Exhibit 10.1
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
TUT SYSTEMS, INC.,
PUBLICPORT, INC.,
PUBLICPORT ACQUISITION CORPORATION,
AND, WITH RESPECT TO ARTICLE VII ONLY,
XXXX X. XXXXXX,
AS STOCKHOLDER REPRESENTATIVE,
AND
U.S. BANK TRUST,
AS ESCROW AGENT
Dated as of June 7, 1999
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and
entered into as of June 7, 1999 among Tut Systems, Inc., a Delaware corporation
("Parent"), PublicPort Acquisition Corporation, a Delaware corporation and a
wholly owned subsidiary of Parent ("Sub"), PublicPort, Inc., a Delaware
corporation (the "Company") and, with respect to Article VII only, Xxxx X.
Xxxxxx, as Stockholder Representative, and U.S. Bank Trust, as Escrow Agent.
RECITALS
A. The Boards of Directors of each of the Company, Parent and Sub believe
it is in the best interests of each company and the stockholders of each company
that Parent acquire the Company through the statutory merger of Sub with and
into the Company (the "Merger") and, in furtherance thereof, have approved the
Merger.
B. Pursuant to the Merger, among other things, all of the issued and
outstanding shares of capital stock of the Company (the "Company Capital Stock")
and all options, warrants and other rights to acquire any shares of the Company
shall be converted into the right to receive shares of Common Stock of Parent.
C. A portion of the shares of Common Stock of Parent otherwise payable by
Parent in connection with the Merger shall be placed in escrow by Parent, the
release of which amount shall be contingent upon certain events and conditions.
D. It is intended by the parties hereto that the Merger shall (i)
constitute a reorganization within the meaning of Section 368 of the Internal
Revenue Code of 1986, as amended (the "Code"), and (ii) qualify for accounting
treatment as a pooling of interests.
E. The Company, the Principal Stockholders, Parent and Sub desire to make
certain representations, warranties, covenants and other agreements in
connection with the Merger.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the parties agree as follows:
TABLE OF CONTENTS
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ARTICLE I The Merger......................................................................................................... 2
1.1 The Merger......................................................................................................... 2
1.2 Effective Time..................................................................................................... 2
1.3 Effect of the Merger............................................................................................... 2
1.4 Certificate of Incorporation; Bylaws............................................................................... 2
1.5 Directors and Officers............................................................................................. 3
1.6 Effect on Capital Stock............................................................................................ 3
1.7 Dissenting Shares.................................................................................................. 3
1.8 Surrender of Certificates.......................................................................................... 4
1.9 No Further Ownership Rights in Company Capital Stock............................................................... 6
1.10 Dissenting Shares After Payment of Fair Value...................................................................... 6
1.11 Tax and Accounting Consequences.................................................................................... 6
1.12 Taking of Necessary Action; Further Action......................................................................... 6
ARTICLE II Representations and Warranties of the Company and the
Principal Stockholder............................................................................................ 6
2.1 Organization of the Company........................................................................................ 6
2.2 Company Capital Structure.......................................................................................... 7
2.3 Subsidiaries....................................................................................................... 7
2.4 Authority.......................................................................................................... 7
2.5 No Conflict........................................................................................................ 8
2.6 Consents........................................................................................................... 8
2.7 Company Financial Statements....................................................................................... 8
2.8 No Undisclosed Liabilities......................................................................................... 8
2.9 No Changes......................................................................................................... 9
2.10 Tax Matters........................................................................................................ 10
2.11 Restrictions on Business Activities................................................................................ 12
2.12 Title of Properties; Absence of Liens and Encumbrances;
Condition of Equipment........................................................................................... 12
2.13 Intellectual Property.............................................................................................. 13
2.14 Agreements, Contracts and Commitments.............................................................................. 16
2.15 Interested Party Transactions...................................................................................... 17
2.16 Governmental Authorization......................................................................................... 17
2.17 Litigation......................................................................................................... 18
2.18 Accounts Receivable................................................................................................ 18
2.19 Minute Books....................................................................................................... 18
2.20 Environmental Matters.............................................................................................. 18
2.21 Brokers' and Finders' Fees; Third Party Expenses................................................................... 19
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TABLE OF CONTENTS
(contined)
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2.22 Employee Benefit Plans and Compensation............................................................................ 19
2.23 No Interference or Conflict........................................................................................ 22
2.24 Insurance.......................................................................................................... 22
2.25 Compliance with Laws............................................................................................... 23
2.26 Complete Copies of Materials....................................................................................... 23
2.27 Representations Complete........................................................................................... 23
ARTICLE III Representations and Warranties of Parent and Sub................................................................... 23
3.1 Organization, Standing and Power................................................................................... 23
3.2 Authority.......................................................................................................... 23
3.3 Capital Structure.................................................................................................. 23
3.4 SEC Documents; Parent Financial Statements......................................................................... 24
3.5 Brokers' and Finders' Fees......................................................................................... 24
3.6 No Material Adverse Change......................................................................................... 24
3.7 No Conflict........................................................................................................ 25
3.8 Consents........................................................................................................... 25
3.9 Other Matters...................................................................................................... 25
3.10 Nasdaq Listing..................................................................................................... 25
ARTICLE IV Conduct Prior to the Effective Time................................................................................ 25
4.1 Conduct of Business of the Company................................................................................. 25
4.2 No Solicitation.................................................................................................... 28
ARTICLE V Additional Agreements.............................................................................................. 28
5.1 (a) Sale of Shares................................................................................................. 28
5.2 Access to Information.............................................................................................. 29
5.3 Confidentiality.................................................................................................... 29
5.4 Expenses........................................................................................................... 29
5.5 Public Disclosure.................................................................................................. 30
5.6 Consents........................................................................................................... 30
5.7 FIRPTA Compliance.................................................................................................. 30
5.8 Reasonable Efforts................................................................................................. 30
5.9 Notification of Certain Matters.................................................................................... 30
5.10 Affiliate Agreements............................................................................................... 30
5.11 Additional Documents and Further Assurances........................................................................ 31
5.12 Tax Free Reorganization............................................................................................ 31
5.13 Pooling Accounting................................................................................................. 31
5.14 Stockholder Approval............................................................................................... 31
5.15 Proprietary Information and Confidentiality Agreements............................................................. 31
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TABLE OF CONTENTS
(contined)
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ARTICLE VI Conditions to the Merger........................................................................................... 32
6.1 Conditions to Obligations of Each Party to Effect the Merger....................................................... 32
6.2 Additional Conditions to Obligations of Company.................................................................... 32
6.3 Additional Conditions to the Obligations of Parent and Sub......................................................... 33
ARTICLE VII Survival of Representations and Warranties; Escrow.................................................................. 35
7.1 Survival of Representations and Warranties......................................................................... 35
7.2 Escrow Arrangements................................................................................................ 35
7.3 Stockholder Representative......................................................................................... 40
7.4 Exclusive Remedy................................................................................................... 41
ARTICLE VIII Termination, Amendment and Waiver.................................................................................. 42
8.1 Termination........................................................................................................ 42
8.2 Effect of Termination.............................................................................................. 43
8.3 Amendment.......................................................................................................... 43
8.4 Extension; Waiver.................................................................................................. 43
ARTICLE IX General Provisions................................................................................................. 43
9.1 Notices............................................................................................................ 43
9.2 Interpretation..................................................................................................... 45
9.3 Counterparts....................................................................................................... 45
9.4 Entire Agreement; Assignment....................................................................................... 45
9.5 Severability....................................................................................................... 45
9.6 Other Remedies..................................................................................................... 45
9.7 Governing Law...................................................................................................... 45
9.8 Rules of Construction.............................................................................................. 46
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ARTICLE I
The Merger
1.1 The Merger. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement and the
applicable provisions of the Delaware General Corporation Law (the "Delaware
Law"), Sub shall be merged with and into the Company, the separate corporate
existence of Sub shall cease and the Company shall continue as the surviving
corporation and as a wholly owned subsidiary of Parent. The surviving
corporation after the Merger is hereinafter sometimes referred to as the
"Surviving Corporation."
1.2 Effective Time. Unless this Agreement is earlier terminated pursuant
to Section 8.1, the closing of the Merger (the "Closing") will take place as
promptly as practicable, but no later than five (5) business days following
satisfaction or waiver of the conditions set forth in Article VI, at the offices
of Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx, 000 Xxxx Xxxx Xxxx, Xxxx Xxxx, Xxxxxxxxxx,
or by exchange of original documentation by each of the respective parties'
attorneys via Federal Express or similar overnight courier service, unless
another place, manner or time is agreed to in writing by Parent and the Company.
The date upon which the Closing actually occurs is herein referred to as the
"Closing Date." On the Closing Date, the parties hereto shall cause the Merger
to be consummated by filing a Certificate of Merger (or like instrument) (the
"Merger Certificate") with the Secretary of State of Delaware, in accordance
with the relevant provisions of applicable law (the time of acceptance by the
Secretary of State of Delaware of such filing being referred to herein as the
"Effective Time").
1.3 Effect of the Merger. At the Effective Time, the effect of the Merger
shall be as provided in the applicable provisions of Delaware Law. Without
limiting the generality of the foregoing, and subject thereto, at the Effective
Time, all the property, rights, privileges, powers and franchises of the Company
and Sub shall vest in the Surviving Corporation, and all debts, liabilities and
duties of the Company and Sub shall become the debts, liabilities and duties of
the Surviving Corporation.
1.4 Certificate of Incorporation; Bylaws.
(a) Unless otherwise determined by Parent prior to the Effective Time,
at the Effective Time, the Certificate of Incorporation of Sub shall be the
Certificate of Incorporation of the Surviving Corporation until thereafter
amended as provided by law and such Certificate of Incorporation; provided,
however, that Article I of the Certificate of Incorporation of the Surviving
Corporation shall be amended to read as follows: "The name of the corporation
is PublicPort, Inc."
(b) The Bylaws of Sub, as in effect immediately prior to the Effective
Time, shall be the Bylaws of the Surviving Corporation until thereafter amended.
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1.5 Directors and Officers. The director(s) of Merger Sub immediately
prior to the Effective Time shall be the initial director(s) of the Surviving
Corporation, each to hold office in accordance with the Certificate of
Incorporation and Bylaws of the Surviving Corporation. The officers of Sub
immediately prior to the Effective Time shall be the initial officers of the
Surviving Corporation, each to hold office in accordance with the Bylaws of the
Surviving Corporation.
1.6 Effect on Capital Stock. At the Effective Time, by virtue of the
Merger and without any action on the part of Merger Sub, the Company or the
holders of any of the following securities:
(a) Conversion of Company Common Stock. Each share of common stock,
no par value, of the Company (the "Company Capital Stock") issued and
outstanding immediately prior to the Effective Time will be canceled and
extinguished and be converted automatically into the right to receive 29.8223
shares (the "Exchange Ratio") of common stock, par value $0.001 per share, of
the Parent ("Parent Common Stock"). The shares of Parent Common Stock issued
pursuant to this Section 1.6(a) are referred to as the "Merger Shares."
Notwithstanding the foregoing, if the aggregate value of the Merger Shares based
on the average of the closing prices of Parent Common Stock for the ten (10)
trading days immediately preceding the Closing Date (the "Aggregate Merger
Consideration") would be greater than $7,700,000 or less than $6,300,00, the
Exchange Ratio shall be adjusted as set forth below. If the Aggregate Merger
Consideration would otherwise be greater than $7,700,000, then the Exchange
Ratio shall be adjusted such that the Aggregate Merger Consideration shall equal
$7,700,000. If the Aggregate Merger Consideration would otherwise be less than
$6,300,000 then the Exchange Ratio shall be adjusted such that the Aggregate
Merger Consideration shall equal $6,300,000.
(b) Capital Stock of Sub. Each share of common stock, $0.001 par
value, of Sub issued and outstanding immediately prior to the Effective Time
shall be converted into and exchanged for one validly issued, fully paid and
nonassessable share of common stock, $0.001 par value, of the Surviving
Corporation. Each stock certificate of Sub evidencing ownership of any such
shares shall continue to evidence ownership of such shares of capital stock of
the Surviving Corporation.
(c) Adjustments to Exchange Ratio. The Exchange Ratio shall be
adjusted to reflect fully the effect of any stock split, reverse split, stock
dividend (including any dividend or distribution of securities convertible into
Parent Common Stock or Company Capital Stock), reorganization, recapitalization
or other like change with respect to Parent Common Stock or Company Common Stock
occurring after the date hereof and prior to the Effective Time.
(d) Fractional Shares. No fractional share of Parent Common Stock
shall be issued in the Merger. In lieu thereof, any fractional share shall be
rounded up to the nearest whole share of Parent Common Stock.
1.7 Dissenting Shares. Notwithstanding anything in this Agreement to the
contrary, shares of capital stock of the Company that are outstanding
immediately prior to the Effective Time and that are held by Company
Stockholders who have not voted such shares in favor of the approval
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and adoption of this Agreement and who shall have delivered a written demand for
appraisal of such shares in accordance with Delaware Law ("Dissenting Shares")
shall not be converted into or be exchangeable for the right to receive the
Parent Common Stock as provided in Section 1.6 of this Agreement, but the
holders of such shares shall be entitled to payment of the appraised value of
such shares in accordance with Delaware Law; provided, however, that (i) if any
holder of Dissenting Shares shall subsequently deliver a written withdrawal of
his demand for appraisal of such shares (with the written approval of the
Surviving Corporation, if such withdrawal is not tendered within 60 days after
the Effective Time), or (ii) if any holder fails to perfect or loses his
appraisal rights as provided under Delaware Law, or (iii) if any holder of
Dissenting Shares fails to demand payment within the time period provided under
Delaware Law, such holder shall forfeit the right to appraisal of such shares
and such shares shall thereupon be deemed to have been converted into and to
have become exchangeable for, as of the Effective Time, the right to receive
Parent Common Stock as provided in Section 1.6 of this Agreement and in
accordance with Section 1.8 of this Agreement.
1.8 Surrender of Certificates.
(a) Exchange Agent. American Stock Transfer & Trust shall serve as
exchange agent (the "Exchange Agent") in the Merger.
