EXHIBIT 2.1
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AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
XXXXX.XXX
TARGET ACQUISITION CORPORATION,
XX0XXX.XXX, INC.
AND
TARGET SHAREHOLDERS
MAY 5, 2000
LIST OF EXHIBITS
Exhibit A Articles of Merger
Exhibit B Form of Warrant
Exhibit C Registration Rights Agreement
Exhibit D Employment Agreements
Exhibit E Investor Representation Statement
Exhibit F Form of Offer Letter
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made and
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entered into as of May __, 2000 by and among Xxxxx.xxx, a Delaware corporation
("Acquiror" and "Holdback Agent"), Target Acquisition Corporation, a Delaware
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corporation ("Merger Sub") and wholly owned subsidiary of Acquiror, XX0Xxx.xxx,
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Inc., a Nevada corporation ("Target"), Xxxx Xxxxxxx, Xxxxxxx Xxxxxxx, and
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Xxxxxxx Xxxxxxx, the shareholders of Target (collectively "Target
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Shareholders"), and Xxxx Xxxxxxx as the Shareholders' Agent.
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RECITALS
A. The Boards of Directors of Target, Acquiror and Merger Sub and the
Target Shareholders believe it is in the best interests of their respective
companies and the shareholders of their respective companies that Target and
Merger Sub combine into a single company through the statutory merger of Merger
Sub with and into Target (the "Merger") and, in furtherance thereof, have
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approved the Merger.
B. Pursuant to the Merger, among other things, the outstanding shares of
Target Common Stock ("Target Common Stock") shall be converted into the right to
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receive the Merger Consideration (as defined in Section 1.6(a)) upon the terms
and subject to the conditions set forth herein.
C. Target, the Target Shareholders, Acquiror and Merger Sub desire to make
certain representations and warranties and other agreements in connection with
the Merger.
NOW, THEREFORE, in consideration of the covenants and representations set
forth herein, and for other good and valuable consideration, the parties agree
as follows:
1. The Merger.
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1.1 The Merger. At the Effective Time (as defined in Section 1.2) and
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subject to and upon the terms and conditions of this Agreement, the Articles of
Merger attached hereto as Exhibit A (the "Articles of Merger"), a Certificate of
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Merger to be filed with the Secretary of State of the State of Delaware
pertaining to the Merger (the "Certificate of Merger") and the applicable
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provisions of the Delaware General Corporation Law ("Delaware Law") and the
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Nevada General Corporation Law ("Nevada Law"), Merger Sub shall be merged with
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and into Target, the separate corporate existence of Merger Sub shall cease and
Target shall continue as the surviving corporation. Target as the surviving
corporation after the Merger is hereinafter sometimes referred to as the
"Surviving Corporation."
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1.2 Closing; Effective Time. The closing of the transactions
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contemplated hereby (the "Closing") shall take place as soon as practicable, but
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no later than two (2) business days, after the satisfaction or waiver of each of
the conditions set forth in Section 6 hereof, or at such other time as the
parties hereto agree (the "Closing Date"). The Closing shall take place at the
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offices of Xxxx Xxxx Xxxx & Freidenrich LLP, or at such other location as the
parties hereto agree. In connection with the Closing, 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 Nevada, in accordance with the relevant
provisions of Nevada Law (the time of such filing being the "Effective Time").
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Promptly after the Effective Time, the parties shall cause the Certificate of
Merger to be filed with the Secretary of State of the State of Delaware in
accordance with the relevant provisions of Delaware Law.
1.3 Effect of the Merger. At the Effective Time, the effect of the
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Merger shall be as provided in this Agreement, the Articles of Merger and the
applicable provisions of Nevada Law and Delaware Law. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time, all the
property, rights, privileges, powers and franchises of Target and Merger Sub
shall vest in the Surviving Corporation, and all debts, liabilities and duties
of Target and Merger Sub shall become the debts, liabilities and duties of the
Surviving Corporation.
1.4 Articles of Incorporation; Bylaws. The Articles of Incorporation
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and Bylaws of Target, as in effect immediately prior to the Effective Time,
shall be the Articles of Incorporation and Bylaws of the Surviving Corporation
until thereafter amended.
1.5 Directors and Officers. At the Effective Time, the directors and
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officers of Merger Sub immediately prior to the Effective Time shall be the
directors and officers of the Surviving Corporation, until their respective
successors are duly elected or appointed and qualified, except that Xxxx Xxxxxxx
shall be the Chief Executive Officer and Xxxxxxx Xxxxxxx shall be the President
of the Surviving Corporation.
