. Target has complied in all material
respects at all times with any and all applicable federal, state and foreign
laws, rules, regulations, proclamations and orders relating to the importation
or exportation of its products.
Section 3.18 Employee and Labor Matters.
(a) Section 3.18(a) of the Target Disclosure Schedule accurately
sets forth, with respect to each employee of Target (including any employee of
Target who is on a leave of absence or on layoff status):
(i) the name of such employee and the date as of which such
employee was originally hired by Target;
(ii) such employee's title (if and to the extent that such
employee has a title); and
(iii) such employee's annualized compensation as of the date of
this Agreement.
(b) There is no former employee of Target (including any of the
Target Shareholders) who is receiving or is scheduled to receive (or whose
spouse or other dependent is receiving or is scheduled to receive) any benefits
(whether from Target or otherwise) relating to such former employee's employment
with Target.
(c) Target is not a party to or bound by, and has never been a
party to or bound by, any employment agreement or any union contract, collective
bargaining agreement or similar contract.
(d) The employment of each of Target's employees is terminable by
Target at will. Target has delivered to Acquiror accurate and complete copies of
all employee manuals and handbooks, disclosure materials, policy, statements and
other materials relating to the employment of the current and former employees
of Target.
(e) To the Knowledge of Target:
(i) no employee of Target intends to terminate his employment
with Target;
(ii) no employee of Target has received an offer to join a
business that likely would be competitive with Target's business;
19
(iii) no employee of Target is or has been subject to any order
or proceeding that relates to Target's business or to any of the assets
owned by Target;
(iv) no employee of Target is a party to or is bound by any
confidentiality agreement, noncompetition agreement or other contract (with
any Person) that likely would have an adverse effect on (A) the performance
by such employee of any of his duties or responsibilities as an employee of
Target or (B) Target's business or operations; and
(f) Target is not engaged, and has never been engaged, in any
unfair labor practice of any nature. There has never been any slowdown, work
stoppage, labor dispute or union organizing activity, or any similar activity or
dispute, affecting Target or any of its employees. There is not now pending, and
no Person has threatened to commence, any such slowdown, work stoppage, labor
dispute or union organizing activity or any similar activity or dispute. To
Target's Knowledge, no event has occurred, and no condition or circumstance
exists, that likely would directly or indirectly give rise to or provide a basis
for the commencement of any such slowdown, work stoppage, labor dispute or union
organizing activity or any similar activity or dispute.
(g) To the Knowledge of Target, no present or former employee of
Target (including any of the Target Shareholders) has any claim against Target
on account of or for (i) unaccrued overtime pay, other than overtime pay for the
current payroll period, (ii) unaccrued wages or salaries (excluding wages or
salaries for the current payroll period), (iii) unaccrued vacations, time-off or
pay in lieu of vacation or time off, other than vacation or time-off (or pay in
lieu thereof) earned in respect of the current fiscal year, or severance pay, or
(iv) any violation of any law or regulation relating to minimum wages or maximum
hours of work.
(h) No person or party (including, but not limited to, any
governmental entity) has made any claim, and, to the Knowledge of Target, there
is no basis or grounds for any claim, against Target arising out of any law or
regulation relating to discrimination against employees or any other employment
practices, including retirement or labor relations, equal employment opportunity
or occupational, safety and/or health standards.
Section 3.19 Employee Benefit Programs.
(a) Section 3.19 of the Target Disclosure Schedule sets forth a
list of every employee benefit plan, stock option, bonus or incentive plan,
severance pay policy or agreement, deferred compensation agreement, or any
similar plan or agreement (an "EMPLOYEE PROGRAM") that has been maintained by
Target or any of the Target Subsidiaries or to which Target or any of the Target
Subsidiaries has contributed at any time during the three-year period ending on
the date hereof and (i) is subject to the Employee Retirement Income Security
Act of 1974, as amended, (ii) involves the issuance of options or other
securities, or (iii) is otherwise material.
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(b) The terms and operation of each Employee Program comply in all
material respects with all applicable laws and regulations relating to such
Employee Program. Except as set forth in Section 3.19 of the Target Disclosure
Schedule, there are no unfunded obligations of Target under any retirement,
pension, profit sharing, deferred compensation plan or similar program. Each
Employee Program which has been maintained by Target and which has at any time
been intended to qualify under Section 401(a) or 501(c)(9) of the Code has
received a favorable determination or approval letter from the IRS regarding its
qualification under such section and has, in fact, been qualified under the
applicable section of the Code from the effective date of such Employee Program
through and including the Closing (or, if earlier, the date that all of such
Employee Program's assets were distributed). No event or omission has occurred
which would cause any such Employee Program to lose its qualification under the
applicable Code section. Target is not required to make any payments or
contributions to any Employee Program pursuant to any collective bargaining
agreement or any applicable labor relations law. Except as set forth in Section
3.19 of the Target Disclosure Schedule, Target has never maintained or
contributed to any Employee Program providing or promising any health or other
nonpension benefits to terminated or retired employees, except to the extent
required by law.
(c) With respect to each Employee Program maintained by Target
during the three-year period ending on the date hereof, complete and correct
copies of the following documents (if applicable to such Employee Program) have
previously been delivered to Acquiror: (i) all documents embodying or governing
such Employee Program, and any funding medium for the Employee Program
(including, without limitation, trust agreements) as they may have been amended
to the date hereof; (ii) the most recent IRS determination or approval letter
with respect to such Employee Program under Code Section 401 or 501(c)(9), and
any applications for determination or approval subsequently filed with the IRS;
(iii) the three most recently filed IRS Forms 5500, with all applicable
schedules and accountants' opinions attached thereto; (iv) the summary plan
description for such Employee Program (or other descriptions of such Employee
Program provided to employees) and all modifications thereto; (v) any insurance
policy (including any fiduciary liability insurance policy) related to such
Employee Program; and (vi) any documents evidencing any loan to an Employee
Program that is a leveraged employee stock ownership plan.
Section 3.20 Environmental Matters.
(a) Except as set forth in Section 3.20 of the Target Disclosure
Schedule, Target has never generated, transported, used, stored, treated,
disposed of, or managed any Hazardous Waste (as defined below) and, to the
Knowledge of Target, (i) no Hazardous Material (as defined below) has ever been
or is threatened to be spilled, released, or disposed of at any site presently
or formerly owned, operated, leased, or used by Target, or has ever come to be
located in the soil or groundwater at any such site; (ii) no Hazardous Material
has ever been transported from any site presently or formerly owned, operated,
leased, or used by Target for treatment, storage, or disposal at any other
place; (iii) Target does not presently own, operate, lease, or use,
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nor has Target previously owned, operated, leased, or used any site on which
underground storage tanks are or were located; and (iv) no lien has ever been
imposed by any governmental agency on any property, facility, machinery, or
equipment owned, operated, leased, or used by Target in connection with the
presence of any Hazardous Material.
(b) Except as set forth in Section 3.20 of the Target Disclosure
Schedule (i) to the Knowledge of Target, Target does not have any material
liability under, nor has it ever violated in any material respect, any
Environmental Law (as defined below); (ii) to the Knowledge of Target, any
material property owned, operated, leased, or used by Target, and any material
facilities and operations thereon are presently in compliance in all material
respects with all applicable Environmental Laws; and (iii) Target has never
entered into or been subject to any judgment, consent decree, compliance order,
or administrative order with respect to any environmental or health and safety
matter or received any demand letter, formal complaint or claim with respect to
any environmental or health and safety matter or the enforcement of any
Environmental Law.
(c) Except as set forth in Section 3.20 of the Target Disclosure
Schedule, no material site owned, operated, leased, or used by Target contains
any asbestos or asbestos-containing material, any polychlorinated biphenyls
(PCBs) or equipment containing PCBs, or any urea formaldehyde foam insulation.
(d) Target has provided or made available to Acquiror copies of all
material documents, records, and information of Target concerning any material
environmental or health and safety matter relevant to Target including, without
limitation, environmental audits, environmental risk assessments, site
assessments, documentation regarding off-site disposal of Hazardous Materials,
spill control plans, and reports, correspondence, permits, licenses, approvals,
consents, and other authorizations related to environmental or health and safety
matters issued by any governmental agency.
