Exhibit 10.10
AGREEMENT AND PLAN
OF MERGER AND REORGANIZATION
Agreement and Plan of Merger and Reorganization ("Agreement") is made
and entered into as of May 6, 1999, by and among Media 100, Inc., a Delaware
corporation ("Parent"); Media 100 Acquisition Corp., a Delaware corporation and
wholly-owned subsidiary of Parent ("Merger Sub"); Terran Interactive, Inc., a
California corporation (the "Company"); the principal shareholders of the
Company listed on the signature page hereto (each a "Shareholder" and,
collectively, the "Shareholders"); and Xxxx XxXxxxxxx-Xxxxx, as agent for the
shareholders of the Company (the "Agent"). Certain other capitalized terms used
in this Agreement are defined in Exhibit A.
RECITALS
A. Parent, Merger Sub and the Company intend to effect a merger (the
"Merger") of the Company into Merger Sub in accordance with this Agreement and
the General Corporation Law of the State of California (the "CGCL") and the
Delaware General Corporation Law (the "DGCL"). Upon consummation of the Merger,
the Company will cease to exist, and the Merger Sub will remain a wholly-owned
subsidiary of Parent.
B. This Agreement has been approved by the respective boards of
directors of Parent, Merger Sub and the Company.
C. The Shareholders beneficially own a total of shares of the Common
Stock of the Company ("Company Common Stock") constituting seventy-two percent
(72%) of all of the outstanding Common Stock of the Company.
AGREEMENT
The parties to this Agreement agree as follows:
1. DESCRIPTION OF TRANSACTION.
1.1 MERGER OF MERGER SUB INTO THE COMPANY. Upon the terms and subject
to the conditions set forth in this Agreement, at the Effective Time (as defined
in Section 1.3), Company shall be merged with and into Merger Sub (the
"Merger"), the separate existence of Company shall cease and Merger Sub shall
be, and is herein sometimes referred to as, the "Surviving Corporation."
1.2 EFFECT OF THE MERGER. Upon the Effective Time, the separate
existence of Company shall cease and Merger Sub, as the Surviving Corporation
(i) shall continue to possess all of its assets, rights, powers and property as
constituted immediately prior to the Effective Time, (ii) shall be subject to
all actions previously taken by its and
Company's Board of Directors, (iii) shall succeed, without other transfer, to
all of the assets, rights, powers and property of Company in the manner more
fully set forth in Section 259 of the DGCL, (iv) shall continue to be subject to
all of the debts, liabilities and obligations of Merger Sub as constituted
immediately prior to the Effective Date of the Merger, and (v) shall succeed,
without other transfer, to all of the debts, liabilities and obligations of
Company in the same manner as if Merger Sub had itself incurred them, all as
more fully provided under the applicable provisions of the DGCL and the CGCL.
1.3 CLOSING; EFFECTIVE TIME. The consummation of the transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of Xxxxxx, Gesmer & Xxxxxxxxx, LLP, 00 Xxxxx Xxxxxx, Xxxxxx, Xxxxxxxxxxxxx 00000
at 10:00 a.m. on _________, 1999, or at such other time and date during the
period from May ___, 1999 through July ___, 1999 as Parent and the Company may
mutually agree (the "Scheduled Closing Time"). (The date on which the Closing
actually takes place is referred to in this Agreement as the "Closing Date").
Contemporaneously with or as promptly as practicable after the Closing, a
properly executed certificate of merger conforming to the requirements of
Section 251 of the DGCL shall be filed with the Secretary of State of the State
of Delaware and a properly executed certificate of merger conforming to the
requirements of Section 1108 of the CGCL shall be filed with the Secretary of
State of the State of California. The Merger shall become effective at the time
such certificate of merger is filed with and accepted by the Secretary of State
of the State of Delaware and the Secretary of State of the State of California
(the "Effective Time").
1.4 CERTIFICATE OF INCORPORATION AND BYLAWS; DIRECTORS AND OFFICERS.
Unless otherwise determined by Parent and the Company prior to the Effective
Time:
(a) the Certificate of Incorporation of Merger Sub as in
effect immediately prior to the Effective Time shall continue in full force and
effect as the Certificate of Incorporation of the Surviving Corporation until
duly amended in accordance with the provisions thereof and applicable law;
(b) the Bylaws of Merger Sub as in effect immediately prior to
the Effective Time shall continue in full force and effect as the Bylaws of the
Surviving Corporation until duly amended in accordance with the provisions
thereof and applicable law; and
(c) the directors and officers of Merger Sub immediately prior
to the Effective Time shall be the directors and officers of the Surviving
Corporation until their successors shall have been duly elected and qualified or
until as otherwise provided by law, the Certificate of Incorporation of the
Surviving Corporation or the Bylaws of the Surviving Corporation.
1.5 CONSIDERATION. Subject to Section 1.8(c), at the Effective Time, by
virtue of the Merger and without any further action on the part of Parent,
Merger Sub, the Company or any shareholder of the Company:
(i) each share of Company Common Stock outstanding
immediately prior to the Effective Time shall cease to be outstanding and shall
be converted into the right to receive an amount in cash equal to $1,850,000
divided by the number of shares of Company Common Stock outstanding at the
Effective Time.
(ii) each share of the common stock, par value $.01 per
share, of Merger Sub outstanding immediately prior to the Effective Time shall
remain outstanding and unchanged.
1.6 EARN-OUT. After the Effective Time, Parent will make the Earn-Out
Payments to the former shareholders of the Company in accordance with the terms
and conditions set forth on Exhibit B, which terms and conditions are hereby
incorporated herein by reference.
1.7 CLOSING OF THE COMPANY'S TRANSFER BOOKS. At the Effective Time,
holders of certificates representing shares of the Company's capital stock that
were outstanding immediately prior to the Effective Time shall cease to have any
rights as shareholders of the Company, and the stock transfer books of the
Company shall be closed with respect to all shares of such capital stock
outstanding immediately prior to the Effective Time. No further transfer of any
such shares of the Company's capital stock shall be made on such stock transfer
books after the Effective Time. If, after the Effective Time, a valid
certificate previously representing any of such shares of the Company's capital
stock (a "Company Stock Certificate") is presented to the Surviving Corporation
or Parent, such Company Stock Certificate shall be canceled and shall be
exchanged as provided in Section 1.10.
1.8 CANCELLATION OF CERTIFICATES.
(a) At or as soon as practicable after the Effective Time, the
holders of Company Stock Certificates shall surrender their Company Stock
Certificates in exchange for the cash consideration set forth in Sections 1.5
and 1.6. Upon surrender of a Company Stock Certificate to Parent, together with
a duly executed letter of transmittal and such other documents as may be
reasonably required by Parent, the holder of such Company Stock Certificate
shall be entitled to receive in exchange therefor the cash consideration that
such holder has the right to receive pursuant to the provisions of Sections 1.5
and 1.6, and the Company Stock Certificate so surrendered shall be canceled.
Until surrendered as contemplated by this Section 1.8, each Company Stock
Certificate shall be deemed, from and after the Effective Time, to represent
only the right to receive upon such surrender the cash consideration as
contemplated by Sections 1.5 and 1.6. If any Company Stock Certificate shall
have been lost, stolen or destroyed, Parent may, in its discretion and as a
condition precedent to the payment of any cash consideration, require the owner
of such lost, stolen or destroyed Company Stock Certificate to provide an
appropriate affidavit and to deliver a bond (in such sum as Parent may
reasonably direct) as indemnity against any claim that may be made against
Parent or the Surviving Corporation with respect to such Company Stock
Certificate.
(b) Parent and the Surviving Corporation shall be entitled to
deduct and withhold from the consideration payable or otherwise deliverable to
any holder or former holder of capital stock of the Company pursuant to this
Agreement such amounts as Parent or the Surviving Corporation may be required to
deduct or withhold therefrom under the Code or under any provision of state,
local or foreign tax law. To the extent such amounts are so deducted or
withheld, and delivered to the applicable state, local or foreign tax
authorities, such amounts shall be treated for all purposes under this Agreement
as having been paid to the Person to whom such amounts would otherwise have been
paid.
(c) Neither Parent nor the Surviving Corporation shall be
liable to any holder or former holder of capital stock of the Company for any
cash amounts delivered to any public official pursuant to any applicable
abandoned property, escheat or similar law.
1.9 FURTHER ACTION. If, at any time after the Effective Time, any
further action is determined by Parent to be necessary or desirable to carry out
the purposes of this Agreement or to vest the Surviving Corporation or Parent
with full right, title and possession of and to all rights and property of
Merger Sub and the Company, the officers and directors of the Surviving
Corporation and Parent shall be fully authorized (in the name of Merger Sub, in
the name of the Company and otherwise) to take such action.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants, to and for the benefit of the
Indemnitees, and except as set forth on the Disclosure Schedule attached hereto,
as follows:
2.1 DUE ORGANIZATION; NO SUBSIDIARIES; ETC.
(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of California and has
all necessary power and authority: (i) to conduct its business in the manner in
which its business is currently being conducted; (ii) to own and use its assets
in the manner in which its assets are currently owned and used; and (iii) to
perform its obligations under all Company Contracts.
(b) The Company has not conducted any business under or
otherwise used, for any purpose or in any jurisdiction, any fictitious name,
assumed name, trade name or other name, other than the name "Terran Interactive,
Inc.".
(c) The Company is qualified to do business as a foreign
corporation in any jurisdiction in which it is required to be qualified to do
intrastate business as the Company's business is currently conducted, except
where the failure to be so qualified has not had and will not have a Material
Adverse Effect on the Company.
(d) Part 2.1 of the Disclosure Schedule accurately sets forth
(i) the
names of the members of the Company's board of directors, (ii) the names of the
members of each committee of the Company's board of directors, and (iii) the
names and titles of the Company's officers.
(e) The Company does not own any controlling interest in any
Entity and the Company has never owned, beneficially or otherwise, any shares or
other securities of, or any direct or indirect equity interest in, any Entity.
The Company has not agreed and is not obligated to make any future investment in
or capital contribution to any Entity.
2.2 CERTIFICATE OF INCORPORATION AND BYLAWS; RECORDS. The Company has
delivered to Parent accurate and complete copies of: (1) the Company's Articles
of Incorporation and bylaws, including all amendments thereto; (2) the stock
records of the Company; and (3) the minutes and other records of the meetings
and other proceedings (including any actions taken by written consent or
otherwise without a meeting) of the shareholders of the Company, the board of
directors of the Company and all committees of the board of directors of the
Company. There have been no formal meetings or other proceedings of the
shareholders of the Company, the board of directors of the Company or any
committee of the board of directors of the Company that are not fully reflected
in such minutes or other records. There has not been any violation of any of the
provisions of the Company's Certificate of Incorporation or bylaws, and the
Company has not taken any action that is inconsistent in any material respect
with any resolution adopted by the Company's shareholders, the Company's board
of directors or any committee of the Company's board of directors. The books of
account, stock records, minute books and other records of the Company are
accurate, up-to-date and complete in all material respects, and have been
maintained in accordance with prudent business practices.
2.3 CAPITALIZATION, ETC.
(a) The authorized capital stock of the Company consists of
100,000 shares of Common Stock, of which 10,040 shares have been issued and are
outstanding as of the date of this Agreement. All of the outstanding shares of
Company Common Stock have been duly authorized and validly issued, and are fully
paid and non-assessable. No shares of the Company's equity securities are
subject to any repurchase option which is held by the Company.
(b) The Company does not have a stock option plan or equity
incentive plan. There is no: (i) outstanding subscription, option, call, warrant
or right (whether or not currently exercisable) to acquire any shares of the
capital stock or other securities of the Company; (ii) outstanding security,
instrument or obligation that is or may become convertible into or exchangeable
for any shares of the capital stock or other securities of the Company; (iii)
Contract under which the Company is or may become obligated to sell or otherwise
issue any shares of its capital stock or any other securities; or (iv) to the
best of the knowledge of the Company, any condition or circumstance that may
give rise to or provide a basis for the assertion of a claim by any Person to
the effect that such Person is
entitled to acquire or receive any shares of capital stock or other securities
of the Company.
(c) All outstanding shares of Company Common Stock have been
issued and granted in compliance with (i) all applicable securities laws and
other applicable Legal Requirements, and (ii) all requirements set forth in
applicable Contracts.