(b) Parent to Provide Common Stock. Promptly after the Effective
Time, Parent shall make available to the Exchange Agent for exchange in
accordance with this Article I the shares of Parent Common Stock issuable
pursuant to Section 1.6(a) in exchange for outstanding shares of Company Capital
Stock; provided, however, that, on behalf of the Company Stockholders, pursuant
to Section 7.2 hereof, Parent shall deposit into an escrow account 5% of the
Merger Shares issued to the Escrow Agent on behalf of the Company Stockholders
pursuant to Section 1.6(a) (the "Escrow Amount"). The portion of the Escrow
Amount contributed on behalf of each Company Stockholder shall be in proportion
to the aggregate number of Merger Shares which such Company Stockholder would
otherwise be entitled to receive in the Merger by virtue of ownership of
outstanding shares of Company Capital Stock.
(c) Exchange Procedures. Promptly after the Effective Time, the
Surviving Corporation shall cause to be mailed or provided at the Closing to
each Company Stockholder (i) a letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the certificates (the
"Certificates"), which immediately prior to the Effective Time represented
outstanding shares of Company Capital Stock whose shares were converted into the
right to receive Merger Shares pursuant to Section 1.6(a), shall pass, only upon
delivery of the Certificates to the Exchange Agent and shall be in such form and
have such other provisions consistent herewith as Parent may reasonably specify)
and (ii) instructions for use in effecting the surrender of the Certificates in
exchange for certificates representing Merger Shares. Upon surrender of a
Certificate for cancellation to the Exchange Agent or to such other agent or
agents as may be appointed by Parent, together with such letter of transmittal
and a Stockholder Certificate in the form of Exhibit G hereto, duly completed
and validly executed in accordance with the instructions thereto, a Company
Stockholder shall be entitled to receive in exchange therefor a certificate
representing the number of whole Merger Shares (less the number of shares of
Parent Common Stock to be deposited in the
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Escrow Fund on such holder's behalf pursuant to paragraph (b) above) to which
such Company Stockholder is entitled pursuant to Section 1.6, and the
Certificate so surrendered shall forthwith be canceled. As soon as practicable
after the Effective Time, and subject to and in accordance with the provisions
of Article VII hereof, Parent shall cause to be distributed to the Escrow Agent
(as defined in Article VII) a certificate or certificates representing that
number of shares of Parent Common Stock equal to the Escrow Amount, which shall
be registered in the name of the Escrow Agent. Such shares shall be beneficially
owned by the holders on whose behalf such shares were deposited in the Escrow
Fund and shall be available to compensate Parent as provided in Article VII.
Until so surrendered, each outstanding Certificate that, prior to the Effective
Time, represented shares of Company Capital Stock will be deemed from and after
the Effective Time, for all corporate purposes, other than the payment of
dividends, to evidence the ownership of the number of full shares of Parent
Common Stock into which such shares of Company Capital Stock shall have been so
converted.
(d) Distributions With Respect to Unexchanged Shares. No dividends or
other distributions declared or made after the Effective Time with respect to
Parent Common Stock with a record date after the Effective Time will be paid to
the holder of any unsurrendered Certificate with respect to the shares of Parent
Common Stock represented thereby until the holder of record of such Certificate
shall surrender such Certificate. Subject to applicable law, following
surrender of any such Certificate, there shall be paid to the record holder of
the certificates representing whole shares of Parent Common Stock issued in
exchange therefor, without interest, at the time of such surrender, the amount
of dividends or other distributions with a record date after the Effective Time
theretofore paid with respect to such whole shares of Parent Common Stock.
(e) Transfers of Ownership. If any certificate for shares of Parent
Common Stock is to be issued in a name other than that in which the certificate
surrendered in exchange therefor is registered, it will be a condition of the
issuance thereof that the certificate so surrendered will be properly endorsed
and otherwise in proper form for transfer and that the person requesting such
exchange will have paid to Parent or any agent designated by it any transfer or
other taxes required by reason of the issuance of a certificate for shares of
Parent Common Stock in any name other than that of the registered holder of the
certificate surrendered, or established to the satisfaction of Parent or any
agent designated by it that such tax has been paid or is not payable.
(f) Lost, Stolen or Destroyed Certificates. In the event any
certificates evidencing shares of Company Capital Stock shall have been lost,
stolen or destroyed, the Exchange Agent shall issue in exchange for such lost,
stolen or destroyed certificates, upon the making of an affidavit of that fact
by the holder thereof, such shares of Parent Common Stock; provided, however,
that Parent may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificates to
deliver a bond in such sum as it may reasonably direct as indemnity against any
claim that may be made against Parent or the Exchange Agent with respect to the
certificates alleged to have been lost, stolen or destroyed.
(g) No Liability. Notwithstanding anything to the contrary in this
Section 1.8, none of the Exchange Agent, the Surviving Corporation or any party
hereto shall be liable to a holder
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of shares of Parent Common Stock or Company Capital Stock for any amount
properly paid to a public official pursuant to any applicable abandoned
property, escheat or similar law.
1.9 No Further Ownership Rights in Company Capital Stock. All shares of
Parent Common Stock issued upon the surrender for exchange of shares of Company
Capital Stock in accordance with the terms hereof shall be deemed to be full
satisfaction of all rights pertaining to such shares of Company Capital Stock,
and there shall be no further registration of transfers on the records of the
Surviving Corporation of shares of Company Capital Stock that were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Certificates are presented to the Surviving Corporation for any reason, they
shall be canceled and exchanged as provided in this Article I.
1.10 Dissenting Shares After Payment of Fair Value. Dissenting Shares, if
any, after payments of fair value in respect thereto have been made to
dissenting stockholders of the Company pursuant to the Delaware Law, shall be
canceled.
1.11 Tax and Accounting Consequences. It is intended by the parties
hereto that the Merger shall (i) constitute a reorganization within the meaning
of Section 368 of the Code and (ii) qualify for accounting treatment as a
pooling of interests. Each party has consulted with its own tax advisors and
accountants with respect to the tax and accounting consequences, respectively,
of the Merger.
1.12 Taking of Necessary Action; Further Action. If, at any time after
the Effective Time, any such further action is necessary or desirable to carry
out the purposes of this Agreement and to vest the Surviving Corporation with
full right, title and possession to all assets, property, rights, privileges,
powers and franchises of the Company and Sub, the officers and directors of the
Company and Sub are fully authorized in the name of their respective
corporations or otherwise to take, and will take, all such lawful and necessary
action.
ARTICLE II
Representations and Warranties of the Company
and the Principal Stockholders
The Company represents and warrants to Parent and Sub, subject to such
exceptions as are specifically disclosed in the disclosure letter (referencing
the appropriate section and paragraph numbers) supplied by the Company to Parent
(the "Disclosure Letter") and dated as of the date hereof, as set forth below.
2.1 Organization of the Company. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. The Company has the corporate power to own its properties and to
carry on its business as now being conducted. The Company is duly qualified to
do business and in good standing as a foreign corporation in each juris diction
in which the failure to be so qualified would have a material adverse effect on
the business,
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assets (including intangible assets), financial condition or results of
operations of the Company (hereinafter referred to as a "Material Adverse
Effect"). The Company has delivered a true and correct copy of its Certificate
of Incorporation and Bylaws, each as amended to date, to Parent. Section 2.1 of
the Disclosure Letter lists the directors and officers of the Company. The
operations now being conducted by the Company have not been conducted under any
other name.
2.2 Company Capital Structure.
(a) The authorized capital stock of the Company consists of 10,000
shares of Common Stock, of which 5,656 shares are issued and outstanding on the
date hereof. The Company Capital Stock is held by the Sellers, with the
domicile addresses and in the amounts set forth on Schedule 2.2(a). All
outstanding shares of the Company's Capital Stock are duly authorized, validly
issued, fully paid and non-assessable and not subject to preemptive rights
created by statute, the Certificate of Incorporation or Bylaws of the Company or
any agreement to which the Company is a party or by which it is bound.
(b) There are no options, warrants, calls, rights, commitments or
agreements of any character, written or oral, to which the Company is a party or
by which it is bound obligating the Company to issue, deliver, sell, repurchase
or redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any
shares of the capital stock of the Company or obligating the Company to grant,
extend, accelerate the vesting of, change the price of, otherwise amend or enter
into any such option, warrant, call, right, commitment or agreement. As a
result of the transactions contemplated by the Agreement, the Buyer will be the
record and beneficial owner of all outstanding capital stock of the Company and
rights to acquire capital stock of the Company.
2.3 Subsidiaries. The Company does not have, and never has had, any
subsidiaries or affiliated companies and does not otherwise own, and has not
otherwise owned, any shares in the capital of or any interest in, or control,
directly or indirectly, any other corporation, partnership, association, joint
venture or other business entity.
2.4 Authority. The Company has all requisite power and authority to enter
into this Agreement and any Related Agreements (as hereinafter defined) to which
it is a party and to consummate the transactions contemplated hereby and
thereby. The execution and delivery of this Agreement and any Related
Agreements to which it is a party and the consummation of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
corporate action on the part of the Company, and no further action is required
on the part of the Company to authorize the Agreement, any Related Agreements to
which it is a party and the transactions contemplated hereby and thereby. This
Agreement and any Related Agreements to which the Company is a party have been
duly executed and delivered by the Company, and, assuming the due authorization,
execution and delivery by the other parties hereto and thereto, constitute the
valid and binding obligation of the Company, enforceable in accordance with
their respective terms, subject to the laws of general application relating to
bankruptcy, insolvency and the relief of debtors and to rules of law governing
specific performance, injunctive relief or other equitable remedies. The
"Related Agreements" shall mean all such ancillary agreements required in this
Agreement to be executed and delivered in connection with the transactions
contemplated hereby, including the
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Registration Rights Agreement, the Affiliate Agreements, the Employment
Agreements and the Non-competition Agreements.
2.5 No Conflict. Except as set forth in Section 2.5 of the Disclosure
Letter, the execution and delivery by the Company of this Agreement and any
Related Agreements to which it is a party do not, and the consummation of the
transactions contemplated hereby and thereby will not, conflict with, or result
in any violation of, or default under (with or without notice or lapse of time,
or both), or give rise to a right of termination, cancellation, modification or
acceleration of any obligation or loss of any benefit under (any such event, a
"Conflict") (i) any provision of the Certificate of Incorporation and Bylaws of
the Company, (ii) any mortgage, indenture, lease, contract or other agreement or
instrument, permit, concession, franchise or license to which the Company or any
Principal Stockholder or any of their respective properties or assets are
subject, or (iii) any judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to the Company or any Principal Stockholder or their
respective properties or assets.
2.6 Consents. Except as disclosed in Section 2.6 of the Disclosure
Letter, no consent, waiver, approval, order or authorization of, or
registration, declaration or filing with, any court, administrative agency or
commission or other federal, state, county, local or other foreign governmental
authority, instrumentality, agency or commission ("Governmental Entity") or any
third party, including a party to any agreement with the Company (so as not to
trigger any Conflict), is required by or with respect to the Company in
connection with the execution and delivery of this Agreement and any Related
Agreements to which the Company is a party or the consummation of the
transactions contemplated hereby and thereby, except for (i) such consents,
waivers, approvals, orders, authorizations, registrations, declarations and
filings as may be required under applicable securities laws thereby, and (ii)
the filing of the Merger Certificate with the Secretary of State of the State of
Delaware.
2.7 Company Financial Statements. Section 2.7 of the Disclosure Letter
sets forth the Company's compiled balance sheets as of December 31, 1998 and the
related compiled statements of income and cash flow for the period from October
15, 1998 (inception) to December 31, 1998 (the "Compiled Financials") and the
Company's unaudited balance sheet as of April 30, 1999 and the related unaudited
statements of income and cash flow for the four months then ended (the
"Unaudited Compiled Financials"). The Unaudited Compiled Financials are correct
in all material respects and have been prepared in accordance with U.S.
generally accepted accounting principles consistent with the reporting practices
and principles used by Parent from time to time for preparing its public filings
under the Securities Exchange Act of 1934, as amended ("GAAP"), applied on a
basis consistent throughout the periods indicated and consistent with each
other. The Unaudited Compiled Financials present fairly the financial
condition, operating results and cash flows of the Company as of the dates and
during the periods indicated therein, subject in the case of the Unaudited
Compiled Financials, to normal year-end adjustments, which will not be material
in amount or significance. The Company's unaudited Balance Sheet as of April
30, 1999 shall be referred to as the "Current Balance Sheet."
2.8 No Undisclosed Liabilities. Except as set forth in Section 2.8 of the
Disclosure Letter, the Company does not have any liability, indebtedness,
obligation, expense, claim,
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deficiency, guaranty or endorsement of any type, whether accrued, absolute,
contingent, matured, unmatured or other (whether or not required to be reflected
in financial statements in accordance with GAAP), which individually or in the
aggregate (i) has not been reflected in the Current Balance Sheet, or (ii) has
not arisen in the ordinary course of business consistent with past practices
since March 31, 1999.
2.9 No Changes. Except as set forth in Section 2.9 of the Disclosure
Letter, since March 31, 1999, there has not been, occurred or arisen any:
(a) transaction by the Company involving in excess of $10,000, except
in the ordinary course of business as conducted on that date and consistent with
past practices;
(b) amendments or changes to the Certificate of Incorporation or
Bylaws of the Company;
(c) capital expenditure or commitment by the Company, either
individually or in the aggregate, exceeding $10,000;
(d) destruction of, damage to or loss of any material assets, business
or customer of the Company (whether or not covered by insurance), either
individually or in the aggregate, in excess of $10,000;
(e) labor trouble or claim of wrongful discharge or other unlawful
labor practice or action;
(f) change in accounting methods or practices (including any change in
depreciation or amortization policies or rates) by the Company;
(g) revaluation by the Company of any of its assets;
(h) declaration, setting aside or payment of a dividend or other
distribution with respect to the Company Capital Stock, or any direct or
indirect redemption, purchase or other acquisition by the Company of any of its
Common Stock;
(i) increase in the salary or other compensation payable or to become
payable by the Company to any of its officer, directors, employees or advisors,
or the declaration, payment or commitment or obligation of any kind for the
payment, by the Company, of a bonus or other additional salary or compensation
to any such person;
(j) any agreement, contract, lease or commitment or any extension or
modification the terms of any such agreement, contract, lease or commitment,
involving in excess of $10,000, individually, or $25,000, in the aggregate;
(k) sale, lease, license or other disposition of any of the assets or
properties of the Company, or any creation of any security interest in such
assets or properties, in excess of $10,000,
-9-
except in the ordinary course of business as conducted on that date and
consistent with past practices;
(l) amendment or termination of any material contract, agreement or
license to which the Company is a party or by which it is bound;
(m) loan by the Company to any person or entity, incurring by the
Company of any indebtedness, guaranteeing by the Company of any indebtedness,
issuance or sale of any debt securities of the Company or guaranteeing of any
debt securities of others, except for advances to employees for travel and
business expenses in the ordinary course of business, consistent with past
practices;
(n) waiver or release of any right or claim of the Company, including
any write-off or other compromise of any account receivable of the Company,
either individually or in the aggregate, exceeding $10,000;
(o) the commencement or notice or threat of commencement of any
lawsuit or proceeding against investigation of the Company or its affairs;
(p) notice of any claim of ownership by a third party of any Company
Intellectual Property (as defined in Section 2.13 below) or of infringement by
the Company of any third party's Intellectual Property rights;
(q) issuance or sale, or contract to issue or sell, by the Company of
any of its shares of capital stock, or securities exchangeable, convertible or
exercisable therefor, or of any other of its securities;
(r) material change in pricing or royalties set or charged by the
Company to its customers or licensees or in pricing or royalties set or charged
by persons who have licensed Intellectual Property (as defined in Section 2.13
below) to the Company;
(s) any event or condition of any character that has had a Material
Adverse Effect on the Company; or
(t) negotiation or agreement by the Company or any officer or
employees thereof to do any of the things described in the preceding clauses (a)
through (s) (other than negotiations with Parent and its representatives
regarding the transactions contemplated by this Agreement).