(e) For purposes of this Section 3.20, (i) "HAZARDOUS MATERIAL"
shall mean and include any hazardous waste, hazardous material, hazardous
substance, petroleum product, oil, toxic substance, pollutant, or contaminant,
as defined or regulated under any Environmental Law, or any other substance
which may pose a threat to the environment or to human health or safety; (ii)
"HAZARDOUS WASTE" shall mean and include any hazardous waste as defined or
regulated under any Environmental Law; and (iii) "ENVIRONMENTAL LAW" shall mean
any environmental or health and safety-related law, regulation, rule, ordinance,
or by-law at the foreign, federal, state, or local level, whether existing as of
the date hereof, previously enforced, or subsequently enacted.
Section 3.21 Insurance. The physical properties, assets, business,
operations, employees, officers and directors of Target and each of the Target
Subsidiaries are insured, including errors and omissions insurance, to the
extent disclosed in Section 3.21 of the Target Disclosure Schedule. Except as
set forth in Section 3.21 of the Target Disclosure Schedule, there
22
is no material claim by Target or any of the Target Subsidiaries pending under
any such policies. Said insurance policies and arrangements are in full force
and effect, all premiums with respect thereto are currently paid, and Target is
in compliance in all material respects with the terms thereof. Said insurance is
sufficient for compliance by Target with all requirements of applicable law and
all material agreements and leases to which any of them is a party. Each such
insurance policy shall continue to be in full force and effect following
consummation of the transactions contemplated by the Agreement. Target has no
Knowledge, after due inquiry, of any threatened termination of any such policies
or arrangements.
Section 3.22 Relationship with Customers and Suppliers. Except as set forth
in Section 3.22 of the Target Disclosure Schedule, no customer which accounted
for more than ten percent of the aggregate revenues of Target for the fiscal
year ended December 31, 1999 or the period ending on the date of the Most Recent
Balance Sheet or which is otherwise significant to Target (each, a "MATERIAL
CUSTOMER"), or any supplier which is significant to Target (each, a "MATERIAL
SUPPLIER"), has canceled or otherwise terminated or threatened to cancel or
otherwise terminate its relationship with Target, or has during said period
decreased materially its usage or purchase of the services or products of Target
or has decreased materially its services or supplies to Target. No Material
Customer or Material Supplier has, to the Knowledge of Target, any plan or
intention to terminate, cancel or otherwise materially and adversely modify its
relationship with Target or to decrease materially or limit its usage, purchase
or distribution of the services or products of Target or the provision of
services or supplies to Target.
Section 3.23 Trade Regulation. Target has not terminated its relationship
with or refused to ship Target products to any dealer, distributor, OEM, third
party marketing entity or customer which had theretofore paid or been obligated
to pay Target in excess of $25,000 in any year. All of the prices charged by
Target in connection with the marketing or sale of any products or services have
been in material compliance with all applicable laws and regulations. No claims
have been communicated or threatened in writing against Target with respect to
wrongful termination of any dealer, distributor or any other marketing entity,
discriminatory pricing, price fixing, unfair competition, false advertising, or
any other violation of any laws or regulations relating to anti-competitive
practices or unfair trade practices of any kind, and to Target's Knowledge, no
specific situation, set of facts, or occurrence provides any basis for any such
claim.
Section 3.24 Products; Product Warranties.
(a) A form of each product warranty relating to products
manufactured or sold by Target within the last two years has been delivered to
Acquiror.
(b) Section 3.24 of the Target Disclosure Schedule sets forth a
true and complete list of (i) all products manufactured, marketed or sold by
Target that have been recalled
23
or withdrawn (whether voluntarily or otherwise) and (ii) all proceedings
(whether completed or pending) seeking the recall, withdrawal, suspension or
seizure of any product sold by Target.
(c) Except as set forth in Section 3.24 of the Target Disclosure
Schedule, there is no material defect in design, materials, manufacture or
otherwise in any products manufactured, distributed or sold by Target within the
past two years, or any material defect in repair to, or replacement of, any such
products.
(d) Except as provided in any of the standard product warranties
described in this Section, Target has not sold any products or services which
are subject to an extended warranty beyond twelve (12) months and which warranty
has not yet expired.
(e) No customer or other person has ever asserted or threatened to
assert any material claim against Target (i) under or based upon any warranty
provided by or on behalf of Target or (ii) under or based upon any other
warranty relating to any product sold by Target or any services performed by
Target. No event has occurred, and to the Knowledge of Target, no condition or
circumstance exists, that likely would (with or without notice or lapse of time)
directly or indirectly give rise to or serve as a basis for the assertion of any
such claim.
Section 3.25 Information Supplied by Target.
(a) No statements by Target or any Signing Target Shareholder
contained in this Agreement, its exhibits and schedules, nor any of the
certificates or documents, including any of the Transaction Documents and the
Information Statement (as defined in Section 5.1), required to be delivered by
Target or any Target Shareholder to Acquiror under this Agreement contains any
untrue statement of material fact or omits to state a material fact necessary in
order to make the statements contained herein or therein not misleading in light
of the circumstances under which they were made.
(b) Target has provided to, or made available for inspection and
copying by, Acquiror and its counsel true, correct and complete copies of all
documents listed in the Target Disclosure Schedule.
Section 3.26 Brokers. Except as set forth in Section 3.26 of the Target
Disclosure Schedule, Target has not incurred or become liable for any broker's
or finder's fee, banking fees or similar compensation, relating to or in
connection with the transactions contemplated hereby.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND SUB
As a material inducement to Target and the Target Shareholders to enter
into this Agreement and consummate the transactions contemplated hereby,
Acquiror and Sub represent and warrant to Target, except as disclosed in a
filing with the Securities and Exchange Commission (the "COMMISSION") or the
disclosure schedule delivered by Acquiror to Target pursuant to this Agreement
(the "ACQUIROR DISCLOSURE SCHEDULE"), arranged in paragraphs corresponding to
the numbered and lettered paragraphs of this Article 4, as follows:
Section 4.1 Organization of Acquiror and Sub. Each of Acquiror and Sub, is
a corporation duly organized, validly existing and in good standing under the
laws of its respective jurisdiction of incorporation and has all requisite
corporate power to own, lease and operate its property and to carry on its
business as now being conducted and is duly qualified or licensed to do business
and is in good standing in each jurisdiction in which the failure to be so
qualified or licensed could result in a material adverse effect on the business
as presently conducted, assets (including intangible assets), liabilities,
financial condition, property or results of operations of Acquiror and its
Subsidiaries taken as a whole (an "ACQUIROR MATERIAL ADVERSE EFFECT").
Section 4.2 Acquiror Capital Structure. The authorized capital stock of
Acquiror consists of 30,000,000 shares of Acquiror Common Stock and 10,000,000
shares of Preferred Stock, par value $.01 ("ACQUIROR PREFERRED STOCK"), of which
there were issued and outstanding as of the close of business on September 29,
2000, 10,910,152 shares of Acquiror Common Stock and no shares of Acquiror
Preferred Stock. There are no other outstanding shares of capital stock or
voting securities of Acquiror other than shares of Acquiror Common Stock issued
on or after October 1, 2000 upon the exercise of options issued under the stock
option plans of Acquiror. The authorized capital stock of Sub consists of 1,000
shares of Common Stock, all of which are issued and outstanding and are held by
Acquiror. All outstanding shares of Acquiror and Sub have been duly authorized,
validly issued, fully paid and are nonassessable and free of any liens or
encumbrances other than any liens or encumbrances created by or imposed upon the
holders thereof. As of the close of business on September 29, 2000, Acquiror has
reserved an aggregate of 2,191,790 shares of Acquiror Common Stock for issuance
to employees, directors and independent contractors upon exercise of outstanding
options to acquire shares of Acquiror Common Stock issued under Acquiror's stock
option plans. Other than as contemplated by this Agreement, and except as
described in this Section 4.2, there are no other options, warrants, calls,
rights, commitments or agreements to which Acquiror or Sub is a party or by
which either of them is bound obligating Acquiror or Sub to issue, deliver,
sell, repurchase or redeem, or cause to be issued, delivered, sold, repurchased
or redeemed, any shares of the capital stock of Acquiror or Sub or obligating
Acquiror or Sub to grant, extend or enter into any such option, warrant, call,
right, commitment or agreement. The shares of Acquiror Common Stock to be issued
pursuant to the Merger (including shares of Acquiror
25
Common Stock issued upon exercise of Target Options assumed by Acquiror) will be
duly authorized, validly issued, fully paid, and non-assessable and issued in
compliance with all applicable federal or state securities laws.