(d) The Company has never repurchased, redeemed or otherwise
reacquired any shares of capital stock or other securities of the Company. All
securities so reacquired by the Company were reacquired in compliance with (i)
the applicable provisions of the CGCL and all other applicable Legal
Requirements, and (ii) all requirements set forth in applicable Contracts.
2.4 FINANCIAL STATEMENTS.
(a) The Company has delivered to Parent the following
financial statements and notes (collectively, the "Company Financial
Statements"):
(i) The audited balance sheet of the Company as of
December 31, 1998 and the related audited income statements, statements of
shareholders' equity and statements of cash flows of the Company for the year
then ended, together with the notes thereto and the unqualified report and
opinion of Stonefield Xxxxxxxxx Accountancy relating thereto;
(ii) The unaudited balance sheet of the Company as of
December 31, 1997 and the related unaudited statement of profit and loss of the
Company for the year then ended; and
(iii) the unaudited balance sheet of the Company (the
"Interim Balance Sheet") as of March 31, 1999 (the "Statement Date"), and the
related unaudited income statement of the Company for the period then ended.
(b) The audited Company Financial Statements (i) are in
accordance with the books and records of the Company, (ii) are accurate and
complete in all material respects and present fairly the financial position of
the Company as of the respective dates thereof and the results of operations and
cash flows of the Company for the periods covered thereby and (iii) have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods covered. The unaudited Company
Financial Statements. The unaudited Company Financial Statements (i) are in
accordance with the books and records of the Company and (ii) are accurate and
complete in all material respects and present fairly the financial position of
the Company as of the respective dates thereof and the results of operations and
cash flows of the Company for the periods covered thereby.
2.5 ABSENCE OF CHANGES. Since the Statement Date:
(a) there has not been any material adverse change in the
Company's business, condition, assets, liabilities, operations, financial
performance or prospects, and, to the best of the knowledge of the Company, no
event has occurred that will, or could reasonably be expected to, have a
Material Adverse Effect on the Company;
(b) there has not been any material loss, damage or
destruction to, or any material interruption in the use of, any of the Company's
assets (whether or not covered by insurance);
(c) the Company has not declared, accrued, set aside or paid
any dividend or made any other distribution in respect of any shares of capital
stock, and has not repurchased, redeemed or otherwise reacquired any shares of
capital stock or other securities;
(d) the Company has not sold, issued or authorized the
issuance of (i) any capital stock or other security, (ii) any option or right to
acquire any capital stock or any other security, or (iii) any instrument
convertible into or exchangeable for any capital stock or other security;
(e) there has been no amendment to the Company's Articles of
Incorporation or bylaws, and the Company has not effected or been a party to any
Acquisition Transaction, recapitalization, reclassification of shares, stock
split, reverse stock split or similar transaction;
(f) the Company has not formed any subsidiary or acquired any
equity interest or other interest in any other Entity;
(g) the Company has not made any capital expenditure which,
when added to all other capital expenditures made on behalf of the Company since
the Statement Date, exceeds $25,000;
(h) the Company has not (i) entered into or permitted any of
the assets owned or used by it to become bound by any Contract that is or would
constitute a Material Contract (as defined in Section 2.10(a)), or (ii) amended
or prematurely terminated, or waived any material right or remedy under, any
such Contract;
(i) the Company has not (i) acquired, leased or licensed any
right or other asset from any other Person, (ii) sold or otherwise disposed of,
or leased or licensed, any right or other asset to any other Person, or (iii)
waived or relinquished any right, except for immaterial rights or other
immaterial assets acquired, leased, licensed or disposed of in the ordinary
course of business and consistent with the Company's past practices;
(j) the Company has not written off as uncollectible, or
established any extraordinary reserve with respect to, any account receivable or
other indebtedness which is material in amount;
(k) the Company has not made any pledge of any of its assets
or otherwise permitted any of its assets to become subject to any Encumbrance,
except for pledges of immaterial assets made in the ordinary course of business
and consistent with the Company's past practices;
(l) the Company has not (i) lent money to any Person (other
than pursuant to routine travel advances made to employees in the ordinary
course of business), or (ii) incurred or guaranteed any indebtedness for
borrowed money other than in the ordinary course of business, consistent with
past practice;
(m) the Company has not (i) established or adopted any
Employee Benefit Plan, (ii) paid any bonus or made any profit-sharing or similar
payment to, or increased the amount of the wages, salary, commissions, fringe
benefits or other compensation or remuneration payable to, any of its directors,
officers or employees, or (iii) hired any new employee;
(n) the Company has not changed any of its methods of
accounting or accounting practices in any respect;
(o) the Company has not made any Tax election;
(p) the Company has not commenced or settled any Legal
Proceeding;
(q) the Company has not entered into any material transaction
or taken any other material action outside the ordinary course of business or
inconsistent with its past practices; and
(r) the Company has not agreed or committed to take any of the
actions referred to in clauses (c) through (q) above.
2.6 TITLE TO ASSETS.
(a) The Company owns, and has good, valid and marketable title
to, all material assets purported to be owned by it, including: (i) all material
assets reflected on the Interim Balance Sheet; (ii) all material assets referred
to in the Disclosure Schedule including all of the Company's rights under the
Contracts identified in Part 2.10 of the Disclosure Schedule; and (iii) all
other material assets reflected in the Company's books and records as being
owned by the Company. All of said material assets are owned by the Company free
and clear of any liens or other Encumbrances, except for (x) any lien for
current taxes not yet due and payable, and (y) minor liens that have arisen in
the ordinary course of business and that do not (in any case or in the
aggregate) materially detract from the value of the assets subject thereto or
materially impair the operations of the Company.
(b) Part 2.6 of the Disclosure Schedule identifies all
assets that are material to the business of the Company and that are being
leased or licensed to the
Company.
2.7 BANK ACCOUNTS; RECEIVABLES.
(a) Part 2.7(a) of the Disclosure Schedule provides accurate
information (as of the dates and times set forth therein) with respect to each
account maintained by or for the benefit of the Company at any bank or other
financial institution.
(b) Part 2.7(b) of the Disclosure Schedule provides an
accurate and complete breakdown and aging of all accounts receivable, notes
receivable and other receivables of the Company as of the Statement Date. All
existing accounts receivable of the Company (including those accounts receivable
reflected on the Interim Balance Sheet that have not yet been collected and
those accounts receivable that have arisen since the Statement Date and have not
yet been collected) (i) represent valid obligations of customers of the Company
arising from bona fide transactions entered into in the ordinary course of
business, (ii) are current and to the Company's knowledge will be collected in
full when due, without any counterclaim or set off (net of an allowance for
doubtful accounts not to exceed $25,000 in the aggregate).
2.8 EQUIPMENT; LEASEHOLD.
(a) All material items of equipment and other tangible assets
owned by or leased to the Company are adequate for the uses to which they are
being put, are in good condition and repair (ordinary wear and tear excepted)
and are adequate for the conduct of the Company's business in the manner in
which such business is currently being conducted.
(b) The Company does not own any real property or any interest
in real property, except for the leasehold interests identified in Part 2.10 of
the Disclosure Schedule.
2.9 PROPRIETARY ASSETS.
(a) Part 2.9(a)(i) of the Disclosure Schedule sets forth, with
respect to each Company Proprietary Asset registered with any Governmental Body
or for which an application has been filed with any Governmental Body, (i) a
brief description of such Proprietary Asset, and (ii) the names of the
jurisdictions covered by the applicable registration or application. Part
2.9(a)(ii) of the Disclosure Schedule identifies and provides a brief
description of all unregistered trademarks, service marks and copyrighted
materials owned by the Company. Part 2.9(a)(iii) of the Disclosure Schedule
identifies and provides a brief description of each Proprietary Asset licensed
to the Company by any Person (except for any Proprietary Asset that is licensed
to the Company under any third party software license generally available to the
public at a cost of less than $10,000), and identifies the license agreement
under which such Proprietary Asset is being licensed to the Company. The Company
has good, valid and marketable title to all of the Company Proprietary Assets,
other than those identified in Part 2.9(a)(iii) of the Disclosure Schedule, free
and clear of all liens and other Encumbrances, and has a valid right to use all
Proprietary Assets identified in Part 2.9(a)(iii) of the
Disclosure Schedule. The Company is not obligated to make any payment to any
Person for the use of any Company Proprietary Asset. The Company has not
developed jointly with any other Person any Company Proprietary Asset with
respect to which such other Person has any rights.
(b) The Company has taken all commercially reasonable measures
and precautions necessary to protect and maintain the confidentiality and
secrecy of all Company Proprietary Assets (except Company Proprietary Assets
whose value would be unimpaired by public disclosure) and otherwise to maintain
and protect the value of all Company Proprietary Assets. The Company has not
(other than pursuant to license agreements or nondisclosure agreements
identified in Part 2.10 of the Disclosure Schedule) disclosed or delivered to
any Person, or permitted the disclosure or delivery to any Person of, (i) the
source code, or any portion or aspect of the source code, of any Company
Proprietary Asset, or (ii) the object code, or any portion or aspect of the
object code, of any Company Proprietary Asset.
(c) None of the Company Proprietary Assets is infringing, or
at any time has infringed, on any copyright (whether registered or unregistered)
of any other Person. To the best of the Company's knowledge, none of the Company
Proprietary Assets is infringing, or at any time has infringed, any United
States patent rights of any other Person. The Company has not at any time
received any notice or other written communication of any actual or alleged
infringement of any United States patent rights of any other Person by any of
the Company Proprietary Assets. The Company has not misappropriated any trade
secrets of any other Person. To the best of the knowledge of the Company, no
other Person is infringing, misappropriating or making any unlawful use of, and
no Proprietary Asset owned or used by any other Person infringes or conflicts
with, any Company Proprietary Asset.
(d) (i) Each Company Proprietary Asset conforms in all
material respects with any specification, documentation, performance standard,
representation or statement made or provided with respect thereto by or on
behalf of the Company; and (ii) there has not been any claim by any customer or
other Person alleging that any Company Proprietary Asset (including each version
thereof that has ever been licensed or otherwise made available by the Company
to any Person) does not conform in all material respects with any specification,
documentation, performance standard, representation or statement made or
provided by or on behalf of the Company, and, to the best of the knowledge of
the Company, there is no basis for any such claim. The Company has established
adequate reserves on the audited balance sheet of the Company as of December 31,
1998 to cover all costs associated with any obligations that the Company may
have with respect to the correction or repair of programming errors or other
defects in the Company Proprietary Assets.
(e) The Company Proprietary Assets constitute all the
Proprietary
Assets necessary to enable the Company to conduct its business in the manner in
which such business has been and is being conducted. (i) The Company has not
licensed any of the Company Proprietary Assets to any Person on an exclusive
basis, and (ii) the Company has not entered into any covenant not to compete or
Contract limiting its ability to exploit fully any of its Proprietary Assets or
to transact business in any market or geographical area or with any Person.
(f) (i) All current and former employees of the Company have
executed and delivered to the Company an agreement that is substantially
identical to the form of Confidential Information and Invention Assignment
Agreement previously delivered to Parent, and (ii) all current and former
consultants and independent contractors to the Company have executed and
delivered to the Company an agreement that is substantially identical to the
form of Consultant Confidential Information and Invention Assignment Agreement
previously delivered to Parent.
2.10 CONTRACTS.
(a) Part 2.10 of the Disclosure Schedule identifies:
(i) each Company Contract relating to the employment of,
or the performance of services by, any employee, consultant or independent
contractor;
(ii) each Company Contract relating to the acquisition,
transfer, use, development, sharing or license of any technology or any
Proprietary Asset;
(iii) each Company Contract imposing any restriction on
the Company's right or ability (A) to compete with any other Person, (B) to
acquire any product or other asset or any services from any other Person, to
sell any product or other asset to or perform any services for any other Person
or to transact business or deal in any other manner with any other Person, or
(C) develop or distribute any technology;
(iv) each Company Contract creating or involving any
agency relationship, distribution arrangement or franchise relationship;
(v) each Company Contract relating to the acquisition,
issuance or transfer of any securities;
(vi) each Company Contract relating to the creation of
any Encumbrance with respect to any asset of the Company;
(vii) each Company Contract involving or incorporating
any guaranty, any pledge, any performance or completion bond, any indemnity or
any surety arrangement;
(viii) each Company Contract creating or relating to any
partnership or joint venture or any sharing of revenues, profits, losses, costs
or liabilities;
(ix) each Company Contract relating to the purchase or
sale of any product or other asset by or to, or the performance of any services
by or for, any Related Party (as defined in Section 2.18);
(x) each Company Contract constituting or relating to a
Government Contract or Government Bid;
(xi) any other Company Contract that was entered into
outside the ordinary course of business or was inconsistent with the Company's
past practices;
(xii) any other Company Contract that has a term of more
than 60 days and that may not be terminated by the Company (without penalty)
within 60 days after the delivery of a termination notice by the Company; and
(xiii) any other Company Contract that contemplates or
involves (A) the payment or delivery of cash or other consideration in an amount
or having a value in excess of $25,000 in the aggregate, or (B) the performance
of services having a value in excess of $25,000 in the aggregate.
