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EXHIBIT 2.1
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
TELECOMMUNICATION SYSTEMS, INC.
WINDWARD ACQUISITION CORP., AND
XYPOINT CORPORATION
NOVEMBER 15, 2000
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TABLE OF CONTENTS
Page
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ARTICLE I THE MERGER.........................................................................1
1.1 The Merger....................................................................1
1.2 Closing; Effective Time.......................................................2
1.3 Effect of the Merger..........................................................2
1.4 Articles of Incorporation; Bylaws.............................................2
1.5 Directors and Officers........................................................2
1.6 Effect on Target Capital Stock and Options....................................3
1.7 Exchange Procedures...........................................................6
1.8 No Further Ownership Rights in Target Capital Stock...........................8
1.9 Lost, Stolen or Destroyed Certificates........................................8
1.10 Tax Consequences..............................................................8
1.11 Taking of Necessary Action; Further Action....................................8
1.12 Definitions...................................................................8
ARTICLE II REPRESENTATIONS AND WARRANTIES OF TARGET........................................11
2.1 Organization, Standing and Power.............................................12
2.2 Capital Structure............................................................12
2.3 Authority; No Conflict.......................................................13
2.4 Financial Statements.........................................................14
2.5 Disclosure Documents.........................................................15
2.6 Absence of Certain Changes; Liabilities......................................15
2.7 Accounts Receivable..........................................................16
2.8 Litigation...................................................................17
2.9 Restrictions on Business Activities..........................................17
2.10 Title to Property; Absence of Liens..........................................17
2.11 Intellectual Property........................................................18
2.12 Environmental Matters........................................................20
2.13 Taxes ......................................................................21
2.14 Employee Benefit Plans.......................................................22
2.15 Employees and Consultants....................................................24
2.16 Customers and Suppliers; Products............................................25
2.17 Material Contracts...........................................................26
2.18 Target 911 Business Regulatory Compliance and Contracts......................28
2.19 Third-Party Consents.........................................................28
2.20 Insurance....................................................................28
2.21 Compliance with Laws; Governmental Authorizations............................29
2.22 Brokers' and Finders' Fees...................................................29
2.23 Target Agreements............................................................29
2.24 Board Approval; Shareholder Approval Required................................29
2.25 Minute Books.................................................................30
2.26 Export Control Laws and Foreign Corrupt Practices Act........................30
2.27 Representations Complete.....................................................30
2.28 Registration Rights..........................................................30
2.29 Beneficial Ownership of Acquiror Stock.......................................30
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ARTICLE III REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND MERGER SUB.......................31
3.1 Organization, Standing and Power.............................................31
3.2 Capital Structure............................................................31
3.3 Authority....................................................................32
3.4 SEC Documents; Financial Statements..........................................32
3.5 Disclosure Documents.........................................................33
3.6 Absence of Certain Changes...................................................33
3.7 Brokers' and Finders' Fees...................................................33
3.8 Representations Complete.....................................................34
3.9 Litigation...................................................................34
3.10 Tax Matters..................................................................34
ARTICLE IV COVENANTS OF TARGET..............................................................34
4.1 Information..................................................................35
4.2 Regulatory Approvals; Consents...............................................35
4.3 Conduct of Business..........................................................35
4.4 Approval of Shareholders of Target; Document Preparation.....................37
4.5 Current Information; Advice of Changes.......................................37
4.6 No Solicitation of Other Offers..............................................38
4.7 Public Announcements.........................................................38
4.8 Escrow Agreement.............................................................39
4.9 Stock Restriction Agreement..................................................39
4.10 Cooperation and Conditions...................................................39
4.11 Tax Free Reorganization......................................................39
ARTICLE V COVENANTS OF ACQUIROR AND MERGER SUB..............................................39
5.1 Information..................................................................40
5.2 Applications to Governmental Entities........................................40
5.3 Acquiror Common Stock........................................................40
5.4 Registration of Shares.......................................................40
5.5 Current Information; Advice of Changes; Conduct of Business..................41
5.6 Public Announcements.........................................................42
5.7 Escrow Agreement.............................................................42
5.8 Cooperation and Conditions...................................................42
5.9 Form S-8 Registration Statement..............................................42
5.10 Tax Free Reorganization......................................................42
5.11 Employee Benefits Matters....................................................43
5.12 Target Officers and Directors................................................43
5.13 Reports Under Securities Exchange Act of 1934................................44
5.14 Acquiror or Shareholder Approval.............................................44
ARTICLE VI CONDITIONS TO ACQUIROR'S AND MERGER SUB'S OBLIGATIONS............................44
6.1 Representations, Warranties, and Covenants...................................45
6.2 Shareholder Approval.........................................................45
6.3 Other Evidence...............................................................45
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6.4 No Adverse Proceedings, Events, or Regulatory Requirements...................45
6.5 Consents, Etc................................................................46
6.6 Opinion of Tax Counsel.......................................................46
6.7 Opinion of Counsel...........................................................46
6.8 Escrow Agreement.............................................................46
6.9 Securities Matters...........................................................46
6.10 280G Agreements..............................................................46
6.11 Resignation of Directors and Officers........................................47
6.12 Stock Restriction Agreement..................................................47
6.13 Termination of Pension Plan..................................................47
ARTICLE VII CONDITIONS TO TARGET'S OBLIGATIONS..............................................47
7.1 Representations, Warranties, and Covenants...................................47
7.2 Shareholder Approval.........................................................48
7.3 Other Evidence...............................................................48
7.4 No Adverse Proceedings, Events, or Regulatory Requirements...................48
7.5 Opinion of Tax Counsel.......................................................48
7.6 Opinion of Counsel...........................................................49
7.7 Securities Matters...........................................................49
7.8 Escrow Agreement.............................................................49
ARTICLE VIII TERMINATION, EXPENSES, AMENDMENT AND WAIVER....................................49
8.1 Termination..................................................................49
8.2 Effect of Termination........................................................50
8.3 Expense......................................................................50
8.4 Extension; Waiver............................................................51
ARTICLE IX ESCROW AND INDEMNIFICATION.......................................................51
9.1 Survival of Representations, Warranties and Covenants........................51
9.2 Indemnification..............................................................52
9.3 Escrow Fund..................................................................52
9.4 Certain Limitations..........................................................52
9.5 Certain Procedural Matters...................................................53
9.6 Exclusive Remedy.............................................................53
9.7 Resolution of Conflicts; Arbitration.........................................54
9.8 Shareholders' Agent..........................................................54
9.9 Actions of Shareholders' Agent...............................................55
ARTICLE X GENERAL PROVISIONS................................................................55
10.1 Notices......................................................................55
10.2 Interpretation...............................................................56
10.3 Counterparts.................................................................57
10.4 Entire Agreement; Third Party Beneficiaries..................................57
10.5 Severability.................................................................57
10.6 Remedies Cumulative..........................................................57
10.7 Governing Law................................................................57
10.8 Assignment; Amendment; Binding Effect........................................58
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10.9 Rules of Construction........................................................58
SCHEDULES
Target Disclosure Schedule
Acquiror Disclosure Schedule
EXHIBITS
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Exhibit A Voting Agreement
Exhibit B Articles of Merger
Exhibit C Stock Restriction Agreement
Exhibit D Escrow Agreement
Exhibit E Legal Opinion of Venture Law Group
Exhibit F 280G Agreements
Exhibit G Legal Opinion of Xxxxx Xxxxxxx Xxxxxxx & Xxxxx LLP
Exhibit H Amendment to Articles of Incorporation
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AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (this "AGREEMENT") is
made and entered into as of November 15, 2000 (the "Execution Date") by and
among TeleCommunication Systems, Inc., a Maryland corporation ("ACQUIROR"),
Windward Acquisition Corp., a Washington State corporation and wholly-owned
subsidiary of Acquiror ("MERGER SUB"), XYPOINT Corporation, a Washington State
corporation ("TARGET").
RECITALS
The Boards of Directors of Target, Acquiror and Merger Sub
believe it is in the best interests of their respective companies and the
stockholders of their respective companies that Target and Merger Sub combine
into a single company through the statutory merger of Target with and into
Merger Sub with Merger Sub being the surviving corporation in the merger (the
"MERGER") and, in furtherance thereof, have approved the Merger.
A. Pursuant to the Merger, among other things, each outstanding
share of the capital stock of Target shall be converted into shares of Class A
common stock of Acquiror, $0.01 par value per share ("ACQUIROR COMMON STOCK"),
upon the terms and subject to the conditions set forth herein and at the
exchange rates set forth herein.
B. Target, Acquiror and Merger Sub desire to make certain
representations and warranties and other agreements and covenants in connection
with the Merger.
C. The parties intend, by executing this Agreement, to adopt a
plan of reorganization within the meaning of Section 368 of the Internal Revenue
Code of 1986, as amended (the "CODE"), and to cause the Merger to qualify as a
reorganization under the provisions of Sections 368(a)(1)(A) and 368(a)(2)(E) of
the Code.
D. Concurrent with the execution of this Agreement and as an
inducement to Acquiror to enter into this Agreement, certain shareholders of
Target (collectively, the "TARGET PRINCIPAL SHAREHOLDERS") are entering into an
agreement in substantially the form attached hereto as Exhibit A (the "VOTING
AGREEMENT") to vote the shares of Target Capital Stock (as defined herein)
beneficially owned or controlled by such person to approve this Agreement and
the Merger and the other transactions contemplated hereby and against any
competing proposals.
NOW, THEREFORE, in consideration of the covenants and
representations set forth herein, and for other good and valuable consideration,
the parties agree as follows:
ARTICLE I
THE MERGER
1.1 THE MERGER
At the Effective Time (as hereinafter defined) and subject to and
upon the terms and conditions of this Agreement, the Articles of Merger
substantially in the form attached
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hereto as Exhibit B (the "ARTICLES OF MERGER") and the applicable provisions of
the Washington Business Corporation Act ("WASHINGTON LAW"), Target shall be
merged with and into Merger Sub, in accordance with Washington Law and other
applicable law, the separate corporate existence of Target shall cease and
Merger Sub shall continue as the surviving corporation. Merger Sub as the
surviving corporation after the Merger is hereinafter sometimes referred to as
the "SURVIVING CORPORATION."
1.2 CLOSING; EFFECTIVE TIME
The closing of the transactions contemplated hereby (the
"CLOSING") shall be held at the offices of Xxxxx Xxxxxxx Xxxxxxx & Xxxxx LLP at
0000 Xxxxx Xxxxxx, Xxxxxxxxx, Xxxxxxxx 00000, on December 29, 2000; provided,
however, that in the event that all the conditions to the Closing set forth in
Articles VI and VII below shall not have been satisfied or waived by that time,
then the Closing shall occur on the third business day after such conditions
have been satisfied or waived (the date on which the Closing shall occur being
the "CLOSING DATE"). On the Closing Date, the parties hereto shall cause the
Merger to be consummated by filing the Articles of Merger with the Secretary of
State of the State of Washington, in accordance with the relevant provisions of
Washington Law (the time and date of such filing being the "EFFECTIVE TIME" and
the "EFFECTIVE DATE," respectively).
1.3 EFFECT OF THE MERGER
At the Effective Time, the effect of the Merger shall be as
provided in this Agreement, the Articles of Merger and the applicable provisions
of Washington Law. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time, all the property, rights, privileges, powers and
franchises of Target shall vest in the Surviving Corporation, and all debts,
liabilities and duties of Target shall become the debts, liabilities and duties
of the Surviving Corporation.
1.4 ARTICLES OF INCORPORATION; BYLAWS
(a) At the Effective Time, the articles of incorporation of
Merger Sub, as in effect immediately prior to the Effective Time, shall be the
articles of incorporation of the Surviving Corporation until thereafter amended
as provided by Washington Law and such articles of incorporation.
(b) At the Effective Time, the Bylaws of Merger Sub, as in effect
immediately prior to the Effective Time, shall be the Bylaws of the Surviving
Corporation until thereafter amended as provided by Washington Law. Thereafter,
the Bylaws may be amended or repealed in accordance with their terms and the
articles of incorporation of the Surviving Corporation and as provided by law.
1.5 DIRECTORS AND OFFICERS
At the Effective Time, the directors and officers of the Target
shall resign and be removed and the directors of Merger Sub immediately prior to
the Effective Time shall be the directors of the Surviving Corporation, to hold
office until such time as such directors resign, are
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removed or their respective successors are duly elected or appointed and
qualified. The officers of Merger Sub immediately prior to the Effective Time
shall be the officers of the Surviving Corporation, to hold office until such
time as such officers resign, are removed or their respective successors are
duly elected or appointed and qualified.
1.6 EFFECT ON TARGET CAPITAL STOCK AND OPTIONS
By virtue of the Merger and without any action on the part of
Acquiror, Merger Sub, Target or the holders of any of Target's securities:
(a) Conversion of Target Capital Stock. (i) Subject to Section
1.6(c) below, on the Effective Date, all Target capital stock outstanding,
including all common stock, preferred stock and shares reserved for issuance
pursuant to outstanding warrants and options to purchase common and preferred
stock (the "TARGET CAPITAL STOCK"), immediately prior to the Effective Date,
shall, without any action on the part of the holder thereof, be canceled and
converted into an aggregate of 4,300,000 shares of Acquiror Common Stock
(rounded to the nearest 0.01 share), as set forth below; provided, however, the
assumption of any New Options (as defined in Section 4.3) or the issuance of any
shares of Acquiror Common Stock as a result of the exercise of any New Options
shall be in addition to such 4,300,00 shares of Acquiror Common Stock and shall
be exchanged at the same rate as the Common Stock Exchange Ratio. Any shares
with respect to which dissenter's rights shall have been perfected in accordance
with Washington Law (the "DISSENTING SHARES") shall be excluded from the
foregoing and the aggregate requirement for delivery of 4,300,000 shares of
Acquiror Common Stock shall be accordingly reduced.
(i) Conversion of Target Common Stock. At the Effective
Time, each share of Target Common Stock issued and outstanding immediately prior
to the Effective Time (other than any Dissenting Shares) will be converted
automatically into the right to receive that number of shares of Acquiror Common
Stock equal to the Common Stock Exchange Ratio, rounded down to the nearest
whole share of Acquiror Common Stock.
(ii) Conversion of Series A Preferred Stock. At the
Effective Time, each share of Target Series A Preferred Stock issued and
outstanding immediately prior to the Effective Time (other than any Dissenting
Shares) will be automatically converted into the right to receive that number of
shares of Acquiror Common Stock equal to the Series A Exchange Ratio, rounded
down to the nearest whole share of Acquiror Common Stock.
(iii) Conversion of Series B Preferred Stock. At the
Effective Time, each share of Target Series B Preferred Stock issued and
outstanding immediately prior to the Effective Time (other than any Dissenting
Shares) will be automatically converted into the right to receive that number of
shares of Acquiror Common Stock equal to the Series B Exchange Ratio, rounded
down to the nearest whole share of Acquiror Common Stock.
(iv) Conversion of Series C Preferred Stock. At the
Effective Time, each share of Target Series C Preferred Stock issued and
outstanding immediately prior to the Effective Time (other than any Dissenting
Shares) will be automatically converted into the right to receive that number of
shares of Acquiror Common Stock equal to the Series C Exchange Ratio, rounded
down to the nearest whole share of Acquiror Common Stock.
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(v) Conversion of Series D Preferred Stock. At the
Effective Time, each share of Target Series D Preferred Stock issued and
outstanding immediately prior to the Effective Time (other than any Dissenting
Shares) will be automatically converted into the right to receive that number of
shares of Acquiror Common Stock equal to the Series D Exchange Ratio, rounded
down to the nearest whole share of Acquiror Common Stock.
(vi) Conversion of Series E Preferred Stock. At the
Effective Time, each share of Target Series E Preferred Stock issued and
outstanding immediately prior to the Effective Time (other than any Dissenting
Shares) will be automatically converted into the right to receive that number of
shares of Acquiror Common Stock equal to the Series E Exchange Ratio, rounded
down to the nearest whole share of Acquiror Common Stock.
(vii) Conversion of Series X Junior Preferred Stock. At
the Effective Time, each share of Target Series X Junior Preferred Stock issued
and outstanding immediately prior to the Effective Time (other than any
Dissenting Shares) will be automatically converted into the right to receive
that number of shares of Acquiror Common Stock equal to the Series X Exchange
Ratio, rounded down to the nearest whole share of Acquiror Common Stock.
(b) Fractional Shares. No fraction of a share of Acquiror Common
Stock shall be issued; in lieu thereof, each holder otherwise entitled to a
fractional interest (after aggregating all fractional shares to be received by
such holder) shall receive from Acquiror an amount in cash (rounded to the
nearest whole cent) based on the market value of Acquiror Common Stock as
determined by multiplying such fraction by the price per share of Class A Common
Stock, as listed on the NASDAQ National Market, on the close of trading the day
prior to Closing. Each such holder shall have no other rights with respect to
such fractional interest and shall have no rights as a stockholder of Acquiror.
(c) Escrow of Shares. Of the shares of the Acquiror Common Stock
to be issued by the Acquiror at the Effective Date, 400,000 shares (the "Escrow
Shares") shall be deposited into an escrow fund (the "ESCROW FUND") in
accordance with Article IX and the Escrow Agreement (as defined hereinafter),
which shall be registered in the name of the Escrow Agent (as defined in the
Escrow Agreement) as nominee for the holders of such shares. Such Escrow Shares
shall be beneficially owned by such holders and shall be held in escrow and
shall be available to compensate Acquiror for damages as provided in Article IX
and the Escrow Agreement. To the extent not used for such purposes, such shares
shall be released, all as provided in Article IX and in the Escrow Agreement.
(d) Assumption of Common Options and Target Warrants and New
Options.
At the Effective Time all unexpired and unexercised Common
Options and Target Warrants and New Options then outstanding, whether vested or
unvested, together with the Target Stock Plans, shall be assumed by the Acquiror
in accordance with provisions described below.
(i) At the Effective Time, each unexpired and unexercised
Target Option and Target Warrant and New Option then outstanding, whether vested
or unvested, together with the Target Stock Plans, shall be, in connection with
the Merger, assumed by the
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Acquiror. Each Target Option and Target Warrant and New Option so assumed by the
Acquiror under this Agreement shall continue to have, and be subject to, the
same terms and conditions as were applicable to such Target Option or Target
Warrant or New Option immediately prior to the Effective Time; provided that (1)
such Target Option or Target Warrant or New Option, as the case may be, shall be
exercisable for that number of whole shares of Acquiror Common Stock equal to
the product of the number of shares of Target Capital Stock that were issuable
upon exercise of such Target Option or Target Warrant or New Option immediately
prior to the Effective Time multiplied by the Exchange Ratio applicable to the
series or class of Target Capital Stock subject to the Target Option or Target
Warrant or New Option (rounded down to the nearest whole number of shares of
Acquiror Common Stock) and (2) the per share exercise price for the shares of
Acquiror Common Stock issuable upon exercise of such assumed Target Option or
Target Warrant or New Option, as the case may be, shall be equal to the quotient
determined by dividing the exercise price per share of Target Capital Stock at
which such Target Option or Target Warrant or New Option was exercisable
immediately prior to the Effective Time by the Exchange Ratio applicable to the
series or class of Target Capital Stock subject to the Target Option or Target
Warrant or New Option (rounded up to the nearest whole cent).