Section 4.3 Authorization and Non-Contravention; Required Filings and
Consents.
(a) Each of Acquiror and Sub has all requisite corporate power and
authority to enter into this Agreement and the other Transaction Documents to
which it is or will become a party and to consummate the transactions
contemplated by this Agreement and such Transaction Documents. The execution
and delivery of this Agreement and such Transaction Documents and the
consummation of the transactions contemplated by this Agreement and such
Transaction Documents have been duly authorized by all necessary corporate
action on the part of Acquiror and Sub. This Agreement has been and such
Transaction Documents have been or, to the extent not executed as of the date
hereof, will be duly executed and delivered by Acquiror and Sub. This Agreement
and each of the Transaction Documents to which Acquiror or Sub is a party
constitutes, and each of the Transaction Documents to which Acquiror or Sub will
become a party when executed and delivered by Acquiror or Sub will constitute,
the valid and binding obligation of Acquiror or Sub, enforceable in accordance
with its terms.
(b) The execution and delivery by Acquiror and Sub of this
Agreement and the Transaction Documents to which it is or will become a party
does not, and consummation of the transactions contemplated by this Agreement or
the Transaction Documents to which it is or will become a party will not, (i)
conflict with, or result in any violation or breach of any provision of the
Certificate of Incorporation or Bylaws of Acquiror or Sub, (ii) result in any
violation or breach of, or constitute (with or without notice or lapse of time,
or both) a default (or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of any material benefit), or require any
notice to or consent by any party under any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, lease, contract or other
agreement, instrument or obligation to which Acquiror or Sub is a party or by
which either of them or any of their properties or assets may be bound, or (iii)
conflict with or violate any permit, concession, franchise, license, judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to
Acquiror or Sub or any of their properties or assets, except in the case of (ii)
and (iii) for any such conflicts, violations, defaults, terminations,
cancellations or accelerations which would not have an Acquiror Material Adverse
Effect.
(c) No consent, approval, order or authorization of, or
registration, declaration or filing with, any governmental entity is required by
or with respect to Acquiror or Sub in connection with the execution and delivery
of this Agreement or the Transaction Documents to which it is or will become a
party or the consummation of the transactions contemplated hereby or thereby,
except for (i) the filing of the Agreement of Merger with the California
Secretary of State, (ii) such consents, approvals, orders, authorizations,
registrations, declarations and filings as may be required under applicable
federal and state securities laws and the laws of any foreign
26
country, and (iii) such other consents, authorizations, filings, approvals and
registrations which, if not obtained or made, would not have an Acquiror
Material Adverse Effect.
Section 4.4 Commission Filings. Acquiror has filed with the Commission all
forms, reports and documents required to be filed by Acquiror with the
Commission since September 25, 1998 (collectively, the "ACQUIROR COMMISSION
REPORTS"). The Acquiror Commission Reports, including Acquiror Commission
Reports filed after the date of this Agreement until Closing, (i) at the time
filed, complied or will comply in all material respects with the applicable
requirements of the Securities Act of 1933, as amended (the "SECURITIES ACT"),
and the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), as the
case may be, and (ii) did not or will not at the time they were or will be filed
(or if amended or superseded by a filing prior to the date of this Agreement,
then on the date of such filing) contain any untrue statement of a material fact
or omit to state a material fact required to be stated in such Acquiror
Commission Reports or necessary in order to make the statements in such Acquiror
Commission Reports, in the light of the circumstances under which they were
made, not misleading.
Section 4.5 Interim Operations of Sub. Sub was formed solely for the
purpose of engaging in the transactions contemplated by this Agreement, has
engaged in no other business activities and has conducted its operations only as
contemplated by this Agreement.
Section 4.6 Disclosure. No statements by Acquiror contained in this
Agreement, its exhibits and schedules, nor any of the certificates or documents,
including any of the Transaction Documents and the Information Statement (as
defined in Section 5.1), required to be delivered by Acquiror or Sub to Target
under this Agreement contains any untrue statement of material fact or omits to
state a material fact necessary in order to make the statements contained herein
or therein not misleading in light of the circumstances under which they were
made.
Section 4.7 Brokers. Except for its arrangement with Xxxxx XxxXxxxxx as set
forth in Section 4.7 of the Acquiror Disclosure Schedule, Acquiror has not
incurred or become liable for any broker's or finder's fee, banking fees or
similar compensation, relating to or in connection with the transactions
contemplated hereby.
ARTICLE 5
PRECLOSING COVENANTS OF TARGET
Section 5.1 Approval of Target Shareholders. Prior to the Closing Date and
at the earliest practicable date following the date hereof, Target will solicit
written consents from its shareholders holding more than 75 percent of the
Target Common Stock seeking, or hold a shareholders meeting (the "TARGET
SHAREHOLDERS' MEETING") for the purpose of seeking, approval of this Agreement.
If Target holds a shareholders' meeting, the Board of Directors will solicit
proxies from Target's shareholders to vote such shareholders' shares at the
27
Target Shareholders' Meeting. In soliciting such written consent or proxies, the
Board of Directors of Target will recommend to the shareholders of Target that
they approve this Agreement and shall use its reasonable efforts to obtain the
approval of the shareholders of Target entitled to vote on or consent to this
Agreement in accordance with California Law and Target's Articles of
Incorporation. Target and Acquiror will prepare as soon as reasonably
practicable an information statement (the "Information Statement") and if Target
holds a shareholders' meeting, a proxy statement, in form and substance
reasonably acceptable to Acquiror, with respect to the solicitation of written
consents and/or proxies from the shareholders of Target to approve this
Agreement.
Section 5.2 Advice of Changes. Target will promptly advise Acquiror in
writing of any event occurring subsequent to the date of this Agreement which
would render any representation or warranty of Target contained in this
Agreement, if made on or as of the date of such event or the Closing Date,
untrue or inaccurate in any material respect.
Section 5.3 Operation of Business. During the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
or the Effective Time, Target shall (except to the extent that Acquiror shall
otherwise consent in writing), carry on its business in the usual, regular and
ordinary course in substantially the same manner as previously conducted, pay
its debts and taxes when due, subject to good faith disputes over such debts or
taxes, pay or perform other obligations when due, and, to the extent consistent
with such business, use all reasonable efforts consistent with past practices
and policies to preserve intact its present business organization, keep
available the services of its present officers and key employees and preserve
its relationships with customers, suppliers, distributors, licensors, licensees,
and others having business dealings with it, to the end that its goodwill and
ongoing businesses shall be unimpaired at the Effective Time. Target shall
promptly notify Acquiror of any event or occurrence not in the ordinary course
of business of Target. Except as expressly contemplated by this Agreement,
Target shall not, without the prior written consent of Acquiror:
(a) Accelerate, amend or change the period of exercisability or the
vesting schedule of options or restricted stock granted under any employee stock
plan or agreements or authorize cash payments in exchange for any Target Option
or any options granted under any of such plans except as specifically required
by the terms of such plans or any related agreements or any such agreements in
effect as of the date of this Agreement and disclosed in the Target Disclosure
Schedule;
(b) Declare or pay any dividends on or make any other distributions
(whether in cash, stock or property) in respect of any of its capital stock, or
split, combine or reclassify any of its capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of capital stock of such party, or purchase or otherwise acquire,
directly or indirectly, any shares of its capital stock except from former
employees, directors and consultants in accordance with agreements providing for
the repurchase of shares in connection with any termination of service by such
party;
28
(c) Issue, deliver or sell or authorize or propose the issuance,
delivery or sale of, or purchase or propose the purchase of, any shares of its
capital stock or securities convertible into shares of its capital stock, or
subscriptions, rights, warrants or options to acquire, or other agreements or
commitments of any character obligating it to issue any such shares or other
convertible securities;
(d) Acquire or agree to acquire by merging or consolidating with,
or by purchasing a substantial equity interest in or substantial portion of the
assets of, or by any other manner, any business or any corporation, partnership
or other business organization or division, or otherwise acquire or agree to
acquire any assets;
(e) (i) Increase or agree to increase the compensation payable or
to become payable to its officers or employees, except for increases in salary
or wages of non-officer employees in accordance with past practices, (ii) grant
any additional severance or termination pay to, or enter into any employment or
severance agreements with, officers, (iii) grant any severance or termination
pay to, or enter into any employment or severance agreement, with any nonofficer
employee, except in accordance with past practices, (iv) enter into any
collective bargaining agreement, or (v) establish, adopt, enter into or amend in
any material respect any bonus, profit sharing, thrift, compensation, stock
option, restricted stock, pension, retirement, deferred compensation,
employment, termination, severance, or other plan, trust, fund, policy or
arrangement for the benefit of any directors, officers or employees;
(f) Revalue any of its assets, including writing down the value of
inventory or writing off notes or accounts receivable, except pursuant to the
instruction of Target's independent auditors consistent with past practice and
in accordance with GAAP;
(g) Amend or propose to amend its Certificate of Incorporation or
Bylaws;
(h) change accounting methods;
(i) amend or terminate any material contract, agreement or license
to which it is a party except in the ordinary course of business;
(j) make or change any Tax or accounting election, change any
annual accounting period, adopt or change any accounting method, file any
amended Return, enter into any closing agreement, settle any Tax claim or
assessment relating to Target, surrender any right to claim refund of Taxes,
consent to any extension or waiver of the limitation period applicable to any
Tax claim or assessment relating to Target, or take any other action or omit to
take any action, if any such election, adoption, change, amendment, agreement,
settlement, surrender, consent or other action or omission would have the effect
of increasing the Tax liability of Target or Acquiror;
29
(k) enter into any agreement (other than sales contracts entered
into in the ordinary course of business) in which the obligation of Target
exceeds $100,000 or shall not terminate or be subject to termination by Target
within 180 days following execution, except purchases of inventory in the
ordinary course of business not in excess of $200,000; or
(l) take, or agree in writing or otherwise to take, any of the
actions described in Sections (a) through (k) above, or any action which is
reasonably likely to make any of Target's representations or warranties
contained in this Agreement untrue or incorrect in any material respect on the
date made (to the extent so limited) or as of the Effective Time.