1.6 Effect on Capital Stock. At the Effective Time, by virtue of the
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Merger and without any action on the part of Merger Sub, Target or the holders
of any of the following securities:
(a) Merger Consideration. The twenty-five thousand (25,000)
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shares of Target Common Stock issued and outstanding immediately prior to the
Effective Time shall be converted and exchanged, without any action on the part
of the holders thereof, into the right to receive the following: (i) an
aggregate of one million two hundred sixty-eight thousand (1,268,000) shares of
the Common Stock ("Acquiror Common Stock"), $.001 par value, of Acquiror (the
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"Acquiror Shares"); (ii) an aggregate of four hundred thousand dollars
($400,000) the "Cash Consideration"), and (iii) warrants in the form attached as
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Exhibit B to purchase one hundred thousand (100,000) shares of Acquiror Common
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Stock at a price of ten dollars and fifty cents ($10.50) per share (the
"Warrant Consideration"). The Acquiror Shares, Cash Consideration and Warrant
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Consideration are collectively referred to as the "Merger Consideration."
(b) Capital Stock of Merger Sub. At the Effective Time, each
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share of Common Stock of Merger Sub issued and outstanding immediately prior to
the Effective Time shall be converted into and exchanged for one validly issued,
fully paid and nonassessable share of Common Stock 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.
(c) Antidilution Adjustments. The per share Merger Consideration
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shall be adjusted to reflect fully the effect of any stock split, reverse split,
stock dividend (including any dividend or distribution of securities convertible
into Acquiror Common Stock or Target Common Stock), reorganization,
recapitalization or other like change with respect to Acquiror Common Stock or
Target Common Stock occurring after the date hereof and prior to the Effective
Time.
(d) Fractional Shares. No fraction of a share of Acquiror Common
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Stock will be issued. All distributions of shares of Acquiror Common Stock to a
Target Shareholder
shall be rounded down to the nearest whole share, and Target Shareholders waive
any rights to receive fractional shares or cash or other consideration in lieu
thereof.
(e) Dissenters' Rights. The Target Shareholders and each of them
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hereby waive their rights to have their shares of Target Common Stock treated as
"Dissenting Shares" in accordance with the Nevada Law following the Merger.
(f) Certificate Legends. The shares of Acquiror Common Stock to
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be issued pursuant to this Section 1 shall not have been registered and shall be
characterized as "restricted securities" under the federal securities laws, and
under such laws such shares may be resold without registration under the
Securities Act of 1933, as amended (the "Securities Act"), only in certain
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limited circumstances. Each certificate evidencing shares of Acquiror Common
Stock to be issued pursuant to this Section 1 shall bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933. SUCH SHARES MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION WITHOUT AN EXEMPTION UNDER THE SECURITIES
ACT OR AN OPINION OF LEGAL COUNSEL REASONABLY ACCEPTABLE TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED."
and any legends required by state securities laws.
1.7 Payment of Merger Consideration; Holdback.
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(a) Exchange Procedures. At the Closing, each Target Shareholder
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shall deliver to Acquiror certificates (the "Certificates") representing all
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outstanding shares of Target Common Stock held of record by such Target
Shareholder immediately prior to the Effective Time, together with such other
customary documents as Acquiror may request, duly completed and validly executed
in accordance with the instructions thereto, against delivery by Acquiror of:
(i) the portion of Cash Consideration to which such Target Shareholder is
entitled pursuant to Section 1.6(a), and (ii) the portion of the Warrant
Consideration to which such Target Shareholder is entitled. Promptly following
the Effective Time, Acquiror shall instruct its transfer agent to issue to each
Target Shareholder a certificate representing the number of whole Acquiror
Shares into which such Target Shareholder's shares of Target Common Stock were
converted pursuant to Section 1.6(c), less the number of Acquiror Shares to be
retained in the Holdback Fund on such holder's behalf pursuant to Section 1.7(b)
hereof.
(b) Holdback Fund. Eight hundred eighty-seven thousand six
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hundred (887,600) of the Acquiror Shares (the "Holdback Shares") shall not be
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distributed to the Target Shareholders but shall be retained by Acquiror in the
Holdback Fund.