(ii) The adjustments provided in this Section 1.6(d) with
respect to any Outstanding Option which are "incentive stock options" (as
defined in Section 422 of the Internal Revenue Code of 1986, as amended (the
"CODE") shall be and are intended to be effected in a manner which is consistent
with Section 424(a) of the Code. Within thirty (30) days following the Effective
Time, Acquiror shall deliver to former holders of Common Options and New Options
appropriate agreements representing the right to acquire Acquiror Common Stock
on the terms and conditions set forth in this Section 1.6(d).
(e) Capital Stock of Merger Sub. At the Effective Time, each
share of Merger Sub common stock, par value $0.01 per share, issued and
outstanding immediately prior to the Effective Time shall be converted into and
exchanged for one validly issued, fully paid and nonassessable share of common
stock, $0.01 par value per share, of the Surviving Corporation. Each stock
certificate of Merger Sub evidencing ownership of any such shares shall continue
to evidence ownership of such shares of capital stock of the Surviving
Corporation.
(f) Dissenters' Rights. Any Dissenting Shares, which as of the
Effective Date the holder thereof has not withdrawn or lost any right to such
appraisal, shall not be converted into Acquiror Common Stock or represent the
right to receive shares of Acquiror Common Stock and shall not receive or
represent the right to receive any cash in lieu of fractional shares but instead
shall be converted into the right to receive such consideration as may be
determined to be due with respect to such Dissenting Shares pursuant to
Washington Law. The Target shall give the Acquiror (i) prompt notice of any
written demands for appraisal of any shares of Target Capital Stock, withdrawals
or modifications of such demands, and any other instruments served pursuant to
Washington Law and received by the Target which relate to any such demand for
appraisal and (ii) the opportunity to participate in all negotiations and
proceedings which take place prior to the Closing. Target agrees that, except
with the prior written consent of Acquiror, it will not make any payment with
respect to, or settle or offer to settle, any claim, demand or other liability
with respect to any Dissenting Shares. Each holder of Dissenting Shares (a
"DISSENTING SHAREHOLDER") who, pursuant to the provisions of Washington Law
becomes
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entitled to payment of the fair value for shares of Target Capital Stock
shall receive payment therefor (but only after the value therefor shall have
been agreed upon or finally determined pursuant to such provisions) and
thereupon such Dissenting Shares shall be canceled, retired and cease to exist.
If, after the Effective Time, any Dissenting Shares shall lose their status as
Dissenting Shares (either because the Dissenting Shareholder withdraws, fails to
perfect or otherwise loses the right to appraisal), Acquiror shall issue and
deliver, upon surrender by such Dissenting Shareholder of a certificate or
certificates representing shares of Target Capital Stock, the number of shares
of Acquiror Common Stock to which such Dissenting Shareholder would otherwise be
entitled under Section 1.6(a) and the Articles of Merger, without interest
thereon. Notwithstanding any provision of this Agreement to the contrary,
Acquiror shall have the right to terminate this Agreement and be released from
all obligations hereunder if, immediately prior to the proposed Effective Date,
Target shareholders who would otherwise receive in excess of 5% of the 4,300,000
shares of Acquiror Common Stock to be delivered in connection with the Merger
have demanded appraisal rights (which demands have not been withdrawn).
1.7 EXCHANGE PROCEDURES
(a) Exchange Agent. Acquiror, or an agent designated by it, shall
act as exchange agent (the "EXCHANGE AGENT") in the Merger.
(b) Acquiror to Provide Acquiror Common Stock and Cash. After the
Effective Time, Acquiror shall make available in accordance with this Article I,
through such reasonable procedures as Acquiror may adopt, (i) the shares of
Acquiror Common Stock issuable pursuant to Section 1.6(a) in exchange for shares
of Target Capital Stock outstanding immediately prior to the Effective Time less
the Escrow Shares deposited in the Escrow Fund pursuant to the requirements of
Article IX and the Escrow Agreement, and (ii) cash in an amount sufficient to
permit payment of cash in lieu of fractional shares pursuant to Section 1.6(b).
(c) Exchange Procedures. Promptly after the Effective Time,
Acquiror shall cause the Exchange Agent to mail to each holder of record (the
"FORMER TARGET SHAREHOLDERS") of a certificate or certificates (the
"CERTIFICATES") which immediately prior to the Effective Time represented
outstanding shares of Target Capital Stock, whose shares were converted into the
right to receive shares of Acquiror Common Stock pursuant to Section 1.6(a), (i)
a letter of transmittal (which shall specify that delivery shall be effected,
and risk of loss and title to the Certificates shall pass, only upon receipt of
the Certificates by the Exchange Agent, and shall be in such form and have such
other provisions as Acquiror may reasonably specify) and (ii) instructions for
use in effecting the surrender of the Certificates in exchange for certificates
representing shares of Acquiror Common Stock (and cash in lieu of fractional
shares). Upon surrender of a Certificate, free and clear of all Liens (as
defined herein below) and other charges thereon of every kind, for cancellation
to the Exchange Agent, together with such letter of transmittal, duly completed
and validly executed in accordance with the instructions thereto, the holder of
such Certificate shall be entitled to receive in exchange therefor a certificate
representing the number of whole shares of Acquiror Common Stock (less the
Escrow Shares to be deposited in the Escrow Fund on such holder's behalf
pursuant to Article IX and the Escrow Agreement), and the Certificate so
surrendered shall forthwith be canceled. "LIENS" means any mortgage, lien
(including mechanics, warehousemen, laborers and landlords liens),
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claim, pledge, charge, security interest, preemptive right, right of first
refusal, option, judgment, title defect or encumbrance of any kind. Until so
surrendered, each outstanding Certificate that, prior to the Effective Time,
represented shares of Target Capital Stock will be deemed from and after the
Effective Time, for all corporate purposes, other than the payment of dividends,
to evidence the ownership of the number of full shares of Acquiror Common Stock
into which such shares of Target Capital Stock shall have been so converted and
the right to receive an amount in cash in lieu of fractional shares pursuant to
Section 1.6. As soon as practicable after the Effective Time and subject to and
in accordance with the provisions of Section 9.3, Acquiror shall cause to be
delivered to the Escrow Agent a certificate or certificates representing the
Escrow Shares, which shall be registered in the name of the Escrow Agent as
nominee for the holders of Certificates cancelled pursuant to this Section
1.7(c).
(d) Distributions with Respect to Unexchanged Shares. No
dividends or other distributions with respect to Acquiror Common Stock with a
record date after the Effective Time shall be paid to the holder of any
unsurrendered Certificate with respect to the shares of Acquiror Common Stock
represented thereby until the holder of record of such Certificate surrenders
such Certificate. Subject to applicable law, following surrender of any such
Certificate, there shall be paid to the record holder of the certificates
representing whole shares of Acquiror Common Stock issued in exchange therefor,
without interest, at the time of such surrender, the amount of any such
dividends or other distributions with a record date after the Effective Time
which would have been previously payable (but for the provisions of this Section
1.7(d)) with respect to such shares of Acquiror Common Stock.
(e) Transfers of Ownership. If any certificate for shares of
Acquiror Common Stock is to be issued in a name other than that in which the
Certificate surrendered in exchange therefor is registered, it shall be a
condition of the issuance thereof that the Certificate so surrendered is
properly endorsed and otherwise in proper form for transfer and that the person
requesting such exchange will have paid to Acquiror or the Exchange Agent any
transfer or other Taxes (as defined in Section 2.13) required by reason of the
issuance of a certificate for shares of Acquiror Common Stock in any name other
than that of the registered holder of the Certificate surrendered, or
established to the satisfaction of Acquiror or the Exchange Agent that such Tax
has been paid or is not payable.
(f) No Liability. Notwithstanding anything to the contrary in
this Section 1.7, no party hereto or any of their respective agents shall be
liable to any person for any amount properly paid to a public official pursuant
to any applicable abandoned property, escheat or similar law.
(g) Dissenting Shares. The provisions of this Section 1.7 also
shall apply to Dissenting Shares that lose their status as such, except that the
obligations of Acquiror under this Section 1.6 shall commence on the date of
loss of such status and the holder of such shares shall be entitled to receive
in exchange for such shares the number of shares of Acquiror Common Stock to
which such holder is entitled pursuant to Section 1.6.
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1.8 NO FURTHER OWNERSHIP RIGHTS IN TARGET CAPITAL STOCK
All shares of Acquiror Common Stock issued upon the surrender for
exchange of shares of Target Capital Stock in accordance with the terms hereof
shall be deemed to have been issued in full satisfaction of all rights
pertaining to such shares of Target Capital Stock, and there shall be no further
registration of transfers on the records of the Acquiror of shares of Target
Capital Stock which were outstanding immediately prior to the Effective Time.
If, after the Effective Time, Certificates are presented to the Acquiror for any
reason, they shall be canceled and exchanged as provided in this Article I.
1.9 LOST, STOLEN OR DESTROYED CERTIFICATES
In the event any Certificate shall have been lost, stolen or
destroyed, the Acquiror shall issue or cause to be issued in exchange for such
lost, stolen or destroyed Certificate, upon the making of an affidavit of that
fact by the holder thereof, such shares of Acquiror Common Stock as may be
required pursuant to Section 1.6; provided, however, that Acquiror may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed Certificate to deliver a bond in such
sum as it may reasonably direct as indemnity against any claim that may be made
against Acquiror, the Surviving Corporation or any of their agents with respect
to the Certificate alleged to have been lost, stolen or destroyed.
1.10 TAX CONSEQUENCES
It is intended by the parties hereto that the Merger shall
constitute a reorganization within the meaning of Section 368 of the Code. No
party shall take any action, or fail to take any action, whether before or after
the Closing, which would reasonably be expected to cause the Merger to fail to
so qualify as a reorganization within the meaning of Section 368 of the Code.
1.11 TAKING OF NECESSARY ACTION; FURTHER ACTION
If, at any time after the Effective Time, any further action is
necessary or desirable to carry out the purposes of this Agreement and to vest
the Surviving Corporation with full right, title and possession to all assets,
property, rights, privileges, powers and franchises of Target and Merger Sub,
the officers and directors of Target and Merger Sub are fully authorized in the
name of their respective corporations or otherwise to take, and shall take, all
such lawful and necessary action, so long as such action is not inconsistent
with this Agreement.
1.12 DEFINITIONS
As used in this Agreement, the following defined terms shall have
the meanings indicated below.
"Aggregate Common Share Number" means the aggregate number of
shares of Target Common Stock outstanding as of the Effective Time and shares of
Target Common Stock issuable upon exercise of the Common Warrants and shares of
Target Common Stock issuable upon exercise of Common Options.
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"Aggregate Merger Share Number" means 4,300,000 shares of
Acquiror Common Stock (as appropriately adjusted to reflect the effect of any
stock split, stock dividend, stock combination, reorganization, reclassification
or similar change by the Acquiror occurring after the date of this Agreement and
prior to the Effective Time and as appropriately adjusted to take into account
any Dissenting Shares).
"Aggregate Series A Share Number" means the aggregate number of
shares of Series A Preferred Stock outstanding as of the Effective Time and
shares of Series A Preferred Stock issuable upon exercise of the Series A
Warrants.
"Aggregate Series B Share Number" means the aggregate number of
shares of Series B Preferred Stock outstanding as of the Effective Time and
shares of Series B Preferred Stock issuable upon exercise of the Series B
Warrants.
"Aggregate Series C Share Number" means the aggregate number of
shares of Series C Preferred Stock outstanding as of the Effective Time and
shares of Series C Preferred Stock issuable upon exercise of the Series C
Warrants.
"Aggregate Series D Share Number" means the aggregate number of
shares of Series D Preferred Stock outstanding as of the Effective Time and
shares of Series D Preferred Stock issuable upon exercise of the Series D
Warrants.
"Aggregate Series E Share Number" means the aggregate number of
shares of Series E Preferred Stock outstanding as of the Effective Time and
shares of Series E Preferred Stock issuable upon exercise of the Series E
Warrants.
"Aggregate Series X Share Number" means the aggregate number of
shares of Series X Junior Preferred Stock outstanding as of the Effective Time
and shares of Series X Junior Preferred Stock issuable upon exercise of the
Series X Warrants and shares of Series X Junior Preferred Stock issuable upon
exercise of the Series X Options.
"Aggregate Target Share Number" means the sum of (a) Aggregate
Common Share Number, (b) the Aggregate Series A Share Number, (c) the Aggregate
Series B Share Number, (d) the Aggregate Series C Share Number, (e) the
Aggregate Series D Share Number), (f) the Aggregate Series E Share Number, and
(g) the Aggregate Series X Share Number.
"Closing Price" means the average closing sales price of Acquiror
Common Stock as traded on the NASDAQ National Market and reported by The Wall
Street Journal, for the forty-five consecutive trading days ending on and
including the third trading day prior to the Execution Date.
"Common Stock Exchange Ratio" means the quotient obtained by
dividing (x) the Aggregate Merger Share Number minus the Liquidation Share
Number by (y) the Aggregate Common Share Number.
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"Common Option(s)" means any option to purchase Target Common
Stock pursuant to the Target Stock Plans which remain outstanding and
unexercised and unexpired as of the Effective Time, excluding the Common
Warrants and the New Options.
"Common Warrants" means all of the warrants to purchase Target
Common Stock which remain outstanding and unexercised and unexpired as of the
Effective Time, excluding the Common Options and the New Options.
"Exchange Ratios" means the Series A Exchange Ratio, the Series B
Exchange Ratio, the Series C Exchange Ratio, the Series D Exchange Ratio, the
Series E Exchange Ratio, the Series X Exchange Ratio and the Common Stock
Exchange Ratio.
"Liquidation Share Number" means the quotient of (x) the Series A
Liquidation Preference plus the Series B Liquidation Preference plus the Series
C Liquidation Preference plus the Series D Liquidation Preference plus the
Series E Liquidation Preference plus the Series X Liquidation Preference divided
by (y) the Closing Price.
"Series A Warrants" means all of the warrants to purchase Target
Series A Preferred Stock which remain outstanding and unexercised and unexpired
as of the Effective Time.
"Series A Exchange Ratio" means the quotient of (i) $1.00 divided
by (ii) the Closing Price.
"Series A Liquidation Preference" means the product of (i) the
Aggregate Series A Share Number and (ii) $1.00.
"Series B Exchange Ratio" means the quotient of (i) $1.75 divided
by (ii) the Closing Price.
"Series B Liquidation Preference" means the product of (i) the
Aggregate Series B Share Number and (ii) $1.75.
"Series B Warrants" means all of the warrants to purchase Target
Series B Preferred Stock which remain outstanding and unexercised and unexpired
as of the Effective Time.
"Series C Exchange Ratio" means the quotient of (i) $1.75 divided
by (ii) the Closing Price.
"Series C Liquidation Preference" means the product of (i) the
Aggregate Series C Share Number and (ii) $1.75.
"Series C Warrants" means all of the warrants to purchase Target
Series C Preferred Stock which remain outstanding and unexercised and unexpired
as of the Effective Time.
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"Series D Exchange Ratio" means the quotient of (i) $2.69 divided
by (ii) the Closing Price.
"Series D Liquidation Preference" means the product of (i) the
Aggregate Series D Share Number and (ii) $2.69.
"Series D Warrants" means all of the warrants to purchase Target
Series D Preferred Stock which remain outstanding and unexercised and unexpired
as of the Effective Time.
"Series E Exchange Ratio" means the quotient of (i) $1.54 divided
by (ii) the Closing Price.
"Series E Liquidation Preference" means the product of (i) the
Aggregate Series E Share Number and (ii) $1.54.
"Series E Warrants" means all of the warrants to purchase Target
Series E Preferred Stock which remain outstanding and unexercised and unexpired
as of the Effective Time.
"Series X Exchange Ratio" means the quotient of (i) $0.80 divided
by (ii) the Closing Price.
"Series X Liquidation Preference" means the product of (i) the
Aggregate Series X Share Number and (ii) $0.80.
"Series X Option(s)" means any option to purchase shares of
Target Series X Junior Preferred Stock pursuant to the Target Stock Plans which
remain outstanding and unexercised and unexpired as of the Effective Time.
"Series X Warrants" means all of the warrants to purchase Target
Series X Preferred Stock which remain outstanding and unexercised and unexpired
as of the Effective Time.
"Target Capital Stock" means the Target Common Stock and Target
Preferred Stock.
"Target Stock Plans" means Target's 1995 Stock Option Plan, 1997
Stock Option Plan and 2000 Stock Option Plan.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF
TARGET
In this Agreement, (i) any reference to any event, change,
condition or effect being "material" with respect to any entity means any
material event, change, condition or effect
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related to the financial condition, properties, assets (including intangible
assets), operations or products that is material to such entity and its
subsidiaries, if any, taken as a whole; (ii) any reference to a "MATERIAL
ADVERSE EFFECT" with respect to any entity means any event, change or effect
that is materially adverse to the financial condition, properties, assets
(including intangible assets), business, operations or products of such entity
and its subsidiaries, if any, taken as a whole, except for (A) matters generally
effecting the industry in which such entity operates and (B) changes in general
economic conditions; (iii) the words "AWARE", "KNOWLEDGE" or similar words,
expressions or phrases with respect to a party means such party's actual
knowledge after inquiry of officers, directors and other employees of such party
and its subsidiaries, if any, reasonably believed to have knowledge of the
relevant matters. Any reference in this Agreement to an agreement being
"ENFORCEABLE" shall be deemed to be qualified to the extent such enforceability
is subject to (A) laws of general application relating to bankruptcy,
insolvency, moratorium, fraudulent conveyance and the relief of debtors and (B)
the availability of specific performance, injunctive relief and other equitable
remedies.
Target represents and warrants to Acquiror and Merger Sub that
the statements contained in this Article II are true and correct, except as set
forth in the Disclosure Schedule delivered by Target to Acquiror immediately
prior to the execution and delivery of this Agreement (the "TARGET DISCLOSURE
SCHEDULE"). The Target Disclosure Schedule shall be arranged in paragraphs
corresponding to the numbered Sections contained in this Article II and the
disclosure in any Section shall qualify only the corresponding Section in
Article II, unless it is reasonably apparent that the disclosure in one section
should apply to one or more other sections.
2.1 ORGANIZATION, STANDING AND POWER
Target is a corporation duly organized and validly existing under
the laws of the State of Washington and has full corporate power and authority
(i) to conduct its business as presently conducted and as proposed to be
conducted, (ii) to enter into this Agreement and (iii) to carry out the
transactions contemplated by this Agreement. Target is duly qualified and in
good standing to do business as a foreign corporation in each jurisdiction where
the character of the property owned or leased by it or the nature of its
activities makes such qualifications necessary or where the failure to qualify
would have a Material Adverse Effect. Target has furnished to Acquiror true and
complete copies of its Articles of Incorporation, as amended ("TARGET ARTICLES
OF INCORPORATION") and Bylaws, as amended ("TARGET BYLAWS") each currently in
effect and said copies are due, correct and complete, and contain all amendments
through the date hereof. Target is not in violation of any of the provisions of
Target Articles of Incorporation or Target Bylaws. Target has no subsidiaries.
Target does not own, directly or indirectly, any equity or similar interest in,
or any interest convertible into or exchangeable or exercisable for, any equity
or similar interest in, any corporation, partnership, joint venture or other
business association or entity.