Section 5.4 Access to Information. Until the Closing, Target shall promptly
respond to any written request by Acquiror for information about Target's
business, financial condition or results of operations, including, without
limitation, any and all information relating to taxes, commitments, contracts,
leases, licenses, personal property and financial condition. Target shall cause
its accountants to cooperate with Acquiror and its agents in making available
all financial information requested, including without limitation the right to
examine all work papers pertaining to all financial statements prepared or
audited by such accountants. No information or knowledge obtained in any
investigation pursuant to this Section shall effect or be deemed to modify any
representation or warranty contained in this Agreement or its exhibits and
schedules.
Section 5.5 Satisfaction of Conditions Precedent. Target will use its
reasonable best efforts to satisfy or cause to be satisfied all the conditions
precedent which are set forth in Sections 8.1 and 8.2, and Target will use its
reasonable best efforts to cause the transactions contemplated by this Agreement
to be consummated, and, without limiting the generality of the foregoing, to
obtain all consents and authorizations of third parties and to make all filings
with, and give all notices to, third parties which may be necessary or
reasonably required on its part in order to effect the transactions contemplated
by this Agreement. Target shall use its reasonable best efforts to obtain any
and all consents necessary, and to give any and all notices required, with
respect to those contracts listed in Section 3.15 of the Target Disclosure
Schedule in connection with the Merger (the "MATERIAL CONSENTS"). All of the
Material Consents are listed in Section 5.5 of the Target Disclosure Schedule.
Section 5.6 Closing Date Balance Sheet. At the Closing, Target shall
deliver to Acquiror an unaudited balance sheet of Target as of the date five (5)
business days prior to the Closing Date (the "CLOSING DATE BALANCE SHEET"). The
Closing Date Balance Sheet shall present fairly in all material respects the
financial position of Target as of the Closing Date and for the period covered
thereby. The Closing Date Balance Sheet shall be prepared in conformity with (i)
GAAP applied on a consistent basis and (ii) the books and records of Target. The
Closing Date Balance Sheet will not contain any items of special or nonrecurring
income or any other income not earned in the ordinary course of business except
as specified therein.
Section 5.7 Other Negotiations.
30
(a) Prior to the earlier of this Agreement's termination or the
Effective Time, Target shall not, and Target will use its reasonable best
efforts to cause its officers, directors, employees, investment bankers,
consultants or other agents or representatives (collectively, "AGENTS") of
Target not to, directly or indirectly, (i) solicit, initiate or encourage the
submission of any Acquisition Proposal, (ii) engage in discussions or
negotiations with any Person concerning an Acquisition Proposal, (iii) disclose
any nonpublic information relating to Target to any person who, to Target's
Knowledge, is considering making, or has made, an Acquisition Proposal or (iv)
take any other action to facilitate any inquiries or the making of any proposal
that constitutes or that could reasonably be expected to lead to an Acquisition
Proposal. Target will notify Acquiror promptly after receipt by Target of any
Acquisition Proposal or any request for nonpublic information relating to Target
by any person who, to Target's Knowledge, is considering making, or has made, an
Acquisition Proposal. Target shall promptly provide such notice orally and in
writing and shall identify the person making, and all terms and conditions of,
any such Acquisition Proposal or request. Target shall keep Acquiror promptly
informed of the status and details of any such Acquisition Proposal (including
amendments or proposed amendments) or request and any discussions or
negotiations pursuant to Section 5.7(b) and Target shall provide to Acquiror
copies of any written communications between Target and any person making the
Acquisition Proposal. Target shall, and Target shall use reasonable best efforts
to cause its Agents to, cease immediately and cause to be terminated all
activities, discussions and negotiations, if any, with any persons conducted
prior to this Agreement's date with respect to any Acquisition Proposal. Nothing
contained in this Agreement shall prevent the Target's board of directors from
complying with Rule 14e-2 under the 1934 Act with respect to any Acquisition
Proposal.
(b) Notwithstanding the foregoing, Target may prior to the Closing,
negotiate or otherwise engage in substantive discussions with, and furnish
nonpublic information to, any person in response to an unsolicited Acquisition
Proposal by a person if (i) Target has complied with the terms of Section
5.7(a), (ii) the Target's board of directors determines in good faith that an
Acquisition Proposal is likely to result in a Superior Proposal and, after
consultation with outside legal counsel, that the failure to take such action
would constitute a breach of its fiduciary duties under applicable law, (iii)
this person executes a confidentiality agreement with terms no less favorable to
Target than those contained in the Letter of Intent and (iv) Target shall have
delivered to Acquiror prior written notice advising Acquiror that it intends to
take this action.
(c) Target's board of directors shall be permitted to withdraw, or
modify in a manner adverse to Acquiror, its recommendation to its shareholders
referred to in this Section 5.7, but only if (i) Target has complied with the
terms of Section 5.7(a), (ii) Target has received an unsolicited Acquisition
Proposal that its board of directors determines in good faith constitutes a
Superior Proposal, (iii) Target's board of directors determines in good faith,
after consultation with outside legal counsel, that the failure to take this
action would constitute a breach of its fiduciary duties under applicable law
and (iv) Target has delivered to Acquiror a prior written notice advising
Acquiror that it intends to take this action.
31
(d) For purposes of this Agreement: "ACQUISITION PROPOSAL" means
any offer or proposal for a merger, reorganization, consolidation, share
exchange, business combination, or other similar transaction involving Target,
or substantially all of the assets of Target or any material license of Target's
Intellectual Property Rights outside the ordinary course of business, other than
the transactions contemplated by this Agreement. "SUPERIOR PROPOSAL" means any
bona fide written Acquisition Proposal (i) on terms that Target's board of
directors determines in good faith (after consultation with its financial
advisor and taking into account all the terms and conditions of the Acquisition
Proposal including the legal, financial and regulatory aspects of the proposal)
provide greater value to Target's shareholders than the transaction contemplated
under this Agreement, as amended under Section 9.1(h) if applicable and (ii)
that is reasonably likely to be consummated by the person making the Acquisition
Proposal.
(e) Target will promptly provide to Acquiror any information
regarding Target provided to any person making an Acquisition Proposal that was
not previously provided to Acquiror.
ARTICLE 6
PRECLOSING AND OTHER COVENANTS OF ACQUIROR AND SUB
Section 6.1 Advice of Changes. Acquiror and Sub will promptly advise Target
in writing of any event occurring subsequent to the date of this Agreement which
would render any representation or warranty of Acquiror or Sub contained in this
Agreement, if made on or as of the date of such event or the Closing Date,
untrue or inaccurate in any material respect.