2.10 Tax Matters.
(a) Definition of Taxes. For the purposes of this Agreement, "Tax"
or, collectively, "Taxes," means (i) any and all federal, state, local and
foreign taxes, assessments and other governmental charges, duties, impositions
and liabilities, including taxes based upon or measured by gross receipts,
income, profits, sales, use and occupation, and value added, ad valorem,
transfer, franchise, withholding, payroll, recapture, employment, excise and
property taxes, together
-10-
with all interest, penalties and additions imposed with respect to such amounts;
(ii) any liability for the payment of any amounts of the type described in
clause (i) as a result of being a member of an affiliated, consolidated,
combined or unitary group for any period; and (iii) any liability for the
payment of any amounts of the type described in clause (i) or (ii) as a result
of any express or implied obligation to indemnify any other person or as a
result of any obligations under any agreements or arrangements with any other
person with respect to such amounts and including any liability for taxes of a
predecessor entity.
(b) Tax Returns and Audits. Except as set forth in Section 2.10 of
the Disclosure Letter:
(i) The Company as of the Effective Time will have prepared and timely
filed or made a timely request for extension for all required federal, state,
local and foreign returns, estimates, information statements and reports
("Returns") relating to any and all Taxes concerning or attributable to the
Company, or its operations and such Returns are true and correct and have been
completed in accordance with applicable law.
(ii) The Company as of the Effective Time (A) will have paid
or accrued all Taxes it is required to pay or accrue as shown on the Returns and
(B) will have withheld and timely remitted with respect to its employees all
income taxes and other Taxes required to be withheld and remitted.
(iii) The Company has not been delinquent in the payment of
any Tax nor is there any Tax deficiency outstanding, assessed or proposed
against the Company, nor has the Company executed any waiver of any statute of
limitations on or extending the period for the assessment or collection of any
Tax.
(iv) No audit or other examination of any Return of the
Company is presently in progress, nor has the Company been notified in writing
of any request for such an audit or other examination.
(v) The Company has no liabilities for unpaid federal, state, local
and foreign Taxes which have not been accrued or reserved against in accordance
with GAAP on the Current Balance Sheet, whether asserted or unasserted,
contingent or otherwise, and the Company has not incurred any liability for
Taxes since the date of the Current Balance Sheet other than in the ordinary
course of business.
(vi) The Company has made available to Parent or its legal
counsel, copies of all foreign, federal and state income and all state sales and
use Returns filed for all years as to which any applicable statute of
limitations has not expired.
(vii) There are (and immediately following the Effective Time
there will be) no liens, pledges, charges, claims, restrictions on transfer,
mortgages, security interests or
-11-
other encumbrances of any sort (collectively, "Liens") on the assets of the
Company relating to or attributable to Taxes other than Liens for taxes not yet
due and payable.
(viii) The Company has no knowledge of any basis for the
assertion of any claim relating or attributable to Taxes which, if adversely
determined, would result in any Lien on the assets of the Company.
(ix) As of the Effective Time, there will not be any
contract, agreement, plan or arrangement, including but not limited to the
provisions of this Agreement, covering any employee or former employee of the
Company that, individually or collectively, could give rise to the payment of
any amount that would not be deductible by the Company as an expense under
applicable law.
(x) The Company is not a party to any tax sharing, indemnification or
allocation agreement nor does the Company owe any amount under any such
agreement.
(xi) The Company's tax basis in its assets for purposes of
determining its future amortization, depreciation and other federal income tax
deductions is accurately reflected on the Company's tax books and records.
(xii) The Company is not, and has not been at any time, a
"United States Real Property Holding Corporation" within the meaning of Section
897(c)(2) of the Code.
(xiii) The Company is an accrual basis taxpayer and its tax
basis and its assets for purposes of determining its future amortization,
depreciation and other federal income tax deductions is accurately reflected on
the Company's tax books and records.
(c) Executive Compensation Tax. The Company does not have, or will
not have as a result of the transactions contemplated by this Agreement, any
liabilities for Taxes (for example under Section 280G of the Code) as a result
of the amount of remuneration paid or to be paid to its employees.
2.11 Restrictions on Business Activities. Except as set forth in Section
2.11 of the Disclosure Letter, there is no agreement (non-competition or
otherwise), commitment, judgment, injunction, order or decree to which the
Company is a party or otherwise binding upon the Company that has or may have
the effect of prohibiting or impairing any business practice of the Company, any
acquisition of property (tangible or intangible) by the Company or the conduct
of business by the Company. Without limiting the foregoing, the Company has not
entered into any agreement under which the Company is restricted from providing
services to customers or potential customers or any class of customers, in any
geographic area, during any period of time or in any segment of the market.
2.12 Title of Properties; Absence of Liens and Encumbrances; Condition of
Equipment.
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(a) The Company does not own any real property, nor has it ever owned
any real property. Section 2.12(a) of the Disclosure Letter sets forth a list
of all real property currently leased by the Company, the name of the lessor,
the date of the lease and each amendment thereto and, with respect to any
current lease, the aggregate annual rental and/or other fees payable under any
such lease. All such current leases are in full force and effect in accordance
with their respective terms, and there is not, under any of such leases, any
existing material default or material event of default (or event which with
notice or lapse of time, or both, would constitute a material default).
(b) The Company has good and marketable title to, or, in the case of
leased properties and assets, enforceable leasehold interests in, all of its
tangible properties and assets used or held for use in its business, free and
clear of any Liens, except as reflected in the Current Balance Sheet and except
for liens for taxes not yet due and payable and such imperfections of title and
encumbrances, if any, which are not material in character, amount or extent, and
which do not materially detract from the value, or materially interfere with the
present use, of the property subject thereto or affected thereby.
(c) Section 2.12(c) of the Disclosure Letter lists all material items
of equipment (the "Equipment") owned or leased by the Company and such Equipment
is, (i) adequate for the conduct of the business of the Company as currently
conducted and (ii) in good operating condition, regularly and properly
maintained, subject to normal wear and tear.
(d) The Company has sole and exclusive ownership, free and clear of
any Liens, of all customer files and other customer information relating to the
Company's current customers (the "Customer Information"). No third party
possesses any claims or rights with respect to use of the Customer Information.
2.13 Intellectual Property.
(a) For the purposes of this Agreement, the following terms have the
following definitions:
"Intellectual Property" shall mean any or all of the following and all
rights in, arising out of, or associated therewith anywhere in the world: (i)
all United States, international and foreign patents and applications therefor
and all reissues, divisions, renewals, extensions, provisionals, continuations
and continuations-in-part thereof; (ii) all inventions (whether patentable or
not), invention disclosures, improvements, trade secrets, proprietary
information, know how, technology, technical data and customer lists, and all
documentation relating to any of the foregoing; (iii) all copyrights, copyrights
registrations and applications therefor; (iv) all industrial designs and any
registrations and applications therefor throughout the world; (v) all trade
names, logos, common law trademarks and service marks; trademark and service
xxxx registrations and applications therefor and all goodwill associated
therewith throughout the world; (vi) all databases and data collections and all
rights therein throughout the world; and (vii) all computer software including
all source code, object code, firmware, development tools, files, records and
data, all media on which
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any of the foregoing is recorded, (viii) any similar, corresponding or
equivalent rights to any of the foregoing and (ix) all documentation related to
any of the foregoing.
"Company Intellectual Property" shall mean any Intellectual Property
that is owned by, or exclusively licensed to, the Company.
"Registered Intellectual Property" shall mean all United States,
international and foreign: (i) patents, patent applications (including
provisional applications); (ii) registered trademarks, applications to register
trademarks, intent-to-use applications, or other registrations or applications
related to trademarks; (iii) registered copyrights and applications for
copyright registration; and (iv) any other Company Intellectual Property that is
the subject of an application, certificate, filing, registration or other
document issued by, filed with, or recorded by, any state, government or other
public legal authority.
(b) Section 2.13(b) of the Disclosure Letter lists all Registered
Intellectual Property owned by, or filed in the name of, the Company (the
"Company Registered Intellectual Property").
(c) The Company (i) owns and has good and exclusive title to each item
of Company Intellectual Property, including all Company Registered Intellectual
Property listed on Section 2.13(b) of the Disclosure Letter, free and clear of
any Liens, (ii) is the exclusive owner of or has the permission of the owner to
use all trademarks and trade names used in connection with the operation or
conduct of the business of the Company, including the sale of any products or
the provision of any services by the Company and (iii) owns exclusively, and has
good title to, all copyrighted works that are Company products or other works of
authorship that the Company otherwise purports to own.
(d) Except as set forth in Section 2.13(d) of the Disclosure Letter,
to the extent that any work, invention or material has been developed or created
by a third party for the Company, the Company has a written agreement with such
third party with respect thereto and the Company thereby has obtained ownership
of, and is the exclusive owner of, all Intellectual Property in such work,
material or invention by operation of law or by valid assignment.
(e) Except as set forth in Section 2.13(e) of the Disclosure Letter,
the Company has not transferred ownership of, or granted any exclusive license
with respect to, any Intellectual Property that is or was Company Intellectual
Property, to any third party.
(f) The operation of the business of the Company as it currently is
conducted or is reasonably contemplated to be conducted, including to the extent
applicable the Company's design, development, manufacture and sale of the
products (including products currently under development) or services of the
Company, does not infringe or misappropriate the Intellectual Property of any
other person, violate the rights of any person (including rights to privacy or
publicity), or constitute unfair competition or trade practices under the laws
of any jurisdiction, and the Company has not received written notice from any
person claiming that such operation or any
-14-
act, product or service of the Company infringes or misappropriates the
Intellectual Property of any third party or constitutes unfair competition or
trade practices under the laws of any jurisdiction.
(g) The Company owns or has the right to use all Intellectual Property
necessary to the conduct of its business as it is currently conducted or is
reasonably contemplated to be conducted, including, without limitation, the
design, development, manufacture and sale of all products currently manufactured
or sold by the Company or under development by the Company and the performance
of all services provided or contemplated to be provided by the Company.
(h) Each item of Company Registered Intellectual Property is valid and
subsisting, all necessary registration, maintenance and renewal fees in
connection with such Company Registered Intellectual Property have been paid and
all necessary documents and certificates in connection with such Company
Registered Intellectual Property have been filed with the relevant patent,
copyright, trademark or other authorities in the United States or foreign
jurisdictions, as the case may be, for the purposes of maintaining such Company
Registered Intellectual Property.
(i) There are no contracts, licenses and agreements between the
Company and any other person with respect to Company Intellectual Property under
which there is any dispute known to the Company regarding the scope of such
agreement, or performance under such agreement including with respect to any
payments to be made or received by the Company thereunder.
(j) To the knowledge of the Company, no person is infringing or
misappropriating any of Company Intellectual Property.
(k) The Company has taken all steps that are reasonably required to
protect the Company's rights in confidential information and trade secrets of
the Company or provided by any third party to the Company. Without limiting the
foregoing, the Company has, and enforces, a policy requiring each employee and
contractor to execute proprietary information and confidentiality agreements
substantially in the Company's standard forms, and, except as set forth in
Section 2.13(k) of the Disclosure Letter, all current employees and contractors
of the Company have executed such an agreement.
(l) There are no proceedings or actions instituted by the Company or
of which the Company has received written notice before any court, tribunal
(including the United States Patent and Trademark Office (the "PTO") or
equivalent authority anywhere in the world) related to any Company Intellectual
Property.
(m) No Company Intellectual Property or product or service of the
Company is subject to any proceeding or outstanding decree, order, judgment,
agreement or stipulation that restricts in any manner the use, transfer or
licensing thereof by the Company or may affect the validity, use or
enforceability of such Company Intellectual Property.
-15-
(n) No (i) product, service or publication of the Company, (ii)
material published or distributed by the Company or (iii) conduct or statement
of Company, constitutes obscene material or a defamatory statement or material.
2.14 Agreements, Contracts and Commitments.
(a) Except as set forth on Section 2.14(a) of the Disclosure Letter,
the Company does not have, or is not bound by:
(i) any contract, license or agreement to which the Company is a party
(A) with respect to Company Intellectual Property licensed or transferred to any
third party or (B) pursuant to which a third party has licensed or transferred
any Intellectual Property to the Company, with a value or cost in excess of
$10,000;
(ii) any employment or consulting agreement, contract or
commitment with an employee or individual consultant or salesperson or
consulting or sales agreement, contract or commitment with a firm or other
organization;
(iii) any agreement or plan, including, without limitation,
any stock option plan, stock appreciation rights plan or stock purchase plan,
any of the benefits of which will be increased, or the vesting of benefits of
which will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of which will
be calculated on the basis of any of the transactions contemplated by this
Agreement;
(iv) any fidelity or surety bond or completion bond;
(v) any lease of personal property with fixed annual rental
payments in excess of $10,000;
(vi) any contract, license or agreement between the Company
and any third party wherein or whereby the Company has agreed to, or assumed,
any obligation or duty to warrant, indemnify, hold harmless or otherwise assume
or incur any obligation or liability with respect to the infringement or
misappropriation by the Company or such third party of the Intellectual Property
of any third party;
(vii) any agreement, contract or commitment containing any
covenant limiting the freedom of the Company to engage in any line of business
or to compete with any person;
(viii) any agreement, contract or commitment relating to
capital expenditures and involving future payments in excess of $10,000;
-16-
(ix) any agreement, contract or commitment relating to the
disposition or acquisition of assets or any interest in any business enterprise
outside the ordinary course of the Company's business;
(x) any mortgages, indentures, loans or credit agreements, security
agreements or other agreements or instruments relating to the borrowing of money
or extension of credit other than trade credit;
(xi) any purchase order or contract for the purchase of
materials involving $10,000 or more;
(xii) any construction contracts;
(xiii) any distribution, joint marketing or development
agreement; or
(xiv) any other agreement, contract or commitment that
involves $15,000 or more or is not cancelable without penalty within thirty (30)
days.