2.2 CAPITAL STRUCTURE
(a) As of the Execution Date, the authorized capital stock of
Target consists of 70,000,000 shares of Target Common Stock, of which 480,230
shares are issued and
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outstanding, and 54,279,877 shares of preferred stock, par value $0.01 per share
("TARGET PREFERRED STOCK"), of which 5,000,000 shares have been designated
Series A Preferred Stock, all of which shares are issued and outstanding;
13,000,000 shares have been designated Series X Junior Preferred Stock, of which
11,150,732 shares are issued and outstanding; 7,000,000 shares have been
designated Series B Preferred Stock, of which 6,389,229 shares are issued and
outstanding; 12,500,000 shares have been designated Series C Preferred Stock, of
which 9,506,431 shares are issued and outstanding; 546,110 shares have been
designated Series D Preferred Stock, all of which shares are issued and
outstanding; and 16,233,767 shares have been designated Series E Preferred
Stock, of which 6,507,274 are issued and outstanding. All of the issued and
outstanding shares of Target Capital Stock have been duly authorized and validly
issued and are fully paid and nonassessable. Except as set forth in Section 2.2
of the Target Disclosure Schedule, (a) no subscription, warrant, option,
convertible security or other right (contingent or otherwise) to purchase or
acquire from Target any shares of capital stock of Target is authorized,
reserved or outstanding, (b) Target has no obligation (contingent or otherwise)
to issue any subscription, warrant, option, convertible security or other such
right or to issue or distribute to holders of any shares of its capital stock
any evidences of indebtedness or assets of Target, (c) Target has no obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any shares of
its capital stock or any interest therein or to pay any dividend or make any
other distribution in respect thereof and (d) no other shares of capital stock
of the Target are issued and outstanding. All of the issued and outstanding
securities of Target, including those offered pursuant to the Target Stock
Option Plans or the Target Warrants, have been offered, issued and sold by
Target in compliance with applicable federal and state securities laws.
(b) Section 2.2(b) of the Target Disclosure Schedule contains a
true and complete list of all issued and outstanding Warrants to purchase or
acquire from Target any shares of capital stock of Target as of the date hereof.
Schedule 2.2(b) sets forth (i) the name and address of each warrant holder; (ii)
the manner in which each warrant terminates; and (iii) the number of shares and
class of capital stock of Target into which each warrant is exercisable. True
and complete copies of all agreements and instruments relating to or issued
under the Target Stock Plans and the Warrants have been made available to
Acquiror, and such agreements and instruments have not been amended, modified or
supplemented, and there are no agreements to amend, modify or supplement such
agreements or instruments from the forms made available to Acquiror.
2.3 AUTHORITY; NO CONFLICT
(a) The execution, delivery and performance by Target of this
Agreement and the Articles of Merger, and the consummation by Target of the
transactions contemplated hereby and thereby, have been duly authorized by all
necessary corporate action on the part of Target and its shareholders, subject
only to the approval of the Merger by Target's shareholders. This Agreement has
been duly executed and delivered by Target and constitutes a valid and binding
obligation of Target enforceable against Target in accordance with its terms.
The Articles of Merger upon execution will constitute a valid and binding
obligation of Target enforceable against Target in accordance with its terms.
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(b) The execution, delivery and performance of this Agreement by
Target does not, and the consummation of the transactions contemplated hereby on
the part of Target will not, (i) conflict with, or result in any violation of,
or breach of or default under (with or without notice or lapse of time, or
both), or give rise to a right of termination, cancellation or acceleration of
any obligation or loss of any benefit under, or require a waiver or consent
under (x) the Target Articles of Incorporation or Target Bylaws, (y) any
material mortgage, indenture, lease, contract or other agreement or instrument,
permit, concession, franchise, or license to which Target is subject, or (z) any
judgment, order, decree, statute, law, judgment, injunction, order, decree,
ordinance, rule or regulation applicable to Target or its properties or assets,
other than in each case any such conflicts, violations, breaches or defaults
which would not impair the ability of Target to consummate the Merger and which
would not have a Material Adverse Effect on Target, or (ii) conflict with or
result in a breach or violation of, or constitute a default under, or result in
a contractual right to cause the termination or cancellation or loss of a
material benefit under, or right to accelerate, any agreement, contract or other
instrument binding upon the Target or any license, franchise, permit or other
similar authorization held by the Target which conflict, breach, violation or
default would, individually or in the aggregate, have a Material Adverse Effect
on Target.
(c) No consent, approval, order or authorization of, or
registration, qualification, designation, declaration or filing with, any court,
administrative agency or commission or other federal, state, county, municipal,
domestic or foreign governmental or regulatory authority or instrumentality
("GOVERNMENTAL ENTITY" or "GOVERNMENTAL ENTITIES") is required on the part of
Target in connection with the execution and delivery of this Agreement or the
consummation of the other transactions contemplated by this Agreement, except
for (i) the filing of the Articles of Merger, (ii) compliance with any
applicable requirements of the Securities Act, and the rules and regulations
promulgated thereunder (iii) such consents, approvals, orders, authorizations,
registrations, declarations and filings as may be required under applicable
state securities or "blue sky" laws and the securities laws of any foreign
country; (iv) such filings as may be required under the Xxxx-Xxxxx-Xxxxxx
Antitrust Improvements Act of 1976, as amended ("HSR"); and (v) such other
consents, approvals, orders or authorizations which if not obtained or made
would not have a Material Adverse Effect, individually or in the aggregate, on
Target or impair its ability to consummate the Merger.
(d) The terms of the Target Stock Plans and the underlying Common
Options, and the terms of the Target Warrants, permit the assumption thereof by
Acquiror or the substitution of options or warrants, as the case may be, to
purchase Acquiror Common Stock as provided in this Agreement, without the
consent or approval of the holders of such options or warrants, the Target
shareholders or otherwise and without any acceleration of the exercise schedule
or vesting provisions in effect for such options or warrants.
2.4 FINANCIAL STATEMENTS
Target has delivered to Acquiror its audited financial statements
(balance sheet, statement of operations and statement of cash flow) on a
consolidated basis as at, and for the fiscal years ended December 31, 1997, 1998
and 1999 (the "AUDITED FINANCIAL STATEMENTS") and its unaudited financial
statements (balance sheet (the "TARGET BALANCE SHEET"), statement of
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operations and statement of cash flow) on a consolidated basis as at and for the
nine-month period ended September 30, 2000 (the "UNAUDITED FINANCIAL
STATEMENTS") (collectively, the AUDITED FINANCIAL STATEMENTS and the UNAUDITED
FINANCIAL STATEMENTS, the "TARGET FINANCIAL STATEMENTS"). The Target Financial
Statements are complete and correct in all material respects as of their
respective dates, and were prepared in accordance with generally accepted
accounting principles ("GAAP") (except that the Unaudited Financial Statements
do not have notes thereto) applied on a consistent basis throughout the periods
indicated and with each other (except as may be indicated in the notes thereto).
The Target Financial Statements fairly present in all material respects the
consolidated financial condition and operating results of Target as of the
dates, and for the periods, indicated therein, provided, however, that in the
case of the Unaudited Financial Statements, subject to normal year-end audit
adjustment. Target maintains and will continue to maintain prior to the
Effective Time a standard system of accounting established and administered in
accordance with GAAP. There has been no change in Target's accounting policies
except as described in the notes to the Target Financial Statements. No
financial statements of any other person or entity are required by GAAP to be
consolidated with those of the Target.
2.5 DISCLOSURE DOCUMENTS
None of the written information supplied or to be supplied by
Target expressly for inclusion in and that is actually included in the
Registration Statement (as defined in Section 5.4), will contain any untrue
statement of a material fact or omits or will omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not misleading
or will contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they were made, not misleading.
2.6 ABSENCE OF CERTAIN CHANGES; LIABILITIES
(a) Since September 30, 2000 (the "TARGET BALANCE SHEET DATE"),
Target has conducted its business in the ordinary course consistent with past
practice and there has not occurred: (a) any change, event, condition or
development of a state of circumstances or facts (whether or not covered by
insurance) that has resulted in, or would result in, a Material Adverse Effect
on Target; (b) any acquisition, sale or transfer of any material asset of Target
other than in the ordinary course of business and consistent with past practice
(including transfers of Target Intellectual Property (as defined in Section
2.11) on a non-exclusive basis to Target's customers, distributors or other
licensees in the ordinary course of business and consistent with past practice);
(c) any change in accounting methods or practices (including any change in
depreciation or amortization policies or rates) by Target or any revaluation by
Target of any of its assets; (d) any declaration, setting aside, or payment of a
dividend or other distribution with respect to the capital stock Target, or any
direct or indirect redemption, purchase or other acquisition by Target of any of
its capital stock; (e) any reduction in the amounts of coverage provided by
existing casualty and liability insurance policies with respect to the business
or properties of Target; (f) any repurchase, redemption or other acquisition by
Target of any outstanding shares of capital stock or other securities of or
other ownership interests in the
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Target; (g) any amendment or termination of, or default under, any contract to
which Target is a party or by which it is bound which would reasonably be
expected to have a Material Adverse Effect on Target; (h) any amendment or
change to the Target Articles of Incorporation or Target Bylaws; (i) any (x)
grant of any severance or termination pay to any director, officer, or employee
of the Target, (y) entering into of any employment, deferred compensation or
other similar agreement (or any amendment to any such existing agreement) with
any director, officer or employee of the Target (z) increase in or modification
of the compensation or benefits payable by Target under any of its existing
severance or termination pay policies or employment agreements to any of its
consultants, independent contractors, directors, officers or employees (except
for annual increases not in excess of amounts established by its regular past
practices); (i) any contracts, agreement, extension of credit, business
arrangement or other relationship of any kind with any of the following persons
(i) any officer or director of Target; (ii) any shareholder owning five (5)
percent or more of the outstanding capital stock of Target; or (iii) any
"affiliate" or "associate" (as such terms are defined in SEC Rule 405 of the
Securities Act (an "AFFILIATE(S)") of the foregoing person or any business in
which any of the foregoing person is an officer, director, employee, or five (5)
percent or greater equity holder; or (j) any agreement by Target to do any of
the things described in the preceding clauses (a) through (j) (other than
negotiations with Acquiror and its representatives regarding the transactions
contemplated by this Agreement).
(b) Target has no Liabilities (as defined herein below) of any
nature (matured or unmatured, fixed or contingent) other than (a) those set
forth or adequately reserved for in the Target Balance Sheet, (b) those not
required to be set forth or adequately reserved for in the Target Balance Sheet
under GAAP, (c) those incurred in the ordinary course of business since the date
of the Target Balance Sheet which are consistent with past practice, and (d)
those incurred in connection with the execution of this Agreement. "LIABILITIES"
or "LIABILITY" mean any direct or indirect indebtedness, liability, assessment,
claim, loss, damage, deficiency, obligation or responsibility, fixed or unfixed,
xxxxxx or inchoate, liquidated or unliquidated, secured or unsecured, accrued,
absolute, actual or potential, contingent or otherwise (including any liability
under any guaranties, letter of credit, performance credits or with respect to
insurance loss accruals).
2.7 ACCOUNTS RECEIVABLE
The accounts receivable reflected in the Target Financial
Statements arose in the ordinary course of business and consistent with past
practice and represent valid receivables not subject to defense, offsets,
returns, set off, counter claim, allowances or credits of any kind, and are
current and collectible (subject to the reserve for bad debt set forth in the
Target Financial Statements), represent bona fide claims against debtors for
sales or services performed or other charges, and all goods sold or services
performed that gave rise to such accounts were delivered or performed in all
material respects in accordance with applicable orders, contracts or customer
requirements. Allowances for doubtful accounts and returns have been prepared in
accordance with GAAP consistent with the past practices of Target. The accounts
receivable of Target arising after the Target Balance Sheet Date and prior to
the date hereof arose in the ordinary course of business and consistent with
past practice. No agreement for deduction or discount has been made with respect
to any accounts receivable.
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2.8 LITIGATION
There is no private or Governmental Entity action, suit,
proceeding, claim, arbitration or investigation pending before any agency, court
or tribunal, foreign or domestic, or , to Target's knowledge, threatened against
Target or any of its properties or any of its officers or directors (in their
capacities as such) that, individually or in the aggregate, would reasonably be
expected to have a Material Adverse Effect on Target. Further, there are no
material actions, suits, proceedings, claims, arbitrations or investigations
initiated by Target or that Target intends to initiate. Target is not aware of
any fact or condition now existing that may give rise to any action, suit,
proceeding, claim, arbitration or investigation against Target or any of its
properties or any of its officers or directors (in their capacities as such)
that, individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect on Target. There is no judgment, decree or order against
Target or, to the knowledge of Target, any of its directors or officers (in
their capacities as such), that will prevent, enjoin, or materially alter or
delay any of the transactions contemplated by this Agreement.
2.9 RESTRICTIONS ON BUSINESS ACTIVITIES
There is no agreement, judgment, injunction, order or decree
binding upon Target which would reasonably be expected to have the effect of
prohibiting or impairing in any material respect any current business practice
of Target, any acquisition of property by Target or the conduct of business by
Target as currently conducted by Target.
2.10 TITLE TO PROPERTY; ABSENCE OF LIENS
Target has good and valid title to all of its properties,
interests in properties and assets, real and personal, reflected in the Target
Balance Sheet or acquired after the Target Balance Sheet Date (except
properties, interests in properties and assets sold or otherwise disposed of
since the Target Balance Sheet Date in the ordinary course of business and
consistent with past practice), or with respect to leased properties and assets,
valid leasehold interests in, free and clear of all Liens of any kind or
character, except (a) the Lien of current taxes not yet due and payable, (b)
such imperfections of title and Liens as do not and will not materially detract
from or interfere with the use of the properties subject thereto or affected
thereby, or otherwise materially impair business operations involving such
properties, and (c) Liens securing debt which is reflected on the Target Balance
Sheet. The real properties, structures, buildings, equipment, and the tangible
personal property owned, operated, or leased by Target are (x) in good repair,
order, and condition, except for depletion, depreciation, and ordinary wear and
tear, (y) suitable for the uses for which they were intended, and (z) free from
any known structural defects. There are no conditions of record, or other
impediments which materially interfere with the intended uses by Target of the
real property or tangible personal property owned or leased by it. Target has
not received any notice of any violation of any applicable law, building code,
zoning ordinance, or other similar law. All properties used in the operations of
Target are reflected in the Target Balance Sheet to the extent GAAP requires the
same to be reflected. Section 2.10 of the Target Disclosure Schedule identifies
each parcel of real property owned or leased by Target.
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2.11 INTELLECTUAL PROPERTY
Target owns or is licensed for, and in any event possesses
sufficient and legally enforceable rights with respect to, all Intellectual
Property (as hereinafter defined) that is used, exercised or exploited in, or
that may be necessary for its business as currently conducted or as proposed to
be conducted ("TARGET INTELLECTUAL PROPERTY," which term will also include all
other Intellectual Property necessary for its business owned by or licensed to
Target now or in the past) without any conflict with or infringement or
misappropriation of any rights or property of others ("INFRINGEMENT"). Target
represents that it is not infringing on the trademark, service xxxx or trade
name and any third party, whether or not Target, is aware of such infringement.
Such ownership, licenses and rights are exclusive except (i) with respect to
Inventions (as hereinafter defined) in the public domain, or (ii) with respect
to standard, generally commercially available, "off-the-shelf" third party
products that are not part of any current or proposed product, service or
Intellectual Property offering of Target. Section 2.11 of the Target Disclosure
Schedule sets forth a true and complete list of all Target Intellectual
Property. With respect to Target Intellectual Property developed by Target,
there are no agreements, arrangements, claims or any other rights of any
character entitling any entity other than the Acquiror to any interests in the
Target Intellectual Property.
No Target Intellectual Property (excluding Intellectual Property
licensed to Target only on a nonexclusive basis) was conceived or developed
directly or indirectly with or pursuant to funding with or from a Governmental
Entity or in connection with a Governmental Entity contract. "INTELLECTUAL
PROPERTY" means: (A) inventions (whether or not patentable); trade names,
trademarks, service marks, logos and other designations (collectively, "MARKS");
works of authorship; mask works; data; technology, know-how, trade secrets,
ideas and information; designs; formulas; algorithms; processes; schematics;
computer software (in source code and/or object code form); and all other
intellectual and industrial property of any sort (collectively, "INVENTIONS")
and (B) patent rights; Xxxx rights; copyrights; mask work rights; sui generis
database rights; trade secret rights; rights to domain names, moral rights; and
all other intellectual and industrial property rights of any sort throughout the
world, and all applications, registrations, issuances and the like with respect
thereto (collectively, "IP RIGHTS"). All copyrightable matter within Target
Intellectual Property has been created by persons who were employees or
contractors of Target at the time of creation and no third party has or will
have "moral rights" or rights to terminate any assignment or license with
respect thereto. Target has not received any written or verbal communication
alleging that Target has been or may be (whether in its current or proposed
business or otherwise) engaged in, liable for or contributing to any
Infringement, nor does Target have knowledge that any such communication will be
forthcoming.
(a) To the extent included in Target Intellectual Property (but
excluding Intellectual Property licensed to Target only on a nonexclusive
basis), Section 2.11 of the Target Disclosure Schedule lists (by name, number,
jurisdiction, owner and, where applicable, the name and address of each
inventor) all patents and patent applications; all registered and unregistered
Marks; and all registered and, if material, unregistered copyrights and mask
works; all Internet domain names; and all other issuances, registrations,
applications and the like with respect to those or any other IP Right. Except
for natural termination or termination at the end of the full
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possible term, including extensions and renewals, and prospective failures to
obtain allowable subject matter for patent applications from applicable patent
examining authorities, no cancellation, termination, expiration or abandonment
of any of the foregoing is anticipated by Target, except as indicated in Section
2.11 of the Target Disclosure Schedule. Except for Intellectual Property
licensed to Target from a third party, Target represents that none of its
present or contemplated business activities, including but not limited to
manufacture, use, sale, offering for sale and importation of products and
methods; creation, reproduction, display and dissemination of works of
authorship; and use of any of the Marks on or in connection with Target or
Target's goods or services, infringes any third party intellectual property
right other than a patent right; that such present or contemplated business
activities do not, to Target's knowledge, infringe any third party patent right;
and that to Target's knowledge, matter which has been obtained from any third
party by license does not infringe any third party intellectual property right.
(b) There is, to the knowledge of Target, no unauthorized use,
exercise, exploitation, disclosure, infringement or misappropriation of any
Target Intellectual Property (excluding any such activity with respect to third
party Intellectual Property outside the scope of any exclusivity granted to
Target) by any third party, including, without limitation, any employee or
former employee of Target.
(c) Target has taken necessary and appropriate steps to protect
and preserve the confidentiality of all Target Intellectual Property with
respect to which Target has exclusivity and wishes to maintain confidentiality
and that is not otherwise disclosed in published patents or patent applications
or registered copyrights (collectively, the "TARGET CONFIDENTIAL INFORMATION").
All use by and disclosure to employees or others of Target Confidential
Information has been pursuant to the terms of valid and binding written
confidentiality and nonuse/restricted-use agreements. Target has not disclosed
or delivered to any third party, or permitted the disclosure or delivery to any
escrow holder or other person any part of any source code.
(d) Each current and former employee and contractor of Target who
is or was involved in, or who has contributed to, the creation or development of
any Target Intellectual Property (other than third-party Intellectual Property
licensed to Target) has executed and delivered and is in compliance with an
enforceable agreement in substantially the form of Target's standard Proprietary
Information and Inventions Agreements (which agreement provides valid written
assignments of all title and rights to any Target Intellectual Property
conceived or developed thereunder, or otherwise in connection with his or her
consulting or employment).