Section 6.2 Reservation of Acquiror Common Stock. Acquiror shall reserve
for issuance, out of its authorized but unissued capital stock, the maximum
number of shares of Acquiror Common Stock as may be issuable upon consummation
of the Merger, including shares of Acquiror Common Stock that will be issued
upon exercise of Target Options assumed by Acquiror.
Section 6.3 Satisfaction of Conditions Precedent. Acquiror and Sub will use
their reasonable best efforts to satisfy or cause to be satisfied all the
conditions precedent which are set forth in Sections 8.1 and 8.3, and Acquiror
and Sub will use their reasonable best efforts to cause the transactions
contemplated by this Agreement to be consummated, and, without limiting the
generality of the foregoing, to obtain all consents and authorizations of third
parties and to make all filings with, and give all notices to, third parties
which may be necessary or reasonably required on its part in order to effect the
transactions contemplated hereby.
Section 6.4 Nasdaq National Market Listing. Acquiror shall cause the shares
of Acquiror Common Stock issuable to the shareholders of Target in the Merger,
including shares
32
of Acquiror Options, to be authorized for listing on the Nasdaq National Market.
Section 6.5 Indemnification of Target Officers and Directors. From and
after the Effective Time, the officers and directors of Target immediately prior
to the Effective Time shall be indemnified on the same terms and conditions as
provided by Target's Articles of Incorporation and Bylaws and Acquiror shall
honor the indemnification provisions as contained therein.
ARTICLE 7
OTHER AGREEMENTS
Section 7.1 Confidentiality. Each party acknowledges Acquiror and Target
have previously executed a Letter of Intent dated October 31, 2000, Section 10
of which provided for the confidentiality of information exchanged by the
parties (the "CONFIDENTIALITY AGREEMENT"). The Confidentiality Agreement shall
survive execution of this Agreement and shall continue in full force and effect
in accordance with its terms.
Section 7.2 No Public Announcement. The parties shall make no public
announcement concerning this Agreement, their discussions or any other
memoranda, letters or agreements between the parties relating to the Merger,
except by mutual agreement; provided, however, that either of the parties, but
-----------------
only after reasonable consultation with the other, including legal counsel, may
make such disclosure as may be required under applicable law, regulation or the
listing standards of the Nasdaq Stock Market.
Section 7.3 Regulatory Filings; Consents; Reasonable Efforts. Subject to
the terms and conditions of this Agreement, Target and Acquiror shall use their
respective reasonable best efforts to (i) make all necessary filings with
respect to the Merger and this Agreement under the Exchange Act and applicable
blue sky or similar securities laws and obtain required approvals and clearances
with respect thereto and supply all additional information requested in
connection therewith; (ii) make merger notification or other appropriate filings
with federal, state or local governmental bodies or applicable foreign
governmental agencies and obtain required approvals and clearances (including
under the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act the "HSR ACT") with
respect thereto and supply all additional information requested in connection
therewith and Acquiror shall use its reasonable best efforts to comply with any
request of the U.S. Department of Justice required to facilitate clearance under
the HSR Act; (iii) obtain all consents, waivers, approvals, authorizations and
orders required in connection with the authorization, execution and delivery of
this Agreement and the consummation of the Merger; and (iv) take, or cause to be
taken, all appropriate action, and do, or cause to be done, all things
necessary, proper or advisable to consummate and make effective the transactions
contemplated by this Agreement as promptly as practicable.
33
Section 7.4 Pooling Accounting. Target and Acquiror shall each use its
best efforts to cause the business combination to be effected by the Merger to
be accounted for as a pooling of interests. No party shall intentionally take
any action that would adversely affect the ability of Acquiror to account for
the business combination to be effected by the Merger as a pooling of interests.
Section 7.5 Further Assurances. Prior to and following the Closing,
each party shall cooperate fully with the other parties and execute such further
instruments, documents and agreements and give such further written assurances,
as may be reasonably requested by any other party to better evidence and reflect
the transactions described herein and contemplated hereby and carry into effect
the intents and purposes of this Agreement.
Section 7.6 Reserved.
Section 7.7 FIRPTA. Target shall, prior to the Closing Date, provide
Acquiror with a properly executed Foreign Investment and Real Property Tax Act
of 1980 ("FIRPTA") FIRPTA Notification Letter which states that shares of
capital stock of Target do not constitute "United States real property
interests" under Section 897(c) of the Code, for purposes of satisfying
Acquiror's obligations under Treasury Regulation Section 1.1445-2(c)(3). In
addition, simultaneously with delivery of such FIRPTA Notification Letter,
Target shall provide to Acquiror a form of notice to the Internal Revenue
Service in accordance with the requirements of Treasury Regulation Section
1.897-2(h)(2), along with written authorization for Acquiror to deliver such
notice form to the Internal Revenue Service on behalf of Target upon the Closing
of the Merger.
Section 7.8 Blue Sky Laws. Acquiror shall take such steps as may be
necessary to comply with the securities and blue sky laws of all jurisdictions
which are applicable to the issuance of the Acquiror Common Stock in connection
with the Merger. Target shall use its best efforts to assist Acquiror as may be
necessary to comply with the securities and blue sky laws of all jurisdictions
which are applicable in connection with the issuance of Acquiror Common Stock in
connection with the Merger.
Section 7.9 Information Statement; Other Filings; Board Recommendations.
After the execution of this Agreement, Target and Acquiror will prepare, and
Target will distribute any required Information Statement to the shareholders of
Target at the earliest practicable time. As promptly as practicable after the
date of this Agreement, Acquiror will prepare and file any other filings
required under the Exchange Act, the Securities Act or any other Federal,
foreign or state securities or blue sky laws relating to the Merger and the
transactions contemplated by this Agreement (the "OTHER FILINGS"). The
Information Statement and the Other Filings will comply in all material respects
with all applicable requirements of law and the rules and regulations
promulgated thereunder. Whenever any event occurs which is required to be set
forth in an amendment or supplement to the Information Statement or any Other
Filing, Target or
34
Acquiror, as the case may be, will promptly inform the other of such occurrence
and cooperate in making any appropriate amendment or supplement, and/or mailing
to shareholders of Target, such amendment or supplement. The Information
Statement will include the recommendation of the Board of Directors of Target in
favor of adoption and approval of this Agreement and approval of the Merger.
Section 7.10 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(a)
of the Code. Acquiror will continue at least one significant business line of
Target, or use at least a significant portion of Target's historic business
assets in a business, in each case within the meaning of Reg. (S) 1.368-1(d).
All parties shall treat the Merger as a reorganization qualifying under (S)
368(a) of the Code on their respective tax returns. Acquiror shall reasonably
cooperate with Target in providing information and certifications required for
Target to obtain the legal opinion referred to in Section 8.3(d) of this
Agreement.
ARTICLE 8
CONDITIONS TO MERGER
Section 8.1 Conditions to Each Party's Obligation to Effect the Merger.
The respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction, in all material respects, prior to the
Closing Date of the following conditions:
(a) Approvals. Other than the filing provided for by Section
---------
1, all authorizations, consents, orders or approvals of, or declarations or
filings with, or expirations of waiting periods (including the waiting period
under the HSR Act) imposed by, any governmental entity shall have been filed,
occurred or been obtained.
(b) No Injunctions or Restraints; Illegality. No temporary
----------------------------------------
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Merger or limiting or restricting
conduct or operation of the business of Acquiror after the Merger shall have
been issued, nor shall any proceeding brought by a domestic administrative
agency or commission or other domestic governmental entity, seeking any of the
foregoing be pending; nor shall there be any action taken, or any statute, rule,
regulation or order enacted, entered, enforced or deemed applicable to the
Merger which makes the consummation of the Merger illegal.
(c) Pooling Letters. Acquiror shall have received a letter
---------------
from KPMG LLP dated as of the Closing Date and addressed to Acquiror, regarding
that firm's concurrence with Acquiror's management's and Target's management's
conclusion that the business combination to be effected by the Merger will
qualify as a pooling of interests transaction under GAAP if consummated in
accordance with this Agreement.
35
(d) Target Indebtedness. The outstanding indebtedness of
-------------------
Target to Xxxxx Fargo Bank N.A. shall be assumed by Acquiror which will cause
the personal guarantees to be released or shall be paid in full by Acquiror on
the Closing Date.
Section 8.2 Additional Conditions to Obligations of Acquiror and Sub.