(Contracts in the respective categories described in clauses "(i)" through
"(xiii)" above are referred to in this Agreement as "Material Contracts.")
(b) The Company has delivered to Parent accurate and complete
copies of all written Contracts identified in Part 2.10 of the Disclosure
Schedule, including all amendments thereto. Part 2.10 of the Disclosure Schedule
provides an accurate description of the terms of each Company Contract that is
not in written form. Each Contract identified in Part 2.10 of the Disclosure
Schedule is valid and in full force and effect, and, to the best of the
knowledge of the Company, is enforceable by the Company in accordance with its
terms, subject to (i) laws of general application relating to bankruptcy,
insolvency and the relief of debtors, and (ii) rules of law governing specific
performance, injunctive relief and other equitable remedies.
(c) Except as set forth in Part 2.10 of the Disclosure
Schedule:
(i) the Company has not violated or breached, or
committed any material default under, any Company Contract, and, to the best of
the knowledge of the Company, no other Person has violated or breached, or
committed any material default under, any Company Contract;
(ii) to the best of the knowledge of the Company, no
event has occurred, and no circumstance or condition exists, that (with or
without notice or lapse of time) will, or could reasonably be expected to, (A)
result in a material violation or breach of any of the provisions of any Company
Contract, (B) give any Person the right to declare a default or exercise any
remedy under any Company Contract, (C) give any Person the right to accelerate
the maturity or performance of any Company Contract, or (D) give any Person the
right to cancel, terminate or modify any Company Contract;
(iii) since inception, the Company has not received any
notice or other communication regarding any actual or possible material
violation or breach of, or default under, any Company Contract; and
(iv) the Company has not waived any of its material
rights under any Material Contract.
(d) No Person is renegotiating, or has a right pursuant to the
terms of any Company Contract to renegotiate, any amount paid or payable to the
Company under any Material Contract or any other material term or provision of
any Material Contract.
(e) The Contracts identified in Part 2.10 of the Disclosure
Schedule collectively constitute all of the Contracts necessary to enable the
Company to conduct its business in the manner in which its business is currently
being conducted.
(f) Part 2.10 of the Disclosure Schedule identifies and
provides a brief description of each proposed Contract as to which any bid,
offer, award, written proposal, term sheet or similar document has been
submitted or received by the Company since January 1, 1999.
(g) Part 2.10 of the Disclosure Schedule provides an accurate
description and breakdown of the Company's backlog under Company Contracts.
2.11 LIABILITIES. The Company has no accrued, contingent or other
material liabilities of any nature, either matured or unmatured (whether or not
required to be reflected in financial statements in accordance with generally
accepted accounting principles, and whether due or to become due), except for:
(a) liabilities identified as such in the "liabilities" column of the Interim
Balance Sheet; (b) accounts payable, accrued salaries or other liabilities that
have been incurred by the Company since the Statement Date in the ordinary
course of business and consistent with the Company's past practices; (c)
liabilities under the Company Contracts identified in Part 2.10 of the
Disclosure Schedule, to the extent the nature and magnitude of such liabilities
can be specifically ascertained by reference to the text of such Company
Contracts; and (d) the liabilities identified in Part 2.11 of the Disclosure
Schedule.
2.12 COMPLIANCE WITH LEGAL REQUIREMENTS. The Company is, and has at all
times since inception been, in compliance with all applicable Legal
Requirements, except where the failure to comply with such Legal Requirements
has not had and will not have a Material Adverse Effect on the Company. Since
inception, the Company has not received any notice or other communication from
any Governmental Body regarding any actual or possible violation of, or failure
to comply with, any Legal Requirement.
2.13 GOVERNMENTAL AUTHORIZATIONS. Part 2.13 of the Disclosure Schedule
identifies each material Governmental Authorization held by the Company, and the
Company has delivered to Parent accurate and complete copies of all Governmental
Authorizations identified in Part 2.13 of the Disclosure Schedule. The
Governmental
Authorizations identified in Part 2.13 of the Disclosure Schedule are valid and
in full force and effect, and collectively constitute all Governmental
Authorizations necessary to enable the Company to conduct its business in the
manner in which its business is currently being conducted. The Company is, and
at all times since inception has been, in substantial compliance with the terms
and requirements of the respective Governmental Authorizations identified in
Part 2.13 of the Disclosure Schedule. Since inception, the Company has not
received any notice or other communication from any Governmental Body regarding
(a) any actual or possible violation of or failure to comply with any term or
requirement of any Governmental Authorization, or (b) any actual or possible
revocation, withdrawal, suspension, cancellation, termination or modification of
any Governmental Authorization which would have a Material Adverse Effect.
2.14 TAX MATTERS.
(a) All Tax Returns required to be filed by or on behalf of
the Company with any Governmental Body with respect to any taxable period ending
on or before the Closing Date (the "Company Returns") (i) have been or will be
filed on or before the applicable due date (including any extensions of such due
date), and (ii) have been, or will be when filed, accurately and completely
prepared in all material respects in compliance with all applicable Legal
Requirements. All amounts shown on the Company Returns to be due on or before
the Closing Date have been or will be paid on or before the Closing Date. The
Company has delivered to Parent accurate and complete copies of all Company
Returns filed since inception.
(b) The Company Financial Statements fully accrue all actual
and contingent liabilities for Taxes with respect to all periods through the
dates thereof in accordance with generally accepted accounting principles. The
Company will establish, in the ordinary course of business and consistent with
its past practices, reserves adequate for the payment of all Taxes for the
period from the Statement Date through the Closing Date, and the Company will
disclose the dollar amount of such reserves to Parent on or prior to the Closing
Date.
(c) No Company Return relating to income Taxes has ever been
examined or audited by any Governmental Body. There have been no examinations or
audits of any Company Return. The Company has delivered to Parent accurate and
complete copies of all audit reports and similar documents (to which the Company
has access) relating to the Company Returns. No extension or waiver of the
limitation period applicable to any of the Company Returns has been granted (by
the Company or any other Person), and no such extension or waiver has been
requested from the Company.
(d) No claim or Proceeding is pending or has been threatened
against or with respect to the Company in respect of any Tax. There are no
unsatisfied liabilities for Taxes (including liabilities for interest, additions
to tax and penalties thereon and related expenses) with respect to any notice of
deficiency or similar document received by the Company with respect to any Tax
(other than liabilities for Taxes asserted under
any such notice of deficiency or similar document which are being contested in
good faith by the Company and with respect to which adequate reserves for
payment have been established). There are no liens for Taxes upon any of the
assets of the Company except liens for current Taxes yet due and payable. The
Company has not entered into or become bound by any agreement or consent
pursuant to Section 341(f) of the Code. The Company has not been, and the
Company will not be, required to include any adjustment in taxable income for
any tax period (or portion thereof) pursuant to Section 481 or 263A of the Code
or any comparable provision under state or foreign Tax laws as a result of
transactions or events occurring, or accounting methods employed, prior to the
Closing.
(e) There is no agreement, plan, arrangement or other Contract
covering any employee or independent contractor or former employee or
independent contractor of the Company that, considered individually or
considered collectively with any other such Contracts, will, or could reasonably
be expected to, give rise directly or indirectly to the payment of any amount
that would not be deductible pursuant to Section 280G or Section 162 of the
Code. The Company is not, and has never been, a party to or bound by any tax
indemnity agreement, tax sharing agreement, tax allocation agreement or similar
Contract.
2.15 EMPLOYEE AND LABOR MATTERS; BENEFIT PLANS.
(a) Part 2.15(a) of the Disclosure Schedule identifies each
salary, bonus, deferred compensation, incentive compensation, stock purchase,
severance pay, termination pay, hospitalization, medical, life or other
insurance, supplemental unemployment benefits, profit-sharing, pension or
retirement plan, program or agreement (collectively, the "Plans") sponsored,
maintained, contributed to or required to be contributed to by the Company for
the benefit of any employee of the Company ("Employee"), except for Plans which
would not require the Company to make payments or provide benefits having a
value in excess of $10,000 in the aggregate.
(b) The Company does not maintain, sponsor or contribute to,
and, to the best of the knowledge of the Company, has not at any time in the
past maintained, sponsored or contributed to, any employee pension benefit plan
(as defined in Section 3(2) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), whether or not excluded from coverage under specific
Titles or Merger Subtitles of ERISA) for the benefit of Employees or former
Employees (a "Pension Plan").
(c) The Company maintains, sponsors or contributes only to
those employee welfare benefit plans (as defined in Section 3(1) of ERISA,
whether or not excluded from coverage under specific Titles or Merger Subtitles
of ERISA) for the benefit of Employees or former Employees which are described
in Part 2.15(c) of the Disclosure Schedule (the "Welfare Plans"), none of which
is a multiemployer plan (within the meaning of Section 3(37) of ERISA).
(d) With respect to each Plan, the Company has delivered to
Parent:
(i) an accurate and complete copy of such Plan
(including all amendments thereto);
(ii) an accurate and complete copy of the annual report,
if required under ERISA, with respect to such Plan for the last two years;
(iii) an accurate and complete copy of the most recent
summary plan description, together with each Summary of Material Modifications,
if required under ERISA, with respect to such Plan, and all material employee
communications relating to such Plan;
(iv) if such Plan is funded through a trust or any third
party funding vehicle, an accurate and complete copy of the trust or other
funding agreement (including all amendments thereto) and accurate and complete
copies the most recent financial statements thereof;
(v) accurate and complete copies of all Contracts
relating to such Plan, including service provider agreements, insurance
contracts, minimum premium contracts, stop-loss agreements, investment
management agreements, subscription and participation agreements and
recordkeeping agreements; and
(vi) an accurate and complete copy of the most recent
determination letter received from the Internal Revenue Service with respect to
such Plan (if such Plan is intended to be qualified under Section 401(a) of the
Code).
(e) The Company is not required to be, and, to the best of the
knowledge of the Company, has never been required to be, treated as a single
employer with any other Person under Section 4001(b)(1) of ERISA or Section
414(b), (c), (m) or (o) of the Code. The Company has never been a member of an
"affiliated service group" within the meaning of Section 414(m) of the Code. To
the best of the knowledge of the Company, the Company has never made a complete
or partial withdrawal from a multiemployer plan, as such term is defined in
Section 3(37) of ERISA, resulting in "withdrawal liability," as such term is
defined in Section 4201 of ERISA (without regard to subsequent reduction or
waiver of such liability under either Section 4207 or 4208 of ERISA).The Company
does not have any plan or commitment to create any additional Welfare Plan or
any Pension Plan, or to modify or change any existing Welfare Plan or Pension
Plan (other than to comply with applicable law) in a manner that would affect
any Employee.
(f) No Welfare Plan provides death, medical or health benefits
(whether or not insured) with respect to any current or former Employee after
any such Employee's termination of service (other than (i) benefit coverage
mandated by applicable law, including coverage provided pursuant to Section
4980B of the Code, (ii) deferred compensation benefits accrued as liabilities on
the Interim Balance Sheet, and (iii) benefits the full cost of which are borne
by current or former Employees (or the Employees' beneficiaries)).
(g) With respect to each of the Welfare Plans constituting a
group health plan within the meaning of Section 4980B(g)(2) of the Code, the
provisions of Section 4980B of the Code ("COBRA") have been complied with in all
material respects.
(h) Each of the Plans has been operated and administered in
all material respects in accordance with applicable Legal Requirements,
including but not limited to ERISA and the Code.
(i) Each of the Plans intended to be qualified under Section
401(a) of the Code has received a favorable determination from the Internal
Revenue Service, and the Company is not aware of any reason why any such
determination letter should be revoked.