(e) Target has not in the past and is not currently using,
exercising or exploiting, and it will not be necessary to use, exercise or
exploit (i) any Inventions of any of its past or present employees or
contractors (or people currently intended to be hired) made prior to or outside
the scope of their employment by Target or (ii) any confidential information or
trade secrets of any former employer of any such person.
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(f) To Target's knowledge, there are not currently any actions
that must be taken by Target within 60 days following the Closing Date that, if
not taken, would result in the loss of any Intellectual Property, including the
payment of any registration, maintenance or renewal fees or the filing of any
responses to U.S. Patent and Trademark Office actions, documents, applications
or certificates for the purposes of obtaining, maintaining, perfecting or
preserving or renewing any Intellectual Property.
2.12 ENVIRONMENTAL MATTERS
(a) The following terms shall be defined as follows:
(i) "ENVIRONMENTAL AND SAFETY LAWS" shall mean any
federal, state, local or foreign laws, ordinances, codes, regulations, rules and
orders relating to the protection of the environment, or that classify,
regulate, call for the remediation of, require reporting with respect to, or
list or define air, water, groundwater, solid waste, hazardous or toxic
substances, materials, wastes, pollutants or contaminants, or which relate to
the health and safety of employees, workers or other persons, including the
public, as in effect on the date hereof.
(ii) "HAZARDOUS MATERIALS" shall mean any toxic or
hazardous substance, material or waste or any pollutant or contaminant, or
infectious or radioactive substance or material, including without limitation,
such substances, materials, wastes, pollutants defined in or regulated under any
Environmental and Safety Laws.
(iii) "PROPERTY" shall mean all real property leased or
owned by Target either currently or in the past.
(iv) "FACILITIES" shall mean all buildings and
improvements on the Property of Target.
(b) Target represents and warrants as follows: (i) no methylene
chloride or asbestos is contained in or has been used at or released from the
Facilities by Target or to Target's knowledge, by a third party; (ii) all
Hazardous Materials and wastes have been used, handled and disposed of by
Target, or to Target's knowledge, by any third party with whom Target has
contracted with to dispose of such Hazardous Materials, in material compliance
with all Environmental and Safety Laws; (iii) Target has received no written
notice of any noncompliance of the Facilities or of its past or present
operations with Environmental and Safety Laws (except for such matters which
have been resolved without material liability to Target); (iv) no notices,
administrative actions or suits are pending or, to Target's knowledge,
threatened relating to a violation of any Environmental and Safety Laws by
Target; (v) Target has not received written notice that it is a potentially
responsible party under the federal Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA"), or analogous state statute or any
similar foreign law or regulation requiring assessment or clean up, (vi) there
have not been in the past, and are not now, as a result of any action by Target,
or to Target's knowledge, any action by a third party, any Hazardous Materials
on, under or migrating from the Facilities or Property, for which Target could
reasonably be expected to have a material liability; (vii) to Target's
knowledge, there have not been in the past, and are not now, any underground
tanks at, on or under the Property including without limitation, treatment or
storage
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tanks, sumps, or water, gas or oil xxxxx; (viii) to Target's knowledge, there
are no polychlorinated biphenyls ("PCBS") deposited, stored, disposed of or
located on the Property or Facilities or any equipment on the Property
containing PCBs at levels in excess of 50 parts per million; (ix) to Target's
knowledge, there is no formaldehyde on the Property or in the Facilities, nor
any insulating material containing urea formaldehyde in the Facilities; (x)
Target's, and to Target's knowledge, any third party's, activities at the
Facilities have at all times been in material compliance with all Environmental
and Safety Laws; (xi) Target has all the permits and licenses required to be
issued for its operations and is in full compliance with the terms and
conditions of those permits, except where the failure to have such permits and
licenses or to be in compliance therewith would not have a Material Adverse
Effect on Target; and (xii) all written environmental assessments known to
Target of Target's current or past Properties or Facilities have been provided
to Acquiror.
2.13 TAXES
Target and any consolidated, combined, unitary or aggregate group
(and all members thereof) for Tax purposes of which Target is or has been a
member, have properly completed and timely filed with all appropriate
Governmental Entities, all Tax Returns, estimates and reports required to be
filed by them and have paid all Taxes shown thereon to be due or which otherwise
are or have become due and payable prior to the date hereof. The accruals and
reserves reflected in the Target Financial Statements specified as being with
respect to Taxes are adequate to cover all Taxes that are or may become payable
or that have accrued as a result of the operations of Target for all periods
prior to the date of such Target Financial Statements and that have not been
paid as of the date hereof. Target does not have any Liability for unpaid Taxes
accruing prior to the date of the Target Balance Sheet (except to the extent
adequately provided for by the above-specified accruals and/or reserves) or
accruing after the date of the Target Balance Sheet except for Taxes incurred in
the ordinary course of business and consistent with past practice subsequent to
the date of the Target Balance Sheet. There is (a) no claim for Taxes that is a
Lien against the property of Target being asserted against Target other than
Liens for Taxes not yet due and payable, (b) except as set forth in Section 2.13
of the Target Disclosure Schedule, no audit of any Tax Return of Target being
conducted or, to the knowledge of Target, threatened or contemplated by a Tax
Authority and (c) no extension of any statute of limitations on the assessment
of any Taxes granted by Target and currently in effect. Target is not nor will
it be required to include any material 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, events or accounting methods employed prior to the Merger. Target
has not filed nor will it file any consent to have the provisions of paragraph
341(f)(2) of the Code (or comparable provisions of any state Tax Laws) apply to
Target. Target is not a party to any Tax sharing or Tax allocation agreement nor
does Target have any Liability or potential Liability to another party under any
such agreement. Target has not filed any disclosures under Section 6662 or
comparable provisions of state, local or foreign Law to prevent the imposition
of penalties with respect to any Tax reporting position taken on any Tax Return.
Target has not ever been a member of a consolidated, combined, unitary or
aggregate group of which Target was not the ultimate parent corporation. Target
is not or has ever been a "United States real property holding corporation"
within the meaning of Section 897 of the Code.
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For purposes of this Agreement, the following terms have the
following meanings: "TAX" (and, with correlative meaning, "TAXES" and "TAXABLE")
means (x) any net income, alternative or add-on minimum tax, gross income, gross
receipts, sales, use, ad valorem, transfer, franchise, profits, license,
withholding, payroll, employment, excise, severance, stamp, occupation, premium,
property, environmental or windfall profit tax, custom duty or other tax,
Governmental Entity fee or other like assessment or charge of any kind
whatsoever, together with any interest or any penalty, addition to tax or
additional amount imposed by any Governmental Entity (a "TAX AUTHORITY")
responsible for the imposition of any such tax (domestic or foreign), (y) any
liability for the payment of any amounts of the type described in (x) as a
result of being a member of an affiliated, consolidated, combined, unitary or
aggregate group for any Taxable period, and (z) any liability for the payment of
any amounts of the type described in (x) or (y) as a result of being a
transferee of or successor to any person or as a result of any express or
implied obligation to indemnify any other person. As used herein, "TAX RETURN"
shall mean any return, statement, report or form (including, without limitation,
estimated tax returns and reports, withholding tax returns and reports and
information returns and reports) required to be filed with respect to Taxes. As
used in this Section 2.13, the term "TARGET" means Target and any entity
included in, or required under GAAP to be included in, any of the Target
Financial Statements.
2.14 EMPLOYEE BENEFIT PLANS
(a) Section 2.14 of the Target Disclosure Schedule lists, with
respect to Target any trade or business (whether or not incorporated) which is
treated as a single employer with Target (an "ERISA AFFILIATE") within the
meaning of Section 414(b), (c), (m) or (o) of the Code, (i) all employee benefit
plans (as defined in Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), (ii) each loan to any non-officer employee,
officer or director and any stock option, stock purchase, phantom stock, stock
appreciation right, supplemental retirement, severance, sabbatical, medical,
dental, vision care, disability, employee relocation, cafeteria benefit (Code
Section 125) or dependent care (Code Section 129), life insurance or accident
insurance plans, programs or arrangements, (iii) all bonus, pension, profit
sharing, savings, deferred compensation or incentive plans, programs or
arrangements, (iv) other fringe or employee benefit plans, programs or
arrangements that apply to senior management of Target that do not generally
apply to all employees, and (v) any current or former employment or executive
compensation or severance agreements, written or otherwise, as to which
unsatisfied obligations of Target of greater than $10,000 remain for the benefit
of, or relating to, any present or former employee, consultant or director of
Target (together, the "TARGET EMPLOYEE PLANS").
(b) Target has made available to Acquiror a copy of each of the
Target Employee Plans and related plan documents (including trust documents,
insurance policies or contracts, employee booklets, summary plan descriptions
and other authorizing documents, and any employee communications required by Law
relating thereto) and has, with respect to each Target Employee Plan which is
subject to ERISA reporting requirements, provided copies of the Form 5500
reports filed for the last three plan years. Any Target Employee Plan intended
to be qualified under Section 401(a) of the Code has either obtained from the
Internal Revenue Service a favorable determination letter as to its qualified
status under the Code, or has applied (or has time remaining in which to apply)
to the Internal Revenue Service for such a determination letter
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prior to the expiration of the requisite period under applicable Treasury
Regulations or Internal Revenue Service pronouncements in which to apply for
such determination letter and to make any amendments necessary to obtain a
favorable determination or has been established under a standardized prototype
plan for which an Internal Revenue Service opinion letter has been obtained by
the plan sponsor and is valid as to the adopting employer. Target has also
furnished Acquiror with the most recent Internal Revenue Service determination
or opinion letter issued with respect to each such Target Employee Plan, and
nothing has occurred since the issuance of each such letter which could
reasonably be expected to cause the loss of the tax-qualified status of any
Target Employee Plan subject to Code Section 401(a).
(c) (i) None of the Target Employee Plans promises or provides
retiree medical or other retiree welfare benefits to any person other than as
required under the Consolidated Omnibus Budget Reconciliation Act of 1985
("COBRA"); (ii) there has been no "prohibited transaction," as such term is
defined in Section 406 of ERISA and Section 4975 of the Code, with respect to
any Target Employee Plan, which would reasonably be expected to have, in the
aggregate, a Material Adverse Effect on Target; (iii) each Target Employee Plan
has been administered in all material respects in accordance with its terms and
in compliance with the requirements prescribed by any and all statutes, rules
and regulations (including ERISA and the Code), and each ERISA Affiliate has
performed in all material respects all obligations required to be performed by
it under, is not in any material respect in default under or violation of, and
has no knowledge of any material default or violation by any other party to, any
of the Target Employee Plans; (iv) neither Target nor any ERISA Affiliate are
subject to any material Liability or penalty under Sections 4976 through 4980 of
the Code or Title I of ERISA with respect to any of the Target Employee Plans;
(v) all material contributions required to be made by Target and any ERISA
Affiliate to any Target Employee Plan have been made on or before their due
dates and a reasonable amount has been accrued for contributions to each Target
Employee Plan for the current plan years; (vi) with respect to each Target
Employee Plan, no "reportable event" within the meaning of Section 4043 of ERISA
(excluding any such event for which the 30 day notice requirement has been
waived under the regulations to Section 4043 of ERISA) nor any event described
in Section 4062, 4063 or 4041 of ERISA has occurred; (vii) no Target Employee
Plan is covered by, and neither Target nor any ERISA Affiliate has incurred or
expects to incur any Liability under Title IV of ERISA or Section 412 of the
Code; and (viii) each Target Employee Plan can be amended, terminated or
otherwise discontinued after the Effective Time in accordance with its terms,
without any material Liability to Acquiror (other than ordinary administrative
expenses typically incurred in a termination event). With respect to each Target
Employee Plan subject to ERISA as either an employee pension plan within the
meaning of Section 3(2) of ERISA or an employee welfare benefit plan within the
meaning of Section 3(1) of ERISA, Target has prepared in good faith and timely
filed all requisite Governmental Entity reports (which were true and correct as
of the date filed) and has properly and timely filed and distributed or posted
all notices and reports to employees required to be filed, distributed or posted
with respect to each such Target Employee Plan. No suit, administrative
proceeding, action or other litigation has been brought, or to the knowledge of
Target is threatened against or with respect to any such Target Employee Plan,
including any audit or inquiry by the Internal Revenue Service or United States
Department of Labor.
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(d) With respect to each Target Employee Plan, Target has
complied in all material respects with (i) the applicable health care
continuation and notice provisions of COBRA and the regulations (including
proposed regulations) thereunder, (ii) the applicable requirements of the Family
Medical and Leave Act of 1993 and the regulations thereunder, (iii) the
applicable requirements of the Health Insurance Portability and Accountability
Act of 1996 and the regulations (including proposed regulations) thereunder,
(iv) the applicable requirements of the Newborns' and Mothers' Health Protection
Act of 1996 and any regulation or guidance issued thereunder, and (v) the Mental
Health Parity Act of 1996 and any regulations or guidance issued thereunder.
(e) There has been no amendment to, written interpretation or
announcement (whether or not written) by Target or any ERISA Affiliate relating
to, or change in participation or coverage under, any Target Employee Plan which
would materially increase the expense of maintaining such plan above the level
of expense incurred with respect to that plan for the most recent fiscal year
included in Target's Financial Statements.
(f) Target does not currently maintain, sponsor, participate in
or contribute to, nor has it ever maintained, established, sponsored,
participated in, contributed to, or is or was required to contribute to, any
pension plan (within the meaning of Section 3(2) of ERISA) which is subject to
Part 3 of Subtitle B of Title I of ERISA, Title IV of ERISA or Section 412 of
the Code.
(g) Neither Target nor any ERISA Affiliate is a party to, or has
made any contribution to or otherwise incurred any obligation under, any
"multiemployer plan" as defined in Section 3(37) of ERISA.
(h) Except as set forth in Section 2.14 of the Target Disclosure
Schedule, there is no agreement, contract or arrangement to which Target is a
party that may result in the payment of any amount that would not be deductible
by reason of Section 280G or Section 404 of the Code.
2.15 EMPLOYEES AND CONSULTANTS
(a) Target has provided Acquiror with a true and complete list of
all persons employed by Target, all persons who perform work for Target pursuant
to any agreement(s) between Target and any employment agency, and all
independent contractors of Target as of the date hereof and the position and
total compensation, including base salary or wages, bonus, commissions, and all
other available forms of compensation, payable to each such individual. Section
2.15 of the Target Disclosure Schedule lists all current written or oral
employment agreements, independent contractor agreements, consulting agreements
or termination or severance agreements to which Target is a party. Any
employment, independent contractor or consulting agreement which varies in any
material terms from Target's standard form agreement has been provided to
Acquiror. This Agreement and the transactions contemplated hereby do not and
will not violate any such employment, independent contractor or consulting
agreements. Target is in compliance in all material respects with all currently
applicable laws and regulations respecting employment, discrimination in
employment, terms and conditions of employment, wages, hours and occupational
safety and health and employment practices, and is not engaged
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in any unfair labor practice. All individuals performing services for Target as
independent contractors (defined as any individual who provides services for
Target who is not treated as a common-law employee for purposes of statutory
withholdings and/or employment benefits) at any time are properly classified as
independent contractors pursuant to all applicable regulations, including but
not limited to I.R.S. Revenue Ruling 87-41, 1987-1 C.B. 296. Target has withheld
all amounts required by law or by agreement to be withheld from the wages,
salaries, and other payments to employees; and is not liable in any material
respect for any arrears of wages or any taxes or any penalty for failure to
comply with any of the foregoing. Target is not liable for any payment to any
trust or other fund or to any Governmental Entity, with respect to unemployment
compensation benefits, social security or other benefits or obligations for
employees (other than routine payments to be made in the normal course of
business and consistent with past practice). There are no pending claims against
Target under any workers compensation plan or policy or for long term
disability. There are no claims or controversies pending or, to the knowledge of
Target, threatened, between Target and any of its employees, which claims of
controversies have or could reasonably be expected to result in an action, suit,
proceeding, claim, arbitration or investigation before any agency, court or
tribunal, foreign or domestic. Target is not a party to any collective
bargaining agreement or other labor union contract nor does Target know of any
activities or proceedings of any labor union to organize any such employees. No
employees or independent contractors of Target are in violation of any term of
any employment contract, patent disclosure agreement, enforceable noncompetition
agreement, or any enforceable restrictive covenant to a former employer or
customer relating to the right of any such employee or independent contractor to
be employed by Target because of the nature of the business conducted or
presently proposed to be conducted by Target or to the use of trade secrets or
proprietary information of others. No employees or independent contractors of
Target have given notice to Target, nor is Target otherwise aware, that any such
employee intends to terminate his or her employment with Target.
(b) Target has complied with all Laws relating to verification of
employment eligibility of its employees, including but not limited to,
Verification of the Employment eligibility of Target's employees in accordance
with Section 274A of the Immigration and Nationality Act, as amended (8 U.S.C.
Section 1324 (a)).
(c) Except as set forth in Section 2.15 of the Target Disclosure
Schedule, neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (a) result in any
payment (including, without limitation, severance, unemployment compensation,
golden parachute, bonus or otherwise) becoming due to any director, employee or
consultant of Target, (b) increase any benefits otherwise payable by Target or
(c) result in the acceleration of the time of payment or vesting of any such
benefits (other than as required under Code Section 411(d)(3)).
2.16 CUSTOMERS AND SUPPLIERS; PRODUCTS
As of the date hereof, no customer which individually accounted
for more than 5% of Target's gross revenues during the 12-month period preceding
the date hereof, and no material supplier of Target during such period, has
canceled or otherwise terminated, or made any threat to Target to cancel or
otherwise terminate its relationship with Target for any reason
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including, without limitation the consummation of the transactions contemplated
hereby, or has at any time on or after the Target Balance Sheet Date decreased
materially its services or supplies to Target in the case of any such supplier,
or its usage of the services or products of Target in the case of such customer
and all amounts owing from such customers, if not in dispute, have been paid in
accordance with their respective terms. Target has not knowingly breached, so as
to provide a benefit to Target that was not intended by the parties, any
agreement with, or engaged in any fraudulent conduct with respect to, any
customer or supplier of Target.