1.8 No Further Ownership Rights in Target Common Stock. The Merger
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Consideration delivered upon the surrender for exchange of shares of Target
Common Stock in accordance with the terms hereof (including any dividends,
distributions or cash paid in lieu of fractional shares) shall be deemed to have
been issued in full satisfaction of all rights pertaining to such shares of
Target Common Stock, and there shall be no further registration of transfers on
the records of the Surviving Corporation of shares of Target Common Stock which
were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Certificates are presented to the Surviving Corporation for any reason,
they shall be canceled and exchanged as provided in this Section 1.
1.9 Taking of Necessary Action; Further Action. Each of Acquiror,
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Merger Sub, Target and Target Shareholders will take all such reasonable and
lawful action as may be necessary or desirable in order to effectuate the Merger
in accordance with this Agreement as promptly as possible. 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 will take, all such lawful and necessary action, so
long as such action is not inconsistent with this Agreement.
2. Representations and Warranties of Target and Target Shareholders.
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Target and the Target Shareholders represent and warrant to Acquiror and Merger
Sub that the statements contained in this Section 2 are true and correct, except
as disclosed in a document of even date herewith and delivered by Target to
Acquiror referring to the representations and warranties in this Agreement (the
"Target Disclosure Schedule"). The Target Disclosure Schedule will be arranged
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in paragraphs corresponding to the numbered and lettered paragraphs contained in
this Section 2, and the disclosure in any such numbered and lettered section of
the Target Disclosure Schedule shall qualify only the corresponding subsection
in this Section 2 (except to the extent disclosure in any numbered and lettered
section of the Target Disclosure Schedule is specifically cross-referenced in
another numbered and lettered section of the Target Disclosure Schedule).
2.1 Organization, Standing and Power. Target is a corporation duly
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organized, validly existing and in good standing under the laws of its
jurisdiction of organization. Target has the corporate power to own its
properties and to carry on its business as now being conducted and as proposed
to be 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 Target. Target has delivered a true and
correct copy of the Articles of Incorporation and Bylaws or other charter
documents, as applicable, of Target, each as amended to date, to Acquiror.
Target is not in violation of any of the provisions of its Articles of
Incorporation or Bylaws or equivalent organizational documents. Target does not
directly or indirectly own any equity or similar interest in, or any interest
convertible or exchangeable or exercisable for, any equity or similar interest
in, any corporation, partnership, joint venture or other business association or
entity.
2.2 Authority. Target has all requisite corporate power and
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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 Target subject only to the
approval of the Merger by Target's shareholders as contemplated by Section
6.1(a). The affirmative vote of the holders of a majority of the shares of
Target's Common Stock outstanding on the record date for the Written Consent of
Shareholders relating to this Agreement is the only vote of the Target
Shareholders necessary under Nevada Law to approve this Agreement and the
transactions contemplated hereby. The Board of Directors of Target has
unanimously approved this Agreement and the Merger. This Agreement has been duly
executed and delivered by Target and constitutes the valid and binding
obligation of Target enforceable against Target in
accordance with its terms, except that such enforceability may be limited by
bankruptcy, insolvency, moratorium or other similar laws affecting or relating
to creditors' rights generally, and is subject to general principles of equity.
The execution and delivery of this Agreement by Target does 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 material obligation or loss of any material benefit under
(i) any provision of the Articles of Incorporation or Bylaws of Target, as
amended, or (ii) 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 Target or any of its
subsidiaries or any of their properties or assets. No consent, approval, order
or authorization of, or registration, declaration or filing with, any court,
administrative agency or commission or other governmental authority or
instrumentality ("Governmental Entity") is required by or with respect to Target
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or the Target Shareholders in connection with the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby, except
for (i) the filing of the Articles of Merger, together with the required
officers' certificates, as provided in Section 1.2; (ii) such consents,
approvals, orders, authorizations, registrations, declarations and filings
relating to the securities of Target as may be required under applicable state
securities laws and the securities laws of any foreign country; and (iii) such
other consents, authorizations, filings, approvals and registrations which, if
not obtained or made, would not have a Material Adverse Effect on Target and
would not prevent, or materially alter or delay any of the transactions
contemplated by this Agreement.
2.3 Governmental Authorization. Target and each of its subsidiaries
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have obtained each federal, state, county, local or foreign governmental
consent, license, permit, grant, or other authorization of a governmental entity
(i) pursuant to which Target or any of its subsidiaries currently operates or
holds any interest in any of its properties or (ii) that is required for the
operation of Target's or any of its subsidiaries' business or the holding of any
such interest and all of such authorizations are in full force and effect except
where the failure to obtain or have any such authorizations could not reasonably
be expected to have a Material Adverse Effect on Target.