(b) Except as disclosed in Section 2.14(b) of the Disclosure Letter,
the Company is in compliance with and has not breached, violated or defaulted
under, or received notice that it has breached, violated or defaulted under, any
of the terms or conditions of any agreement, contract, license or commitment to
which it is a party or by which it is bound (any such agreement, contract,
license or commitment, a "Contract"), and the Company is not aware of any event
that would constitute such a breach, violation or default with the lapse of
time, giving of notice or both. Each Contract is in full force and effect, and,
to the knowledge of the Company, except as otherwise disclosed in Section
2.14(b) of the Disclosure Letter, all other parties to each Contract are in
compliance with, and have not breached any term of, such Contract. The Company
has obtained or will obtain prior to the Closing Date, all necessary consents,
waivers and approvals of parties to any Contract as are required thereunder in
connection with the Merger or to remain in effect without modification after the
Closing. Following the Effective Time, the Company will be permitted to
exercise all of the Company's rights under the Contracts to the same extent the
Company would have been able to had the Merger not occurred and without the
payment of any additional amounts or consideration other than ongoing fees,
royalties or payments which the Company would otherwise be required to pay.
2.15 Interested Party Transactions. Except as disclosed in Section
2.15 of the Disclosure Letter, no officer, director or stockholder of the
Company (nor any ancestor, sibling, descendant or spouse of any of such persons,
or any trust, partnership or corporation in which any of such persons has or has
had an interest), has or has had, directly or indirectly, (i) any interest in
any entity that furnished or sold, or furnishes or sells, services or products
that the Company furnishes or sells, or proposes to furnish or sell, or (ii) any
interest in any entity that purchases from or sells or furnishes to the Company
any goods or services or (iii) a beneficial interest in any Contract; provided,
however, that ownership of no more than one percent (1%) of the outstanding
voting stock of a publicly traded corporation and no more than 5% of the
outstanding equity of any other entity shall not be deemed an "interest in any
entity" for purposes of this Section 2.15.
-17-
2.16 Governmental Authorization. Section 2.16 of the Disclosure Letter
accurately lists each material consent, license, permit, grant or other
authorization issued to the Company by a governmental entity (i) pursuant to
which the Company currently operates or holds any interest in any of its
properties or (ii) which is required for the operation of its business or the
holding of any such interest (herein collectively called "Company
Authorizations"). The Company Authorizations are in full force and effect and
constitute all Company Authorizations required to permit the Company to operate
or conduct its business or hold any interest in its properties or assets.
2.17 Litigation. Except as disclosed in Section 2.17 of the Disclosure
Letter, there is no action, suit or proceeding of any nature pending, or to the
Company's knowledge threatened, against the Company, its properties or any of
its officers or directors, nor, to the knowledge of the Company, is there any
reasonable basis therefor. There is no investigation pending or, to the
Company's knowledge threatened, against the Company, its properties or any of
its officers or directors (nor, to the best knowledge of the Company, is there
any reasonable basis therefor) by or before any governmental entity. No
governmental entity has at any time challenged or questioned the legal right of
the Company to conduct its operations as presently or previously conducted.
2.18 Accounts Receivable.
(a) The Company has made available to Parent a list of all accounts
receivable of the Company ("Accounts Receivable") as of April 30, 1999 along
with a range of days elapsed since invoice.
(b) All Accounts Receivable of the Company arose in the ordinary
course of business, are carried at values determined in accordance with GAAP
consistently applied and are collectible except to the extent of reserves
therefor set forth in the Current Balance Sheet. No person has any Lien on any
of such Accounts Receivable and no request or agreement for deduction or
discount has been made with respect to any of such Accounts Receivable.
2.19 Minute Books. The minute books of the Company made available to
counsel for Parent are the only minutes of the Company and contain a reasonably
accurate summary of all meetings of the Board of Directors (or committees
thereof) of the Company and its stockholders or actions by written consent since
the incorporation of the Company.
2.20 Environmental Matters.
(a) Hazardous Material. The Company has not: (i) operated any
underground storage tanks at any property that the Company has at any time
owned, operated, occupied or leased; or (ii) illegally released any material
amount of any substance that has been designated by any Governmental Entity or
by applicable federal, state or local law to be radioactive, toxic, hazardous or
otherwise a danger to health or the environment, including, without limitation,
PCBs, asbestos, petroleum, and urea-formaldehyde and all substances listed as
hazardous substances pursuant to the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended, or defined as a hazardous
waste pursuant to the United States Resource Conservation and Recovery Act of
1976, as amended, and the regulations promulgated pursuant to said laws (a
"Hazardous Material"), but excluding office and janitorial supplies properly and
safely maintained. No
-18-
Hazardous Materials are present as a result of the deliberate actions of the
Company or, to the Company's knowledge, as a result of any actions of any third
party or otherwise, in, on or under any property, including the land and the
improvements, ground water and surface water thereof, that the Company has at
any time owned, operated, occupied or leased.
(b) Hazardous Materials Activities. The Company has not transported,
stored, used, manufactured, disposed of, released or exposed its employees or
others to Hazardous Materials in violation of any law in effect on or before the
Effective Time, nor has the Company disposed of, transported, sold, or
manufactured any product containing a Hazardous Material (any or all of the
foregoing being collectively referred to as "Hazardous Materials Activities") in
violation of any rule, regulation, treaty or statute promulgated by any
Governmental Entity in effect prior to or as of the date hereof to prohibit,
regulate or control Hazardous Materials or any Hazardous Material Activity.
(c) Permits. The Company currently holds all environmental approvals,
permits, licenses, clearances and consents (the "Environmental Permits")
necessary for the conduct of the Company's Hazardous Materials Activities and
other businesses of the Company as such activities and businesses are currently
being conducted.
(d) Environmental Liabilities. No action, proceeding, revocation
proceeding, amendment procedure, writ, injunction or claim is pending, or to the
Company's knowledge, threatened concerning any Environmental Permit, Hazardous
Material or any Hazardous Materials Activity of the Company. The Company is not
aware of any fact or circumstance which could involve the Company in any
environmental litigation or impose upon the Company any environmental liability.
2.21 Brokers' and Finders' Fees; Third Party Expenses. Except as set
forth in Section 2.21 of the Disclosure Letter, the Company has not incurred,
nor will it incur, directly or indirectly, any liability for brokerage or
finders' fees or agents' commissions or any similar charges in connection with
the Agreement or any transaction contemplated hereby. Section 2.21 of the
Disclosure Letter sets forth the principal terms and conditions of any
agreement, written or oral, with respect to such fees. Section 2.21 of the
Disclosure Letter sets forth the Company's current reasonable estimate of all
Third Party Expenses (as defined in Section 5.4) expected to be incurred by the
Company in connection with the negotiation and effectuation of the terms and
conditions of this Agreement and the transactions contemplated hereby.
2.22 Employee Benefit Plans and Compensation.
(a) For purposes of this Section 2.22, the following terms shall have
the meanings set forth below:
(i) "Affiliate" shall mean any other person or entity under common
control with the Company within the meaning of Section 414(b), (c), (m) or (o)
of the Code and the regulations thereunder.
-19-
(ii) "Employee Plan" shall refer to any plan, program,
policy, practice, contract, agreement or other arrangement providing for
bonuses, severance, termination pay, deferred compensation, pensions, profit
sharing, performance awards, stock or stock-related awards, fringe benefits or
other employee benefits of any kind, whether formal or informal, written or
otherwise, funded or unfunded and whether or not legally binding, including
without limitation, any plan which is or has been maintained, contributed to, or
required to be contributed to, by the Company or any Affiliate for the benefit
of any Employee (as defined below), and pursuant to which the Company or any
Affiliate has or may have any material liability, contingent or otherwise; and
(iii) "Employee" shall mean any current, former, or retired
employee, consultant, officer, or director of the Company or any Affiliate.
(iv) "Employee Agreement" shall refer to each employment,
severance, consulting or similar agreement or contract between the Company or
any Affiliate and any Employee;
(b) Schedule. Section 2.22(b) of the Disclosure Letter contains an
accurate and complete list of each Employee Plan and each Employee Agreement,
together with a schedule of all liabilities, whether or not accrued, under each
such Employee Plan or Employee Agreement. The Company does not have any plan or
commitment, whether legally binding or not, to establish any new Employee Plan
or Employee Agreement, to modify any Employee Plan or Employee Agreement (except
to the extent required by law or to conform any such Employee Plan or Employee
Agreement to the requirements of any applicable law, in each case as previously
disclosed to Parent in writing, or as required by this Agreement), or to enter
into any Employee Plan or Employee Agreement, nor does it have any intention or
commitment to do any of the foregoing.
(c) Documents. The Company has provided to Parent, (i) correct and
complete copies of all documents embodying each Employee Plan and each Employee
Agreement including all amendments thereto and copies of all forms of agreement
and enrollment used therewith; (ii) the most recent annual actuarial valuations,
if any, prepared for each Employee Plan; (iii) the three most recent annual
reports (Series 5500 and all schedules thereto), if any, required under the
Employee Retirement Income Security Act of 1974, as amended ("ERISA") or the
Code in connection with each Employee Plan or related trust; (iv) the most
recent summary plan description together with the most recent summary of
material modifications, if any, required under ERISA with respect to each
Employee Plan; (v) all IRS determination letters and rulings relating to
Employee Plans and copies of all applications and correspondence to or from the
IRS or the Department of Labor ("DOL") with respect to any Employee Plan; (vi)
if the Employee Plan is funded, the most recent annual and periodic accounting
of Employee Plan assets; (vii) all material agreements and contracts relating to
each Employee Plan, including but not limited to, administrative service
agreements, group annuity contracts and group insurance contracts; and (viii)
all communications material to any Employee or Employees relating to any
Employee Plan and any proposed Employee Plan, in each case, relating to any
amendments, terminations, establishments, increases or decreases in benefits,
acceleration of payments or vesting schedules or other events which would result
in any liability to the Company.
-20-
(d) Employee Plan Compliance. (i) The Company has performed all
obligations required to be performed by it under each Employee Plan and each
Employee Plan has been established and maintained in accordance with its terms
and in compliance with all applicable laws, statutes, orders, rules and
regulations, including ERISA and the Code; (ii) each Employee Plan intended to
qualify under Section 401(a) of the Code and each trust intended to qualify
under Section 501(a) of the Code has either received a favorable determination
letter with respect to each such Employee Plan from the IRS or has remaining a
period of time under applicable Treasury regulations or IRS pronouncements in
which to apply for such a determination letter and make any amendments necessary
to obtain a favorable determination; (iii) no "prohibited transaction," within
the meaning of Section 4975 of the Code or Section 406 or 407 of ERISA, has
occurred with respect to any Employee Plan; (iv) there are no actions, suits or
claims pending, or, to the knowledge of the Company, threatened or anticipated
(other than routine claims for benefits), against any Employee Plan or against
the assets of any Employee Plan; (v) each Employee Plan can be amended,
terminated or otherwise discontinued after the Effective Time in accordance with
its terms, without liability to the Company, Parent, Sub or any Affiliate (other
than ordinary administration expenses typically incurred in a termination
event); (vi) there are no inquiries or proceedings pending or, to the knowledge
of the Company or any Affiliates, threatened by the IRS or DOL with respect to
any Employee Plan; and (vii) neither the Company nor any Affiliate is subject to
any penalty or tax with respect to any Employee Plan under Section 402(i) of
ERISA or Section 4975 through 4980 of the Code.
(e) Pension Plans. The Company does not now, and has never,
maintained, established, sponsored, participated in, or contributed to, any
pension plan which is subject to Part 3 of Subtitle B of Title I of ERISA, Title
IV of ERISA or Section 412 of the Code.
(f) Multiemployer Plans. At no time has the Company contributed to or
been requested to contribute to any multiemployer plan.
(g) No Post-Employment Obligations. No Employee Plan provides, or has
any liability to provide, life insurance, medical or other employee welfare
benefits to any Employee upon his or her retirement or termination of employment
for any reason, except as may be required by statute, and the Company has not
represented, promised or contracted (whether in oral or written form) to any
Employee (either individually or to Employees as a group) that such Employee(s)
would be provided with life insurance, medical or other employee welfare
benefits upon their retirement or termination of employment, except to the
extent required by statute.
(h) No COBRA Violation. Neither the Company nor any Affiliate has,
prior to the Effective Time and in any material respect, violated any of the
health care continuation requirements of the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended, or any similar provisions of state law
applicable to its employees.
(i) Effect of Transaction. The execution of this Agreement and the
consummation of the transactions contemplated hereby will not (either alone or
upon the occurrence
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of any additional or subsequent events) constitute an event under any Employee
Plan, Employee Agreement, trust or loan that will or may result in any payment
(whether of severance pay or otherwise), acceleration, forgiveness of
indebtedness, vesting, distribution, increase in benefits or obligation to fund
benefits with respect to any Employee.
(j) Employment Matters. Except as set forth in Schedule 2.22(j), the
Company (i) is in compliance with all applicable laws, rules and regulations
respecting employment, employment practices, terms and conditions of employment
and wages and hours, in each case, with respect to Employees; (ii) has withheld
all amounts required by law or by agreement to be withheld from the wages,
salaries and other payments to Employees; (iii) is not liable for any arrears of
wages or any taxes or any penalty for failure to comply with any of the
foregoing; and (iv) is not liable for any payment to any trust or other fund or
to any governmental or administrative authority, with respect to unemployment
compensation benefits, social security or other benefits for Employees (other
than routine payments to be made in the normal course of business and consistent
with past practice).