2.17 MATERIAL CONTRACTS
Section 2.17 of the Target Disclosure Schedule sets forth a list of all
material agreements or commitments ("MATERIAL CONTRACTS") of any nature to which
Target is a party or by which it is bound, including without limitation:
(a) each agreement which requires future expenditures by Target
in excess of $50,000 or which might result in payments to Target in excess of
$50,000;
(b) all employment and consulting agreements, employee benefit,
bonus, pension, profit-sharing, stock option, stock purchase and similar plans
and arrangements, and distributor and sales representative agreements, including
all Target Employee Plans;
(c) each agreement with any shareholder, officer or director of
Target, or any Affiliate of such persons, including without limitation any
agreement or other arrangement providing for the furnishing of services by,
rental of real or personal property from, or otherwise requiring payments to,
any such person or entity;
(d) any agreement between Target and a third party relating to
sharing, licensing, or developing any product, technology or Target Intellectual
Property;
(e) any agreement for the borrowing of money or line of credit,
trust indenture, mortgage, promissory note, loan agreement or any currency
exchange, commodities or other hedging arrangement or any leasing transaction of
the type required to be capitalized in accordance with GAAP;
(f) agreements with respect to Liens;
(g) any material agreement not made in the ordinary course of
Target's business;
(h) any agreement which provides for the restraint or
restriction of Target's right to compete with any person in the conduct of its
business;
(i) any confidentiality, secrecy or non disclosure agreement
with any party which is currently in effect;
(j) any distributor, reseller, agency or manufacturer's
representative contract;
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(k) any contract to support or maintain Target's products, that
expires or may be renewed at the option of any person other than Target so as to
expire more than one year after the date of this Agreement;
(l) any agreement of guarantee, support, assumption or
endorsement of, or any similar commitment with respect to, the obligations,
Liabilities (whether accrued, absolute, contingent or otherwise) or indebtedness
of any other person;
(m) any agreement pursuant to which Target has deposited or is
required to deposit with an escrow holder or any other person or entity, all or
part of the source code (or any algorithm or documentation contained in or
relating to any source code) of any Target Intellectual Property;
(n) any agreement to indemnify, hold harmless or defend any other
person with respect to any assertion of personal injury, damage to property or
Intellectual Property infringement, misappropriation or violation or warranting
the lack thereof, other than indemnification provisions contained in a customary
purchase orders/purchase agreements/product licenses arising in the ordinary
course of business and consistent with past practice;
(o) any employment, consulting and/or agency agreement;
(p) any joint venture agreements and shareholder's agreements;
(q) any agreement with any labor union;
(r) any lease of real or personal property with annual rentals
in excess of $25,000;
(s) any contract, extension of credit, business arrangement, or
other relationship of any kind with any of the following persons: (a) any
officer or director of Target; (b) any shareholder owning five (5%) percent or
more of the outstanding capital stock of Target; or (c) any Affiliate of the
foregoing persons or any business in which any of the foregoing persons is an
officer, director, employee, or five (5%) percent or greater equity owner; and
(t) any other agreement with any person with whom Target does not
deal at arm's length.
Target has performed all of the obligations required to be
performed by it, and is not in default under any Material Contract. Each of the
Material Contracts is (as to Target) in full force and effect and there exists
no default or event of default or event, occurrence, condition or act, with
respect to Target or to Target's knowledge with respect to the other contracting
party, or otherwise that, with or without the giving of notice, the lapse of the
time or the happening of any other event or conditions, would reasonably be
expected to (a) become a default or event of default under any Material
Contract, or (b) result in the loss or expiration of any material right or
option by Target (or the gain thereof by any third party to the detriment of
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Target) under any Material Contract. True, correct and complete copies of all
Material Contracts have been delivered to the Acquiror.
2.18 TARGET 911 BUSINESS REGULATORY COMPLIANCE AND CONTRACTS
(a) (i) Target has complied with, is in compliance with, and has
not received any notices of violation with respect to, any law, judgment, order,
decree, directive, consent agreement, memoranda of understanding, permit,
concession, grant, franchise, license, and other Governmental Entity
authorization or approval applicable to Target's 911 business, contracts and
relations (the "TARGET 911 BUSINESS"); and (ii) all permits, concessions,
grants, franchises, licenses, and other Governmental Entity authorizations and
approvals necessary for the conduct of the Target 911 Business as now conducted
or as proposed to be conducted have been duly obtained and are in full force and
effect, and there are no proceedings pending or, to Target's knowledge,
threatened which may result in the revocation, cancellation, suspension, or
materially adverse modification of any thereof, except in the case of (i) or
(ii) where such event would not have a Material Adverse Effect on Target,
individually or in the aggregate.
(b) Each contract entered into by Target with carriers and other
entities in its Target 911 Business is set forth on Schedule 2.18(b) of the
Target Disclosure Schedule and a true and complete copy of such contracts has
been provided to Acquiror.
2.19 THIRD-PARTY CONSENTS
(a) Section 2.19(a) of the Target Disclosure Schedule lists all
contracts that require a novation or consent to assignment, as the case may be,
prior to the Effective Time so that the Surviving Corporation shall be made a
party in place of Target or as assignee.
(b) Section 2.19(b) of the Target Disclosure Schedule sets forth
every contract which, if no novation occurs to make Acquiror or the Surviving
Corporation a party thereto or if no consent to assignment is obtained, would
have a Material Adverse Effect on Acquiror's or the Surviving Corporation's
ability to operate the business in the same manner as the business was operated
by Target prior to the Effective Time.
2.20 INSURANCE
Section 2.20 of the Target Disclosure Schedule lists all policies
of insurance and bonds, and the respective amounts of such policies and bond,
carried by Target. There is no claim pending under any of such policies or bonds
as to which coverage has been questioned, denied or disputed by the underwriters
of such policies or bonds. All premiums due and payable under all such policies
and bonds have been paid and Target is otherwise in compliance with the terms of
such policies and bonds. Target has no knowledge of any threatened termination
of, or material premium increase with respect to, any of such policies, and no
such policies (or any other policies) are subject to any retroactive premium or
rate adjustments or self insurance provisions.
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2.21 COMPLIANCE WITH LAWS; GOVERNMENTAL AUTHORIZATIONS
Target has complied with, is in compliance with, and has not
received any notices of violation with respect to, any federal, state, local or
foreign statute, law, statutes, ordinance, rule, regulation (collectively,
"LAW(s)") judgment, order, decree, directive, consent agreement, memoranda of
understanding, permit, concession, grant, franchise, license, and other
Governmental Entity authorizations or approvals applicable to it, or any of its
properties, except for such violations or failure to comply as will not,
individually or in the aggregate, have a Material Adverse Effect on Target; and
(ii) all permits, concessions, grants, franchises, licenses, and other
Governmental Entity authorizations and approvals necessary for the conduct of
the business Target's as now conducted or as proposed to be conducted
(collectively, the "TARGET AUTHORIZATIONS") have been duly obtained and are in
full force and effect except where the failure to obtain or have any such Target
Authorizations would have a Material Adverse Effect on Target, and there are no
proceedings pending or, to Target's knowledge, threatened which may result in
the revocation, cancellation, suspension, or materially adverse modification of
any thereof.
2.22 BROKERS' AND FINDERS' FEES
Except as expressly provided in the letter agreement dated July
14, 2000, between Target and Broadview International, LLC, a true and complete
copy of which has been furnished to Acquiror, no agent, broker, investment
banker, person or firm acting directly or indirectly on behalf of Target or
under the authority of Target is or will be entitled to any broker's or finder's
fee or any other commission or similar fee directly or indirectly from any of
the parties hereto in connection with any of the transactions contemplated
hereby.
2.23 TARGET AGREEMENTS
As of the date hereof, each of the Target Principal Shareholders
identified in Section 2.23 of the Target Disclosure Schedules have executed and
delivered to the Acquiror a Voting Agreement in the form attached hereto as
Exhibit A.
2.24 BOARD APPROVAL; SHAREHOLDER APPROVAL REQUIRED
(a) The Board of Directors of Target has unanimously:
(i) approved this Agreement and the Merger;
(ii) determined that in its opinion the Merger is
advisable and in the best interests of the shareholders of Target; and
(iii) recommended that the shareholders of Target approve
this Agreement and the Merger.
(b) The following affirmative vote of the holders of the
shares of Target Capital Stock outstanding on the record date set for the
determination of shareholders entitled to vote on or consent to the Merger is
necessary to approve this Agreement and the Merger:
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(i) the affirmative vote of a majority of the shares of
the Series A Preferred Stock, the Series B Preferred Stock, the Series C
Preferred Stock, the Series D Preferred Stock and the Series E Preferred
Stock (collectively, the "PREFERRED STOCK"), voting as a separate class;
and
(ii) the affirmative vote of a majority of the shares of
the Preferred Stock, (on an as converted basis), the Series X Preferred
(on an as converted basis) and the Common Stock, voting as a single
class.
2.25 MINUTE BOOKS
The minute books of Target made available to Acquiror contain an
accurate summary of all resolutions adopted and all other material actions taken
at all meetings of directors and shareholders and all actions by written consent
since the time of incorporation of Target through the date of this Agreement.
2.26 EXPORT CONTROL LAWS AND FOREIGN CORRUPT PRACTICES ACT
(a) Target (i) does not export any products or services, and (ii)
has not participated in any export transactions that would subject Target to any
provisions of the United States export control laws and regulations.
(b) Target and its employees are in compliance with the U.S.
Foreign Corrupt Practices Act, as amended, including without limitation, the
books and records provisions thereof.
2.27 REPRESENTATIONS COMPLETE
None of the representations or warranties made by Target herein
or in any Schedule hereto, including the Target Disclosure Schedule, or
certificate furnished by Target pursuant to this Agreement, when all such
documents are read together in their entirety, contains or will contain at the
Effective Time any untrue statement of a material fact, or omits or will omit at
the Effective Time to state any material fact necessary in order to make the
statements contained herein or therein, in the light of the circumstances under
which made, not misleading.
2.28 REGISTRATION RIGHTS
Except as set forth in Section 2.28 of the Disclosure Schedule,
there is no agreement of Target to register under the Securities Act any shares
of Target capital stock or any shares of Target capital stock issuable upon the
exercise of Common Options, except pursuant to agreements that will be
terminated or that will terminate pursuant to their terms at or prior to the
Closing.
2.29 BENEFICIAL OWNERSHIP OF ACQUIROR STOCK
As of the date hereof, neither Target, nor to Target's knowledge,
any of the Target Principal Shareholders, beneficially own any shares of
Acquiror Common Stock or have any
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option, warrant, or right of any kind to acquire the beneficial ownership of any
Acquiror Common Stock, except pursuant to the terms of this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND MERGER SUB
Acquiror and Merger Sub represent and warrant to Target that the
statements contained in this Article III are true and correct, except as set
forth in the disclosure schedule delivered by Acquiror to Target immediately
prior to the execution and delivery of this Agreement (the "ACQUIROR DISCLOSURE
SCHEDULE"). The Acquiror Disclosure Schedule shall be arranged in paragraphs
corresponding to the numbered Sections contained in this Article III, and the
disclosure in any Section shall qualify only the corresponding Section in this
Article III unless it is reasonably apparent that the disclosure in one Section
should apply to one or more other Sections.
3.1 ORGANIZATION, STANDING AND POWER
Each of Acquiror and its subsidiaries, including Merger Sub, is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of organization. Each of Acquiror and its subsidiaries has
the corporate power to own its properties and to carry on its business as now
being conducted and is duly qualified to do business and is in good standing in
each jurisdiction in which the failure to be so qualified and in good standing
would have a Material Adverse Effect on Acquiror. Acquiror has delivered a true
and correct copy of the Articles of Incorporation and Bylaws or other charter
documents, as applicable, of Acquiror and Merger Sub, each as amended to date,
to Target. Neither Acquiror nor Merger Sub is in violation of any of the
provisions of its Articles of Incorporation or Bylaws or equivalent
organizational documents.
3.2 CAPITAL STRUCTURE
The authorized capital stock of Acquiror consists of 225,000,000
shares of Acquiror Common Stock and 75,000,000 shares of Class B common stock,
par value $0.01 per share. As of September 30, 2000, there were issued and
outstanding 13,632,585 shares of Acquiror Common Stock and 10,787,671 shares of
Class B common stock. The authorized capital stock of Merger Sub consists of
1,000 shares of common stock, par value $0.01 per share, all of which are issued
and outstanding and held by Acquiror. All outstanding shares of Acquiror and
Merger Sub have been duly authorized, validly issued, fully paid and are
nonassessable and free of any Liens other than any Liens created by or imposed
upon the holders thereof. All of the issued and outstanding securities of
Acquiror have been offered, issued and sold by Acquiror in compliance with
applicable federal and state securities laws. The shares of Acquiror Common
Stock to be issued pursuant to the Merger will be, upon issuance, duly
authorized, validly issued, fully paid and nonassessable, and no stockholder of
Acquiror will have any preemptive right of subscription or purchase in respect
thereof. The Acquiror has reserved sufficient shares of Acquiror Common Stock
for issuance pursuant to the Merger.
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3.3 AUTHORITY
(a) Acquiror and Merger Sub have all requisite corporate power
and authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of Acquiror and Merger Sub, and,
subject to the provisions of Section 5.14, no approval by the shareholders of
Acquiror is required. This Agreement has been duly executed and delivered by
Acquiror and Merger Sub and constitutes the valid and binding obligations of
Acquiror and Merger Sub enforceable against Acquiror and Merger Sub in
accordance with its terms.
(b) The execution and delivery of this Agreement do not, and the
consummation of the transactions contemplated hereby will not, conflict with, or
result in any violation of, or default under (with or without notice or lapse of
time, or both), or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of a benefit under (a) any provision of
the Articles of Incorporation or Bylaws of Acquiror or Merger Sub, as amended,
or (b) any mortgage, indenture, lease, contract or other agreement or
instrument, permit, concession, franchise, license, judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to Acquiror or any of its
subsidiaries or their properties or assets, except where such conflict,
violation, default, termination, cancellation or acceleration with respect to
the foregoing provisions of clause (b) would not, individually, or in the
aggregate, have a Material Adverse Effect on Acquiror.
(c) No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity, is required
on the part of Acquiror or Merger Sub in connection with the execution and
delivery of this Agreement by Acquiror and Merger Sub or the consummation by
Acquiror and Merger Sub of the Merger and the other transactions contemplated
hereby, except for (u) the filing of the Articles of Merger, (v) any filings as
may be required under applicable federal and state securities laws, (w) the
filing with the NASDAQ National Market of a Notification Form for Listing of
Additional Shares with respect to the shares of Acquiror Common Stock issuable
upon conversion of the Target Capital Stock in the Merger and upon exercise of
the Common Options, Target Warrants and New Options assumed by Acquiror, (x)
such filings as may be required under HSR, and (y) such other consents,
authorizations, filings, approvals and registrations which, if not obtained or
made, would not have a Material Adverse Effect on Acquiror and would not
prevent, materially alter or delay any of the transactions contemplated by this
Agreement.
3.4 SEC DOCUMENTS; FINANCIAL STATEMENTS
As of their respective filing dates, each statement, report,
registration statement (with the prospectus in the form filed pursuant to Rule
424(b) of the Securities Act), and other filing filed with the SEC by Acquiror
since June 30, 2000 (collectively, the "ACQUIROR SEC DOCUMENTS") complied in all
material respects with the applicable requirements of the Securities Exchange
Act of 1934 (the "EXCHANGE ACT") and the Securities Act, and none of the
Acquiror SEC Documents contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements made therein, in light of the
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circumstances in which they were made, not misleading, except to the extent
corrected by a subsequently filed Acquiror SEC Document. The financial
statements of Acquiror, included in the Acquiror SEC Documents (the "ACQUIROR
FINANCIAL STATEMENTS") were complete and correct in all material respects as of
their respective dates, and were prepared in accordance with GAAP (except that
the unaudited financial statements do not have notes thereto) applied on a
consistent basis throughout the periods indicated and with each other (except as
may be indicated in the notes thereto). The Acquiror Financial Statements fairly
present in all material respects the consolidated financial condition and
operating results of Acquiror as of the dates, and for the periods, indicated
therein, subject to normal year-end audit adjustments. Acquiror maintains and
will continue to maintain a standard system of accounting established and
administered in accordance with GAAP. The Acquiror Financial Statements complied
as to form in all material respects with applicable accounting requirements and
with the published rules and regulations of the SEC with respect thereto as of
their respective dates. There has been no change in Acquiror's accounting
policies except as described in the notes to the Acquiror Financial Statements.
3.5 DISCLOSURE DOCUMENTS
None of the written information supplied or to be supplied by
Acquiror and Merger Sub for inclusion in and that is actually included in the
Registration Statement (as defined in Section 5.4), will contain any untrue
statement of a material fact or omits or will omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not misleading
or will contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they were made, not misleading.
3.6 ABSENCE OF CERTAIN CHANGES
Since the Acquiror's September 30, 2000 quarterly report on Form
10-Q, Acquiror has conducted its business in the ordinary course consistent with
past practice and there has not occurred (a) any change, event, condition or
development of a state of circumstances or facts (whether or not covered by
insurance) that has resulted in, or would result in, a Material Adverse Effect
on Acquiror; (b) any material change in accounting methods or practices by
Acquiror (unless required by GAAP) or any revaluation by Acquiror of any of its
assets; (c) any declaration, setting aside, or payment of a dividend or other
distribution with respect to the capital stock of Acquiror, or any direct or
indirect redemption, purchase or other acquisition by Acquiror of any of its
capital stock; (d) any amendment or termination of, or default under, any
contract to which Target is a party or by which it is bound which would
reasonably be expected to have a Material Adverse Effect on Acquiror.
3.7 BROKERS' AND FINDERS' FEES
Except as expressly provided in the letter agreement dated
November 9, 2000, between Acquiror and Chase Securities, Inc., no agent, broker,
investment banker, person or firm acting directly or indirectly on behalf of
Acquiror or under the authority of Acquiror is or will be entitled to any
broker's or finder's fee or any other commission or similar fee directly or
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indirectly from any of the parties hereto in connection with any of the
transactions contemplated hereby.
3.8 REPRESENTATIONS COMPLETE
None of the representations, warranties or statements made by
Acquiror herein or in any Schedule hereto, including the Acquiror Disclosure
Schedule, or certificate furnished by Acquiror pursuant to this Agreement, when
all such documents are read together in their entirety, contains or will contain
at the Effective Time any untrue statement of a material fact, or omits or will
omit at the Effective Time to state any material fact necessary in order to make
the statements contained herein or therein, in the light of the circumstances
under which made, not misleading.
3.9 LITIGATION
There is no private or Governmental Entity action, suit,
proceeding, claim, arbitration or investigation pending before any agency, court
or tribunal, foreign or domestic, or , to Acquiror's knowledge, threatened
against Acquiror or any of its properties or any of its officers or directors
(in their capacities as such) that, individually or in the aggregate, would
reasonably be expected to have a Material Adverse Effect on Acquiror. Further,
there are no material actions, suits, proceedings, claims, arbitrations or
investigations initiated by Acquiror or that Acquiror intends to initiate.
Acquiror is not aware of any fact or condition now existing that may give rise
to any action, suit, proceeding, claim, arbitration or investigation against
Acquiror or any of its properties or any of its officers or directors (in their
capacities as such) that, individually or in the aggregate, would reasonably be
expected to have a Material Adverse Effect on Acquiror. There is no judgment,
decree or order against Acquiror or, to the knowledge of Acquiror, any of its
directors or officers (in their capacities as such), that will prevent, enjoin,
or materially alter or delay any of the transactions contemplated by this
Agreement.
3.10 TAX MATTERS
Neither Acquiror nor any of its subsidiaries nor, to the
knowledge of Acquiror, any of their respective affiliates or agents is aware of
any agreement, plan or other circumstance that would prevent the Merger from
constituting a transaction under Section 368(a) of the Code.
ARTICLE IV
COVENANTS OF TARGET
Except as otherwise consented to in writing by Acquiror after the
date of this Agreement, Target covenants to and agrees with Acquiror and Merger
Sub as follows:
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4.1 INFORMATION
(a) Target shall, upon reasonable notice, give to Acquiror and to
its officers, accountants, counsel, financial advisors, and other
representatives, reasonable access during Target's normal business hours
throughout the period prior to the Effective Date to all of their properties,
books, contracts, commitments, and shareholder lists and records. Target will,
at its own expense, furnish Acquiror during such period with all such
information concerning their affairs as Acquiror may reasonably request,
including information for use in determining if the conditions of Article VI
have been satisfied, information necessary to prepare the regulatory filings or
applications to be filed with Governmental Entities to obtain the approvals
referred to in Section 4.2, and information for use in any other necessary
filings to be made with appropriate Governmental Entities. No information or
knowledge obtained in any investigation pursuant to this Section 4.1 shall
affect or be deemed to modify any representation or warranty contained herein or
the conditions to the obligations of the parties to consummate the Merger.