2.4 Financial Statements. Target has delivered to Acquiror its
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unaudited financial statements (balance sheet, statement of operations and
statement of cash flows) for the period beginning with Target's inception and
ending February 29, 2000, and for the one-month period ended March 31, 2000
(collectively, the "Financial Statements"). The Financial Statements are
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complete and correct in all material respects and have been prepared in
accordance with generally accepted accounting principles (except for the absence
of footnotes thereto) applied on a consistent basis throughout the periods
indicated and with each other. The Financial Statements fairly present the
financial condition and operating results of Target as of the dates, and for the
periods, indicated therein, subject to normal year-end audit adjustments. Except
as disclosed in Section 2.4 of the Target Disclosure Schedule, Target maintains
a standard system of accounting established and administered in accordance with
generally accepted accounting principles.
2.5 Capital Structure. The authorized capital stock of Target
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consists of twenty-five thousand (25,000) shares of Target Common Stock, all of
which were issued and outstanding as of the date hereof, and no shares of
preferred stock. All outstanding shares of Target Common Stock are duly
authorized, validly issued, fully paid and non-assessable and are
free of any liens or encumbrances other than any liens or encumbrances created
by or imposed upon the holders thereof, and are not subject to preemptive rights
or rights of first refusal created by statute, the Articles of Incorporation or
Bylaws of Target or any agreement to which Target is a party or by which it is
bound. Except for the rights created pursuant to this Agreement, there are no
other options, warrants, calls, rights, commitments or agreements of any
character to which Target is a party or by which it is bound obligating Target
to issue, deliver, sell, repurchase or redeem or cause to be issued, delivered,
sold, repurchased or redeemed, any shares of Target Common Stock. There are no
other contracts, commitments or agreements relating to voting, purchase or sale
of Target's capital stock (i) between or among Target and any of its
shareholders or (ii) between or among any of Target's shareholders. All shares
of outstanding Target Common Stock and rights to acquire Target capital stock
were issued in compliance with all applicable federal and state securities laws.
2.6 Absence of Certain Changes. Since March 31, 2000 (the "Target
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Balance Sheet Date"), Target has conducted its business in the ordinary course
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consistent with past practice and there has not occurred: (i) any change, event
or condition (whether or not covered by insurance) that has resulted in a
Material Adverse Effect to Target; (ii) any acquisition, sale or transfer of any
material asset of Target or any of its subsidiaries other than in the ordinary
course of business and consistent with past practice; (iii) 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 or any of its subsidiaries' assets; (iv) any declaration, setting aside, or
payment of a dividend or other distribution with respect to the shares of Target
or any direct or indirect redemption, purchase or other acquisition by Target of
any of its shares of capital stock; (v) any material contract entered into by
Target or any of its subsidiaries, other than in the ordinary course of business
and as provided to Acquiror, or any material amendment or termination of, or
default under, any material contract to which Target or any of its subsidiaries
is a party or by which it is bound; (vi) any amendment or change to the Articles
of Incorporation or Bylaws of Target; (vii) any increase in or modification of
the compensation or benefits payable or to become payable by Target to any of
its directors or employees; or (viii) any negotiation or agreement by Target or
any of its subsidiaries to do any of the things described in the preceding
clauses (i) through (vii) (other than negotiations with Acquiror and its
representatives regarding the transactions contemplated by this Agreement). At
the Effective Time, there will be no accrued but unpaid dividends on shares of
Target's capital stock.
2.7 Absence of Undisclosed Liabilities. Target has no material
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obligations or liabilities of any nature (matured or unmatured, fixed or
contingent) other than (i) those set forth or adequately provided for in the
Target Balance Sheet, (ii) those incurred in the ordinary course of business and
not required to be set forth in the Target Balance Sheet under generally
accepted accounting principles, (iii) those incurred in the ordinary course of
business since the Target Balance Sheet Date and consistent with past practice;
and (iv) those incurred in connection with the execution of this Agreement.
2.8 Litigation. There is no private or governmental action, suit,
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proceeding, claim, arbitration or investigation pending before any Governmental
Entity, foreign or domestic, or, to the knowledge of Target or any of its
subsidiaries, threatened against Target or any of its subsidiaries or any of
their respective properties or any of their respective officers or directors (in
their capacities as such). There is no judgment, decree or order against Target
or any of its subsidiaries, or, to the knowledge of Target and its subsidiaries,
any of their respective directors or officers (in their capacities as such).
All litigation to which Target is a party (or, to the
knowledge of Target, threatened to become a party) is disclosed in the Target
Disclosure Schedule.