(k) Labor. No work stoppage or labor strike against the Company is
pending, or to the knowledge of the Company, threatened. The Company is not
involved in or threatened with any labor dispute, grievance, or litigation
relating to labor, safety or discrimination matters involving any Employee,
including, without limitation, charges of unfair labor practices or
discrimination complaints, which, if adversely determined, would, individually
or in the aggregate, result in liability to the Company, Parent or Sub. The
Company has not engaged in any unfair labor practices which could, individually
or in the aggregate, directly or indirectly result in a liability to the
Company, Parent, Sub or any Affiliate. The Company is not presently, nor has it
in the past, been a party to, or bound by, any collective bargaining agreement
or union contract with respect to Employees and no collective bargaining
agreement is being negotiated by the Company.
2.23 No Interference or Conflict. To the knowledge of the Company, no
stockholder, officer or employee of the Company is obligated under any contract
or agreement or subject to any judgment, decree or order of any court or
administrative agency, that would interfere with such person's efforts to
promote the interests of the Company or that would interfere with the Company's
business. Neither the execution nor delivery of this Agreement, nor the
carrying on of the Company's business as presently conducted nor any activity of
such officers or employees in connection with the carrying on of the Company's
business as presently conducted or proposed to be conducted in accordance with
the Business Plan, will, to the Company's knowledge, conflict with or result in
a breach of the terms, conditions or provisions of, or constitute a default
under, any contract or agreement under which any of such officers or employees
are currently bound.
2.24 Insurance. Section 2.24 of the Disclosure Letter lists all insurance
policies and fidelity bonds covering the assets, business, equipment,
properties, operations, employees, officers and directors of the Company. There
is no claim by the Company pending under any of such policies or bonds as to
which coverage has been questioned, denied or disputed by the underwriters of
such policies or bonds. All premiums due and payable under all such policies
and bonds have
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been paid, and the Company and its Affiliates are otherwise in compliance with
the terms of such policies and bonds (or other policies and bonds providing
substantially similar insurance coverage). The Company has no knowledge of any
threatened termination of, or premium increase with respect to, any of such
policies.
2.25 Compliance with Laws. The Company has complied with, is not in
violation of, and has not received any notices of violation with respect to, any
foreign, federal, state or local statute, law or regulation.
2.26 Complete Copies of Materials. The Company has delivered or made
available true and complete copies of each document (or summaries of same) that
has been reasonably requested by Parent or its counsel.
2.27 Representations Complete. None of the representations or warranties
made by the Company (as modified by the Disclosure Letter), nor any statement
made in any schedule or certificate furnished by the Company pursuant to this
Agreement, or furnished in or in connection with documents mailed or delivered
to the Company Stockholders for use in soliciting their consent to this
Agreement and the Merger contains or will contain at the Effective Time, any
untrue statement of a material fact, or omits or will omit at the Effective Time
to state any material fact necessary in order to make the statements contained
herein or therein, in the light of the circumstances under which made, not
misleading.
ARTICLE III
Representations and Warranties of Parent and Sub
Parent and Sub represent and warrant to the Company as follows:
3.1 Organization, Standing and Power. Each of Parent and Sub is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. Each of Parent and Sub has the corporate power to
own its properties and to carry on its business as now being conducted and is
duly qualified to do business and is in good standing in each jurisdiction in
which the failure to be so qualified would have a material adverse effect on the
ability of Parent and Sub to consummate the transactions contemplated hereby.
3.2 Authority. Each of Parent and Sub has all requisite corporate power
and authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of Parent and Sub. This Agreement
has been duly executed and delivered by Parent and Sub and constitutes the valid
and binding obligations of Parent and Sub, enforceable in accordance with its
terms, except as such enforceability may be limited by principles of public
policy and subject to the laws of general
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application relating to bankruptcy, insolvency and the relief of debtors and
rules of law governing specific performance, injunctive relief or other
equitable remedies.
3.3 Capital Structure.
(a) The authorized stock of Parent consists of 10,000,000 shares of
Common Stock, $.001 par value, of which 11,440,291 shares were issued and
outstanding as of March 31, 1999, and 5,000,000 shares of undesignated Preferred
Stock, $.001 par value. No shares of Preferred Stock are issued or outstanding.
All such shares have been duly authorized, and all such issued and outstanding
shares have been validly issued, are fully paid and nonassessable and are free
of any liens or encumbrances other than any liens or encumbrances created by or
imposed upon the holders thereof. Parent has also reserved (i) 1,437,500 shares
of Common Stock for issuance to employees and consultants pursuant to Parent's
1992 Stock Plan, (ii) 1,000,000 shares of Common Stock for issuance to employees
and consultants pursuant to Parent's 1998 Stock Plan, and (iii) 250,000 shares
of Common Stock for issuance under Parent's 1998 Employee Stock Purchase Plan.
There are no other options, warrants, calls, rights, commitments or agreements
of any character to which Parent is a party or by which it is bound obligating
Parent to issue, deliver, sell, repurchase or redeem, or cause to be issued,
delivered, sold, repurchased or redeemed, any shares of the capital stock of
Parent or obligating Parent to grant, extend or enter into any such option,
warrant, call, right, commitment or agreement.
(b) The shares of Parent Common Stock to be issued pursuant to the
Merger will be duly authorized, validly issued, fully paid, non-assessable and
free of preemptive rights.
3.4 SEC Documents; Parent Financial Statements. Parent has furnished the
Company, and will furnish the Company Stockholders prior to the Closing, with a
true and complete copy of the following filings with the Securities and Exchange
Commission (the "SEC"): (i) its Annual Report to its stockholders covering the
fiscal year ended December 31, 1998, (ii) its Proxy Statement to its
stockholders for its 1999 annual meeting and (iii) its quarterly report on Form
10-Q for the quarter ended March 31, 1999 (the "SEC Documents"). As of their
respective filing dates, the SEC Documents complied in all material respects
with the 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 applicable and none of the SEC Documents contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements made therein, in light of the circumstances
in which they were made, not misleading, except to the extent corrected by a
subsequently filed document with the SEC. Parent has filed in a timely manner
all reports required to be filed during the preceding twelve calendar months
pursuant to the Exchange Act. The financial statements of Parent, including the
notes thereto, included in the SEC Documents (the "Parent Financial Statements")
comply as to form in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with generally accepted
accounting principles consistently applied (except as may be indicated in the
notes thereto) and present fairly the consolidated financial position of Parent
at the dates thereof and of its operations and cash flows for the periods then
ended (subject, in the case of unaudited statements, to normal audit
adjustments).
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3.5 Brokers' and Finders' Fees. Parent has not incurred, nor will it
incur, directly or indirectly, any liability for brokerage or finders' fees or
agents' commissions or any similar charges in connection with this Agreement or
any transaction contemplated hereby.
3.6 No Material Adverse Change. No material adverse change in the
business, assets (including intangible assets), financial conditions or results
of operations of Parent and Sub, taken as a whole, has occurred since March 31,
1999.
3.7 No Conflict. The execution and delivery of this Agreement and any
Related Agreements to which Parent or Sub is a party by Parent or Sub, as the
case may be, do not, and the consummation of the transactions contemplated
hereby and thereby will not, conflict with, or result in any violation of, or
default under (with or without notice or lapse of time, or both), or give rise
to a Conflict under (i) any provision of the Certificate of Incorporation and
Bylaws of Parent or Sub, (ii) any mortgage, indenture, lease, contract or other
agreement or instrument, permit, concession, franchise or license to which
Parent or Sub or any of their respective properties or assets are subject and
has been filed as an exhibit to any of the SEC Documents, or (iii) any judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to Parent
or Sub or their respective properties or assets, except where such conflict will
not have a material adverse effect on the business, assets (including intangible
assets), financial conditions or results of operations of Parent and Sub, taken
as a whole.
3.8 Consents. No consent, waiver, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity or any third
party, including a party to any agreement with Parent or Sub (so as not to
trigger any Conflict), is required by or with respect to Parent or Sub in
connection with the execution and delivery of this Agreement and any Related
Agreements to which Parent or Sub is a party or the consummation of the
transactions contemplated hereby and thereby, except for (i) such consents,
waivers, approvals, orders, authorizations, registrations, declarations and
filings as may be required under applicable securities laws thereby, (ii) the
filing of the Merger Certificate with the Secretary of State of the State of
Delaware and (iii) such consents, waivers, approvals, orders or authorizations
which if not obtained, or registrations, declarations or filings which if not
made, would not have a material adverse effect on the business, assets
(including intangible assets), financial conditions or results of operations of
Parent and Sub, taken as a whole.
3.9 Other Matters. Sub has been formed for the sole purpose of effecting
the Merger and, except as contemplated by this Agreement, Sub has not conducted
any business activities and does not have any material liabilities or
obligations.
3.10 Nasdaq Listing. All shares of Parent Common Stock registered under
the Securities Act have been duly listed on the Nasdaq National Market.
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ARTICLE IV
Conduct Prior to the Effective Time
4.1 Conduct of Business of the Company. During the period from the date
of this Agreement and continuing until the earlier of the termination of this
Agreement or the Effective Time, the Company agrees (except to the extent that
Parent shall otherwise consent in writing), to carry on the Company's business
in the usual, regular and ordinary course in substantially the same manner as
heretofore conducted, to pay their debts and Taxes before they become
delinquent, to pay or perform other obligations when due, and, to the extent
consistent with such business, use all reasonable efforts consistent with past
practice and policies to preserve intact the Company's present business
organization, keep available the services of the Company's present officers and
key employees and preserve the Company's relationships with customers,
suppliers, distributors, licensors, licensees, and others having business
dealings with it, all with the goal of preserving unimpaired the Company's
goodwill and ongoing business at the Effective Time. The Company shall promptly
notify Parent of any event or occurrence or emergency not in the ordinary course
of business of the Company, and any material event involving the Company.
Except as expressly contemplated by this Agreement, the Company shall not,
without the prior written consent of Parent:
(a) Enter into any commitment or transaction not in the ordinary
course of business;
(b) Transfer to any person or entity any rights to the Company
Intellectual Property;
(c) Enter into or amend any agreements pursuant to which any other
party is granted marketing, distribution or similar rights of any type or scope
with respect to any products of the Company;
(d) Amend or otherwise modify (or agree to do so), except in the
ordinary course of business, or violate the terms of, any of the agreements set
forth or described in the Disclosure Letter;
(e) Commence any litigation;
(f) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock or property) in respect of any of its
capital stock, or split, combine or reclassify any of its capital stock or issue
or authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of capital stock of the Company, or repurchase,
redeem or otherwise acquire, directly or indirectly, any shares of its capital
stock (or options, warrants or other rights exercisable therefor);
(g) Issue, grant, deliver or sell or authorize or propose the
issuance, grant, delivery or sale of, or purchase or propose the purchase of,
any shares of its capital stock or
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securities convertible into, or subscriptions, rights, warrants or options to
acquire, or other agreements or commitments of any character obligating it to
issue any such shares or other convertible securities;
(h) Cause or permit any amendments to its Certificate of Incorporation
or Bylaws;
(i) Acquire or agree to acquire by merging or consolidating with, or
by purchasing any assets or equity securities of, or by any other manner, any
business or any corporation, partnership, association or other business
organization or division thereof, or otherwise acquire or agree to acquire any
assets which are material, individually or in the aggregate, to its business;
(j) Sell, lease, license or otherwise dispose of any of its properties
or assets, except in the ordinary course of business and consistent with past
practices;
(k) Incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities or guarantee any debt
securities of others other than trade debt;
(l) Grant any loans to others or purchase debt securities of others or
amend the terms of any outstanding loan agreement, except in the ordinary course
of business and consistent with past practices;
(m) Grant any severance or termination pay (i) to any director or
officer or (ii) to any other employee except payments made pursuant to standard
written agreements outstanding on the date hereof;
(n) Adopt or amend any employee benefit plan, or enter into any
employment agreement, pay or agree to pay any special bonus or special
remuneration to any director or employee, or increase the salaries or wage rates
of its employees;
(o) Revalue any of its assets, including without limitation writing
down the value of inventory or writing off notes or accounts receivable other
than in the ordinary course of business;
(p) Take any action which could jeopardize the tax-free reorganization
hereunder;
(q) Pay, discharge or satisfy, in an amount in excess of $5,000 (in
any one case) or $15,000 (in the aggregate), any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
the payment, discharge or satisfaction in the ordinary course of business of
liabilities reflected or reserved against in the Current Balance Sheet;
(r) Make or change any material election in respect of Taxes, adopt or
change any accounting method in respect of Taxes, enter into any closing
agreement, settle any claim or
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assessment in respect of Taxes, or consent to any extension or waiver of the
limitation period applicable to any claim or assessment in respect of Taxes;
(s) Enter into any strategic alliance or joint marketing arrangement
or agreement; or
Take, or agree in writing or otherwise to take, any of the actions
described in Sections 4.1(a) through (s) above, or any other action that would
prevent the Company from performing or cause the Company not to perform its
covenants hereunder.
4.2 No Solicitation. Until the earlier of the Effective Time or the date
of termination of this Agreement pursuant to the provisions of Section 8.1
hereof, the Company will not (nor will the Company permit any of the Company's
officers, directors, agents, representatives or affiliates to), without the
express written consent of Parent, directly or indirectly, take any of the
following actions with any party other than Parent and its designees: (a)
solicit, conduct discussions with or engage in negotiations with any person,
relating to the possible acquisition of the Company (whether by way of merger,
purchase of capital stock, purchase of assets or otherwise) or any material
portion of its or their capital stock or assets, (b) provide information with
respect to it to any person, other than Parent and Parent's counsel, accountants
and representatives, relating to the possible acquisition of the Company
(whether by way of merger, purchase of capital stock, purchase of assets or
otherwise) or any material portion of its or their capital stock or assets, (c)
enter into an agreement with any person, other than Parent, providing for the
acquisition of the Company (whether by way of merger, purchase of capital stock,
purchase of assets or otherwise) or any material portion of its or their capital
stock or assets or (d) make or authorize any statement, recommendation or
solicitation in support of any possible acquisition of the Company or any of its
subsidiaries (whether by way of merger, purchase of capital stock, purchase of
assets or otherwise) or any material portion of its or their capital stock or
assets by any person, other than by Parent. In addition to the foregoing, if
the Company receives prior to the Effective Time or the termination of this
Agreement any written offer or proposal relating to any of the above, the
Company shall immediately notify Parent thereof, including information as to the
identity of the offeror or the party making any such offer or proposal and the
specific terms of such offer or proposal, as the case may be, and such other
information related thereto as Parent may reasonably request.