(b) Target acknowledges that information received by it
concerning Acquiror and its operations is subject to the Mutual Non-Disclosure
Agreement dated September 6, 2000 between Acquiror and Target (the
"CONFIDENTIALITY AGREEMENT").
4.2 REGULATORY APPROVALS; CONSENTS
(a) Target will, as promptly as practicable, make any filings
necessary to obtain all regulatory approvals of the transactions contemplated by
this Agreement, including filings required for HSR approval, and will use all
commercially reasonable efforts to secure favorable action on such filings and
applications, including without limitation efforts to pursue an appeal of a
denial of a regulatory approval.
(b) Target will use commercially reasonable efforts to obtain any
consents, approvals, or waivers from third parties required to be obtained by
Target in connection with the transactions contemplated hereunder, including
such consents and approvals identified pursuant to Section 2.19 hereof.
4.3 CONDUCT OF BUSINESS
After the date of this Agreement and pending the Effective Date,
Target shall not do, cause or permit any of the following, without the prior
written consent of Acquiror: (a) effect any change, supplement or amendment in
its articles of incorporation or bylaws; (b) except with respect to Target stock
options, warrants or other convertible or exercisable securities outstanding on
the date of this Agreement which are or may become subject to exercise according
to their terms as existing on the date of this Agreement, change its authorized,
issued, or outstanding capital stock or issue, deliver or sell or authorize or
propose the issuance, delivery or sale of, or purchase or propose the purchase
of, any shares of its capital stock or securities convertible into, or
subscriptions, rights, warrants or options to acquire, or other agreements or
commitments of any character obligating it to issue any such shares or other
convertible securities; provided, however, Target may issue options for shares
of Target's Common Stock, in an aggregated amount not to exceed 250,000, for the
sole purpose of hiring new employees, under the Target Stock Plans in individual
award amounts and on terms
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consistent with prior practices (the "NEW OPTIONS"); (c) declare or pay any cash
or other dividends in respect of any shares of its capital stock; (d) increase
employee compensation or benefit levels (except for annual increases not in
excess of amounts established by its regular past practices), establish or make
any increase in any employment, compensation, bonus, pension, option, incentive
or deferred compensation, retirement, death, profit sharing, or similar
agreements or benefits of any of its past, present, or future officers or
employees, or modify the existing employment agreements with any officers or
employees; (e) make any change in any of its accounting policies or practices
unless required by GAAP; (f) incur or commit to incur any indebtedness for
borrowed money in excess of $25,000 or guarantee any such indebtedness in excess
of $25,000 or issue or sell any debt securities or guarantee any debt securities
of others; (g) obligate itself to make or undertake to make any capital
expenditure in excess of $25,000 in the aggregate; (h) enter into any material
contract, agreement, license or commitment, or violate, amend or otherwise
modify or waive any of the terms of any of its material contracts, agreements or
licenses; (i) transfer to or license any person or entity or otherwise extend,
amend or modify any rights to Target Intellectual Property; (j) revalue any of
its assets, including without limitation writing down the value of inventory or
writing off notes or accounts receivable; (k) sell, lease, license or otherwise
dispose of or encumber any of Target's properties or assets (other than sales of
assets in the ordinary course of business consistent with past practice); (l)
terminate or waive any right which would have a Material Adverse Effect on
Target; (m) commence a lawsuit or arbitration proceeding other than (i) for the
routine collection of bills, (ii) in such cases where it in good faith
determines that failure to commence suit would result in the material impairment
of a valuable asset of its business, provided that it consults with Acquiror
prior to the filing of such a suit, or (iii) for a breach of this Agreement; (n)
acquire or agree to acquire by merging or consolidating with, or by purchasing a
substantial portion of the assets of, or by any other manner, any business or
any corporation, partnership, association or other business organization or
division thereof, or otherwise acquire or agree to acquire any material amount
of assets; (o) make any Tax election, change any Tax election, adopt any Tax
accounting method, change any Tax accounting method, enter into any closing
agreement, settle any Tax claim or assessment or consent to any Tax claim or
assessment; (p) accelerate, amend or change the period of exercisability or
vesting of options or other rights granted under its stock plans or authorize
cash payments in exchange for any options or other rights granted under any of
such plans; (q) enter into or amend any agreements pursuant to which any other
party is granted exclusive marketing, manufacturing or other exclusive rights of
any type or scope with respect to any of Target's products or technology; (r)
pay, discharge or satisfy in an amount in excess of $25,000 in any one case or
$50,000 in the aggregate, any claim, liability or obligation (absolute, accrued,
asserted or unasserted, contingent or otherwise), other than (i) arising in the
ordinary course of business and consistent with past practice and (ii) the
payment, discharge or satisfaction of liabilities reflected or reserved against
in the Target Financial Statements; (s) take or agree in writing or otherwise to
take, any of the actions described in above, or any action which would make any
of its representations or warranties contained in this Agreement untrue or
incorrect or prevent it from performing or cause it not to perform its covenants
hereunder, and (u) engage in any related party transactions.
Furthermore, pending the Effective Date, Target shall (a) conduct
its business only in the ordinary course and use commercially reasonable efforts
consistent with past practice and policies to preserve intact its present
business organizations, keep available the services of
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its present officers and key employees and preserve its relationships with
customers, suppliers, distributors, licensors, licensees and others having
business dealings with it, to the end that its goodwill and ongoing business
shall be unimpaired at the Effective Time, (b) continue in effect the present
method of conducting its business, (c) give all notices and other information
required to be given to the employees of Target, any collective bargaining unit
representing any group of employees of Target, and any applicable Government
Entity under the National Labor Relations Act, the Code, the Consolidated
Omnibus Budget Reconciliation Act, and other applicable law in connection with
the transactions provided for in this Agreement, and (d) consult with Acquiror
as to making decisions or actions in material matters other than those in the
ordinary course of business.
4.4 APPROVAL OF SHAREHOLDERS OF TARGET; DOCUMENT PREPARATION
(a) Target will duly call and convene a meeting of its
shareholders to act upon the transactions contemplated hereby as soon as
practicable after the Registration Statement referred to in Section 5.4 has been
declared effective and is available for distribution to its Shareholders, or, in
lieu thereof, will take any necessary steps to seek such shareholder approval
through a consent solicitation in conformity with applicable law. Target and its
Board of Directors will recommend approval of this Agreement and the Merger to
its shareholders, and will use commercially reasonable efforts to obtain a
favorable vote thereon. The calling and holding of such meeting or the use of
such a consent solicitation and all notices, transactions, documents, and
information related thereto will be in material compliance with all applicable
laws.
(b) Target shall furnish Acquiror with such information
concerning Target as is necessary to comply with Section 5.4. Target agrees
promptly to advise Acquiror if at any time prior to the Target shareholders'
meeting or completion of such consent solicitation, any information provided by
Target becomes incorrect or incomplete in any material respect and to provide
Acquiror with the information needed to correct such inaccuracy or omission.
(c) If appropriate, Target shall promptly furnish Acquiror with
such information regarding the Target shareholders as Acquiror requires to
enable it to determine what filings are required under applicable state
securities laws. Target authorizes Acquiror to utilize in such filings the
information concerning Target provided to Acquiror.
4.5 CURRENT INFORMATION; ADVICE OF CHANGES
Between the date of this Agreement and the Effective Time, Target
shall promptly advise Acquiror, by written update to the Target Disclosure
Schedule, of (a) the occurrence or non-occurrence of any event which would be
likely to cause any condition to the obligations of Acquiror to effect the
Merger and the other transactions contemplated by this Agreement not to be
satisfied, or (b) the failure of Target to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it pursuant to this
Agreement which would be likely to result in any condition to the obligations of
Acquiror to effect the Merger and the other transactions contemplated by this
Agreement not to be satisfied. The delivery of any notice pursuant to this
Section 4.5 shall not cure any breach of any representation or warranty
requiring
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disclosure of such matter prior to the date of this Agreement or otherwise limit
or affect the remedies available hereunder to Acquiror.
4.6 NO SOLICITATION OF OTHER OFFERS
(a) From and after the date of this Agreement until the earlier
of the termination of this Agreement or the Effective Time, Target agrees that
neither it nor any of its officers, directors, or employees shall, and Target
shall direct and use commercially reasonable efforts to cause its agents and
representatives (including, without limitation, any investment banker, attorney,
or accountant retained by them) not to, directly or indirectly, take any action
to solicit or initiate any inquiries or the making of any offer or proposal
(including without limitation any proposal to shareholders of Target) with
respect to a merger, consolidation, business combination, liquidation,
reorganization, sale or other disposition of any significant portion of assets,
sale of shares of capital stock, or similar transactions involving Target (any
such inquiry, offer, or proposal, an "ACQUISITION PROPOSAL"), or, except in the
opinion of outside counsel to Target as may be legally required to comply with
the duties the Board of Directors of Target under applicable law and upon
receipt of confidentiality agreement with terms not materially less favorable to
Target than those contained in the Confidentiality Agreement, engage in any
negotiations concerning, or provide any confidential information or data to, or
have any discussions with, any person relating to an Acquisition Proposal.
(b) Target, its officers, directors, or employees will
immediately cease and cause to be terminated any and all existing discussions,
negotiations, exchanges of information and other activities with respect to any
Acquisition Proposal. Promptly following the execution and delivery of this
Agreement, Target shall (i) inform each of its representatives of the
obligations undertaken in this Section 4.6 and (ii) request each person that had
heretofore executed a confidentiality or non-disclosure agreement in connection
with an Acquisition Proposal to return to Target all confidential information
heretofore furnished to such person by or on behalf of it. Target shall promptly
notify Acquiror orally and in writing of, and keep it fully and currently
informed on, any Acquisition Proposal or any inquiries with respect thereto,
such written notification to include the identity of the person making such
inquiry or Acquisition Proposal and such other information with respect thereto
as is reasonably necessary to apprise Acquiror of the material terms of such
Acquisition Proposal. Target shall give Acquiror contemporaneous written notice
upon engaging in discussions or negotiations with, or providing any information
regarding Target to, any such person regarding an Acquisition Proposal.
4.7 PUBLIC ANNOUNCEMENTS
Between the date of this Agreement and the Effective Date, Target
will consult with Acquiror before issuing any press release or otherwise making
any public statements with respect to this Agreement and the transactions
contemplated hereby and shall not issue any such press release or make any such
public statement prior to such consultation, except as counsel may advise is
required by law.
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4.8 ESCROW AGREEMENT
At the Closing, Target shall execute and deliver the Escrow
Agreement in substantially the form attached hereto as Exhibit D.
4.9 STOCK RESTRICTION AGREEMENT
At the Closing, a sufficient number of shareholders, option
holders and warrant holders of the Target who have not executed a Voting
Agreement shall execute and deliver the Stock Restriction Agreement,
substantially in the form of Exhibit C hereto, such that together with those
parties who have executed a Voting Agreement, at least 90% of the fully diluted
issued and outstanding common stock of Target (assuming full conversion of all
Target capital stock and exercise of all options and warrants) have entered into
agreements to be bound by the provisions set forth in the Stock Restriction
Agreement.
4.10 COOPERATION AND CONDITIONS
Target shall use its commercially reasonable efforts to ensure
that the conditions specified in Articles VI and VII have been satisfied on a
prompt basis. Target agrees to use its commercially reasonable efforts to take,
or cause to be taken, all action and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement,
including cooperating fully with the other party, including by provision of
information.
4.11 TAX FREE REORGANIZATION
Target will not, either before or after consummation of the
Merger, take any action or fail to take any action which would cause the Merger
to fail to constitute a "reorganization" within the meaning of Code Section 368
and the Target will use commercially reasonable efforts not to permit any of
their directors, officers, employees, shareholders, agents, consultants, or
other representatives to take any such action.
4.12 Capitalization
For the period commencing on the Execution Date and ending on the
Effective Date, Target shall not (i) issue any additional Target Capital Stock,
or (ii) take any action which would cause Target's representation in Section 2.2
hereof to become incorrect if made as of the Closing Date, except, in each case,
for issuances or changes resulting from holders exercising or converting Target
Capital Stock, Target Warrants, Common Options or New Options for Target Common
Stock or Target Preferred Stock, as the case may be.
ARTICLE V
COVENANTS OF ACQUIROR AND MERGER SUB
Except as otherwise consented to in writing by Target after the
date of this Plan, Acquiror covenants to and agrees with Target as follows:
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5.1 INFORMATION
(a) Acquiror will, at its own expense, furnish Target during such
period with all such information concerning their affairs as Target may
reasonably request, including information for use in determining if the
conditions of Article VII have been satisfied and for use in any necessary
filings to be made by Target with appropriate Governmental Entities. No
information or knowledge obtained in any investigation pursuant to this Section
5.1 shall affect or be deemed to modify any representation or warranty contained
herein or the conditions to the obligations of the parties to consummate the
Merger.
(b) Acquiror acknowledges that information received by it
concerning Target and its operations is subject to the Confidentiality
Agreement.
5.2 APPLICATIONS TO GOVERNMENTAL ENTITIES
(a) Acquiror and Merger Sub will, as promptly as practicable,
make any filings necessary to obtain all regulatory approvals of the
transactions contemplated by this Agreement, including filings required for HSR
approval, and will use all commercially reasonable efforts to secure favorable
action on such filings and applications, including without limitation efforts to
pursue an appeal of a denial of a regulatory approval.
(b) Acquiror and Merger Sub will use commercially reasonable
efforts to obtain any consents, approvals, or waivers from third parties
required to be obtained by Acquiror or Merger Sub in connection with the
transactions contemplated hereunder.
5.3 ACQUIROR COMMON STOCK
At the Effective Date, the Acquiror Common Stock to be issued in
exchange for the Target Capital Stock pursuant to the terms of this Agreement
shall be duly authorized, validly issued, fully paid, and non-assessable, free
of preemptive rights and free and clear of all Liens created by or through
Acquiror, with no personal liability attaching to the ownership thereof. The
Acquiror Common Stock to be issued upon exchange for the Target Capital Stock
pursuant to the terms of this Agreement will be issued in all material respects
in accordance with applicable state and federal laws, rules, and regulations.
5.4 REGISTRATION OF SHARES
Acquiror, with the assistance of Target and its representatives,
will promptly file a Registration Statement on Form S-4 (the "REGISTRATION
STATEMENT") with the Securities and Exchange Commission (the "SEC") and a
prospectus which shall satisfy all applicable requirements of applicable state
and federal laws, including the Securities Act, the Exchange Act, and applicable
state securities laws and the rules and regulations thereunder. The Registration
Statement shall also include any information required under applicable law in
connection with the shareholders' meeting or consent solicitation Target will
hold or conduct pursuant to Section 4.4 hereof. The number of shares to be
registered will be an amount sufficient to allow all of the shares of the
Acquiror Common Stock issued to holders of the Target Capital Stock pursuant to
this Agreement to be registered under the Securities Act.
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Acquiror will use commercially reasonable efforts to secure the effectiveness of
the Registration Statement and, after the Registration Statement has been
declared effective to make the Registration Statement available for mailing to
the shareholders of the Target. Acquiror may rely upon all information expressly
provided to it by Target and its representatives for inclusion in the
preparation of the Registration Statement, any post-effective amendment thereto
and shall not be liable for any untrue statement of a material fact or any
omission to state a material fact in the Registration Statement, the
post-effective amendment, if such statement is made in reliance upon any
information expressly provided to it by Target or by any of its officers or
representatives for inclusion in the Registration Statement. Acquiror shall
promptly take all such actions as may be necessary or appropriate in order to
comply in all material respects with all applicable securities laws of any state
having jurisdiction over the transactions contemplated by this Agreement and the
Merger. Acquiror shall furnish Target with copies of all such filings and keep
Target advised of the status thereof. Acquiror shall promptly notify Target of
all communications, oral or written, with the SEC concerning the Registration
Statement. Prior to the Effective Time, Acquiror shall file with the NASDAQ
Stock Market a Notification Form for Listing of Additional Shares with respect
to the shares of Acquiror Common Stock issuable upon conversion of the Target
Capital Stock in the Merger, and in respect of the Common Options and Target
Warrants and New Options being assumed by Acquiror.
5.5 CURRENT INFORMATION; ADVICE OF CHANGES; CONDUCT OF BUSINESS
Between the date of this Agreement and the Effective Time,
Acquiror shall promptly advise Target, by written update to the Acquiror
Disclosure Schedule, of (a) the occurrence or non-occurrence of any event which
would be likely to cause any condition to the obligations of Target to effect
the Merger and the other transactions contemplated by this Agreement not to be
satisfied, or (b) the failure of Acquiror to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it pursuant
to this Agreement which would be likely to result in any condition to the
obligations of Target to effect the Merger and the other transactions
contemplated by this Agreement not to be satisfied. The delivery of any notice
pursuant to this Section 5.5 shall not cure any breach of any representation or
warranty requiring disclosure of such matter prior to the date of this Agreement
or otherwise limit or affect the remedies available hereunder to Target. Without
the approval and consent of Target, Acquiror and its subsidiaries will not agree
to acquire by merging or consolidating with, by purchasing an equity interest
in, or a portion of the assets of, or by any other manner, any business or any
corporation, partnership, association or other business organization or division
thereof if any such business or assets to be acquired includes products that
could reasonably be considered to be competitive with Target's business in any
material respect (a "COMPETITIVE BUSINESS") and would reasonably be likely delay
or prolong the waiting period under the HSR Act with respect to the Merger at
any time before the applicable waiting period with respect to the Merger under
the HSR Act shall have expired or have been earlier terminated, unless in
connection with that acquisition Acquiror agrees with the applicable
Governmental Entity to hold separate such Competitive Business or take similar
actions that would cause such Governmental Entity to permit promptly the
expiration or termination of the waiting period under the HSR Act with respect
to the Merger.
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5.6 PUBLIC ANNOUNCEMENTS
Between the date of this Agreement and the Effective Date,
Acquiror will consult with Target before issuing any press release or otherwise
making any public statements with respect to this Agreement and the transactions
contemplated hereby and shall not issue any such press release or make any such
public statement prior to such consultation, except as counsel may advise is
required by law.
5.7 ESCROW AGREEMENT
Acquiror shall execute and deliver the Escrow Agreement in
substantially the form attached hereto as Exhibit D.
5.8 COOPERATION AND CONDITIONS
Acquiror shall use commercially reasonable efforts to ensure that
the conditions specified in Articles VI and VII have been satisfied on a prompt
basis. Acquiror agrees to use commercially reasonable efforts to take, or cause
to be taken, all action and to do, or cause to be done, all things necessary,
proper or advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by this Agreement, including cooperating
fully with the other party, including by provision of information.
5.9 FORM S-8 REGISTRATION STATEMENT
Acquiror agrees to file, no later than 30 days after the Closing,
a Registration Statement on Form S-8 (or any successor or other appropriate
forms) that will register the shares of Acquiror Common Stock issuable pursuant
to outstanding options under the Target Stock Option Plan assumed by Acquiror to
the extent permitted by federal securities laws; provided, that Acquiror has
received not less than ten business days prior to such projected filing date,
all option documentation relating to the outstanding options; and provided
further, that such options qualify for registration on such Form S-8 (or any
successor or other appropriate forms). Acquiror shall use its commercially
reasonable efforts to maintain the effectiveness of such registration statement
or registration statements (and maintain the current status of the prospectus or
prospectuses contained therein) for so long as such options remain outstanding.