(j) Neither the execution, delivery or performance of this
Agreement, nor the consummation of the Merger or any of the other transactions
contemplated by this Agreement, will result in any payment (including any bonus,
golden parachute or severance payment) to any current or former Employee or
director of the Company (whether or not under any Plan), or materially increase
the benefits payable under any Plan, or result in any acceleration of the time
of payment or vesting of any such benefits.
(k) Part 2.15(k) of the Disclosure Schedule contains a list of
all salaried employees of the Company as of the date of this Agreement, and
correctly reflects, in all material respects, their salaries, any other
compensation payable to them (including compensation payable pursuant to bonus,
deferred compensation or commission arrangements), their dates of employment and
their positions. The Company is not a party to any collective bargaining
contract or other Contract with a labor union involving any of its Employees.
All of the Company's employees are "at will" employees.
(l) Part 2.15(l) of the Disclosure Schedule identifies each
Employee who is not fully available to perform work because of disability or
other leave and sets forth the basis of such leave and the anticipated date of
return to full service.
(m) The Company is in compliance in all material respects with
all applicable Legal Requirements and Contracts relating to employment,
employment practices, wages, bonuses and terms and conditions of employment,
including employee compensation matters.
(n) The Company has no reason to believe that the consummation
of the Merger or any of the other transactions contemplated by this Agreement
will have a material adverse effect on the Company's labor relations. To the
Company's knowledge, none of the Company's employees intends to terminate his or
her employment with the Company.
2.16 ENVIRONMENTAL MATTERS. The Company is in compliance in all
material respects with all applicable Environmental Laws, which compliance
includes the
possession by the Company of all permits and other Governmental Authorizations
required under applicable Environmental Laws, and compliance with the terms and
conditions thereof. The Company has not received any notice or other written
communication, whether from a Governmental Body, citizens group, employee or
otherwise, that alleges that the Company is not in compliance with any
Environmental Law, and, to the best of the knowledge of the Company, there are
no circumstances that may prevent or interfere with the Company's compliance
with any Environmental Law in the future. To the best of the knowledge of the
Company, no current or prior owner of any property leased or controlled by the
Company has received any notice or other written communication, whether from a
Government Body, citizens group, employee or otherwise, that alleges that such
current or prior owner or the Company is not in compliance with any
Environmental Law. All Governmental Authorizations currently held by the Company
pursuant to Environmental Laws are identified in Part 2.16 of the Disclosure
Schedule. (For purposes of this Section 2.16: (i) "Environmental Law" means any
federal, state, local or foreign Legal Requirement relating to pollution or
protection of human health or the environment (including ambient air, surface
water, ground water, land surface or subsurface strata), including any law or
regulation relating to emissions, discharges, releases or threatened releases of
Materials of Environmental Concern, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of Materials of Environmental Concern; and (ii) "Materials of
Environmental Concern" include chemicals, pollutants, contaminants, wastes,
toxic substances, petroleum and petroleum products and any other substance that
is now or hereafter regulated by any Environmental Law or that is otherwise a
danger to health, reproduction or the environment.
2.17 INSURANCE. Part 2.17 of the Disclosure Schedule identifies all
insurance policies maintained by, at the expense of or for the benefit of the
Company and identifies any material claims made thereunder, and the Company has
delivered to Parent accurate and complete summaries of the insurance policies
identified on Part 2.17 of the Disclosure Schedule. Each of the insurance
policies identified in Part 2.17 of the Disclosure Schedule is in full force and
effect. Since inception, the Company has not received any notice or other
communication regarding any actual or possible (a) cancellation or invalidation
of any insurance policy, (b) refusal of any coverage or rejection of any claim
under any insurance policy, or (c) material adjustment in the amount of the
premiums payable with respect to any insurance policy.
2.18 RELATED PARTY TRANSACTIONS. (a) No Related Party has, and no
Related Party has at any time since inception had, any direct or indirect
interest in any material asset used in or otherwise relating to the business of
the Company; (b) no Related Party is, or has at any time since inception been,
indebted to the Company; (c) since inception, no Related Party has entered into,
or has had any direct or indirect financial interest in, any material Contract,
transaction or business dealing involving the Company; (d) no Related Party is
competing, or has at any time since inception competed, directly or indirectly,
with the Company; and (e) no Related Party has any claim or right against the
Company (other than rights to receive compensation for services performed as an
employee of the Company). (For purposes of the Section 2.18 each of the
following shall be deemed to be a "Related Party": (i) each of the Shareholders;
(ii) each individual who is, or who has at any time since inception been, an
officer of the Company; (iii) each member of the immediate family of each of the
individuals referred to in clauses "(i)" and "(ii)" above; and (iv) any trust or
other Entity (other than the Company) in which any one of the individuals
referred to in clauses "(i)", "(ii)" and "(iii)" above holds (or in which more
than one of such individuals collectively hold), beneficially or otherwise, a
controlling voting, proprietary or equity interest.
2.19 LEGAL PROCEEDINGS; ORDERS.
(a) There is no pending Legal Proceeding, and (to the best of
the knowledge of the Company) no Person has threatened to commence any Legal
Proceeding: (i) that involves the Company or any of the material assets owned or
used by the Company or any Person whose liability the Company has or may have
retained or assumed, either contractually or by operation of law; or (ii) that
challenges, or that may have the effect of preventing, delaying, making illegal
or otherwise interfering with, the Merger or any of the other transactions
contemplated by this Agreement. To the best of the knowledge of the Company, no
event has occurred, and no claim, dispute or other condition or circumstance
exists, that will, or that could reasonably be expected to, give rise to or
serve as a basis for the commencement of any such Legal Proceeding.
(b) No Legal Proceeding has ever been commenced by or has ever
been pending against the Company.
(c) There is no order, writ, injunction, judgment or decree to
which the Company, or any of the material assets owned or used by the Company,
is subject. None of the shareholders of the Company is subject to any order,
writ, injunction, judgment or decree that relates to the Company's business or
to any of the assets owned or used by the Company. To the best of the knowledge
of the Company, no officer or other employee of the Company is subject to any
order, writ, injunction, judgment or decree that prohibits such officer or other
employee from engaging in or continuing any conduct, activity or practice
relating to the Company's business.
2.20 AUTHORITY; BINDING NATURE OF AGREEMENT. The Company has the
absolute and unrestricted right, power and authority to enter into and to
perform its obligations under this Agreement; and the execution, delivery and
performance by the Company of this Agreement have been duly authorized by all
necessary action on the part of the Company and its board of directors. This
Agreement constitutes the legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, subject to (i)
laws of general application relating to bankruptcy, insolvency and the relief of
debtors, and (ii) rules of law governing specific performance, injunctive relief
and other equitable remedies.
2.21 NON-CONTRAVENTION; CONSENTS. Neither (1) the execution, delivery
or performance of this Agreement or any other agreement to which Company is or
will be a
party that are required to be executed pursuant to this Agreement ("Company
Ancillary Agreement"), nor (2) the consummation of the Merger or any of the
other transactions contemplated by this Agreement, will directly or indirectly
(with or without notice or lapse of time):
(a) contravene, conflict with or result in a violation of (i)
any of the provisions of the Company's Articles of Incorporation or bylaws then
in effect, or (ii) any resolution adopted by the Company's shareholders, the
Company's board of directors or any committee of the Company's board of
directors then in effect;
(b) contravene, conflict with or result in a violation of, or
give any Governmental Body or other Person the right to challenge any of the
transactions contemplated by this Agreement or to exercise any remedy or obtain
any relief under, any Legal Requirement or any order, writ, injunction, judgment
or decree to which the Company, or any of the material assets owned or used by
the Company, is subject;
(c) contravene, conflict with or result in a violation of any
of the terms or requirements of, or give any Governmental Body the right to
revoke, withdraw, suspend, cancel, terminate or modify, any Governmental
Authorization that is held by the Company or that otherwise relates to the
Company's business or to any of the material assets owned or used by the Company
if such action would have a Material Adverse Effect;
(d) contravene, conflict with or result in a violation or
breach of, or result in a default under, any provision of any Material Contract,
or give any Person the right to (i) declare a default or exercise any remedy
under any such Material Contract, (ii) accelerate the maturity or performance of
any such Material Contract, or (iii) cancel, terminate or modify any such
Material Contract if such action would have a Material Adverse Effect; or
(e) result in the imposition or creation of any lien or other
Encumbrance upon or with respect to any material asset owned or used by the
Company (except for minor liens that will not, in any case or in the aggregate,
materially detract from the value of the assets subject thereto or materially
impair the operations of the Company).
The Company is not and will not be required to make any filing with or give any
notice to, or to obtain any Consent from, any Person in connection with (x) the
execution, delivery or performance of this Agreement or any Company Ancillary
Agreement, or (y) the consummation of the Merger or any of the other
transactions contemplated by this Agreement except for the filing of the merger
certificate with the Delaware Secretary of State and California Secretary of
State pursuant to Section 1.3 hereof and appropriate documents with the relevant
authorities of other states in which Company is qualified to do business.
2.22 FULL DISCLOSURE. This Agreement (including the Disclosure
Schedule)
does not, and the Closing Certificate will not to the best of the Company's
knowledge, (i) contain any representation, warranty or information that is false
or misleading with respect to any material fact, or (ii) omit to state any
material fact necessary in order to make the representations, warranties and
information contained and to be contained herein and therein (in the light of
the circumstances under which such representations, warranties and information
were or will be made or provided) not false or misleading.
3. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB.
Parent and Merger Sub jointly and severally represent and
warrant to the Company and the Shareholders as follows:
3.1 AUTHORITY; BINDING NATURE OF AGREEMENT. Parent and Merger Sub have
the absolute and unrestricted right, power and authority to perform their
obligations under this Agreement; and the execution, delivery and performance by
Parent and Merger Sub of this Agreement have been duly authorized by all
necessary action on the part of Parent and Merger Sub and their respective
boards of directors. No vote of Parent's shareholders is needed to approve the
Merger. This Agreement constitutes the legal, valid and binding obligation of
Parent and Merger Sub, enforceable against each of them in accordance with its
terms, subject to (i) laws of general application relating to bankruptcy,
insolvency and the relief of debtors, and (ii) rules of law governing specific
performance, injunctive relief and other equitable remedies.
3.2 ORGANIZATION AND STANDING. Each of the Parent and Merger Sub is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, has all requisite corporate power and authority to
own, operate and lease its properties and carry on its business as now
conducted, and is duly qualified to do business and is in good standing as a
foreign corporation in each jurisdiction in which the failure to so qualify
would have a material adverse effect on the business, properties, prospects,
condition (financial or otherwise) or results in operations of Parent or Merger
Sub.
3.3 AUTHORITY, APPROVAL AND ENFORCEABILITY.
(a) The execution and delivery by each of Parent and Merger
Sub, as the case may be, of this Agreement does not, and the performance and
consummation of the transactions contemplated by this Agreement will not, result
in or give rise to (with or without the giving of notice or the lapse of time,
or both) any conflict with, breach or violation of, or default, termination,
forfeiture or acceleration of obligations under, any terms or provisions of its
(i) Certificate of Incorporation or Bylaws then in effect, as the case may be,
(ii) to the best of Parent's knowledge, any statute, rule, regulation or any
judicial, governmental, regulatory or administrative decree, order or judgment
applicable to them, or (iii) any material agreement, lease or other instrument
to which its is a party or to which it or any of its assets may be bound and
which has been or will be filed as an exhibit to any of the registration
statements or reports filed with the SEC by Parent.
(b) No consent, approval, order or authorization of, or
registration, declaration or filing with, any governmental entity is required by
or with respect to Parent or Merger Sub in connection with the execution and
delivery of this Agreement or the consummation by Parent or Merger Sub of the
transactions contemplated hereby or thereby, except for the filing of the merger
certificate with the Delaware Secretary of State and the California Secretary of
State pursuant to Section 1.3 hereof and appropriate documents with the relevant
authorities of other states in which Parent and Merger Sub are qualified to do
business.
(c) This Agreement is a legal, valid and binding obligation of
Parent and/or Merger Sub, enforceable against them in accordance with its terms,
except as such enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights generally
and subject to general equitable principles.