ARTICLE V
Additional Agreements
5.1 (a) Sale of Shares. The parties hereto acknowledge and agree that
the shares of Parent Common Stock issuable to the Company Stockholders pursuant
to Section 1.6 hereof, shall constitute "restricted securities" within the
meaning of Rule 144 under the Securities Act. The certificates for the shares
of Parent Common Stock to be issued in the Merger shall bear appropriate legends
to identify such privately placed shares as being restricted under the
Securities Act, to comply with applicable state securities laws and, if
applicable, to notice the restrictions on transfer of such shares. It is
acknowledged and understood that Parent is relying upon certain written
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representations made by the Company Stockholders in the Stockholder Certificates
in substantially the form attached hereto as Exhibit G.
(b) Registration Statement. Subject to certain limitations set forth
in the Registration Rights Agreement attached hereto as Exhibit A, (i) on a date
which is no later than October 31, 1999, Parent shall use commercially
reasonable efforts to cause the Merger Shares issued to the Company Stockholders
(including the Escrow Shares) to be registered on a registration statement (the
"Registration Statement") under the Securities Act to provide for resale of such
shares by the Company Stockholders and shall use commercially reasonable efforts
to cause such Registration Statement to become effective. The rights and
obligations of the Company Stockholders and Parent in respect of the
Registration Statement shall be as set forth in the Registration Rights
Agreement. Parent warrants that, upon the consummation of such registration,
the Merger Shares shall be tradeable without restriction under the Securities
Act of 1933, as amended.
5.2 Access to Information. The Company shall afford Parent and its
accountants, counsel and other representatives reasonable access during normal
business hours during the period prior to the Effective Time to (a) all of the
Company's properties, books, contracts, commitments and records, and (b) all
other information concerning the business, properties and personnel (subject to
restrictions imposed by applicable law) of the Company as Parent may reasonably
request. The Company agrees to provide to Parent and its accountants, counsel
and other representatives copies of internal financial statements promptly upon
request. Parent shall provide the Company with copies of such publicly
available information about Parent as the Company may request and shall provide
the Company with reasonable access to its executive officers in this regard. No
information or knowledge obtained in any investigation pursuant to this Section
5.2 shall affect or be deemed to modify any representation or warranty contained
herein or the conditions to the obligations of the parties to consummate the
Merger.
5.3 Confidentiality.
(a) Each of the parties hereto hereby agrees that the information
obtained in any investigation pursuant to Section 5.2, or pursuant to the
negotiation and execution of this Agreement or the effectuation of the
transaction contemplated hereby, shall be treated by the party receiving it as
confidential ("Confidential Information"); provided, however, that the foregoing
shall not apply to information or knowledge which (a) a party can demonstrate
was already lawfully in its possession prior to the disclosure thereof by the
other party, (b) is generally known to the public and did not become so known
through any violation of law, (c) became known to the public through no fault of
such party, (d) is later lawfully acquired by such party from other sources, (e)
is required to be disclosed by order of court or government agency without
subpoena powers or (f) which is disclosed in the course of any litigation
between any of the parties hereto.
(b) If this Agreement is terminated (i) any Confidential Information
obtained by a party shall not be used in competition with the other parties and
(ii) each of the parties hereto shall,
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and shall cause its officers, employees, representatives, advisors and agents
to, destroy or deliver to the other parties all Confidential Information of such
parties.
5.4 Expenses. Whether or not the Merger is consummated, all fees and
expenses incurred in connection with the Merger including, without limitation,
all legal, accounting, financial advisory, consulting and all other fees and
expenses of third parties ("Third Party Expenses") incurred by a party in
connection with the negotiation and effectuation of the terms and conditions of
this Agreement and the transactions contemplated hereby, shall be the obligation
of the respective party incurring such fees and expenses; provided, however,
that the cost of any audit of the Company by Parent shall be borne exclusively
by Parent, unless this Agreement is terminated, in which case the cost of such
audit shall be borne equally by Parent and the Company. In the case of the
Company, all Third Party Expenses shall be either paid or accrued by the Company
prior to the Effective Time.
5.5 Public Disclosure. Unless otherwise required by law, prior to the
Effective Time, no disclosure (whether or not in response to an inquiry) of the
subject matter of this Agreement shall be made by any party hereto unless
approved by Parent and the Company prior to release; provided, however, that
such approval shall not be unreasonably withheld, subject, in the case of
Parent, to Parent's obligation to comply with applicable securities laws and the
rules and regulations of the National Association of Securities Dealers, Inc.
5.6 Consents. The Company shall use its best efforts to obtain the
consents, waivers and approvals under any of the Contracts as may be required in
connection with the Merger (all of such consents, waivers and approvals are set
forth in Disclosure Letter) so as to preserve all rights of, and benefits to,
the Company thereunder.
5.7 FIRPTA Compliance. On the Closing Date, the Company shall deliver to
Parent a properly executed statement in a form reasonably acceptable to Parent
for purposes of satisfying Parent's obligations under Treasury Regulation
Section 1.1445-2(c)(3).
5.8 Reasonable Efforts. Subject to the terms and conditions provided in
this Agreement, each of the parties hereto shall use commercially reasonable
efforts to take promptly, or cause to be taken, all actions, and to do promptly,
or cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated hereby, to obtain all necessary waivers, consents and approvals and
to effect all necessary registrations and filings and to remove any injunctions
or other impediments or delays, legal or otherwise, in order to consummate and
make effective the transactions contemplated by this Agreement for the purpose
of securing to the parties hereto the benefits contemplated by this Agreement;
provided, however, that Parent shall not be required to agree to any divestiture
by Parent or the Company or any of Parent's subsidiaries or affiliates of shares
of capital stock or of any business, assets or property of Parent or its
subsidiaries or affiliates or of the Company, its affiliates, or the imposition
of any material limitation on the ability of any of them to conduct their
businesses or to own or exercise control of such assets, properties and stock.
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5.9 Notification of Certain Matters. The Company shall give prompt notice
to Parent, and Parent shall give prompt notice to the Company, of (i) the
occurrence or non-occurrence of any event, the occurrence or non-occurrence of
which is likely to cause any representation or warranty of the Company and
Parent, respectively, contained in this Agreement to be untrue or inaccurate at
or prior to the Effective Time and (ii) any failure of the Company or Parent, as
the case may be, to comply with or satisfy any covenant, condition or agreement
to be complied with or satisfied by it hereunder; provided, however, that the
delivery of any notice pursuant to this Section 5.9 shall not limit or otherwise
affect any remedies available to the party receiving such notice.
5.10 Affiliate Agreements. Section 5.10 of the Disclosure Letter sets
forth those persons who, in the Company's reasonable judgment, are or may be
"affiliates" of the Company within the meaning of Rule 145 (each such person an
"Affiliate") promulgated under the Securities Act ("Rule 145"). The Company
shall provide Parent such information and documents as Parent shall reasonably
request for purposes of reviewing such list. The Company shall deliver or cause
to be delivered to Parent, concurrently with the execution of this Agreement
(and in any case prior to the Closing Date) from each of the Affiliates of the
Company, an executed Affiliate Agreement in the form attached hereto as Exhibit
B. Parent and Sub shall be entitled to place appropriate legends on the
certificates evidencing any Parent Common Stock to be received by such
Affiliates pursuant to the terms of this Agreement, and to issue appropriate
stop transfer instructions to the transfer agent for Parent Common Stock,
consistent with the terms of such Affiliate Agreements.
5.11 Additional Documents and Further Assurances. Each party hereto, at
the request of another party hereto, shall execute and deliver such other
instruments and do and perform such other acts and things as may be necessary or
desirable for effecting completely the consummation of the transactions
contemplated hereby.
5.12 Tax Free Reorganization. The parties intend to adopt this Agreement
and the Merger as a tax-free plan of reorganization under Section 368(a)(1)(A)
of the code by virtue of the provisions of Section 368(a)(2)(E) of the Code.
The Parent Common Stock issued in the Merger will be issued solely in exchange
for the Company Capital Stock, and no other transaction other than the Merger
represents, provides for or is intended to be an adjustment to the consideration
paid for the Company Capital Stock. No consideration that could constitute
"other property" within the meaning of Section 356(b) of the Code is being
transferred by Parent for the Company Capital Stock in the Merger. The parties
shall not take a position on any tax return inconsistent with this Section 5.12.
From and after the Effective Time, neither Parent, Sub, the Company or the
Principal Stockholder shall take any action that could reasonably be expected to
cause the Merger not to be treated as a reorganization within the meaning of
Section 368 of the Code.
5.13 Pooling Accounting. Parent and the Company shall each use their best
efforts to cause the business combination to be effected by the Merger to be
accounted for as a pooling of interests. Each of Parent and the Company shall
use their best efforts to cause its Affiliates (as defined in Section 5.10) not
to take any action that would adversely affect the ability of Parent to account
for the business combination to be effected by the Merger as a pooling of
interests.
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5.14 Stockholder Approval. As promptly as practicable after the execution
of this Agreement, the Company shall submit this Agreement and the transactions
contemplated hereby to the Company Stockholders for approval and adoption as
provided by Delaware Law and its Certificate of Incorporation and Bylaws and
such other documents necessary in order to satisfy the requirements of Section
4(2) of the Securities Act and Regulation D thereunder in connection with the
issuance and sale of Parent Common Stock in the Merger. The Company shall use
its best efforts to solicit and obtain the consent of its stockholders
sufficient to approve the Merger and this Agreement and to enable the Closing to
occur as promptly as practicable. The materials submitted to the Company
Stockholders shall be subject to review and approval by Parent and include
information regarding the Company, the terms of the Merger and this Agreement
and the unanimous recommendation of the Board of Directors of the Company
regarding the Merger and this Agreement.
5.15 Proprietary Information and Confidentiality Agreements. Prior to the
Effective Time, each current employee and consultant of the Company will execute
the Company's standard form of proprietary information and confidentiality
agreements.
5.16 Indemnification of Shareholder Obligations. The Company hereby agrees
to indemnify and hold harmless Xxxxx Xxxxxx, Xxxxx Xxxxxx and Xxxxx Xxxxxx for
any liabilities incurred by them as guarantors following the Closing Date
pursuant to the Office Lease Agreement dated November 19, 1998 between the
Company and Dalhman Apartments Ltd.
ARTICLE VI
Conditions to the Merger
6.1 Conditions to Obligations of Each Party to Effect the Merger. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Effective Time of the
following conditions:
(a) 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 restraint or prohibition
preventing the consummation of the Merger shall be in effect, nor shall any
proceeding brought by an administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, 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.
(b) Litigation. There shall be no bona fide action, suit, claim or
proceeding of any nature pending, or overtly threatened, against Parent, Sub or
the Company, their respective properties or any of their officers or directors,
arising out of, or in any way connected with, the Merger or the other
transactions contemplated by the terms of this Agreement.
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(c) Nasdaq Listing. The Merger Shares and any other shares required
to be reserved for issuance in connection with the Merger shall have been
authorized for listing on the Nasdaq National Market upon official notice of
issuance.
6.2 Additional Conditions to Obligations of Company. The obligations of
the Company to consummate and effect this Agreement and the transactions
contemplated hereby shall be subject to the satisfaction at or prior to the
Effective Time of each of the following conditions, any of which may be waived,
in writing, exclusively by the Company:
(a) Representations, Warranties and Covenants. The representations
and warranties of Parent and Sub in this Agreement shall be true and correct in
all material respects on and as of the Effective Time as though such
representations and warranties were made on and as of such time and each of
Parent and Sub shall have performed and complied in all material respects with
all covenants and obligations of this Agreement required to be performed and
complied with by it as of the Effective Time.
(b) Claims. There shall not have occurred any claims (whether or not
asserted in litigation) which may materially and adversely affect the
consummation of the transactions contemplated hereby or the business, assets
(including intangible assets), financial condition or results of operations of
Parent and its subsidiaries, taken as a whole.
(c) No Material Adverse Changes. There shall not have occurred any
material adverse change in the business, assets (including intangible assets),
financial condition, results of operations of Parent and its subsidiaries, taken
as a whole, since March 31, 1999.
(d) Legal Opinion. The Company shall received a legal opinion from
Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx, legal counsel to Parent, in substantially the
form of Exhibit D-1 hereto.
(e) Registration Rights Agreement. Parent shall have executed and
delivered the Registration Rights Agreement in substantially the form attached
hereto as Exhibit A.
(f) Certificate of Parent. Company shall have been provided with a
certificate executed on behalf of Parent by an officer of Parent to the effect
that, as of the Effective Time:
(i) all representations and warranties made by Parent and Sub in this
Agreement are true and correct in all material respects;
(ii) all covenants and obligations of this Agreement to be
performed by Parent on or before such date have been so performed in all
material respects.
(iii) the conditions set forth in Section 6.2 (b) and (c) have
been satisfied.
6.3 Additional Conditions to the Obligations of Parent and Sub. The
obligations of Parent and Sub to consummate and effect this Agreement and the
transactions contemplated hereby
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shall be subject to the satisfaction at or prior to the Effective Time of each
of the following conditions, any of which may be waived, in writing, exclusively
by Parent:
(a) Representations, Warranties and Covenants. The representations
and warranties of the Company in this Agreement shall be true and correct in all
material respects on and as of the Effective Time as though such representations
and warranties were made on and as of the Effective Time and the Company shall
have performed and complied in all material respects with all covenants and
obligations of this Agreement required to be performed and complied with it as
of the Effective Time.
(b) Claims. There shall not have occurred any third-party claims
(whether or not asserted in litigation) which may materially and adversely
affect the consummation of the transactions contemplated hereby or may have a
Material Adverse Effect.
(c) Third Party Consents. Any and all consents, waivers, and
approvals listed in the Disclosure Letter shall have been obtained.
(d) Legal Opinion. Parent shall have received a legal opinion from
Ferrari, Olsen, Xxxxxxxx and Xxxx, legal counsel to the Company, in
substantially the form of Exhibit D-2 hereto.
(e) Employment and Non-competition Agreements. The persons listed on
Exhibit E-1 shall each have executed and delivered to Parent an Employment
Agreement in substantially the form attached hereto as Exhibit E-2 or Exhibit X-
0 as indicated, and a Non-competition Agreement in substantially the form
attached hereto as Exhibit F, and such Employment Agreements and Non-competition
Agreements shall be in full force and effect.
(f) No Material Adverse Changes. There shall not have occurred any
material adverse change in the business, assets (including intangible assets),
results of operations, liabilities (contingent or accrued) or financial
condition of the Company since December 31, 1998.