In addition, Acquiror shall use its commercially reasonable efforts to cause the
Acquiror Common Stock subject to Common Options to be listed on The NASDAQ
National Market and such exchanges as Acquiror shall determine.
5.10 TAX FREE REORGANIZATION
Each of Acquiror and Merger Sub will not, either before or after
consummation of the Merger, take any action or fail to take any action which
would cause the Merger to fail to constitute a "reorganization" within the
meaning of Code Section 368 and the Acquiror and Merger Sub will each use
commercially reasonable efforts not to permit any of its directors, officers,
employees, stockholders, agents, consultants, or other representatives to take
any such action. Acquiror and Merger Sub each agree to file their respective
federal and state income tax returns consistent with treatment of the Merger as
a reorganization.
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5.11 EMPLOYEE BENEFITS MATTERS.
To the extent that service is relevant for eligibility, vesting
and (except as would result in duplication of benefits) benefit accruals under
any employee benefit plan, program or arrangement maintained by Acquiror or any
subsidiary of Acquiror, such plan, program or arrangement shall credit each
employee of Target (a "TARGET EMPLOYEE") who participates therein for service on
or prior to the Effective Time with Target or any affiliate or predecessor of
any of them. Acquiror agrees to offer to Target Employees benefits commensurate
with those benefits conferred to Acquiror employees similarly situated. In
addition, Acquiror shall (i) waive limitations on benefits relating to any
pre-existing conditions under any Acquiror or subsidiary of Acquiror welfare
benefit plan in which Target Employees may participate and (ii) recognize, for
purposes of annual deductible and out-of- pocket limits under its medical and
dental plans, deductible and out-of-pocket expenses paid by Target Employees and
their respective dependents under Target's medical, dental and other healthcare
plans in the calendar year in which the Effective Time occurs. In the event any
Target Employee is terminated from employment prior to participation in a health
benefit plan of Acquiror or an Acquiror subsidiary and is eligible for COBRA
continuation coverage under a Target Benefit Plan, prior to termination of such
Target Benefit Plan Acquiror shall assure that such Target Employee's COBRA
continuation coverage shall be provided under a health benefit plan of Acquiror
or an Acquiror subsidiary for so long as such Target Employee would be eligible
for such COBRA coverage but for the termination of the Target Benefit Plan.
Acquiror also confirms its intent and plan to grant options to
purchase Acquiror Common Stock to management and employees after the Effective
Date in amounts sufficient to cause management and employees of Target to have
options on a number of shares of Acquiror Common Stock generally consistent with
the option levels held by comparable level employees of Acquiror (taking into
account Common Options and New Options assumed by Acquiror).
5.12 TARGET OFFICERS AND DIRECTORS.
(a) Acquiror agrees that all rights to indemnification (including
advancement of expenses) existing on the date hereof in favor of the present or
former officers and directors of Target (collectively, the "TARGET INDEMNIFIED
PARTIES") with respect to actions taken in their capacities as officers and
directors prior to the Effective Time as provided in Target's Articles of
Incorporation or Bylaws and indemnification agreements, shall survive the Merger
and continue in full force and effect for a period of six years following the
Effective Time and shall be guaranteed by Acquiror.
(b) Acquiror shall cause the Surviving Corporation to maintain in
effect the current policy of officers' and directors' liability insurance, for
acts and omissions occurring prior to the Effective Time, maintained by Target
provided that Acquiror may substitute therefor (i) policies of at least the same
coverage and amounts containing terms and conditions which are no less
advantageous in any material respect to the Target Indemnified Parties and (ii)
coverage under Acquiror's directors' and officers' liability insurance coverage
for acts and omissions occurring prior to the Effective Time, for a period of
six (6) years after the Effective Time; provided, Acquiror shall not be required
to pay an annual premium for such insurance in excess of 100% of
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the last annual premium paid by Target prior to the date hereof (as adjusted for
inflation), but in such case shall provide as much coverage as possible for such
amount. The last annual premium paid by Target was $28,000.00.
(c) This Section 5.12 shall survive the consummation of the Merger at
the Effective Time, and is intended to be for the benefit of, and shall be
enforceable by, the Target Indemnified Parties, their heirs and personal
representatives and shall be binding on the Surviving Corporation and its
respective successors and assigns.
5.13 REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934
With a view to making available to the Target stockholders the benefits
of Rule 144 promulgated under the Securities Act of 1933, as amended (the
"ACT"), and any other rule or regulation of the SEC that may at any time permit
such Target stockholders to sell securities of Acquiror to the public, Acquiror
agrees, for a period of two years from the Effective Date, to:
(a) use reasonably commercial efforts to make and keep public
information available, as those terms are understood and defined in SEC Rule
144, at all times so long as Acquiror remains subject to the periodic reporting
requirements under Sections 13 or 15(d) of the Exchange Act;
(b) file with the SEC in a timely manner all reports and other
documents required of Acquiror under the Act and the Exchange Act of 1934, as
amended (the "EXCHANGE ACT"); and
(c) furnish to any Target stockholder, so long as the Target
stockholder owns any shares of Acquiror Common Stock, forthwith upon request (i)
a written statement by Acquiror that it has complied with the reporting
requirements of SEC Rule 144, the Act and the Exchange Act, (ii) a copy of the
most recent annual or quarterly report of Acquiror and such other reports and
documents so filed by Acquiror, and (iii) such other information related to
compliance with Rule 144 as may be reasonably requested by a Target stockholder.
5.14 ACQUIROR OR SHAREHOLDER APPROVAL
Acquiror has requested confirmation from NASDAQ that approval by
its shareholders is not required in connection with the Merger. If such
confirmation is not received, Acquiror will include in the Registration
Statement such information as may be necessary, and shall take such other action
as may be necessary, to cause the Merger to be submitted to its shareholders for
approval. If shareholder approval is required, the obligations of Acquiror and
Target hereunder shall be conditioned on receipt of such approval.
ARTICLE VI
CONDITIONS TO ACQUIROR'S AND MERGER SUB'S OBLIGATIONS
Unless waived in writing by Acquiror in its sole discretion, all
obligations of Acquiror and Merger Sub hereunder shall be subject to the
fulfillment prior to or at the Effective Date of the following conditions:
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6.1 REPRESENTATIONS, WARRANTIES, AND COVENANTS
Except as disclosed in the Target Disclosure Schedule dated the
date of this Agreement, (i) the representations and warranties of Target in this
Agreement shall be true and correct in all material respects (except for such
representations and warranties that are qualified by their terms by a reference
to materiality, which representations and warranties as so qualified shall be
true in all respects) on and as of the Effective Time as though such
representations and warranties were made on and as of such time (except that
representations and warranties which by their express terms are made on and as
of a specified earlier date shall be made only on and as of such specified
earlier date) and (ii) Target shall have performed and complied in all material
respects with all covenants, obligations and conditions of this Agreement
required to be performed and complied with by them as of the Effective Time.
Acquiror shall have received from Target a certificate in such detail as
Acquiror may reasonably request, dated the Effective Date and signed by its
Chief Executive Officer, to the foregoing effect.
6.2 SHAREHOLDER APPROVAL
(a) This Agreement and the Merger shall have been approved by the
shareholders of the Target at a meeting duly called and held pursuant to Section
4.4 hereof or a consent solicitation completed in accordance with Section 4.4
hereof in accordance with Washington Law and the Target Articles of
Incorporation and Bylaws.
(b) Any agreements or arrangements of Target or any affiliate of
Target that may result in the payment of any amount that would be treated as a
"parachute payment" within the meaning of Section 280G(b)(2) of the Code
(determined without regard to the provision of Section 280G(b)(5) of the Code)
shall have been approved by the Shareholders of Target in a manner that complies
with the shareholder approval requirements of Section 3280G(b)(5)(B) of the
Code.
(c) The amendment to Target's Articles of Incorporation attached
hereto as Exhibit H shall have been approved by the requisite majorities of the
shareholders of Target.
6.3 OTHER EVIDENCE
Target shall have delivered to Acquiror such further certificates
and documents evidencing due action in accordance with this Agreement, including
certified copies of all applicable proceedings of shareholders and directors of
Target pertaining to the transactions under this Agreement, as Acquiror shall
reasonably request.
6.4 NO ADVERSE PROCEEDINGS, EVENTS, OR REGULATORY REQUIREMENTS
No action or proceeding, including but not limited to any
temporary restraining order, preliminary or permanent injunction or other order
issued by any court of competent jurisdiction or other legal or regulatory
restraint or prohibition, preventing the consummation of the Merger shall be in
effect, nor shall any action or proceeding, seeking any of the foregoing be
pending; nor shall there be any action taken, or any statute, rule, regulation
or order enacted, entered, enforced or deemed applicable to the Merger, which
makes the consummation of the
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Merger illegal. Target shall have procured all other regulatory approvals,
consents, waivers, or administrative actions of Governmental Entities or other
persons or agencies that are necessary or appropriate to be procured by Target
prior to the consummation of the transactions contemplated by this Agreement,
and no such approvals, consents, waivers, or administrative actions shall have
included any condition or requirement that would result in a Material Adverse
Effect, individually or in the aggregate, on Acquiror or Target.
6.5 CONSENTS, ETC.
All requisite consents, approvals, waivers, undertakings,
memoranda, agreements, exercises, and terminations by third parties which Target
has covenanted to use commercially reasonable efforts to obtain under Section
4.2 shall have been obtained by Target or waived by Acquiror.
6.6 OPINION OF TAX COUNSEL
Acquiror shall have received the written opinion of Acquiror's
legal counsel, in form and substance reasonably satisfactory to Acquiror, and
dated on or about the Closing Date, to the effect that the Merger will
constitute a reorganization within the meaning of Section 368(a) of the Code,
and such opinion shall not have been withdrawn. In rendering such opinion,
Acquiror's legal counsel shall be entitled to rely upon, among other things,
reasonable assumption as well as representations of Acquiror, Merger Sub and
Target.
6.7 OPINION OF COUNSEL
Acquiror shall have received an opinion of counsel to Target,
dated the Effective Date, in form and substance reasonably satisfactory to
Acquiror, covering the matters set forth in Exhibit E.
6.8 ESCROW AGREEMENT
Acquiror, the Shareholders Representative and the Escrow Agent
shall have executed and delivered the Escrow Agreement in substantially the form
attached hereto as Exhibit D.
6.9 SECURITIES MATTERS
The Registration Statement filed with the SEC under the
Securities Act by the Acquiror, pertaining to the shares of Acquiror Common
Stock to be issued to the shareholders of Target pursuant to this Agreement and
the Merger shall have become effective and there shall not be in effect a stop
order with respect thereto. The Acquiror Common Stock issuable in the Merger
shall have been approved for listing on the NASDAQ National Market.
6.10 280G AGREEMENTS
Acquiror shall have received executed and delivered copies
Section 280G Agreements substantially in the form of Exhibit F hereto from each
person identified by Target
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or Acquiror as receiving excess parachute payments, as defined in Section 280G
of the Code, in connection with the Merger.
6.11 RESIGNATION OF DIRECTORS AND OFFICERS
The directors and officers of Target in office immediately prior
to the Effective Time shall have resigned as directors and officers of Target
effective as of the Effective Time and duly executed resignation letters shall
have been delivered to Acquiror from each such director and officer.
6.12 STOCK RESTRICTION AGREEMENT
Acquiror shall have received executed and delivered copies of
Stock Restriction Agreements, substantially in the form of Exhibit C hereto,
from each of the shareholders, option holders and Warrant holders of the Target
other than shareholders who have executed the Voting Agreement.
6.13 TERMINATION OF PENSION PLAN
If notified by Acquiror in writing at least 20 days prior to the
Closing Date, Target shall, at least one day prior to the Closing Date and
conditioned on the Closing occurring, terminate Target's 401(k) Plan (the
"401(k) PLAN") and no further contributions shall be made to the 401(k) Plan,
provided that as a condition of such termination Target's employees shall be
eligible to participate in Acquiror's 401(k) plan as soon as administratively
feasible following the Closing Date. Target shall provide to Acquiror (i)
executed resolutions by the Board of Directors of Target authorizing the
termination and (ii) an executed amendment to the 401(k) Plan sufficient to
assure compliance with all applicable requirements of the Code and regulations
thereunder so that the tax-qualified status of the 401(k) Plan will be
maintained at the time of termination. Target shall file a Form 5310 with the
Internal Revenue Service and obtain a favorable determination letter upon plan
termination.
ARTICLE VII
CONDITIONS TO TARGET'S OBLIGATIONS
Unless waived in writing by Target in its sole discretion, all
obligations of Target a hereunder shall be subject to the fulfillment prior to
or at the Effective Date of the following conditions:
7.1 REPRESENTATIONS, WARRANTIES, AND COVENANTS
Except as disclosed in the Acquiror Disclosure Schedule dated the
date of this Agreement, (i) the representations and warranties of Acquiror and
Merger Sub in this Agreement shall be true and correct in all material respects
(except for such representations and warranties that are qualified by their
terms by a reference to materiality, which representations and warranties as so
qualified shall be true in all respects) on and as of the Effective Time as
though such representations and warranties were made on and as of such time
(except that
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representations and warranties which by their express terms are made on and as
of a specified earlier date shall be made only on and as of such specified
earlier date) and (ii) Acquiror and Merger Sub shall have performed and complied
in all material respects with all covenants, obligations and conditions of this
Agreement required to be performed and complied with by them as of the Effective
Time. Target shall have received from Acquiror an officer's certificate in such
detail as Target may reasonably request, dated the Effective Date and signed by
its Chief Executive Officer and its Secretary, to the foregoing effects.
7.2 SHAREHOLDER APPROVAL
This Agreement and the Merger shall have been approved by the
Shareholders of the Target at a meeting duly called and held pursuant to Section
4.4 hereof or a consent solicitation completed in accordance with Section 4.4
hereof in accordance with Washington Law and the Target Articles of
Incorporation and Bylaws.
7.3 OTHER EVIDENCE
Acquiror shall have delivered to Target such further certificates
and documents evidencing due action in accordance with this Agreement, including
certified copies of all applicable proceedings of stockholders and directors of
Acquiror pertaining to the transactions under this Agreement, as Target shall
reasonably request.
7.4 NO ADVERSE PROCEEDINGS, EVENTS, OR REGULATORY REQUIREMENTS
No action or proceeding, including but not limited to any
temporary restraining order, preliminary or permanent injunction or other order
issued by any court of competent jurisdiction or other legal or regulatory
restraint or prohibition, preventing the consummation of the Merger shall be in
effect, nor shall any action or proceeding brought by a Governmental Entity
seeking any of the foregoing be pending; nor shall there be any action taken, or
any statute, rule, regulation or order enacted, entered, enforced or deemed
applicable to the Merger, which makes the consummation of the Merger illegal.
Acquiror shall have procured all other regulatory approvals, consents, waivers,
or administrative actions of Governmental Entities or other persons or agencies
that are necessary or appropriate to be procured by Acquiror prior to the
consummation of the transactions contemplated by this Agreement, and no such
approval, consent, waiver, or administrative action shall have included any
condition or requirement that would result in a Material Adverse Effect on
Acquiror or Target.
7.5 OPINION OF TAX COUNSEL
Target shall have received the written opinion of Target's legal
counsel, in form and substance reasonably satisfactory to Target, and dated on
or about the Closing Date, to the effect that the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Code, and such
opinion shall not have been withdrawn. In rendering such opinion, Target's legal
counsel shall be entitled to rely upon, among other things, reasonable
assumption as well as representations of Acquiror, Merger Sub and Target.
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7.6 OPINION OF COUNSEL
Target shall have received an opinion of counsel to Acquiror,
dated the Effective Date, in form and substance reasonably satisfactory to
Target, covering the matters set forth in Exhibit G.
7.7 SECURITIES MATTERS
The Registration Statement filed with the SEC under the
Securities Act by the Acquiror, pertaining to the shares of Acquiror Common
Stock to be issued to the shareholders of Target pursuant to this Agreement and
the Merger, shall have become effective and there shall not be in effect a stop
order with respect thereto. The Acquiror Common Stock issuable in the Merger
shall have been approved for listing on the NASDAQ National Market.
7.8 ESCROW AGREEMENT
Acquiror, the Shareholders Representative and the Escrow Agent
shall have executed and delivered the Escrow Agreement in substantially the form
attached hereto as Exhibit D.
ARTICLE VIII
TERMINATION, EXPENSES, AMENDMENT AND WAIVER
8.1 TERMINATION
This Agreement may be terminated at any time prior to the
Effective Time, whether before or after approval of the matters presented in
connection with the Merger by the stockholders of Target or Acquiror, in the
following manner:
(a) by mutual consents duly authorized by the Boards of
Directors of Acquiror and Target;
(b) by either Acquiror or Target, if (i) without fault of the
terminating party, the Closing shall not have occurred on or before March 31,
2001 (provided, that a later date may be agreed upon in writing by the parties
hereto, and provided further, that the right to terminate this Agreement under
this clause (b)(i) shall not be available to any party whose action or willful
failure to act has been a principal cause of or resulted in the failure of the
Closing to occur on or before such date and such action or failure to act
constitutes a breach of this Agreement), or (ii) any permanent injunction or
other order of a court or other competent authority preventing the consummation
of the Merger shall have become final and nonappealable;
(c) by Acquiror, if (i) any representation or warranty of
Target, not qualified by its terms to materiality, set forth in this Agreement
shall have been untrue when made in any material respect (or any representation
or warranty qualified as to materiality shall have been untrue in any respect
when made), or (ii) Target shall materially breach any obligation or agreement
hereunder in a manner causing conditions precedent to the Closing not to be
satisfied
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and such breach of a representation, warranty or covenant shall not have been
cured within 30 days of receipt by Target of written notice of such breach;
provided, that the right to terminate this Agreement by Acquiror under subparts
(i) and (ii) of this paragraph (c) shall not be available to Acquiror where
Acquiror is at that time in material breach of this Agreement;
(d) by Target, if (i) any representation or warranty of
Acquiror, not qualified by its terms to materiality, set forth in this Agreement
shall have been untrue when made in any material respect (or any representation
or warranty qualified as to materiality shall have been untrue in any respect
when made), or (ii) if Acquiror shall materially breach any obligation or
agreement hereunder in a manner causing conditions precedent to the Closing not
to be satisfied, and such breach of a representation, warranty or covenant shall
not have been cured within 30 days of receipt by Acquiror of written notice of
such breach; provided, that the right to terminate this Agreement by Target
under this paragraph (d) shall not be available to Target where Target is at
that time in material breach of this Agreement;
(e) by Acquiror, in accordance with Section 1.6(f); or
(f) by Acquiror, if Target has not delivered Voting Agreements
from shareholders of Target sufficient to approve the matters required to be
approved by the shareholders to satisfy the condition set forth in Section 6.2
within fifteen (15) days of the Execution Date.
8.2 EFFECT OF TERMINATION
In the event of termination of this Agreement as provided in
Section 8.1, this Agreement shall forthwith become void and there shall be no
liability or obligation on the part of Acquiror or Target or their respective
officers, directors, stockholders or affiliates, except to the extent that such
termination results from the breach by a party hereto of any of its
representations, warranties or covenants set forth in this Agreement; provided
that the provisions of Sections 4.1(b) and 5.1(b), this Section 8.2, Section 8.3
and Articles IX and X shall remain in full force and effect and survive any
termination of this Agreement.