3.4 COMPLIANCE WITH OTHER INSTRUMENTS. Neither Parent nor Merger Sub is
in violation of any term of its Certificate of Incorporation or Bylaws, or in
any material respect of any agreement which has been or will be filed as an
exhibit to any registration statements or reports filed with the SEC by Parent,
and to the best of its knowledge, is not in violation of any order, statute,
rule or regulation applicable to it. To the best of Parent's knowledge, the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby will not conflict with or result in any
violation of any material statute, law, rule, regulation, judgment, order,
decree or ordinance applicable to Parent or Merger Sub or their respective
properties or assets. The execution and delivery of this Agreement and
consummation of the transactions contemplated hereby will not conflict with or
result in any breach or default (with or without notice or lapse of time, or
both) under, or give rise to a right of termination, cancellation or
acceleration of any obligation or to loss of a material benefit, under (i) any
provision of the Certificate of Incorporation or Bylaws of Parent or Merger Sub
or (ii) any material agreement, contract, note, mortgage, indenture, lease,
instrument, permit, concession, franchise or license to which Parent or Merger
Sub is a party or by which Parent or Merger Sub or their respective properties
or assets may be bound or affected and which has been or will be filed as an
exhibit to any registration statement or report filed with the SEC by Parent.
3.5 PARENT STOCK OPTION PLAN. Parent's Key Employee Incentive Plan
(1992), under which certain Employees who accept employment with Parent or
Surviving Corporation may be issued stock options, has been duly authorized and
adopted by all necessary action on the part of Parent's board of directors and
stockholders and the securities of Parent reserved for issuance thereunder have
been duly registered or qualified for issuance in accordance with all applicable
federal and state securities laws (or available exemptions therefrom) and will
be issued in compliance with all applicable federal and state securities laws
(or available exemption therefrom).
4. CERTAIN COVENANTS OF THE COMPANY AND PARENT
4.1 ACCESS AND INVESTIGATION. During the period from the date of this
Agreement through the Effective Time (the "Pre-Closing Period"), the Company
shall, and shall cause its Representatives to: (a) provide Parent and Parent's
Representatives with reasonable access to the Company's Representatives,
personnel and assets and to all existing books, records, Tax Returns, work
papers and other documents and information relating to the Company; and (b)
provide Parent and Parent's Representatives with copies of such existing books,
records, Tax Returns, work papers and other documents and information relating
to the Company, and with such additional financial, operating and other data and
information regarding the Company, as Parent may reasonably request.
4.2 OPERATION OF THE COMPANY'S BUSINESS. Unless permitted by Parent,
during the Pre-Closing Period:
(a) the Company shall conduct its business and operations in
the ordinary course and in substantially the same manner as such business and
operations have been conducted prior to the date of this Agreement;
(b) the Company shall use reasonable efforts to preserve
intact its current business organization, keep available the services of its
current officers and employees and maintain its relations and good will with all
suppliers, customers, landlords, creditors, employees and other Persons having
business relationships with the Company;
(c) the Company shall keep in full force all insurance
policies identified in Part 2.17 of the Disclosure Schedule or procure
substantial similar policies;
(d) the Company shall cause its officers to report regularly
(but in no event less frequently than weekly) to Parent concerning the status of
the Company's business;
(e) the Company shall not declare, accrue, set aside or pay
any dividend or make any other distribution in respect of any shares of capital
stock, and shall not repurchase, redeem or otherwise reacquire any shares of
capital stock or other securities;
(f) the Company shall not sell, issue or authorize the
issuance of (i) any capital stock or other security, (ii) any option or right to
acquire any capital stock or other security, or (iii) any instrument convertible
into or exchangeable for any capital stock or other security;
(g) the Company shall not amend the Company's Certificate of
Incorporation or bylaws, or become a party to any Acquisition Transaction;
(h) the Company shall not form any subsidiary or acquire any
equity interest or other interest in any other Entity;
(i) the Company shall not make any capital expenditure, except
for capital expenditures that, when added to all other capital expenditures made
on behalf of the Company during the Pre-Closing Period, do not on average exceed
$20,000 per month;
(j) the Company shall not (i) enter into, or permit any of the
material assets owned or used by it to become bound by, any Encumbrance, or (ii)
amend or prematurely terminate, or waive any material right or remedy under, any
Material Contract;
(k) the Company shall not: (1) except in the ordinary course
of business consistent with past practice (i) acquire, lease or license any
right or other asset from any other Person (except as otherwise required under
this Agreement), (ii) sell or otherwise dispose of, or lease or license, any
right or other asset to any other Person, or (iii) waive or relinquish any
right, except for assets acquired, leased, licensed or disposed of by the
Company pursuant to Contracts that are not Material Contracts or (2) enter into
any transaction material to the business or assets of the Company;
(l) the Company shall not (i) lend money to any Person (except
that the Company may make routine travel advances to employees in the ordinary
course of business) or (ii) incur or guarantee any indebtedness for borrowed
money;
(m) the Company shall not (i) establish, adopt or amend any
Employee Benefit Plan, (ii) pay any bonus or make any profit-sharing payment,
cash incentive payment or similar payment to, or increase the amount of the
wages, salary, commissions, fringe benefits or other compensation or
remuneration payable to, any of its directors, officers or employees (except
under the acquisition bonus program described in Part 2.15(j) of the Disclosure
Schedule), or (iii) hire any new employee whose aggregate annual compensation is
expected to exceed $50,000 (other than Xxx Xxxxxxxx, a resident of Oregon, who
has been extended an offer of employment by the Company as of the date hereof);
(n) the Company shall not change any of its methods of
accounting or accounting practices in any material respect;
(o) the Company shall not make any Tax election;
(p) the Company shall not commence or settle any material
Legal Proceeding;
(q) the Company shall not agree or commit to take any of the
actions described in clauses "(e)" through "(p)" above.
4.3 NOTIFICATION. During the Pre-Closing Period, the Company shall
promptly notify Parent in writing of:
(a) the discovery by the Company of any material event,
condition, fact or circumstance that occurred or existed on or prior to the date
of this Agreement and that caused or constitutes a material inaccuracy in or a
material breach of any representation or warranty made by the Company in this
Agreement;
(b) any material event, condition or circumstance that occurs,
arises or exists after the date of this Agreement and that would cause or
constitute a material inaccuracy in or a material breach of any representation
or warranty made by the Company in this Agreement if such representation or
warranty had been made as of the time of the occurrence or existence of such
event, condition or circumstance;
(c) any breach of any covenant or obligation of the Company;
(d) any event, condition, fact or circumstance that would make
the timely satisfaction of any of the conditions set forth in Section 5 or
Section 6 impossible or unlikely; and
(e) any material change in the business, financial condition,
properties or prospects of the Company.
4.4 NO NEGOTIATION. During the Pre-Closing Period, neither the Company,
nor any of the Shareholders shall, directly or indirectly:
(a) solicit or encourage the initiation of any inquiry,
proposal or offer from any Person (other than Parent) relating to a possible
Acquisition Transaction;
(b) participate in any discussions or negotiations or enter
into any agreement with, or provide any non-public information to, any Person
(other than Parent) relating to or in connection with a possible Acquisition
Transaction; or
(c) consider, entertain or accept any proposal or offer from
any Person (other than Parent) relating to a possible Acquisition Transaction.
(d) The Company shall promptly notify Parent in writing of any
material inquiry, proposal or offer relating to a possible Acquisition
Transaction that is received by the Company or any of its Shareholders,
officers, directors, employees or agents during the Pre-Closing Period.
4.5 FILINGS AND CONSENTS. As promptly as practicable after the
execution of this Agreement, each party to this Agreement (a) shall make all
filings (if any) and give all notices (if any) required to be made and given by
such party in connection with the Merger and the other transactions contemplated
by this Agreement, (b) shall use all commercially reasonable efforts to obtain
all Consents (if any) required to be obtained (pursuant to any applicable Legal
Requirement or Contract, or otherwise) by such party in connection with the
Merger and the other transactions contemplated by this Agreement, (c) in the
case of the Company, use commercially reasonable efforts to otherwise satisfy
the conditions specified in Section 6 of this Agreement, and (d) in the case of
the Parent and Merger Sub, use commercially reasonable efforts to otherwise
satisfy the conditions specified in Section 5 of this Agreement. Each party
shall (upon request) promptly deliver to Parent the other a copy of each such
filing made, each such notice given and each such Consent obtained during the
Pre-Closing Period.
4.6 PROPRIETARY INFORMATION AGREEMENTS. At or prior to the Closing,
each of the Employees shall execute and deliver to the Company and Parent a
Proprietary Information Agreement in the Company's standard form.
4.7 PUBLIC ANNOUNCEMENTS. During the Pre-Closing period, (a) neither
Parent nor Company shall issue any press release or make any public statement
regarding this Merger or the Agreement, or any of the other transactions
contemplated by this Agreement without the prior written consent of the other.
4.8 INDEMNIFICATION. From and after the effective time of the Merger,
Parent agrees to indemnify and hold harmless each current and former director
and officer of the Company against any costs or expenses (including reasonable
attorneys' fees), judgments, fines, losses, claims, damages or liabilities
incurred in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative, arising
out of matters existing or occurring at or prior to the effective time, asserted
or claimed after the effective time, to the fullest extent that the Company
would have been permitted under its articles of incorporation or bylaws as in
effect on the date hereof to indemnify such person (and in connection therewith
Parent shall advance expenses as incurred to the fullest extent provided for
under Parent's certificate of incorporation and bylaws as from time to time in
effect, provided the person to whom expenses are advanced provides an
undertaking to repay such advances if it is ultimately determined that such
person is not entitled to indemnification); provided, however, that this
provision shall not apply to any matter that relates to a breach of
representation or warranty herein by the Company. The Company represents that
there is no current basis for any indemnity claim under this Section 4.8, except
as set out in Part 4.8 of the Disclosure Schedule.
4.9 GRANT OF OPTIONS. As soon as reasonably practicable after the
effective time of the Merger, Parent shall, subject to approval of its board of
directors, grant options to purchase an aggregate of 250,000 shares of Parent's
common stock under Parent's Key Employee Incentive Plan (1992) to those
employees of the Company that accept employment with Parent or Surviving
Corporation.
5. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND MERGER SUB
The obligations of Parent and Merger Sub to effect the Merger and
otherwise consummate the transactions contemplated by this Agreement are subject
to the satisfaction, at or prior to the Closing, of each of the following
conditions:
5.1 ACCURACY OF REPRESENTATIONS. Each of the representations and
warranties made by the Company in this Agreement and in each of the other
agreements and instruments delivered to Parent in connection with the
transactions contemplated by this Agreement shall have been accurate in all
material respects as of the date of this Agreement, and shall be accurate in all
material respects as of the Closing Date as if made on the Closing Date.
5.2 PERFORMANCE OF COVENANTS. All of the covenants and obligations that
the Company is required to comply with or to perform at or prior to the Closing
shall have been complied with and performed in all respects.
5.3 SHAREHOLDER APPROVAL. The principal terms of the Merger shall have
been duly approved by the affirmative vote of at least 95% of the shares of
Company Common Stock entitled to vote with respect thereto.
5.4 CONSENTS. All Consents required to be obtained in connection with
the Merger and the other transactions contemplated by this Agreement (including
the Consents identified in Part 2.21 of the Disclosure Schedule) shall have been
obtained and shall be in full force and effect.
5.5 AGREEMENTS AND DOCUMENTS. Parent shall have received the following
agreements and documents, each of which shall be in full force and effect:
(a) General Release Agreements in the form attached hereto as
Exhibit C, executed by each of the Shareholders and each employee of the
Company;
(b) Proprietary Information Agreements in the form attached
hereto as Exhibit D-1, executed by the Employees;
(c) Noncompetition Agreement in the form attached hereto as
Exhibit D-2, executed by each of Xxxx XxXxxxxxx-Xxxxx, Xxxxxx Xxxxx and Xxxx
Xxxxx (collectively, the "Key Employees");
(d) a legal opinion of Fenwick & West LLP dated as of the
Closing Date, in the form of Exhibit E;
(e) Voting Agreements in the form attached hereto as Exhibit
F, executed by each of the Key Employees.
(g) a certificate executed by the Company stating that the
conditions set forth in this Section 5 have been duly satisfied in all material
respects (the "Closing Certificate"); and
(h) written resignations of all directors of the Company,
effective as of the Effective Time.