(g) Stockholder Approval. Company Stockholders holding at least 95%
of Company Capital Stock shall have approved this Agreement, the Merger and the
transactions contemplated thereby, and holders of not more than 5% of Company
Capital Stock shall continue to have a right to exercise appraisal, dissenters
or similar rights under applicable law with respect to their Company Capital
Stock by virtue of the Merger.
(h) Affiliate Agreements. Each of the persons listed in Section 5.10
of the Disclosure Letter shall have executed an Affiliate Agreement in
substantially the form attached as Exhibit B.
(i) Opinion of Accountants. Parent and the Company shall have received
letters from PricewaterhouseCoopers LLP, dated within two (2) business days
prior to the Closing Date, regarding its concurrence with Parent's and the
Company's managements' conclusions as to the
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appropriateness of pooling of interest accounting for the Merger under
Accounting Principles Board Opinion No. 16, if the Merger is consummated in
accordance with this Agreement.
(j) Certificate of the Company. Parent shall have been provided with
a certificate executed on behalf of the Company by its Chief Executive Officer
to the effect that, as of the Effective Time:
(i) all representations and warranties made by the Company in this
Agreement are true and correct in all material respects; and
(ii) all covenants and obligations of this Agreement to be
performed by the Company on or before such date have been so performed in all
material respects.
(iii) the provisions set forth in Section 6.3 (b), (c), (f) and
(g) have been satisfied.
(k) Each of the directors of the Company shall have delivered to
Parent a letter of resignation from the Board of Directors of the Company.
ARTICLE VII
Survival of Representations and Warranties; Escrow
7.1 Survival of Representations and Warranties. All of the Company's
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Merger and continue until the
earlier of the date which is the date of the auditor's report for the first
audit of Parent's financial statements after the Closing Date or the date which
is one year following the Closing Date (the "Expiration Date"). All of Parent's
and Sub's representations and warranties contained herein or in any instrument
delivered pursuant to this Agreement shall terminate at the Expiration Date.
7.2 Escrow Arrangements.
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(a) Escrow Fund. As security for the indemnity provided for in
Section 7.2 hereof and by virtue of this Agreement, the Company Stockholders
will be deemed to have received and deposited with the Escrow Agent (as defined
below) the Escrow Amount (plus any additional shares as may be issued upon any
stock split, stock dividend or recapitalization effected by Parent after the
Effective Time) without any act of any Company Stockholder. As soon as
practicable after the Effective Time, the Escrow Amount, without any act of any
Company Stockholder, will be deposited with U.S. Bank Trust (or other
institution acceptable to Parent and the Company Stockholders) as Escrow Agent
(the "Escrow Agent"), such deposit to constitute an escrow fund (the "Escrow
Fund") to be governed by the terms set forth herein. The Escrow Agent may
execute this Agreement following the date hereof and prior to the Effective
Time, and such later execution, if so executed after the date hereof, shall not
affect the binding nature of this Agreement as of the date hereof between the
other signatories hereto. The portion of the Escrow Amount contributed on
behalf of each Company Stockholder shall be in proportion to the aggregate
Parent Common Stock which such holder would otherwise be entitled under Section
1.6(a). The Company Stockholders jointly agree to indemnify and hold Parent and
its officers, directors and affiliates (the "Indemnified Parties") harmless
against all claims, losses, liabilities, damages, deficiencies, costs and
expenses, including reasonable attorneys' fees and expenses of investigation
(hereinafter individually a "Loss" and collectively "Losses") incurred by
Parent, its officers, directors, or affiliates (including the Surviving
Corporation) directly or indirectly as a result of (i) any inaccuracy or breach
of a representation or warranty of the Company contained in this Agreement, or
(ii) any failure by the Company to perform or comply with any covenant contained
in this Agreement; provided, however, that, except as set forth in Section 7.4,
the aggregate amount for which the Company Stockholders are required to
indemnify the Indemnified Parties shall not exceed the amount deposited in the
Escrow Fund. The Escrow Fund shall be available to compensate Parent and its
affiliates for any such Losses. The Company Stockholders shall not have any
right of contribution from the Company with respect to any Loss claimed by
Parent after the Effective Time. Nothing herein shall limit the liability of
the Company for any breach of any representation, warranty or covenant if the
Merger does not close for reasons other than Parent's breach of its obligations
hereunder. Parent may not receive any shares from the Escrow Fund unless and
until Officer's Certificates (as defined in paragraph (d) below) identify
Losses, the aggregate of which exceeds $70,000, have been delivered to the
Escrow Agent as provided in paragraph (d) below.
(b) Escrow Period; Distribution upon Termination of Escrow Periods.
Subject to the following requirements, the Escrow Fund shall be in existence
immediately following the Effective Time and shall terminate on the Expiration
Date (the "Escrow Period"); provided, however, that the Escrow Period shall not
terminate with respect to any amount which, in reasonable judgement of Parent,
subject to the objection of the Stockholder Representative (as defined in
Section 7.3 below) and the subsequent arbitration of the matter in the manner
provided in Section 7.2(f) hereof, is necessary to satisfy any unsatisfied
claims specified in any Officer's Certificate delivered to the Escrow Agent
prior to termination of such Escrow Period with respect to facts and
circumstances existing prior to the termination of such Escrow Period. As soon
as all such claims have been resolved, the Escrow Agent shall deliver to the
Company Stockholders the remaining portion of the Escrow Fund not required to
satisfy such claims. Deliveries of Escrow Amounts to
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the Company Stockholders pursuant to this Section 7.2(b) shall be made in
proportion to their respective original contributions to the Escrow Fund.
(c) Protection of Escrow Fund.
(i) The Escrow Agent shall hold and safeguard the Escrow Fund during
the Escrow Period, shall treat such fund as a trust fund in accordance with the
terms of this Agreement and not as the property of Parent and shall hold and
dispose of the Escrow Fund only in accordance with the terms hereof.
(ii) Any shares of Parent Common Stock or other equity securities
issued or distributed by Parent (including shares issued upon a stock split)
("New Shares") in respect of Parent Common Stock in the Escrow Fund which have
not been released from the Escrow Fund shall be added to the Escrow Fund and
become a part thereof. New Shares issued in respect of shares of Parent Common
Stock which have been released from the Escrow Fund shall not be added to the
Escrow Fund but shall be distributed to the record holders thereof. Cash
dividends on Parent Common Stock shall not be added to the Escrow Fund but shall
be distributed to the record holders thereof.
(iii) Each Company Stockholder shall have voting rights with
respect to the shares of Parent Common Stock contributed to the Escrow Fund by
such Company Stockholder (and on any voting securities added to the Escrow Fund
in respect of such shares of Parent Common Stock).
(d) Claims Upon Escrow Fund.
(i) Upon receipt by the Escrow Agent at any time on or before the last
day of the Escrow Period of a certificate signed by any officer of Parent (an
"Officer's Certificate"): (A) stating that Parent has paid or properly accrued
or, with respect to third-party claims of which Parent, the Company or the
Surviving Corporation has received notice, reasonably anticipates that it will
have to pay or accrue Losses, and (B) specifying in reasonable detail the
individual items of Losses included in the amount so stated, the date each such
item was paid or properly accrued, or the basis for such anticipated liability,
and the nature of the misrepresentation, breach of warranty or covenant to which
such item is related, the Escrow Agent shall, subject to the provisions of
Section 7.2(e) hereof, deliver to Parent out of the Escrow Fund, as promptly as
practicable, shares of Parent Common Stock held in the Escrow Fund with a value
equal to such Losses.
(ii) For the purposes of determining the number of shares of
Parent Common Stock to be delivered to Parent out of the Escrow Fund as
indemnity pursuant to Section 7.2(d)(i) hereof, the shares of Parent Common
Stock shall be valued at the closing price of the Parent Common Stock on the
Nasdaq Stock Market on the Closing Date.
(e) Objections to Claims. At the time of delivery of any Officer's
Certificate to the Escrow Agent, a duplicate copy of such certificate shall be
delivered to the Stockholder
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Representatives, and for a period of thirty (30) days after such delivery, the
Escrow Agent shall make no delivery to Parent of any Escrow Amounts pursuant to
Section 7.2(d) hereof unless the Escrow Agent shall have received written
authorization from the Stockholder Representative to make such delivery. After
the expiration of such thirty (30) day period, the Escrow Agent shall make
delivery of shares of Parent Common Stock from the Escrow Fund in accordance
with Section 7.2(d) hereof; provided, however, that no such payment or delivery
may be made if the Stockholder Representative shall object in a written
statement to the claim made in the Officer's Certificate, and such statement
shall have been delivered to the Escrow Agent prior to the expiration of such
thirty (30) day period.
(f) Resolution of Conflicts; Arbitration.
(i) In case the Stockholder Representative shall object in writing to
any claim or claims made in any Officer's Certificate, the Stockholder
Representative and Parent shall attempt in good faith to agree upon the rights
of the respective parties with respect to each of such claims. If the
Stockholder Representative and Parent should so agree, a memorandum setting
forth such agreement shall be prepared and signed by both parties and shall be
furnished to the Escrow Agent. The Escrow Agent shall be entitled to rely on
any such memorandum and distribute shares of Parent Common Stock from the Escrow
Fund in accordance with the terms thereof.
(ii) If no such agreement can be reached after good faith
negotiation, either Parent or the Stockholder Representative may demand
arbitration of the matter unless the amount of the damage or Loss is at issue in
pending litigation with a third party, in which event arbitration shall not be
commenced until such amount is ascertained or both parties agree to arbitration;
and in either such event the matter shall be settled by arbitration conducted by
one arbitrator mutually agreeable to Parent and the Stockholder Representative.
In the event that within forty-five (45) days after submission of any dispute to
arbitration, Parent and the Stockholder Representative cannot mutually agree on
one arbitrator, Parent and the Stockholder Representative shall each select one
arbitrator, and the two arbitrators so selected shall select a third arbitrator.
The arbitrator or arbitrators, as the case may be, shall set a limited time
period and establish procedures designed to reduce the cost and time for
discovery while allowing the parties an opportunity, adequate in the sole
judgement of the arbitrator or majority of the three arbitrators, as the case
may be, to discover relevant information from the opposing parties about the
subject matter of the dispute. The arbitrator or a majority of the three
arbitrators, as the case may be, shall rule upon motions to compel or limit
discovery and shall have the authority to impose sanctions, including attorneys'
fees and costs, to the extent as a competent court of law or equity, should the
arbitrators or a majority of the three arbitrators, as the case may be,
determine that discovery was sought without substantial justification or that
discovery was refused or objected to without substantial justification. The
decision of the arbitrator or a majority of the three arbitrators, as the case
may be, as to the validity and amount of any claim in such Officer's Certificate
shall be binding and conclusive upon the parties to this Agreement. Such
decision shall be written and shall be supported by written findings of fact and
conclusions which shall set forth the award, judgment, decree or order awarded
by the arbitrator(s).
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(iii) Judgment upon any award rendered by the arbitrator(s) may be
entered in any court having jurisdiction. Any such arbitration shall be held in
Santa Xxxxx County, California, under the rules then in effect of the American
Arbitration Association. The arbitrator(s) shall determine how all expenses
relating to the arbitration shall be paid, including without limitation, the
respective expenses of each party, the fees of each arbitrator and the
administrative fee of the American Arbitration Association.
(g) Third-Party Claims. In the event Parent becomes aware of a third-
party claim which Parent believes may result in a demand against the Escrow
Fund, Parent shall notify the Stockholder Representative of such claim, and the
Company Stockholders shall be entitled, at their expense, to participate in any
defense of such claim. Parent shall have the right in its sole discretion to
settle any such claim; provided, however, that except with the consent of the
Stockholder Representative, no settlement of any such claim with third-party
claimants shall be determinative of the amount of any claim against the Escrow
Fund. In the event that the Stockholder Representative has consented to any
such settlement, the Company Stockholders shall have no power or authority to
object under any provision of this Article VII to the amount of any claim by
Parent against the Escrow Fund with respect to such settlement.
(h) Escrow Agent's Duties.
(i) The Escrow Agent shall be obligated only for the performance of
such duties as are specifically set forth herein, and as set forth in any
additional written escrow instructions which the Escrow Agent may receive after
the date of this Agreement which are signed by an officer of Parent and the
Stockholder Representative, and may rely and shall be protected in relying or
refraining from acting on any instrument reasonably believed to be genuine and
to have been signed or presented by the proper party or parties. The Escrow
Agent shall not be liable for any act done or omitted hereunder as Escrow Agent
while acting in good faith and in the exercise of reasonable judgment, and any
act done or omitted pursuant to the advice of counsel shall be conclusive
evidence of such good faith.
(ii) The Escrow Agent is hereby expressly authorized to disregard
any and all warnings given by any of the parties hereto or by any other person,
excepting only orders or process of courts of law, and is hereby expressly
authorized to comply with and obey orders, judgments or decrees of any court.
In case the Escrow Agent obeys or complies with any such order, judgment or
decree of any court, the Escrow Agent shall not be liable to any of the parties
hereto or to any other person by reason of such compliance, notwithstanding any
such order, judgment or decree being subsequently reversed, modified, annulled,
set aside, vacated or found to have been entered without jurisdiction.
(iii) The Escrow Agent shall not be liable in any respect on
account of the identity, authority or rights of the parties executing or
delivering or purporting to execute or deliver this Agreement or any documents
or papers deposited or called for hereunder.
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(iv) The Escrow Agent shall not be liable for the expiration of
any rights under any statute of limitations with respect to this Agreement or
any documents deposited with the Escrow Agent.
(v) In performing any duties under the Agreement, the Escrow Agent
shall not be liable to any party for damages, losses, or expenses, except for
negligence or willful misconduct on the part of the Escrow Agent. The Escrow
Agent shall not incur any such liability for (A) any act or failure to act made
or omitted in good faith, or (B) any action taken or omitted in reliance upon
any instrument, including any written statement of affidavit provided for in
this Agreement that the Escrow Agent shall in good faith believe to be genuine,
nor will the Escrow Agent be liable or responsible for forgeries, fraud,
impersonations, or determining the scope of any representative authority. In
addition, the Escrow Agent may consult with the legal counsel in connection with
Escrow Agent's duties under this Agreement and shall be fully protected in any
act taken, suffered, or permitted by him/her in good faith in accordance with
the advice of counsel. The Escrow Agent is not responsible for determining and
verifying the authority of any person acting or purporting to act on behalf of
any party to this Agreement.