2.9 Restrictions on Business Activities. There is no agreement,
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judgment, injunction, order or decree binding upon Target or any of its
subsidiaries which has the effect of prohibiting or materially impairing any
current or future business practice of Target or any of its subsidiaries, any
acquisition of property by Target or any of its subsidiaries or the conduct of
business by Target or any of its subsidiaries as currently conducted or as
proposed to be conducted by Target or any of its subsidiaries.
2.10 Literary Rights. "Literary Rights" shall mean any rights
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(whether on an exclusive or nonexclusive basis) to audio voice recordings,
including without limitation recordings of poetry, novels, short stories,
speeches and interviews, including also related cover artwork and graphics or
other recorded-voice-related Proprietary Assets, together with the associated
copyrights. Section 2.10(a)(i) of the Target Disclosure Schedule sets forth a
true and complete list or summary of all Literary Rights owned by Target.
Section 2.10(a)(ii) of the Target Disclosure Schedule sets forth a true and
complete list or summary of all Literary Rights licensed by or to Target,
including a description of whether such rights are exclusive or non-exclusive,
whether the rights include the right to distribute tangible copies, custom
compilations or digital downloads of the recording in question, whether such
rights may be assigned or resold by Target, the expiration date of such rights
and any territorial limitations of such rights. Except as set forth in Section
2.10 of the Target Disclosure Schedule, Target has written contracts (each of
which are listed or summarized in the Target Disclosure Schedule) for all
Literary Rights owned, licensed, used, marketed, and sold by it, and those
licensed to it, Target has not received any notice from any party to such a
contract or any third party challenging the enforceability or validity of such a
contract, and all such contracts are enforceable in accordance with their terms.
Except as set forth in Section 2.10 of the Target Disclosure Schedule, the
Merger will not constitute or be deemed to constitute an assignment of any such
Literary Rights, require the consent of any third party or otherwise result in
the termination or modification of any such Literary Rights. Except as set forth
in Section 2.10 of the Target Disclosure Schedule, all Literary Rights owned by
Target were recorded and otherwise prepared in all respects in accordance with
the rules and regulations of any unions, guilds and similar associations having
jurisdiction. Except as set forth in Section 2.10 of the Target Disclosure
Schedule, each Person who has rendered any service or provided any materials in
connection with, or has contributed in any way, to the making of the Literary
Rights owned by Target has the right to grant such rights, render such services
or furnish such materials. Except as set forth in Section 2.10 of the Target
Disclosure Schedule, all fees and other payments applicable to or resulting from
the creation, recording, manufacture, duplication, and distribution of the
Literary Rights, including, but not limited to, payments to performers,
producers, engineers and others, have been fully and completely paid by Target.
(a) Except as set forth in Section 2.10 of the Target Disclosure
Schedule, there are no amounts owed or that will become owing to any holder of
rights for royalties arising as a result of the Literary Rights, nor has the
Target paid an advance in respect of such royalties.
(b) Except as described in Section 2.10 of the Target Disclosure
Schedule, Target does not know of any customers of the Target, or any holder of
Literary Rights (i) who has sent a written complaint or objection with respect
to the service or any business practices of the Target or the transactions
contemplated hereby which could reasonably be expected to have a
Material Adverse Effect, or (ii) will cease to do business, or significantly
reduce the business conducted, with Target as a result of the Merger.
2.11 Proprietary Rights and Warranty Claims.
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(a) "Proprietary Asset" shall mean: (a) any patent, patent
application, trademark (whether registered or unregistered, trademark
application, trade name, fictitious business name, service xxxx (whether
registered or unregistered), service xxxx application, copyright (whether
registered or unregistered), copyright application, maskwork, maskwork
application, trade secret, know-how, customer list, franchise, system, computer
software, computer program, URL, invention, design, blueprint, engineering
drawing, proprietary product, technology, proprietary right or other
intellectual property right; and (b) the right to use or exploit any of the
foregoing including rights granted by third parties under license agreements.