5.6 NO RESTRAINTS. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the Merger
shall have been issued by any court of competent jurisdiction and remain in
effect, and there shall not be any Legal Requirement enacted or deemed
applicable to the Merger that makes consummation of the Merger illegal. No
action shall have been taken, and no statute, rule, regulation or order shall
have been enacted, promulgated or issued or deemed applicable to the Merger by
any governmental entity which would (i) make the consummation of the Merger
illegal; (ii) prohibit Parent's or the Company's ownership or operation of all
or a material portion of the business or assets of Parent or the Company, or
compel Parent or the Company to dispose of or hold separate all or a material
portion of the business or assets of the Company or Parent as a result of the
Merger or (iii) render Parent, Merger Sub or the Company unable to consummate
the Merger, except for any waiting provisions.
5.7 NO LEGAL PROCEEDINGS. No Person shall have commenced or threatened
to commence any Legal Proceeding challenging or seeking the recovery of a
material amount of damages in connection with the Merger or seeking to prohibit
or limit the exercise by Parent of any material right pertaining to its
ownership of stock of the Surviving Corporation.
5.8 DUE DILIGENCE. Parent shall have completed business, technical,
legal and financial due diligence on the Company and its products and the
results of such due diligence shall be acceptable to Parent.
5.9 INTELLECTUAL PROPERTY ASSIGNMENTS. All current and former
employees, consultants and independent contractors of the Company identified by
Parent prior to the Effective Time (including those involved in the creation or
development of intellectual property) to assign to the Company all rights to
intellectual property related to the Company's business if such intellectual
property rights were not previously assigned to the Company to Parent's
satisfaction.
5.10 EMPLOYEES.
(a) Each Key Employee shall have agreed to become a full-time
employee of the Company or Parent.
(b) The number of persons employed by the Company at the
Effective Time shall not exceed 29.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY
The obligations of the Company to effect the Merger and otherwise
consummate the transactions contemplated by this Agreement are subject to the
satisfaction, at or prior to the Closing, of the following conditions:
6.1 ACCURACY OF REPRESENTATIONS. Each of the representations and
warranties
made by Parent and Merger Sub in this Agreement shall have been
accurate in all material respects as of the date of this Agreement, and shall be
accurate in all material respects as of the Closing Date as if made on the
Closing Date.
6.2 PERFORMANCE OF COVENANTS. All of the covenants and obligations that
Parent and Merger Sub are required to comply with or to perform at or prior to
the Closing shall have been complied with and performed in all respects.
6.3 NO RESTRAINTS. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the Merger
shall have been issued by any court of competent jurisdiction and remain in
effect, and there shall not be any Legal Requirement enacted or deemed
applicable to the Merger that makes consummation of the Merger illegal.
7. TERMINATION
7.1 TERMINATION EVENTS.
(A) This Agreement may be terminated prior to the Closing:
(1) by Parent if:
(A) Parent reasonably determines that the timely
satisfaction of any condition set forth in Section 5 has become impossible
(other than as a result of any failure on the part of Parent or Merger Sub to
comply with or perform any covenant or obligation of Parent or Merger Sub set
forth in this Agreement);
(B) the Closing has not taken place on or before July
1, 1999 (other than as a result of any failure on the part of Parent to comply
with or perform any covenant or obligation of Parent set forth in this
Agreement); or
(C) any of the Key Employees ceases to be employed
full-time by the Company.
(2) by the Company if:
(A) the Company reasonably determines that the timely
satisfaction of any condition set forth in Section 6 has become impossible
(other than as a result of any failure on the part of the Company to comply with
or perform any covenant or obligation set forth in this Agreement or in any
other agreement or instrument delivered to Parent), or
(B) the Closing has not taken place on or before July
1, 1999 (other than as a result of the failure on the part of the Company or any
of the Shareholders to comply with or perform any covenant or obligation set
forth in this Agreement).
(b) This Agreement may be terminated prior to the Closing by
the mutual consent of Parent and the Company. This Agreement may be terminated
after the Closing by the mutual consent of Parent and Agent.
7.2 TERMINATION PROCEDURES. If Parent wishes to terminate this
Agreement pursuant to Section 7.1(a), Parent shall deliver to the Company a
written notice stating that Parent is terminating this Agreement and setting
forth a brief description of the basis on which Parent is terminating this
Agreement. If the Company wishes to terminate this Agreement pursuant to Section
7.1(b), the Company shall deliver to Parent a written notice stating that the
Company is terminating this Agreement and setting forth a brief description of
the basis on which the Company is terminating this Agreement.
7.3 EFFECT OF TERMINATION. If this Agreement is terminated pursuant to
Section 7.1, all representations and warranties of the parties hereto shall
expire and all further obligations of the parties under this Agreement shall
terminate; provided, however, that: (a) neither the Company nor Parent shall be
relieved of any obligation or liability arising from any prior breach by such
party of any provision of this Agreement; (b) the parties shall, in all events,
remain bound by and continue to be subject to the provisions set forth in
Section 9.6; and (c) the parties shall, in all events, remain bound by and
continue to be subject to Section 4.7. All fees and expenses incurred in
connection with the Merger, this Agreement and the transactions contemplated by
this Agreement shall be paid by the party incurring such fees or expenses,
whether or not the Merger is consummated.
8. INDEMNIFICATION, ETC.
8.1 SURVIVAL OF REPRESENTATIONS, ETC.
(a) The representations and warranties made by the Company
(including the representations and warranties set forth in Section 2) (as
modified by the Disclosure Schedule) shall survive the Closing and shall expire
on the third anniversary of the Closing Date; provided, however, that if, at any
time prior to the third anniversary of the Closing Date, as applicable, any
Indemnitee (acting in good faith) delivers to the Agent a written notice
alleging the existence of an inaccuracy in or a breach of any of the
representations and warranties made by the Company (and setting forth in
reasonable detail the basis for such Indemnitee's belief that such an inaccuracy
or breach may exist) and asserting a claim for recovery under Section 8.2 based
on such alleged inaccuracy or breach, then the claim asserted in such notice
shall survive until such time as such claim is fully and finally resolved. All
representations and warranties made by Parent and Merger Sub shall terminate and
expire as of the Effective Time, and any liability of Parent or Merger Sub with
respect to such representations and warranties shall thereupon cease.
(b) The representations, warranties, covenants and obligations
of the Company and the Shareholders, and the rights and remedies that may be
exercised by the Indemnitees, shall not be limited or otherwise affected by or
as a result of any
information furnished to, or any investigation made by or knowledge of, any of
the Indemnitees or any of their Representatives.
(c) For purposes of this Agreement, each statement or other
item of information set forth in the Disclosure Schedule shall be deemed to be a
representation and warranty made by the Company in this Agreement.
8.2 INDEMNIFICATION BY SHAREHOLDERS.
(a) From and after the Effective Time, the Shareholders,
jointly and severally, shall hold harmless and indemnify each of the Indemnitees
from and against, and shall compensate and reimburse each of the Indemnitees
for, any Damages which are directly or indirectly suffered or incurred by any of
the Indemnitees or to which any of the Indemnitees may otherwise become subject
(regardless of whether or not such Damages relate to any third-party claim) and
which arise from or as a result of, or are directly or indirectly connected
with: (i) any inaccuracy in or breach of any representation or warranty set
forth in Section 2; or (ii) any breach of any covenant or obligation of the
Company set forth herein (including the covenants set forth in Section 4).
(b) The Shareholders acknowledge and agree that, if the
Surviving Corporation suffers, incurs or otherwise becomes subject to any
Damages as a result of or in connection with any inaccuracy in or breach of any
representation, warranty, covenant or obligation, then (without limiting any of
the rights of the Surviving Corporation as an Indemnitee) Parent shall also be
deemed, by virtue of its ownership of the stock of the Surviving Corporation, to
have incurred Damages as a result of and in connection with such inaccuracy or
breach.
8.3 NO CONTRIBUTION. Each Shareholder waives, and acknowledges and
agrees that he shall not have and shall not exercise or assert (or attempt to
exercise or assert), any right of contribution, right of indemnity or other
right or remedy against the Surviving Corporation in connection with any
indemnification obligation or any other liability to which he may become subject
under or in connection with this Agreement or the Closing Certificate.
8.4 LIMITATIONS ON INDEMNIFICATION. Notwithstanding the foregoing: (i)
no Shareholder shall be obligated to provide indemnification under this Section
8 unless and until the aggregate Damages for which one or more Indemnitees seeks
indemnification hereunder exceeds an aggregate of one hundred thousand dollars
($100,000) (the "Basket"), in which event the Shareholders shall be liable to
indemnify the Indemnitees for all Damages, including any Damages within the
Basket; and (ii) except as set forth in the following sentence, in no event
shall the Shareholders as a group be obligated to provide indemnification under
this Section 8 in excess of the aggregate cash consideration received by all
Shareholders from Parent pursuant to Sections 1.5 and 1.6 hereof.
Notwithstanding anything to the contrary in this Agreement, shall be no limit on
the amount of indemnifiable Losses that may be recovered from any Shareholder in
the
event that the breach of the representation, warranty or covenant that gave rise
to such Damages resulted from or arose out of (i) fraud on the part of such
Shareholder or (ii) a knowing violation of Section 2.3, 2.9(c), 2.14 or 2.16.
8.5 INTEREST. Any Shareholder who is required to hold harmless,
indemnify, compensate or reimburse any Indemnitee pursuant to this Section 8
with respect to any Damages shall also be liable to such Indemnitee for interest
on the amount of such Damages (for the period commencing as of the date on which
such Shareholder first received notice of a claim for recovery by such
Indemnitee and ending on the date on which the liability of such Shareholder to
such Indemnitee is fully satisfied by such Shareholder) at a floating rate equal
to the rate of interest publicly announced by Bank of America, N.T. & S.A. from
time to time as its prime, base or reference rate.
8.6 DEFENSE OF THIRD PARTY CLAIMS.
(a) In the event of the assertion or commencement by any
Person of any claim or Legal Proceeding (whether against the Surviving
Corporation, against Parent or against any other Person) with respect to which
any of the Shareholders are obligated to hold harmless, indemnify, compensate or
reimburse any Indemnitee pursuant to this Section 8 (a "Third Party Claim"),
Agent will have the right, at the sole cost and expense of the Stockholders, to
defend the Indemnitee against the Third Party Claim with counsel of Agent's
choice that is reasonably satisfactory to the Indemnitee so long as (i) Agent
notifies the Indemnitee in writing within ten (10) days after the Indemnitee has
given notice of the Third Party Claim that Agent intends to undertake such
defense, (ii) Agent provides the Indemnitee with evidence reasonably acceptable
to the Indemnitee that Agent will have the financial resources to defend against
the Third Party Claim and fulfill the Stockholders' indemnification obligations
hereunder, (iii) Agent conducts the defense of the Third Party Claim actively
and diligently; and (iv) the counsel chosen by Agent does not have any conflict
of interest in representing the interests of the Indemnitee.
(b) So long as Agent is conducting the defense of the Third
Party Claim in accordance with Section 8.5(a) above, (i) the Indemnitee may
retain separate co-counsel and participate in the defense of the Third Party
Claim at its own cost and expense (except as provided below) and shall have the
right to receive copies of all pleadings, notices and communications with
respect to the Third Party Claim to the extent no privilege is thereby waived,
(ii) the Indemnitee may participate in settlement negotiations with respect to
the Third Party Claim, and (iii) Agent will not consent to the entry of any
judgment or enter into any settlement with respect to the Third Party Claim
unless (A) each affected Indemnitee consents thereto in writing (which consent
will not unreasonably be withheld) or (B) the settlement, compromise or consent
includes an unconditional release from all liability with respect to the claim
in favor of each affected Indemnitee.
(c) If Agent does not elect to assume control of or otherwise
participate in the defense or settlement of any Third Party Claim, or if Agent
does so elect
but any of the conditions in Section 8.5(a) above is or becomes unsatisfied,
then, (i) the Indemnitee may defend against and consent to the entry of any
judgment or enter into any settlement with respect to the Third Party Claim,
PROVIDED, HOWEVER, that Agent (A) shall have the right to receive copies of all
pleadings, notices and communications with respect to the Third Party Claim so
long as the receipt of such documents by the Agent does not affect any
attorney-client privilege relating to the Indemnitee, and (B) may participate in
settlement negotiations with respect to the Third Party Claim and the Indemnitee
shall not enter into any settlement without the prior written consent of Agent
(which consent shall not be unreasonably withheld), and (ii) Agent will (on
behalf of the Stockholders) reimburse the Indemnitee promptly and periodically
for all costs and expenses incurred in defending against the Third Party Claim
(including without limitation reasonable attorneys' and experts' fees and
expenses and court and arbitration costs).