The obligations of Acquiror and Sub to effect the Merger are subject to the
satisfaction of each of the following conditions, any of which may be waived in
writing exclusively by Acquiror and Sub:
(a) Representations and Warranties. Each of the
------------------------------
representations and warranties of Target made pursuant to this Agreement shall
be true and correct in all material respects as of the Closing Date (it being
understood that representations and warranties made "as of the date hereof"
shall also be deemed to have been made as of the Closing Date, except for
representations and warranties made as of a specific date); and Acquiror shall
have received a certificate signed on behalf of Target by the chief executive
officer and the chief financial officer of Target to such effect.
(b) Performance of Obligations of Target. Target shall have
------------------------------------
performed in all material respects all obligations required to be performed by
it under this Agreement at or prior to the Closing Date; and Acquiror shall have
received a certificate signed on behalf of Target by the chief executive officer
and the chief financial officer of Target to such effect.
(c) Shareholder Approval. The shareholders of Target entitled
--------------------
to vote on or consent to this Agreement and the Merger in accordance with
California Law and Target's Articles of Incorporation shall have approved this
Agreement and the Merger.
(d) Blue Sky Laws. Acquiror shall have received all state
-------------
securities or "Blue Sky" permits and other authorizations necessary to issue
shares of Acquiror Common Stock pursuant to the Merger.
(e) Dissenting Shareholders. Not more than 2.5% of Target's
-----------------------
issued and outstanding capital stock as of the Closing shall be held by persons
exercising dissenters' rights under California Law with respect to such shares.
(f) Closing Balance Sheet. Target shall have delivered to
---------------------
Acquiror the Closing Date Balance Sheet which shall be satisfactory to Acquiror
in all respects.
(g) Shareholder Agreements. Each Target Shareholder who is
----------------------
receiving shares of Acquiror Common Stock in the Merger shall have executed and
delivered to Acquiror a Shareholders Agreement, in the form attached hereto as
Exhibit C, each such agreement shall remain in full force and effect.
---------
36
(h) Ancillary Agreements. Each of the Employment Agreements
--------------------
executed and delivered concurrently with the execution of this Agreement shall
remain in full force and effect.
(i) Approvals. All authorizations, consents, or approvals of,
---------
or notifications to any third party listed in Section 3.4 or 5.5 of the Target
Disclosure Schedule, shall have occurred or been obtained.
(j) Termination of Agreements. The following agreements
-------------------------
between Target and certain of its shareholders shall have been terminated: (i)
Shareholders' Agreement by and among Target and each Target Shareholder dated as
of December 31, 1999; and, Shareholders Agreement by and among Target and each
Target Shareholder dated as of February 24, 2000.
(k) No Material Adverse Change. Except as disclosed in this
--------------------------
Agreement or the Schedules hereto, there shall not have been any change or
series of changes that have a material adverse effect or could reasonably be
expected to have a material adverse effect on the business, financial condition
or results of operations of Target since the date of the Most Recent Balance
Sheet.
Section 8.3 Additional Conditions to Obligations of Target. The
obligation of Target to effect the Merger is subject to the satisfaction of each
of the following conditions, any of which may be waived, in writing, exclusively
by Target:
(a) Representations and Warranties. The representations and
------------------------------
warranties of Acquiror and Sub made pursuant to this Agreement shall be true and
correct in all material respects as of the Closing Date (it being understood
that representations and warranties made "as of the date hereof" shall also be
deemed to have been made as of the Closing Date); and Target shall have received
a certificate signed on behalf of Acquiror by the chief executive officer and
the chief financial officer of Acquiror to such effect.
(b) Performance of Obligations of Acquiror and Sub. Acquiror
----------------------------------------------
and Sub shall have performed in all material respects all obligations required
to be performed by them under this Agreement at or prior to the Closing Date;
and Target shall have received a certificate signed on behalf of Acquiror by the
chief executive officer and the chief financial officer of Acquiror to such
effect.
(c) Shareholder Approval. The shareholders of Target entitled
--------------------
to vote or consent to this Agreement and the Merger in accordance with
California Law and Target's Certificate of Incorporation shall have approved
this Agreement and the Merger.
(d) Blue Sky Laws. Acquiror shall have received all state
-------------
securities or "Blue Sky" permits and other authorizations necessary to issue
shares of Acquiror Common Stock pursuant to the Merger.
37
(e) Approvals. All authorizations, consents or approvals of,
---------
or notifications to any third party listed on Section 4.3 of Acquiror's
Disclosure Schedule, shall have occurred or been obtained.
(f) Tax Opinion. Target shall have received the opinion of
-----------
Xxxxx & Xxxxxxx, counsel to Target, to the effect that the Merger will be
treated for Federal income tax purposes as a tax-free reorganization within the
meaning of Section 368(a) of the Code.
(g) No Material Adverse Change. Except as disclosed in this
--------------------------
Agreement or the Schedules or SEC Reports, there shall not have been any change
or series of changes that have a material adverse effect or could reasonably be
expected to have a material adverse effect on the business, financial condition
or results of operations of Acquiror since September 29, 2000.
ARTICLE 9
TERMINATION AND AMENDMENT
Section 9.1 Termination. This Agreement may be terminated at any time
prior to the Effective Time:
(a) by mutual written consent of Acquiror and Target;
(b) by either Acquiror or Target, by giving written notice to
the other party, if a court of competent jurisdiction or other Governmental
Entity shall have issued a nonappealable final order, decree or ruling or taken
any other action, in each case having the effect of permanently restraining,
enjoining or otherwise prohibiting the Merger, except, if such party relying on
such order, decree or ruling or other action shall not have complied with its
respective obligations under Sections 5.5 or 6.3 of this Agreement, as the case
may be;
(c) by Acquiror or Target, by giving written notice to the
other party, if the other party is in material breach of any representation,
warranty, or covenant of such other party contained in this Agreement, which
breach shall not have been cured, if subject to cure, within 10 business days
following receipt by the breaching party of written notice of such breach by the
other party;
(d) by Acquiror, by giving written notice to Target, if the
Closing shall not have occurred on or before December 31, 2000 by reason of the
failure of any condition precedent under Section 8.1 or 8.2 (unless the failure
results primarily from a breach by Acquiror of any representation, warranty, or
covenant of Acquiror contained in this Agreement);
38
(e) by Target, by giving written notice to Acquiror, if the
Closing shall not have occurred on or before December 31, 2000 by reason of the
failure of any condition precedent under Section 8.1 or 8.3 (unless the failure
results primarily from a breach by Target of any representation, warranty, or
covenant of Target contained in this Agreement);
(f) by Target, by giving written notice to Acquiror, if the
average of the closing sales prices of Acquiror Common Stock reported in the
Wall Street Journal on the basis of information provided by the Nasdaq Stock
Market for each of the ten (10) trading days immediately preceding (but not
including) the first date on which all of the conditions set forth in Article 8
shall have been satisfied or waived, shall be greater than $30.00 per share (as
adjusted for any stock splits, reclassifications, stock dividends or the like
between the date of this Agreement and the date of termination);
(g) by Acquiror, by giving written notice to Target, if the
average of the closing sales prices of Acquiror Common Stock reported in the
Wall Street Journal on the basis of information provided by the Nasdaq Stock
Market for each of the ten (10) trading days immediately preceding (but not
including) the first date on which all of the conditions set forth in Article 8
shall have been satisfied or waived, shall be less than $12.00 per share (as
adjusted for any stock splits, reclassifications, stock dividends or the like
between the date of this Agreement and the date of termination); or
(h) by Target, if Target's board of directors authorizes
Target, subject to complying with the terms of this Agreement, to enter into a
written agreement concerning a Superior Proposal, provided however, that (i)
Target shall have complied with Section 5.7, (ii) Target shall have given
Acquiror at least three business days written prior notice of its intention to
terminate this Agreement, attaching a description of all material terms and
conditions of the Superior Proposal to the notice, (iii) during the three
business days or greater period, Target engages in good faith negotiations with
Acquiror with respect to changes as Acquiror may propose to the terms of this
Agreement, and (iv) Acquiror does not make prior to the termination of this
Agreement a definitive, binding offer that Target's board of directors
determines, in good faith after consultation with its financial advisors, is at
least as favorable to Target's shareholders as the Superior Proposal. Target
will notify Acquiror promptly if its intention to enter into a written agreement
referred to in its notification changes at any time after giving notification.