(vi) If any controversy arises between the parties to this
Agreement, or with any other party, concerning the subject matter of this
Agreement, its terms or conditions, the Escrow Agent will not be required to
determine the controversy or to take any action regarding it. The Escrow Agent
may hold all documents and shares of Parent Common Stock and may wait for
settlement of any such controversy by final appropriate legal proceedings or
other means as, in the Escrow Agent's discretion, the Escrow Agent may be
required, despite what may be set forth elsewhere in this Agreement. In such
event, the Escrow Agent will not be liable for damage. Furthermore, the Escrow
Agent may at its option, file an action of interpleader requiring the parties to
answer and litigate any claims and rights among themselves. The Escrow Agent is
authorized to deposit with the clerk of the court all documents and shares of
Parent Common Stock held in escrow, except all cost, expenses, charges and
reasonable attorney fees incurred by the Escrow Agent due to the interpleader
action and which the parties jointly and severally agree to pay. Upon
initiating such action, the Escrow Agent shall be fully released and discharged
of and from all obligations and liability imposed by the terms of this
Agreement.
(vii) The parties and their respective successors and assigns
agree jointly and severally to indemnify and hold Escrow Agent harmless against
any and all losses, claims, damages, liabilities, and expenses, including
reasonable costs of investigation, counsel fees, including allocated costs of
in-house counsel and disbursements that may be imposed on Escrow Agent or
incurred by Escrow Agent in connection with the performance of his/her duties
under this Agreement, including but not limited to any litigation arising from
this Agreement or involving its subject matter other than arising out of its
negligence or willful misconduct.
(viii) The Escrow Agent may resign at any time upon giving at least
thirty (30) days written notice to the parties; provided, however, that no such
resignation shall become effective until the appointment of a successor escrow
agent which shall be accomplished as follows: the parties shall use their best
efforts to mutually agree on a successor escrow agent within thirty
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(30) days after receiving such notice. If the parties fail to agree upon a
successor escrow agent within such time, the Escrow Agent shall have the right
to appoint a successor escrow agent authorized to do business in the state of
California. The successor escrow agent shall execute and deliver an instrument
accepting such appointment and it shall, without further acts, be vested with
all the estates, properties, rights, powers, and duties of the predecessor
escrow agent as if originally named as escrow agent. Upon appointment of a
successor escrow agent, the Escrow Agent shall be discharged from any further
duties and liability under this Agreement.
(i) Fees. All fees of the Escrow Agent for performance of its duties
hereunder shall be paid by Parent in accordance with the standard fee schedule
of the Escrow Agent, attached hereto as Exhibit H. It is understood that the
---------
fees and usual charges agreed upon for services of the Escrow Agent shall be
considered compensation for ordinary services as contemplated by this Agreement.
In the event that the conditions of this Agreement are not promptly fulfilled,
or if the Escrow Agent renders any service not provided for in this Agreement,
or if the parties request a substantial modification of its terms, or if any
controversy arises, or if the Escrow Agent is made a party to, or intervenes in,
any litigation pertaining to the Escrow Fund or its subject matter, the Escrow
Agent shall be reasonably compensated for such extraordinary services and
reimbursed for all costs, attorney's fees, including allocated costs of in-house
counsel, and expenses occasioned by such default, delay, controversy or
litigation.
(j) Consequential Damages. In no event shall the Escrow Agent be
liable for special, indirect or consequential loss or damage of any kind
whatsoever (including but not limited to lost profits), even if the Escrow Agent
has been advised of the likelihood of such loss or damage and regardless of the
form of action.
(k) Successor Escrow Agents. Any corporation into which the Escrow
Agent in its individual capacity may be merged or converted or with which it may
be consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Escrow Agent in its individual capacity shall be a
party, or any corporation to which substantially all the corporate trust
business of the Escrow Agent in its individual capacity may be transferred,
shall be the Escrow Agent under this Escrow Agreement without further act.
7.3 Stockholder Representative.
(a) In the event that the Merger is approved, effective upon such
vote, and without further act of any Company Stockholder, Xxxx X. Xxxxxx shall
be appointed as agent and attorney-in-fact (the "Stockholder Representative")
for each Company Stockholder, for and on behalf of the Company Stockholders, to
give and receive notices and communications, to authorize delivery to Parent of
shares of Parent Common Stock from the Escrow Fund in satisfaction of claims by
Parent, to object to such deliveries, to agree to, negotiate, enter into
settlements and compromises of, and demand arbitration and comply with orders of
courts and awards of arbitrators with respect to such claims, and to take all
actions necessary or appropriate in the judgment of the Stockholder
Representative for the accomplishment of the foregoing. Such agency may be
changed by the Company Stockholders from time to time upon not less than thirty
(30) days prior written notice to
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Parent; provided, however, that the Stockholder Representative may not be
removed unless holders of a two-thirds interest in the Escrow Fund agree to such
removal and to the identity of the substituted agent. Any vacancy in the
position of Stockholder Representative may be filled by approval of the holders
of a majority in interest in the Escrow Fund. No bond shall be required of the
Stockholder Representatives, and a Stockholder Representative shall not receive
compensation for his or her services. Notices or communications to or from the
Stockholder Representatives shall constitute notice to or from each of the
Company Stockholder.
(b) The Stockholder Representative shall not be liable for any act
done or omitted hereunder as Stockholder Representative while acting in good
faith and in the exercise of reasonable judgment. The Company Stockholders on
whose behalf the Escrow Amount was contributed to the Escrow Fund shall
severally indemnify the Stockholder Representative and hold the Stockholder
Representative harmless against any loss, liability or expense incurred without
negligence or bad faith on the part of the Stockholder Representative and
arising out of or in connection with the acceptance or administration of the
Stockholder Representative's duties hereunder, including the reasonable fees and
expenses of any legal counsel retained by the Stockholder Representative.
(c) A decision, act, consent or instruction of the Stockholder
Representative shall constitute a decision of all Company Stockholders for whom
a portion of the Escrow Amount otherwise issuable to them are deposited in the
Escrow Fund and shall be final, binding and conclusive upon each of such Company
Stockholders, and the Escrow Agent and Parent may rely upon any such decision,
act, consent or instruction of the Stockholder Representatives as being the
decision, act, consent or instruction of each and every such Company
Stockholder. The Escrow Agent and Parent are hereby relieved from any liability
to any person for any acts done by them in accordance with such decision, act,
consent or instruction of the Stockholder Representatives.
7.4 Exclusive Remedy. The indemnity set forth in this Article VII and the
Escrow Fund provided for herein shall apply only to breaches by the Company of
any representation, warranty, covenant or agreement of the Company contained
herein, by reason of any misrepresentation by the Company made in or pursuant to
Article II of this Agreement, and, except as provided below, resort to the
Escrow Fund shall be the exclusive right and remedy of Parent for such breaches,
or for breaches of any Stockholder Certificate or otherwise under or in
connection with this Agreement, once the Closing occurs. Notwithstanding the
foregoing, the existence of this Article VII and of the rights and restrictions
set forth herein do not limit any other potential remedies of Parent with
respect to any knowing and intentional or fraudulent actual breaches of the
representations and warranties or covenants of the Company contained in any
Article of this Agreement or of any Company Stockholder contained in a
Stockholder Certificate.
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ARTICLE VII
Termination, Amendment and Waiver
8.1 Termination. Except as provided in Section 8.2 below, this Agreement
may be terminated and the Merger abandoned at any time prior to the Effective
Time:
(a) by mutual consent of the Company and Parent;
(b) by Parent or the Company if: (i) the Effective Time has not
occurred by July 31, 1999; (ii) there shall be a final nonappealable order of a
federal or state court in effect preventing consummation of the Merger; or (iii)
there shall be any statute, rule, regulation or order enacted, promulgated or
issued or deemed applicable to the Merger by any Governmental Entity that would
make consummation of the Merger illegal;
(c) by Parent if there shall be any action taken, or any statute,
rule, regulation or order enacted, promulgated or issued or deemed applicable to
the Merger by any Governmental Entity, which would: (i) prohibit Parent's or
Sub's ownership or operation of any portion of the business of the Company or
(ii) compel Parent or the Company to dispose of or hold separate all or a
portion of the business or assets of the Company or Parent as a result of the
Merger;
(d) by Parent if it is not in material breach of its obligations under
this Agreement and there has been a material breach of any representation,
warranty, covenant or agreement con tained in this Agreement on the part of the
Company and such breach has not been cured within ten (10) calendar days after
written notice to the Company; provided, however, that, no cure period shall be
required for a breach which by its nature cannot be cured;
(e) by the Company if it is not in material breach of its obligations
under this Agreement and there has been a material breach of any representation,
warranty, covenant or agreement contained in this Agreement on the part of
Parent or Sub and such breach has not been cured within ten (10) calendar days
after written notice to Parent; provided, however, that, no cure period shall be
required for a breach which by its nature cannot be cured;
(f) by Parent or Sub if an event having a Material Adverse Effect on
the Company shall have occurred after the date of this Agreement;
(g) by the Company if an event having a material adverse effect on the
business, assets (including intangible assets), financial condition or results
of operations of Parent shall have occurred after the date of this Agreement.
Where action is taken to terminate this Agreement pursuant to this Section
8.1, it shall be sufficient for such action to be authorized by the Board of
Directors (as applicable) of the party taking such action.
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8.2 Effect of Termination. In the event of termination of this Agreement
as provided in Section 8.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of Parent, Sub, the Company, or
their respective officers, directors or stockholders; provided, however, that
each party shall remain liable for any breaches of this Agreement prior to its
termination; and provided, further, that the provisions of Sections 5.3, 5.4,
5.5 and this Article VIII of this Agreement shall remain in full force and
effect and survive any termination of this Agreement.
8.3 Amendment. This Agreement may be amended by the parties hereto at any
time by execution of an instrument in writing signed on behalf of each of the
parties hereto.
8.4 Extension; Waiver. At any time prior to the Effective Time, Parent
and Sub, on the one hand, and the Company, on the other, may, to the extent
legally allowed, (i) extend the time for the performance of any of the
obligations of the other party hereto, (ii) waive any inaccuracies in the
representations and warranties made to such party contained herein or in any
document delivered pursuant hereto, and (iii) waive compliance with any of the
agreements or conditions for the benefit of such party contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party.
ARTICLE IX
General Provisions
9.1 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
messenger or courier service, or mailed by registered or certified mail (return
receipt requested) or sent via facsimile (with acknowledgment of complete
transmission) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
(a) if to Parent or Sub, to:
Tut Systems, Inc.
0000 Xxxxxxx Xxx
Xxxxxxxx Xxxx, XX 00000
Attention: Xxxxxxxx X'Xxxxx
Telephone No.: (000) 000-0000
Facsimile No: (000) 000-0000
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with a copy to:
Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx
Professional Corporation
000 Xxxx Xxxx Xxxx
Xxxx Xxxx, Xxxxxxxxxx 00000
Attention: Xxxxxxx X. Xxxxxx, Esq.
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
(b) if to the Company, to:
PublicPort, Inc.
000 Xxxx Xxxxx, Xxxxx 000
Xxx Xxxxx, XX 00000
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
Attention: Xxxx Xxxxxx
with a copy to:
Ferrari, Olsen, Xxxxxxxx & Xxxx
000 Xxxx Xxxxx Xxxxx Xxxxxx
Xxxxx 000
Xxx Xxxx, XX 00000
Telephone No: (000) 000-0000
Facsimile No.: (000) 000-0000
Attention: Xxxxxxx Xxxx
(c) if to the Stockholder Representative, to:
Xxxx X. Xxxxxx
_________________
_________________
_________________
Telephone No.: _____________
Facsimile No.: _____________
with a copy to:
_________________
_________________
_________________
Telephone No.: _____________
Facsimile No.: _____________
Attention: _________________
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(d) if to the Escrow Agent, to:
U.S. Bank Trust National Association
Xxx Xxxxxxxxxx Xxxxxx, 0xx Xxxxx
Xxx Xxxxxxxxx, XX 00000
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
Attention: Xxxx Xxxxxx
9.2 Interpretation. The words "include," "includes" and "including" when
used herein shall be deemed in each case to be followed by the words "without
limitation." The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
9.3 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
9.4 Entire Agreement; Assignment. This Agreement, the Exhibits hereto and
the Disclosure Letter, and the documents and instruments and other agreements
among the parties hereto referenced herein: (a) constitute the entire agreement
among the parties with respect to the subject matter hereof and supersede all
prior agreements and understandings both written and oral, among the parties
with respect to the subject matter hereof; (b) are not intended to confer upon
any other person any rights or remedies hereunder; and (c) shall not be assigned
by operation of law or otherwise except as otherwise specifically provided,
except that Parent and Sub may assign their respective rights and delegate their
respective obligations hereunder to their respective affiliates.
9.5 Severability. In the event that any provision of this Agreement or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the appli cation of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to
replace such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
9.6 Other Remedies. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby, or by law or equity upon
such party, and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy.
9.7 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
Each of the parties hereto irrevocably consents to
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the exclusive jurisdiction and venue of any court within Santa Xxxxx County,
California, in connection with any matter based upon or arising out of this
Agreement or the matters contemplated herein, agrees that process may be served
upon them in any manner authorized by the laws of the State of California for
such persons and waives and covenants not to assert or plead any objection which
they might otherwise have to such jurisdiction, venue and such process.
9.8 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
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IN WITNESS WHEREOF, Parent, Sub, the Company, the Stockholder
Representatives and the Escrow Agent have caused this Agreement to be signed by
their duly authorized respective officers, all as of the date first written
above.
TUT SYSTEMS, INC. PUBLICPORT, INC.
By:___________________________ By:________________________________
STOCKHOLDER REPRESENTATIVE PUBLICPORT ACQUISITION CORPORATION
(As to the provisions of Article VII only)
______________________________ By:________________________________
Xxxx X. Xxxxxx
U.S. BANK TRUST
(As to the provisions of Article VII only)
By:___________________________________
Name:_________________________________
Title:________________________________
***REORGANIZATION AGREEMENT***
INDEX OF EXHIBITS
Exhibit Description
------- -----------
Exhibit A Form of Registration Rights Agreement
Exhibit B Form of Company Affiliate Agreement
Exhibit C Omitted
Exhibit D-1 Form of Legal Opinion of Counsel to Parent
Exhibit D-2 Form of Legal Opinion of Counsel to Company
Exhibit E-1 List of Employees Signing Employment and Non-competition
Agreements
Exhibit E-2 Form of Employment Agreement
Exhibit E-3 Form of At-Will Employment Offer
Exhibit F Form of Non-competition Agreement
Exhibit G Form of Stockholder Certificate
Exhibit H Escrow Agent Fee Schedule