No delay on the part of an Indemnitee in giving a Stockholder
notice of a Third Party Claim shall relieve such Stockholder from any obligation
hereunder unless (and then solely to the extent) that the Stockholder is
prejudiced thereby.
8.7 OFFSET AGAINST UNPAID AMOUNTS. If, prior to the time that any
Earn-Out Payment under Section 1.6 hereof is to be delivered, the Company has
breached any of its representations, warranties, covenants or agreements
contained in this Agreement, Parent shall first deduct from the amount of such
payment otherwise deliverable an amount equal to the aggregate amount of Damages
which are directly or indirectly suffered or incurred by any of the Indemnitees
as a result of such breach prior to seeking indemnification from any of the
Shareholders pursuant to this Section 8. Notwithstanding the foregoing, if, in
the reasonable, good faith judgment of Parent the amount of any Earn-Out Payment
under Section 1.6 that will become due and payable to the shareholders of the
Company according to the terms set forth in Exhibit B will be insufficient to
reimburse Parent for the amount of Damages, then Parent need not wait till the
scheduled time of such payment before seeking indemnification from any of the
Shareholders pursuant to this Section 8.
8.8 TREATMENT AS ADJUSTMENT OF PURCHASE PRICE. Any indemnity payment
received by a party hereunder shall be treated as an adjustment of the purchase
price.
8.9 EXERCISE OF REMEDIES BY INDEMNITEES OTHER THAN PARENT. No
Indemnitee (other than Parent or any successor thereto or assign thereof) shall
be permitted to assert any indemnification claim or exercise any other remedy
under this Agreement unless Parent (or any successor thereto or assign thereof)
shall have consented to the assertion of such indemnification claim or the
exercise of such other remedy.
9. MISCELLANEOUS PROVISIONS
9.1 AGENT. By their approval of this Agreement at a Shareholders
Meeting or by written consent (or, with respect to holders of options or
warrants, by acknowledging their obligations as Shareholders under this
Agreement), the Shareholders will thereby
irrevocably appoint Xxxx XxXxxxxxx-Xxxxx as their agent for purposes of Section
8 (the "Agent"), and Xxxx XxXxxxxxx-Xxxxx hereby accepts his appointment as the
Agent for purposes of Section 8. Parent shall be entitled to deal exclusively
with the Agent on all matters relating to Section 8, and shall be entitled to
rely conclusively (without further evidence of any kind whatsoever) on any
document executed or purported to be executed on behalf of any Shareholder by
the Agent, and on any other action taken or purported to be taken on behalf of
any Shareholder by the Agent, as fully binding upon such Shareholder. If the
Agent shall die, become disabled or otherwise be unable to fulfill his
responsibilities as agent of the Shareholders, then the Shareholders shall,
within ten days after such death or disability, appoint a successor agent and,
promptly thereafter, shall notify Parent of the identity of such successor. Any
such successor shall become the "Agent" for purposes of Section 8 and this
Section 9.1. If for any reason there is no Agent at any time, all references
herein to the Agent shall be deemed to refer to the Shareholders.
9.2 FURTHER ASSURANCES. Each party hereto shall execute and cause to be
delivered to each other party hereto such instruments and other documents, and
shall take such other actions, as such other party may reasonably request (prior
to, at or after the Closing) for the purpose of carrying out or evidencing any
of the transactions contemplated by this Agreement.
9.3 FEES AND EXPENSES. Each party to this Agreement shall bear and pay
all fees, costs and expenses (including legal fees and accounting fees) that
have been incurred or that are incurred by such party in connection with the
transactions contemplated by this Agreement, including all fees, costs and
expenses incurred by such party in connection with or by virtue of (a) the
investigation and review conducted by Parent and its Representatives with
respect to the Company's business (and the furnishing of information to Parent
and its Representatives in connection with such investigation and review), (b)
the negotiation, preparation and review of this Agreement (including the
Disclosure Schedule) and all agreements, certificates, opinions and other
instruments and documents delivered or to be delivered in connection with the
transactions contemplated by this Agreement, (c) the preparation and submission
of any filing or notice required to be made or given in connection with any of
the transactions contemplated by this Agreement, and the obtaining of any
Consent required to be obtained in connection with any of such transactions, and
(d) the consummation of the Merger; PROVIDED, HOWEVER, that, to the extent the
total amount of all such fees, costs and expenses incurred by or for the benefit
of the Company (including all such fees, costs and expenses incurred prior to
the date of this Agreement and including the amount of all special bonuses and
other amounts that may become payable to any officers of the Company or other
Persons in connection with the consummation of the transactions contemplated by
this Agreement) exceeds $25,000 in the aggregate, such fees, costs and expenses
shall be borne and paid by the shareholders of the Company and not by the
Company.
9.4 ATTORNEYS' FEES. If any action or proceeding relating to this
Agreement or the enforcement of any provision of this Agreement is brought
against any party hereto,
the prevailing party shall be entitled to recover reasonable attorneys' fees,
costs and disbursements (in addition to any other relief to which the prevailing
party may be entitled).
9.5 NOTICES. All notices, demands, requests or other communications
that may be or are required to be given, served or sent by any party pursuant to
this Agreement will be in writing (and shall be deemed to have been duly given
upon receipt), will reference this Agreement and shall be mailed by first class,
registered or certified mail, return receipt requested, postage prepaid, or
transmitted by courier, express delivery, hand delivery or facsimile
transmission, addressed to the address set forth below. Each party may designate
by notice in writing a new address to which any notice, demand, request or
communication may thereafter be so given, served or sent. Each notice that is
mailed, delivered or transmitted in the manner described above shall be deemed
sufficiently given, served, sent and received for all purposes at such time as
it is delivered to the addressee (with the return receipt, the delivery receipt
or the affidavit of messenger or courier being deemed conclusive evidence of
such delivery) or at such time as delivery is refused by the addressee upon
presentation
if to Parent: Media 100, Inc.
000 Xxxxxx Xxxxx Xxxx.
Xxxxxxxx, XX 00000-0000
Attention: President
Facsimile: __________
with a copy to: Xxxxxx Gesmer Xxxxxxxxx LLP
00 Xxxxx Xxxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
Attention: Xxxxx X. Xxxxxxx
Facsimile: 000-000-0000
if to the Company: Terran Interactive, Inc.
00000 Xxx Xxxxx Xxxx., Xxxxx 0
Xxx Xxxxx, XX 00000
Attention: President
Facsimile: (000) 000-0000
with a copy to: Fenwick & West LLP
0 Xxxx Xxxx Xxxxxx
Xxxx Xxxx, XX 00000
Attention: Xxxxx X. Xxxx, Esq.
e-mail: xxxxx@xxxxxxx.xxx
Facsimile: 000-000-0000
9.6 CONFIDENTIALITY. Without limiting the generality of anything
contained in Section 4.9, on and at all times after the Closing Date, each
Shareholder shall keep
confidential, and shall not use or disclose to any other Person, any non-public
document or other non-public information in such Shareholder's possession that
relates to the business of the Company or Parent.
9.7 TIME OF THE ESSENCE. Time is of the essence of this Agreement.
9.8 HEADINGS. The headings contained in this Agreement are for
convenience of reference only, shall not be deemed to be a part of this
Agreement and shall not be referred to in connection with the construction or
interpretation of this Agreement.
9.9 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall constitute an original and all of which, when
taken together, shall constitute one agreement.
9.10 GOVERNING LAW. Unless otherwise indicted to the contrary, this
Agreement shall be construed in accordance with, and governed in all respects
by, the internal laws of the State of Delaware (without giving effect to
principles of conflicts of laws) and the merger provisions of the CGCL.
9.11 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon: the
Company and its successors and assigns (if any); the Shareholders and their
respective personal representatives, executors, administrators, estates, heirs,
successors and assigns (if any); Parent and its successors and assigns (if any);
and Merger Sub and its successors and assigns (if any). This Agreement shall
inure to the benefit of: the Company; the Company's shareholders (to the extent
set forth in Section 1.5); Parent; Merger Sub; the other Indemnitees (subject to
Section 8.8); and the respective successors and assigns (if any) of the
foregoing. Parent may freely assign any or all of its rights under this
Agreement (including its indemnification rights under Section 8), in whole or in
part, to any other Person with written notice to Agent within ten days of such
assignment.
9.12 REMEDIES CUMULATIVE; SPECIFIC PERFORMANCE. The rights and remedies
of the parties hereto shall be cumulative (and not alternative) except as
expressly provided otherwise herein. The parties to this Agreement agree that,
in the event of any breach or threatened breach by any party to this Agreement
of any covenant, obligation or other provision set forth in this Agreement for
the benefit of any other party to this Agreement, such other party shall be
entitled (in addition to any other remedy that may be available to it) to (a) a
decree or order of specific performance or mandamus to enforce the observance
and performance of such covenant, obligation or other provision, and (b) an
injunction restraining such breach or threatened breach.
9.13 WAIVER.
(a) No failure on the part of any Person to exercise any
power, right, privilege or remedy under this Agreement, and no delay on the part
of any Person in exercising any power, right, privilege or remedy under this
Agreement, shall operate as a waiver of such power, right, privilege or remedy;
and no single or partial exercise of any
such power, right, privilege or remedy shall preclude any other or further
exercise thereof or of any other power, right, privilege or remedy.
(b) No Person shall be deemed to have waived any claim arising
out of this Agreement, or any power, right, privilege or remedy under this
Agreement, unless the waiver of such claim, power, right, privilege or remedy is
expressly set forth in a written instrument duly executed and delivered on
behalf of such Person; and any such waiver shall not be applicable or have any
effect except in the specific instance in which it is given.
9.14 AMENDMENTS. This Agreement may not be amended, modified, altered
or supplemented other than by means of a written instrument duly executed and
delivered on behalf of all of the parties hereto.
9.15 SEVERABILITY. In the event that any provision of this Agreement,
or the application of any such provision to any Person or set of circumstances,
shall be determined to be invalid, unlawful, void or unenforceable to any
extent, the remainder of this Agreement, and the application of such provision
to Persons or circumstances other than those as to which it is determined to be
invalid, unlawful, void or unenforceable, shall not be impaired or otherwise
affected and shall continue to be valid and enforceable to the fullest extent
permitted by law.
9.16 PARTIES IN INTEREST. Except for the provisions of Sections 1.5 and
8, none of the provisions of this Agreement is intended to provide any rights or
remedies to any Person other than the parties hereto and their respective
successors and assigns (if any).
9.17 ENTIRE AGREEMENT. This Agreement, the exhibits hereto and the
other agreements referred to herein set forth the entire understanding of the
parties hereto relating to the subject matter hereof and thereof and supersede
all prior agreements and understandings among or between any of the parties
relating to the subject matter hereof and thereof.
9.18 CONSTRUCTION
(a) For purposes of this Agreement, whenever the context
requires: the singular number shall include the plural, and vice versa; the
masculine gender shall include the feminine and neuter genders; the feminine
gender shall include the masculine and neuter genders; and the neuter gender
shall include the masculine and feminine genders.
(b) The parties hereto agree that any rule of construction to
the effect that ambiguities are to be resolved against the drafting party shall
not be applied in the construction or interpretation of this Agreement.
(c) As used in this Agreement, the words "include" and
"including," and variations thereof, shall not be deemed to be terms of
limitation, but rather shall be
deemed to be followed by the words "without limitation."
(d) Except as otherwise indicated, all references in this
Agreement to "Sections" and "Exhibits" are intended to refer to Sections of this
Agreement and Exhibits to this Agreement.
The parties hereto have caused this Agreement to be executed and
delivered as of the date first set above.