Section 9.2 Effect of Termination. In the event of termination of this
Agreement as provided in Section 9.1, this Agreement shall immediately become
void and there shall be no liability or obligation on the part of Acquiror,
Target, Sub or their respective officers, directors, shareholders or Affiliates,
provided, however, that (i) the provisions of Sections 7.1, 7.2, 9.2, 9.3 and
Article 11 shall survive any termination of this Agreement, and (ii) nothing
herein shall relieve any party from liability for any breach of this Agreement
prior to the date of termination.
39
Section 9.3 Fees and Expenses.
(a) Except as set forth in this Section 9.3, all fees and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses.
(b) In the event that this Agreement is terminated by Acquiror
pursuant to Section 9.1(c) or 9.1(d) or terminated by Target pursuant to
Section 9.1(h), then Target shall pay Acquiror an amount equal to Acquiror's
reasonable, actual and documented expenses in connection with the transactions
contemplated by this Agreement. In addition, if this Agreement is terminated by
Target pursuant to Section 9.1(h), Target shall pay Acquiror a "break-up" fee in
an amount equal to $750,000. All such amounts shall be payable by wire transfer
of immediately available funds no later than five business days after Target's
receipt of documentation of such expenses.
(c) In the event this Agreement is terminated by Target
pursuant to Section 9.1(c) or 9.1(e), then Acquiror shall pay Target an amount
equal to Target's reasonable, actual and documented expenses in connection with
transactions contemplated by this Agreement, which amount shall be payable by
wire transfer of immediately available funds no later than five business days
after Acquiror's receipt of documentation of such expenses.
ARTICLE 10
INDEMNIFICATION
Section 10.1. Survival of Representations and Covenants.
(a) The representations, warranties, covenants and obligations
of each party set forth in this Agreement or any other Transaction Document
shall survive the Closing and continue until the date that is two years after
the Closing Date.
(b) For purposes of this Agreement, although each statement or
other item of information set forth in the Target Disclosure Schedule is
provided in order to expressly qualify the specific representation and warranty
to which such information refers, all such statements and other items of
information that are provided in the Target Disclosure Schedule shall also be
deemed to be representations and warranties made by each of Target and the
Target Shareholders in addition to the representations and warranties provided
for by the terms of this Agreement.
Section 10.2. Indemnification by Signing Target Shareholders.
(a) Subject to the provisions of this Section 10.2, if the
Merger is not consummated, Target and the Signing Target Shareholders or, if the
Merger is consummated, the Signing Target Shareholders (and not Target) shall
severally but not jointly hold harmless and
40
indemnify Acquiror from and against, and shall compensate and reimburse Acquiror
for, any and all loss, damage, claim, obligation, liability, cost and expense
(including, without limitation, reasonable attorney and other professional fees
and costs and expenses incurred in investigating, preparing, defending against
or prosecuting any claim, suit, action, arbitration, investigation or
proceedings) ("DAMAGES") which are suffered or incurred by Acquiror (regardless
of whether or not such Damages relate to any third party claim) arising from:
(i) any breach of any representation or warranty made by
Target and/or Target Shareholders in this Agreement or any other
Transaction Document;
(ii) any Taxes for taxable periods (or portions thereof)
ending on or before the Closing Date to the extent not provided in the
Financial Statements as a current liability accrual for Taxes (excluding
reserves for deferred Taxes);
(ii) any reasonable costs arising from the defense by Target
or Acquiror of any claim relating to a matter for which the Target
Shareholders bear indemnification obligations hereunder, or the enforcement
by Acquiror of its rights to indemnification hereunder; and
(iv) any breach of any covenant, agreement or obligation of
Target and/or the Target Shareholders contained in this Agreement or any
other Transaction Document.
(b) The limitations to the several indemnification obligations of the
Signing Target Shareholders under this Section 10.2 are as follows (but such
limitations shall not apply to the reasonable costs and expenses incurred by
Acquiror, including reasonable attorneys' fees and expenses, awarded by any
court, arbitrator or other tribunal):
(i) the Signing Target Shareholders shall have no limit on
their respective obligations for any Damages resulting from a breach of any
representation, warranty, covenant, agreement or obligation made herein or
in any other Transaction Document by Target or the Target Shareholders of
which Target had knowledge, or any fraud, on or prior to Closing; and
(ii) the aggregate obligation of the Signing Target
Shareholders for any Damages arising from any indemnification obligations
as set forth in Section 10.2(a) other than as specified in (i) above shall
be limited to an amount equal to the value on the Closing Date of the
Acquiror Common Stock received by the Signing Target Shareholders in the
Merger (the "MERGER CONSIDERATION") and the obligation of each Signing
Target Shareholder for any Damages arising from any indemnification
obligations as set forth in Section 10.2(a) other than as specified in (i)
above shall be limited to the proportion of the Merger Consideration
received by such Signing Target Shareholder.
41
(c) None of the Signing Target Shareholders is required to make
any indemnification payment hereunder unless a claim is initiated prior to
expiration of the applicable survival period for the representations and
warranties set forth in Section 10.1(a). Notwithstanding anything contained
herein to the contrary, the provisions for indemnification contained in Section
10.2(a) shall become effective only in the event that the aggregate amount of
the indemnification claims for which the Signing Target Shareholders are liable
exceeds $150,000 and, in the event that the indemnifiable losses exceed
$150,000, the Signing Target Shareholders shall be responsible for the entire
amount of such losses exceeding the initial $150,000, up to the limits set forth
in Section 10.2(b) above.
Section 10.3. Indemnification by Acquiror and Sub. Acquiror and Sub,
jointly and severally, shall hold harmless and indemnify the Target
Shareholders, their heirs and successors, as applicable, from and against, and
shall compensate and reimburse the Target Shareholders, their heirs and
successors for, any Damages which are suffered or incurred by any of them
(regardless of whether such Damages relate to any third party claim), directly
or indirectly arising or resulting from or connected with (a) any breach of any
representation or warranty made by Acquiror or Sub in this Agreement or any
other Transaction Document and (b) any breach of any covenant or obligation of
Acquiror and/or Sub contained in this Agreement or any other Transaction
Document. The obligations of Acquiror and Sub under this Section 10.3 shall
terminate two years from the Closing Date and shall be limited to the Merger
Consideration, in the aggregate, and to the pro rata share of the Merger
Consideration in respect of each Indemnified Party.
Section 10.4. Defense of Third Party Claims. In the event of the assertion
or commencement by any Person of any claim or Proceeding (whether against
Acquiror, Target, Target Shareholders, any other Indemnitee or any other Person)
with respect to which a Party may become obligated hereunder to indemnify, hold
harmless, compensate or reimburse any Person pursuant to this Article 10, the
party to be indemnified (the "INDEMNIFIED PARTY") shall reasonably promptly, but
in any event within fifteen (15) days following the Indemnified Party's actual
knowledge thereof, notify the Person providing the indemnification hereunder
(the "INDEMNIFYING PARTY") of such claim or Proceeding by providing written
notice to the Indemnifying Party. The Indemnifying Party shall have the right,
at its election, to assume the defense of such claim or Proceeding at its sole
expense. In the absence of any such election, the Indemnified Party may proceed
with the defense of such claim or Proceeding and the Indemnifying Party shall
bear and pay all costs and expenses (including reasonable attorneys' fees and
costs) in connection with the Indemnified Party's defense of any such claim or
Proceeding (whether or not incurred by the Indemnified Party).
(a) If the Indemnifying Party so elects to assume the defense of
any such claim or Proceeding:
42
(i) the Indemnifying Party shall proceed to defend such
claim or Proceeding in a diligent manner with counsel reasonably
satisfactory to the Indemnified Party;
(ii) the Indemnifying Party shall keep the Indemnified Party
informed of all material developments and events relating to such claim or
Proceeding;
(ii) the Indemnified Party shall make available to the
Indemnifying Party any documents and materials in the possession or control
of the Indemnified Party that may be necessary to the defense of such claim
or Proceeding; and
(iv) the Indemnified Party shall have the right to
participate in the defense of such claim or Proceeding at its own expense.