8.3 EXPENSE
(a) Subject to paragraphs (b) and (c) below, whether or not
the Merger is consummated, all costs and expenses incurred in connection with
this Agreement and the transactions contemplated hereby (including, without
limitation, the fees and expenses of advisers, accountants and legal counsel)
shall be paid by the party incurring such expense and Acquiror shall pay any
filing fees in respect of any regulatory approvals required in order to
consummate the Merger; provided, however, that if the Closing occurs, the
expenses incurred by Target in connection with this Agreement and the
transactions contemplated hereby (including, without limitation, the fees and
expenses of its advisors, accountants, brokers and legal counsel), shall not
exceed $2,000,000. Any such expenses incurred by Target in connection with this
Agreement and the transactions contemplated hereby (including, without
limitation, the fees and expenses of its advisors, accountants and legal
counsel) which cause the aggregate amount of such expenses to exceed $2,000,000
shall be subject to Acquiror's claim against the Escrow Fund, without regard to,
or limited by, the Threshold Amount (as defined herein below).
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Acquiror shall pay the registration fee of the SEC, filing fees in respect of
state "blue sky" laws, and the fee payable to The National Association of
Securities Dealers, Inc. in respect of the listing on the NASDAQ National Market
of the shares of Acquiror Common Stock to be issued pursuant to this Agreement.
(b) In the event that Acquiror shall terminate this Agreement
pursuant to Section 8.1(c) or pursuant to Section 8.1(b) because of a failure of
Target to satisfy the conditions set forth in Section 6.1, and without limiting
any other rights Acquiror may have, Target shall reimburse Acquiror for all of
the out-of-pocket fees and expenses incurred by Acquiror in connection with this
Agreement and the transactions contemplated hereby (including, without
limitation, the fees and expenses of its advisors, accountants and legal
counsel).
(c) In the event that Acquiror shall terminate this Agreement
pursuant to Section 8.1(f) or because the condition set forth in Section 6.2 is
not satisfied, and without limiting any other rights Acquiror may have, Target
shall reimburse Acquiror for all of the out-of-pocket fees and expenses incurred
by Acquiror in connection with this Agreement and the transactions contemplated
hereby (including, without limitation, the fees and expenses of its advisors,
accountants and legal counsel) up to the maximum amount of $300,000.
(d) In the event that Target shall terminate this Agreement
pursuant to Section 8.1(d) or pursuant to Section 8.1(b) because of a failure of
Acquiror to satisfy the conditions set forth in Section 7.1, and without
limiting any other rights Target may have, Acquiror shall reimburse Target for
all of the out-of-pocket fees and expenses incurred by Target in connection with
this Agreement and the transactions contemplated hereby (including, without
limitation, the fees and expenses of its advisors, accountants and legal
counsel).
8.4 EXTENSION; WAIVER
At any time prior to the Effective Time any party hereto may, to
the extent legally allowed, (i) extend the time for the performance of any of
the obligations or other acts of the other parties hereto, (ii) waive any
inaccuracies in the representations and warranties made to such party contained
herein or in any document delivered pursuant hereto and (iii) waive compliance
with any of the agreements or conditions for the benefit of such party contained
herein. Any agreement on the part of a party hereto to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party.
ARTICLE IX
ESCROW AND INDEMNIFICATION
9.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS
All the representations, covenants, agreements and warranties set
forth in this Agreement shall survive the Effective Time until the date one year
after the Effective Time; provided, however, that claims related to actual fraud
or willful misconduct shall survive indefinitely. The covenants and agreements
of the parties shall survive until the expiration of the
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time period for their performance as provided herein. The termination of any
representation or warranty, however, shall not affect the right to
indemnification for breach of such representation or warranty if written notice
of such breach is given prior to such termination.
9.2 INDEMNIFICATION
(a) From and after the Effective Time, and subject to the
limitations set forth in this Article IX, the shareholders of Target will
indemnify and hold harmless Acquiror and its officers, directors, agents and
employees, and each person, if any, who controls or may control Acquiror within
the meaning of the Securities Act (hereinafter referred to individually as an
"INDEMNIFIED PERSON" and collectively as "INDEMNIFIED PERSONS") from and against
any and all losses, costs, damages, liabilities and expenses arising from
claims, demands, actions, causes of action, including, without limitation,
reasonable legal fees, net of any recoveries by Acquiror under existing
insurance policies or indemnities from third parties (collectively, "DAMAGES")
resulting from (i) any failure of any of the representations and warranties made
by Target under this Agreement to be true and accurate at the time which they
were made (including, if applicable, as of the Closing Date) or (ii) any breach
or default by Target of any covenant or agreement made by Target in this
Agreement, the Target Disclosure Schedule or any exhibit or schedule to this
Agreement and which is required to be performed by Target at or prior to the
Effective Time. The Escrow Fund shall be the sole security for this indemnity
obligation subject to the limitations in this Agreement.
(b) From and after the Effective Time, and subject to the
limitations set forth in this Article IX, Acquiror will indemnify and hold
harmless Target Shareholders from and against any and all Damages resulting from
any misrepresentation or breach of or default in connection with any
representation, warranty or covenant of Acquiror in this Agreement.
(c) "Damages" as used herein is not limited to matters asserted
by third parties, but includes Damages incurred or sustained in the absence of
claims by a third party. In determining the amount of any Damages resulting from
any misrepresentation, breach or default or whether a misrepresentation, breach
or default has occurred, any materiality standard contained in the applicable
representation, warranty or covenant shall be disregarded.
9.3 ESCROW FUND
Subject to Section 9.6, sole and exclusive security for the
indemnity provided for in Section 9.2(a), the Escrow Shares shall be registered
in the name of, and, be deposited with an escrow agent selected by Acquiror with
the consent of the Shareholders' Agent (which consent shall not be unreasonably
withheld) (the "ESCROW AGENT"), such deposit to constitute an escrow fund to be
governed by the terms set forth in the Escrow Agreement, in substantially the
form attached hereto as Exhibit D (the "ESCROW AGREEMENT").
9.4 CERTAIN LIMITATIONS
(a) Acquiror's right to indemnification for Damages under Section
9.2 shall accrue only if the aggregate of all such Damages exceeds $150,000 (the
"THRESHOLD AMOUNT") and then only to the extent of any excess Damages over such
$150,000 amount.
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(b) No Indemnifying Party shall be liable for any Damages
pursuant to this Article IX unless a written claim for indemnification in
accordance with Section 9.5 is given by the Indemnified Party to the
Indemnifying Party with respect thereto and received by the Indemnifying Party
on or before 5:00 p.m., Baltimore, Maryland time on the first anniversary of the
Closing Date (the "EXPIRATION DATE").
(c) Subject to Section 9.6, the Parties hereby agree that the
maximum liability of a particular shareholder of the Target under this Article
for Damages shall in no event exceed the value of the Acquiror Common Stock held
in escrow for such Target shareholder pursuant to the Escrow Agreement valued as
provided in the Escrow Agreement.
9.5 CERTAIN PROCEDURAL MATTERS
(a) A party seeking indemnification (the "INDEMNIFIED PARTY")
shall give prompt written notice to the party from whom indemnification will be
sought (the "INDEMNIFYING PARTY") of any claim for indemnification hereunder and
shall provide to the Indemnifying Party as soon as practicable thereafter all
information and documentation necessary to support and verify the claim asserted
(or which would be asserted if not below the Threshold Amount), and the
Indemnifying Party and his or its representatives shall be given access to all
personnel, properties, books and records that the Indemnifying Party reasonably
determines to be related thereto.
(b) If any legal proceeding is instituted or any claim or demand
is asserted by any person in respect of which an Indemnified Party may seek to
assert a claim for indemnification hereunder, the Indemnified Party shall
promptly cause written notice of the assertion of any such legal proceeding,
claim or demand to be made to the Indemnifying Party; provided that the failure
to so notify the Indemnifying Party shall not reduce or adversely affect the
right of the Indemnified Party to assert a claim for indemnification hereunder
with respect to such legal proceeding, claim or demand except to the extent that
the Indemnifying Party is materially prejudiced thereby.
(c) The Indemnifying Party shall have the right at any time, at
his or its option and expense, to participate in the defense of any such legal
proceeding, claim or demand (including without limitation the right to
participate in negotiations and settlement discussions). The Indemnified Party
and the Indemnifying Party shall cooperate fully with each other in connection
with the defense, negotiation and settlement of any such legal proceeding, claim
or demand, and the Indemnifying Party shall be given access to all personnel,
properties, books and records that the Indemnifying Party reasonably determines
to be related thereto. No such legal proceeding, claim or demand may be settled
or compromised (nor shall any agreement be entered into or commitment made with
respect to any settlement or compromise) without the written consent of the
Indemnifying Party, which shall not be unreasonably withheld.
9.6 EXCLUSIVE REMEDY
If the Merger is consummated and notwithstanding any other
provision of this Agreement or the exhibits hereto to the contrary, recovery
from the Escrow Fund pursuant to the terms set forth in this Article IX shall be
the exclusive remedy available to Acquiror for
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Damages under this Agreement. The limitations contained in this Article IX,
however, shall not limit the liability of any Indemnifying Party with respect to
any actual fraud or willful misconduct of such party.
9.7 RESOLUTION OF CONFLICTS; ARBITRATION
(a) In case an Indemnifying Party shall object to any
indemnification claim or claims by an Indemnified Party, the Indemnifying Party
and the Indemnified Party shall attempt in good faith for thirty (30) days to
agree upon the rights of the respective parties with respect to each of such
claims.
(b) If no such agreement can be reached after good faith
negotiation, either the Indemnifying Party or the Indemnified Party may, by
written notice to the other, demand arbitration of the matter unless the amount
of the Damages is at issue pending litigation with a third party, in which event
arbitration shall not be commenced until such amount is ascertained or both the
Indemnifying Party and the Indemnified Party agree to arbitration; and in such
event the matter shall be settled by arbitration conducted by a single
arbitrator. The Indemnifying Party and the Indemnified Party shall jointly
select an arbitrator. If the Indemnifying Party and the Indemnified Party fail
to agree upon an arbitrator within ten (10) days, an arbitrator shall be
selected for them by the American Arbitration Association ("AAA"). The decision
of the arbitrator so selected as to the validity and amount of any
indemnification claim shall be binding and conclusive upon the parties to this
Agreement.
(c) Judgment upon any award rendered by the arbitrators may be
entered in any court having jurisdiction. Any such arbitration shall be held in
Chicago, Illinois under the commercial rules then in effect of the American
Arbitration Association. The Non-Prevailing Party to an arbitration shall pay
its own expenses, the fees of each arbitrator, the administrative fee of the
American Arbitration Association, and the expenses, including without
limitation, attorneys' fees and costs reasonably incurred by the other party to
the arbitration.
9.8 SHAREHOLDERS' AGENT
(a) Xxxxxx Xxxxxxxxx is hereby appointed as agent and
attorney-in-fact (the "SHAREHOLDERS' AGENT") for each Target shareholder, for
and on behalf of the Target shareholders, (i) to assert, prosecute or respond to
any claims for indemnification hereunder on behalf of all or any Target
shareholders (and is hereby designated as the Indemnifying Party to act on
behalf of the Target shareholders under this Article IX), (ii) to give and
receive notices and communications to authorize delivery to Acquiror of shares
of Acquiror Common Stock from the Escrow Fund in satisfaction of claims by
Acquiror, to object to such deliveries, to agree to, negotiate, enter into
settlements and compromises of, and demand arbitration and comply with orders of
courts and awards of arbitrators with respect to such claims, and to take all
actions necessary or appropriate in the judgment of the Shareholders' Agent for
the accomplishment of the foregoing, (iii) to endorse Certificates or stock
powers therefor on behalf of any Target shareholder, and (iv) to amend this
Agreement at any time by execution of an instrument in writing signed on behalf
of each of the parties hereto; provided that amendment shall not (a) alter or
change the amount or kind of consideration to be received on conversion of the
Target Capital Stock, or (b) alter or change any of the terms and conditions of
this Agreement if such alteration
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or change would materially adversely affect the holders of Target Capital Stock.
Such agency may be changed by the shareholders of Target from time to time upon
not less than thirty (30) days prior written notice to Acquiror; provided,
however, that the Shareholders' Agent may not be removed unless holders of a
two-thirds interest in the Escrow Fund agree to such removal and to the identify
of the substituted shareholders' agent. Any vacancy in the position of the
Shareholders' Agent may be filled by approval of the holders of a majority in
interest of the Escrow Fund. No bond shall be required of the Shareholders'
Agent, and the Shareholders' Agent shall not receive compensation for his
services. Notice or communications to or from the Shareholders' Agent shall
constitute notice to or from each of the shareholders of Target.
(b) The Shareholders' Agent shall not be liable for any act done
or omitted hereunder or under the Escrow Agreement as Shareholders' Agent while
acting in good faith and in the exercise of reasonable judgment, and any act
done or omitted to the advice of counsel shall be conclusive evidence of such
good faith. The Target shareholders shall severally indemnify the Shareholders'
Agent and hold him harmless against any loss, liability or expense incurred
without gross negligence or bad faith on the part of the Shareholders' Agent and
arising out of our in connection with the acceptance or administration of his or
her duties hereunder, and shall reimburse the Shareholders' Agent for their pro
rata share of any expenses incurred by the Shareholders' Agent.
(c) The Shareholders' Agent shall have reasonable access to
information about Target and Acquiror and the reasonable assistance of Target"
and Acquiror" officers and employees for purposes of performing his duties and
exercising his rights hereunder; provided, that the Shareholders' Agent shall
treat confidentially and not disclose any nonpublic information from or about
Target or Acquiror to anyone (except on a need to know basis to individuals who
agree to treat such information confidentially).
9.9 ACTIONS OF SHAREHOLDERS' AGENT
A decision, act, consent or instruction of the Shareholders'
Agent (as such) shall constitute a decision of all Target shareholders on behalf
of whom he is acting and shall be final, binding and conclusive upon each such
Target shareholder, and the Escrow Agent and Acquiror may rely thereon.
ARTICLE X
GENERAL PROVISIONS
10.1 NOTICES
All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via facsimile (with confirmation of receipt) to the parties
at the following address (or at such other address for a party as shall be
specified by like notice):
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(a) if to Acquiror or Merger Sub, to:
TeleCommunication Systems, Inc.
000 Xxxx Xxxxxx
Xxxxxxxxx, Xxxxxxxx 00000
Attention: Xxxxxx X. Xxxxxx, Xx.
Xxxxxx X. Xxxxxxx, Xx.
Facsimile No.: (000) 000-0000
Telephone No.: (000) 000-0000
with a copy to:
Xxxxx Xxxxxxx Xxxxxxx & Xxxxx LLP
0000 Xxxxx Xxxxxx
Xxxxxxxxx, Xxxxxxxx 00000-0000
Attention: Xxxxxxx X. Xxxxxx
X.X. Xxxxx, Xx.
Facsimile No.: (000) 000-0000
Telephone No.: (000) 000-0000
(b) if to Target, to:
XYPOINT Corporation
0000 Xxxxxxx Xxx
Xxxxxx Xxxxx
Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxxx X. Xxxxxxx
Facsimile No.: (000) 000-0000
Telephone No.: (000) 000-0000
with a copy to:
Venture Law Group
0000 Xxxxxxxx Xxxxx
Xxxxxxxx, Xxxxxxxxxx 00000-0000
Attention: Xxxxx Xxxxxxx
Facsimile No.: (000) 000-0000
Telephone No.: (000) 000-0000
10.2 INTERPRETATION
When a reference is made in this Agreement to Exhibits, such
reference shall be to an Exhibit to this Agreement unless otherwise indicated.
The words "include," "includes" and "including" when used herein shall be deemed
in each case to be followed by the words "without limitation." The phrases "the
date of this Agreement", "the date hereof", and terms of similar import, unless
the context otherwise requires, shall be deemed to refer to the Execution Date.
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The table of contents and headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
10.3 COUNTERPARTS
This Agreement may be executed in one or more counterparts, all
of which shall be considered one and the same agreement and shall become
effective when one or more counterparts have been signed by each of the parties
and delivered to the other parties, it being understood that all parties need
not sign the same counterpart.
10.4 ENTIRE AGREEMENT; THIRD PARTY BENEFICIARIES
This Agreement and the documents and instruments and other
agreements specifically referred to herein or delivered pursuant hereto,
including the Exhibits, the Schedules, the Target Disclosure Schedule and the
Acquiror Disclosure Schedule (a) constitute the entire agreement among the
parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof, except for the Confidentiality Agreement,
which shall continue in full force and effect, and shall survive any termination
of this Agreement or the Closing, in accordance with its terms and (b) are not
intended to confer upon any other person any rights or remedies hereunder.
10.5 SEVERABILITY
In the event that any provision of this Agreement, or the
application thereof, becomes or is declared by a court of competent jurisdiction
to be illegal, void or unenforceable, the remainder of this Agreement will
continue in full force and effect and the application of such provision to other
persons or circumstances will be interpreted so as reasonably to effect the
intent of the parties hereto. The parties further agree to replace such void or
unenforceable provision of this Agreement with a valid and enforceable provision
that will achieve, to the extent possible, the economic, business and other
purposes of such void or unenforceable provision.
10.6 REMEDIES CUMULATIVE
Except as otherwise provided herein, any and all remedies herein
expressly conferred upon a party will be deemed cumulative with and not
exclusive of any other remedy conferred hereby, or by law or equity upon such
party, and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy.
10.7 GOVERNING LAW
This Agreement shall be governed by and construed in accordance
with the laws of the State of Maryland without regard to applicable principles
of conflicts of law or, to the extent applicable, the federal laws of the United
States of America. THE PARTIES HERETO HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE THE RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN RESPECT
OF ANY
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LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS
AGREEMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER
VERBAL OR WRITTEN) OR ACTIONS OF THE PARTIES HERETO. THIS PROVISION IS A
MATERIAL INDUCEMENT FOR ACQUIROR TO ENTER INTO THIS AGREEMENT.
10.8 ASSIGNMENT; AMENDMENT; BINDING EFFECT
Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties hereto (whether by
operation of law or otherwise) without the prior written consent of the other
parties. The parties hereto may cause this Agreement to be amended at any time
by execution of an instrument in writing signed on behalf of each of the parties
hereto and, in the case of Acquiror and Target, approved by their respective
Boards of Directors; provided that an amendment made subsequent to adoption of
this Agreement by the shareholders of Target shall not (a) alter or change the
amount or kind of consideration to be received on conversion of the Target
Common Stock or alter or change any of the terms and conditions of this
Agreement if such alteration or change would materially adversely affect the
holders of Target Common Stock. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of and be enforceable by
the parties and their respective successors and permitted assigns.
10.9 RULES OF CONSTRUCTION
The parties hereto agree that they have been represented by
counsel during the negotiation, preparation and execution of this Agreement and,
therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, TeleCommunication Systems, Inc., Merger
Corp., and XYPOINT Corporation have caused this Agreement to be executed and
delivered, by their respective officers thereunto duly authorized in the case of
corporate parties as the case may be, all as of the date first written above.
TELECOMMUNICATION SYSTEMS, INC.
By: /s/ Xxxxxxx X. Xxxxx (SEAL)
---------------------------------
Name: Xxxxxxx X. Xxxxx
Title: Executive Vice President
WINDWARD ACQUISITION CORP.
By: /s/ Xxxxxxx X. Xxxxx (SEAL)
---------------------------------
Name: Xxxxxxx X. Xxxxx
Title: Executive Vice President
XYPOINT CORPORATION
By: /s/ Xxxxxxx Xxxxxxx (SEAL)
--------------------------------
Name: Xxxxxxx Xxxxxxx
Title: President
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