Media 100, Inc.,
a Delaware corporation
By:
Title:
[MEDIA 100 ACQUISITION CORP.],
a Delaware corporation
By:
Title:
Terran Interactive, Inc.,
a California corporation
By:
Title:
AGENT:
Name: Xxxx XxXxxxxxx-Xxxxx
SHAREHOLDERS:
Name: Xxxx XxXxxxxxx-Xxxxx
Name: Xxxxxx Xxxxx
Name: Xxxx Xxxxx
EXHIBIT A
CERTAIN DEFINITIONS
For purposes of the Agreement (including this Exhibit A):
ACQUISITION TRANSACTION. "Acquisition Transaction" shall mean any
transaction involving:
(a) the sale, license, disposition or acquisition of all or a
substantially all of the Company's business or assets;
(e) the disposition of equity securities of the Company
representing a majority of the voting power of the Company; or
(f) any merger, consolidation, business combination,
reorganization or similar transaction involving the Company where the holders of
equity securities of the Company immediately prior to the consummation of such
transaction, do not hold equity securities representing a majority of the voting
power of the surviving entity immediately after the consummation of such
transaction.
AGREEMENT. "Agreement" shall mean the Agreement and Plan of Merger and
Reorganization to which this Exhibit A is attached (including the Disclosure
Schedule), as it may be amended from time to time.
CODE. "Code" shall mean the Internal Revenue Code of 1986, as amended.
COMPANY CONTRACT. "Company Contract" shall mean any Contract: (a) to
which the Company is a party; (b) by which the Company or any of its assets is
or may become bound or under which the Company has, or may become subject to,
any obligation; or (c) under which the Company has or may acquire any right or
interest.
COMPANY PROPRIETARY ASSET. "Company Proprietary Asset" shall mean any
Proprietary Asset owned by or licensed to the Company or otherwise used by the
Company.
CONSENT. "Consent" shall mean any approval, consent, ratification,
permission, waiver or authorization (including any Governmental Authorization).
CONTRACT. "Contract" shall mean any written, oral or other agreement,
contract, subcontract, lease, understanding, instrument, note, warranty,
insurance policy, benefit plan or legally binding commitment or undertaking of
any nature.
DAMAGES. "Damages" shall include any loss, damage, injury, decline in
value,
lost opportunity, liability, claim, demand, settlement, judgment, award, fine,
penalty, Tax, fee (including reasonable attorneys' fees), charge, cost
(including costs of investigation) or expense of any nature but excluding in any
event all incidental, indirect, special or consequential damages even if advised
of the possibility thereof.
DISCLOSURE SCHEDULE. "Disclosure Schedule" shall mean the schedule
(dated as of the date of the Agreement) delivered to Parent on behalf of the
Company.
ENCUMBRANCE. "Encumbrance" shall mean any lien, pledge, hypothecation,
charge, mortgage, security interest, encumbrance, claim, infringement,
interference, option, right of first refusal, preemptive right, community
property interest or restriction of any nature (including any restriction on the
voting of any security, any restriction on the transfer of any security or other
asset, any restriction on the receipt of any income derived from any asset, any
restriction on the use of any asset and any restriction on the possession,
exercise or transfer of any other attribute of ownership of any asset).
ENTITY. "Entity" shall mean any corporation (including any non-profit
corporation), general partnership, limited partnership, limited liability
partnership, joint venture, estate, trust, company (including any limited
liability company or joint stock company), firm or other enterprise,
association, organization or entity.
EXCHANGE ACT. "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
GOVERNMENT BID. "Government Bid" shall mean any quotation, bid or
proposal submitted to any Governmental Body or any proposed prime contractor or
higher-tier subcontractor of any Governmental Body.
GOVERNMENT CONTRACT. "Government Contract" shall mean any prime
contract, subcontract, letter contract, purchase order or delivery order
executed or submitted to or on behalf of any Governmental Body or any prime
contractor or higher-tier subcontractor, or under which any Governmental Body or
any such prime contractor or subcontractor otherwise has or may acquire any
right or interest.
GOVERNMENTAL AUTHORIZATION. "Governmental Authorization" shall mean
any: (a) permit, license, certificate, franchise, permission, clearance,
registration, qualification or authorization issued, granted, given or otherwise
made available by or under the authority of any Governmental Body or pursuant to
any Legal Requirement; or (b) right under any Contract with any Governmental
Body.
GOVERNMENTAL BODY. "Governmental Body" shall mean any: (a) nation,
state, commonwealth, province, territory, county, municipality, district or
other jurisdiction of any nature; (b) federal, state, local, municipal, foreign
or other government; or (c) governmental or quasi-governmental authority of any
nature (including any governmental division, department, agency, commission,
instrumentality, official, organization, unit,
body or Entity and any court or other tribunal).
INDEMNITEES. "Indemnitees" shall mean the following Persons: (a)
Parent; (b) Parent's current and future affiliates (including the Surviving
Corporation); (c) the respective Representatives of the Persons referred to in
clauses "(a)" and "(b)" above; and (d) the respective successors and assigns of
the Persons referred to in clauses "(a)", "(b)" and "(c)" above; provided,
however, that the Shareholders shall not be deemed to be "Indemnitees."
LEGAL PROCEEDING. "Legal Proceeding" shall mean any action, suit,
litigation, arbitration, proceeding (including any civil, criminal,
administrative, investigative or appellate proceeding), hearing, inquiry, audit,
examination or investigation commenced, brought, conducted or heard by or
before, or otherwise involving, any court or other Governmental Body or any
arbitrator or arbitration panel.
LEGAL REQUIREMENT. "Legal Requirement" shall mean any United States
federal, state, local or municipal law, statute, ordinance, code, rule or
regulation.
MATERIAL ADVERSE EFFECT. A violation or other matter will be deemed to
have a "Material Adverse Effect" on the Company if such violation or other
matter would have a material adverse effect on the Company's business,
condition, assets, liabilities, operations, financial performance or prospects.
PERSON. "Person" shall mean any individual, Entity or Governmental
Body.
PROPRIETARY ASSET. "Proprietary Asset" shall mean any: (a) patent,
patent application, trademark (whether registered or unregistered), trademark
application, trade name, fictitious business name, service xxxx (whether
registered or unregistered), service xxxx application, copyright (whether
registered or unregistered), copyright application, maskwork, maskwork
application, trade secret, know-how, customer list, franchise, system, computer
software, computer program, invention, design, blueprint, engineering drawing,
proprietary product, technology, proprietary right or other intellectual
property right or intangible asset; or (b) right to use or exploit any of the
foregoing.
REPRESENTATIVES. "Representatives" shall mean officers, directors,
employees, agents, attorneys, accountants, advisors and representatives.
SEC. "SEC" shall mean the United States Securities and Exchange
Commission.
SECURITIES ACT. "Securities Act" shall mean the Securities Act of 1933,
as amended.
TAX. "Tax" shall mean any tax (including any income tax, franchise tax,
capital gains tax, gross receipts tax, value-added tax, surtax, excise tax, ad
valorem tax, transfer tax, stamp tax, sales tax, use tax, property tax, business
tax, withholding tax or payroll
tax), levy, assessment, tariff, duty (including any customs duty), deficiency or
fee, and any related charge or amount (including any fine, penalty or interest),
imposed, assessed or collected by or under the authority of any Governmental
Body.
TAX RETURN. "Tax Return" shall mean any return (including any
information return), report, statement, declaration, estimate, schedule, notice,
notification, form, election, certificate or other document or information filed
with or submitted to, or required to be filed with or submitted to, any
Governmental Body in connection with the determination, assessment, collection
or payment of any Tax or in connection with the administration, implementation
or enforcement of or compliance with any Legal Requirement relating to any Tax.
EXHIBIT B
DEFINITION OF EARN-OUT PAYMENTS
The Earn-Out Payments to the shareholders of the Company shall be made in
accordance with the following formula for each Relevant Period, equal to the
Target Payment for the Relevant Period multiplied by the sum of
(a) 60% multiplied by the ratio of Product Net Sales for the
Relevant Period divided by Target Net Sales plus
(b) 40% multiplied by the ratio of Product Operating Income
for the Relevant Period divided by Target Operating Income;
PROVIDED, that in order for any Earn-Out Payment to be made for a Relevant
Period, Product Net Sales must equal or exceed 60% of Target Net Sales and
Product Operating Income must equal or exceed 60% of Target Operating Income.
DEFINITIONS.
---------------------------------------------------------------------------------------------------
Relevant Period Target Payment Target Net Sales Target Operating
Income
---------------------------------------------------------------------------------------------------
12 month period commencing $1,750,000 $7,500,000 $1,200,000
the first full month
following the Closing
---------------------------------------------------------------------------------------------------
12 month period commencing $1,750,000 $15,000,000 $5,100,000
one year following the
first full month following
the Closing
---------------------------------------------------------------------------------------------------
"Product" means products sold (or formerly sold prior to acquisition of the
Company) by the Company.
"Product Business Unit" means the business unit of the Parent responsible for
the development and sales of the Product, which will initially be the Surviving
Corporation but which may changed by the Parent in accordance with its
requirements.
"Product Net Sales" means gross sales to resellers, distributors, OEMs, or
customers of Product by the Company, minus discounts and returns.
"Product Gross Margin" means Product Net Sales minus direct material costs,
direct labor costs, and direct manufacturing overhead.
"Product Operating Income" means Product Gross Margin minus direct engineering
expenses, direct sales and marketing expenses, and 5% of Product Gross Margin
(as an overhead expense allocation). The overhead expense allocation will cover
services for accounting, credit and collections, human resources and information
technology.
RESTRICTIONS
From the Closing until the completion of the Earn Out Period, Parent
and Surviving Corporation, severally and for themselves, covenant and agree as
follows:
(a) Surviving Corporation will either be (i) operated as a stand-alone
subsidiary of Parent or (ii) merged with and into Parent or an affiliate of
Parent and continue operations as a separate business unit of Parent or such
affiliate (the business in either case (i) or (ii) shall be referred to herein
as the "Surviving Business").
(b) Separate financial books and records will continue to be maintained
for the Surviving Business. Parent shall provide each Key Employee with
reasonable access to such books and records in order to verify the amount of
Earn-Out Payments payable hereunder both during and after the period of such Key
Employee's employment with the Surviving Business.
(c) To the extent that operating cash flow from Product Net Sales is
inadequate to fund the operations of the Surviving Business, Parent shall
provide up to $500,000 in cash advances necessary to fund such Surviving
Business on a timely basis.
(d) The principal place of business of the Surviving Business shall not
be moved from 00000 Xxx Xxxxx Xxxx., Xxxxx 0, Xxx Xxxxx, Xxxxxxxxxx, without
prior discussion and consultation with the Key Employees regarding the relative
advantages and disadvantages of such a relocation.
(e) Parent will provide reasonable assistance to the Surviving
Business, including without limitation in the areas of product development,
marketing, distribution and fulfillment.
(f) Parent shall allow the Key Employees to have reasonable autonomy in
the management of the Surviving Business and will not undertake any action which
would have a material impact on the Surviving Business without prior discussion
and consultation with the Key Employees regarding the relative advantages and
disadvantages of such action.
(g) Employees of the Surviving Business shall not have their salaries
or benefits materially reduced or have their positions or responsibilities
materially changed
without prior discussion and consultation with the Key Employees regarding the
relative advantages and disadvantages of such a reduction or change.
(h) Parent shall not terminate the employment of any Key Employee
without Cause during the Earn-Out Period, provided that Surviving Business is
meeting or exceeding the Target Net Sales and Target Operating Income figures,
as defined in EXHIBIT B. For purposes of this exhibit, "Cause" for a Key
Employee's termination will exist at any time after the happening of one or more
of the following events: (i) any willful act or acts of dishonesty undertaken by
Key Employee and intended to result in substantial gain or personal enrichment
of Key Employee at the expense of Parent or the Surviving Business; or (ii) any
willful act of gross misconduct which is materially and demonstrably injurious
to Parent or the Surviving Business. No act, or failure to act, by a Key
Employee shall be considered "willful" if done, or omitted to be done, by him in
good faith and in the reasonable belief that his act or omission was in the best
interest of the Surviving Business and/or required by applicable law.
PREPARATION OF FINANCIAL STATEMENTS
Within 90 days of the end of each Relevant Period, Parent shall provide the
Agent with a report setting forth the calculation of the Earn-Out Payment, with
the components comprising "Product Net Sales", "Product Gross Margin" and
"Product Operating Income" determined in accordance with generally accepted
accounting principles consistent with the Parent's financial statements, and
shall make the appropriate payment to the former shareholders of the Company for
such Relevant Period as so shown as being owed in such report. In the event that
the Agent disputes any information contained in such report or the calculation
of any Earn-Out Payment, an independent third party will review the disputed
report and make a recommendation regarding changes, if any, to the report which
recommendation shall be binding on all parties.