(b) If the Indemnified Party so proceeds with the defense of any such
claim or Proceeding:
(i) all expenses reasonably incurred and relating to the
defense of such claim or Proceeding (whether or not incurred by the
Indemnified Party) shall be borne and paid exclusively by the Indemnifying
Party;
(ii) the Indemnifying Party shall make available to the
Indemnified Party any documents and materials in the possession or control
of the Indemnifying Party that may be necessary to the defense of such
claim or Proceeding;
(ii) the Indemnified Party shall keep the Indemnifying Party
informed of all material developments and events relating to such claim or
Proceeding; and
(iv) the Indemnified Party shall not settle, adjust or
compromise such claim or Proceeding without the prior written consent of
the Indemnifying Party, which consent shall not be unreasonably withheld.
(c) Notwithstanding anything herein to the contrary, if and to the
extent that Acquiror is able to file a valid insurance claim with respect to any
claim under this Article 10, Acquiror shall use commercially reasonable efforts
to file such insurance claim before pursuing its rights against the Signing
Target Shareholders. However, the parties agree that this shall in no way limit
the right of Acquiror to fully pursue its indemnification and any other rights
against the Signing Target Shareholders arising pursuant to this Agreement or
any other Transaction Document.
Section 10.5 Exclusive Remedy. Except for any remedy of specific
performance or any other equitable remedy to which any party may be entitled,
and except in the case of fraud or any action required to enforce the
indemnification provisions of this Agreement, the indemnification
43
provisions set forth in this Article 10 shall provide the sole and exclusive
rights and remedies under which a party to this Agreement may assert a claim
against another party with respect to any and all breaches of any
representation, warranty, covenant or agreement contained herein made to the
party asserting the claim.
Section 10.6 Reliance. No disclosure by any party ("DISCLOSING PARTY") to
this Agreement nor any investigation made by or on behalf of another party with
respect to the Disclosing Party shall be deemed to affect the other party's
reliance on the respective representations and warranties contained in this
Agreement (including the Schedules) and shall not effect a waiver of that
party's rights to indemnity as herein provided for the breach of any of said
representations and warranties; provided, however, to the extent that as a
result of any such investigation, the non-Disclosing Party had actual knowledge
that any representation or warranty was untrue on the date of this Agreement and
the Disclosing Party did not have actual knowledge that such representation or
warranty was untrue, the Disclosing Party shall have no liability with respect
to such breach of representation or warranty.
ARTICLE 11
MISCELLANEOUS
Section 11.1 Notices. All notices, requests, demands or other
communications which are required or may be given pursuant to the terms of this
Agreement shall be in writing and shall be deemed to have been duly given (i)
upon receipt, if delivered by hand, (ii) one (1) business day after deposit with
a nationally-recognized overnight courier service, with delivery charges prepaid
or otherwise satisfied, or (iii) three (3) days after deposit in the United
States mail, postage prepaid, certified or registered mail, addressed to a party
as follows:
if to Acquiror or Sub:
Planar Systems, Inc.
0000 XX Xxxxxxx Xxxxx
Xxxxxxxxx, XX 00000
Attention: Chief Financial Officer
Fax No: 000-000-0000
Telephone No: 000-000-0000
44
with a copy to:
Xxxx Xxxxx LLP
000 X.X. Xxxxxxxx, Xxxxx 0000
Xxxxxxxx, XX 00000
Attention: Xxxxxxx X. Xxxxxxxxx, Esq.
Fax No: 000-000-0000
Telephone No: 000-000-0000
if to Target, to:
AllBrite Technologies, Inc.
00000 Xxxxxxx Xxxxx
Xxxxx, XX 00000
Attention: President
Fax No: 000-000-0000
Telephone No: 000-000-0000
with a copy to:
Xxxxx & Lardner LLP
000 Xxxx Xxxxxxxx, 00/xx/ Xxxxx
Xxx Xxxxx, XX 00000
Attention: Xxxxxx X. Xxxxx, Esq.
Fax No: 000-000-0000
Telephone No: 000-000-0000
if to Target Shareholders:
At the address set forth beneath each Target Shareholders'
signature below
with a copy to:
Xxxxx & Lardner LLP
000 Xxxx Xxxxxxxx, 00/xx/ Xxxxx
Xxx Xxxxx, XX 00000
Attention: Xxxxxx X. Xxxxx, Esq.
Fax No: 000-000-0000
Telephone No: 000-000-0000
Section 11.2 Interpretation. When a reference is made in this Agreement to
Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not
45
affect in any way the meaning or interpretation of this Agreement. Whenever the
words "INCLUDE," "INCLUDES" or "INCLUDING" are used in this Agreement they shall
be deemed to be followed by the words "WITHOUT LIMITATION."
Section 11.3 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
Section 11.4 Entire Agreement; No Third Party Beneficiaries. This
Agreement (including the documents and the instruments referred to herein), the
Confidentiality Agreement, and the Transaction Documents (a) constitute the
entire agreement and supersedes all prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter hereof,
and (b) are not intended to confer upon any person other than the parties hereto
any rights or remedies hereunder.
Section 11.5 Governing Law. This Agreement shall be governed and
construed in accordance with the laws of the State of Oregon, without giving
effect to its conflicts of laws principles.
Section 11.6 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties. Subject to the preceding sentence, this Agreement
will be binding upon, inure to the benefit of and be enforceable by the parties
and their respective successors and assigns.
Section 11.7 Amendment. This Agreement may be amended by the parties
hereto at any time before or after approval of matters presented in connection
with the Merger by the shareholders of Target, but after any such shareholder
approval, no amendment shall be made which by law requires the further approval
of shareholders without obtaining such further approval. This Agreement may not
be amended except by an instrument in writing signed on behalf of each of the
parties hereto.
Section 11.8 Certain Remedies. It is specifically understood and agreed
that any breach of this Agreement by any of the parties hereto will result in
irreparable injury to Acquiror, Sub, Target and the Target Shareholders, as
applicable, that the remedy at law alone will be an inadequate remedy for such
breach and that, in addition to any other remedy it may have, the aggrieved
party shall be entitled to have all obligations, undertakings, agreements,
covenants and other provisions of this Agreement specifically performed by the
breaching party and to seek both temporary and permanent injunctive relief,
without the necessity of proving actual damages, but without limitation of their
rights to recover such damages.
46
Section 11.9 Severability. In case any of the provisions contained in
this Agreement shall for any reason be held to be invalid, illegal or
unenforceable in any respect, any such invalidity, illegality or
unenforceability shall not affect any other provision of this Agreement, but
this Agreement shall be construed as if such invalid, illegal or unenforceable
provision had been limited or modified (consistent with its general intent) to
the extent necessary to make it valid, legal or enforceable, or if it shall not
be possible to so limit or modify such invalid, illegal or unenforceable
provision or part of a provision, this Agreement shall be construed as if such
invalid, illegal or unenforceable provision or part of a provision had never
been contained in this Agreement.
Section 11.10 Attorneys' Fees. If a proceeding is filed by any party to
enforce this Agreement or otherwise with respect to the subject matter of this
Agreement, the prevailing party or parties shall be entitled to recover
reasonable attorneys' fees incurred in connection with such proceeding as fixed
by the trial court, and if any appeal is taken from the decision of the trial
court, reasonable attorneys' fees as fixed by the appellate court.
Section 11.11 Extension; Waiver. At any time prior to the Effective Time,
the parties hereto may, to the extent legally allowed, (i) extend the time for
the performance of any of the obligations or the other acts of the other parties
hereto, (ii) waive any inaccuracies in the representations or warranties
contained herein or in any document delivered pursuant hereto and (iii) waive
compliance with any of the agreements or conditions contained herein. Any
47
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in a written instrument signed on behalf of such party.
IN WITNESS WHEREOF, Acquiror, Sub and Target have caused this Agreement and
Plan of Merger to be signed by their respective officers thereunto duly as of
the date first written above.
ALLBRITE TECHNOLOGIES, INC. PLANAR SYSTEMS, INC.
By: /s/ Xxx Xxxxxx By: /s/ Xxxxxx Xxxxxxxxxxxxx
-------------------------- ----------------------------------
Xxx Xxxxxx Xxxxxx Xxxxxxxxxxxxx
President President and Chief Executive
Officer
CORONA ACQUISITION CORPORATION
By: /s/ Xxxxxx Xxxxxxxxxxxxx
--------------------------
Xxxxxx Xxxxxxxxxxxxx
President and Chief
Executive Officer
SIGNING TARGET SHAREHOLDERS
/s/ Xxx Xxxxxx
-----------------------------
Xxx Xxxxxx
/s/ Xxxxxxx Xxxxx
-----------------------------
Xxxxxxx Xxxxx
48