Section 2.11(a)(i) of the Disclosure Schedule sets forth, with respect to each
Proprietary Asset owned by Target (each a "Target Proprietary Asset" and
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collectively, the "Target Proprietary Assets") registered with any governmental
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body or for which an application has been filed with any governmental body, (i)
a brief description of such Target Proprietary Asset, and (ii) the names of the
jurisdictions covered by the applicable registration or application. Section
2.11(a)(ii) of the Target Disclosure Schedule identifies and provides a brief
description of all other Target Proprietary Assets owned by Target. Section
2.11(a)(iii) of the Target Disclosure Schedule identifies and provides a brief
description of each Proprietary Asset licensed to Target by any Person (except
for any Proprietary Asset that is licensed to Target under any third party
software license generally available to the public at a per unit cost of less
than One Thousand Dollars ($1,000)), and identifies the license agreement under
which such Proprietary Asset is being licensed to Target. Except as set forth in
Section 2.11(a)(iv) of the Target Disclosure Schedule, Target has good, valid
and marketable title to all Target Proprietary Assets identified in Sections
2.11(a)(i) and 2.11(a)(ii) of the Target Disclosure Schedule, free and clear of
all liens and other encumbrances, and, except as disclosed in Section 2.11 of
the Target Disclosure Schedule, Target has a valid right to use all Proprietary
Assets identified in Section 2.11(a)(iii) of the Target Disclosure Schedule in
its business as it is currently conducted. Except as set forth in Section
2.11(a)(v) of the Target Disclosure Schedule, Target is not obligated to make
any payment to any person for the use of any Proprietary Asset. Except as set
forth in Section 2.11(a)(vi) of the Target Disclosure Schedule, Target has not
developed jointly with any other person any Proprietary Asset with respect to
which such other person has any rights.
(b) Except as set forth in Section 2.11(b) of the Target
Disclosure Schedule, Target has taken reasonable and customary measures and
precautions necessary to protect and maintain the confidentiality and secrecy of
all Target Proprietary Assets (except Target Proprietary Assets whose value
would be unimpaired by public disclosure) and otherwise to maintain and protect
the value of all Target Proprietary Assets. Except as set forth in the Target
Disclosure Schedule, Target has not disclosed or delivered to any Person, or
permitted the disclosure or delivery to any person of any of the Target
Proprietary Assets used in or necessary for the conduct of business by Target as
currently conducted by Target (except Target Proprietary Assets whose value
would be unimpaired by public disclosure).
(c) Except as set forth in Section 2.11(c) of the Target
Disclosure Schedule, Target is not infringing, misappropriating or making any
unlawful use of, and Target has not at any time infringed, misappropriated or
made any unlawful use of, or received any
notice or other communication (in writing or otherwise) of any actual, alleged,
possible or potential infringement, misappropriation or unlawful use of, any
Proprietary Asset owned or used by any other person ("Third Party Proprietary
-----------------------
Asset"). Except as set forth in Section 2.11(c) of the Target Disclosure
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Schedule, no other person is infringing, misappropriating or making any unlawful
use of, and no Third Party Proprietary Asset owned or used by any other Person
infringes or conflicts with, any Target Proprietary Asset.
(d) Except as set forth in Section 2.11(d) of the Target
Disclosure Schedule: (i) each Target Proprietary Asset conforms with any
specification, documentation, performance standard, representation or statement
made or provided with respect thereto by or on behalf of Target; and (ii) there
has not been any claim made against Target by any customer or other person
alleging that any Target Proprietary Asset (including each version thereof that
has ever been licensed or otherwise made available by Target to any person) does
not conform with any specification, documentation, performance standard,
representation or statement made or provided by or on behalf of Target, and
there is no basis for any such claim.
Except as set forth in Section 2.11(e) of the Target Disclosure Schedule,
Target's Proprietary Assets constitute all the proprietary assets necessary to
enable Target to conduct its business in the manner in which such business has
been and is being conducted. Except as set forth in Section 2.11(e) of the
Target Disclosure Schedule, (i) Target has not licensed any of the Target
Proprietary Assets to any Person and (ii) Target has not entered into any
covenant not to compete or contract limiting its ability to exploit fully any of
the Target Proprietary Assets or to transact business in any market or
geographical area or with any Person.
2.12 Interested Party Transactions. Neither Target nor any of its
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subsidiaries is indebted to any director, officer, employee or agent of Target
or any of its subsidiaries (except for amounts due as normal salaries and
bonuses and in reimbursement of ordinary expenses), and no such person is
indebted to Target or any of its subsidiaries. There have been no transactions
since Target's inception that would require disclosure if Target were subject to
disclosure under Item 404 of Regulation S-K under the Securities Act.
2.13 Minute Books. The minute books of Target and its subsidiaries
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provided to Acquiror contain a complete and accurate summary of all meetings of
directors and shareholders or actions by written consent since the time of
incorporation of Target and the respective subsidiaries through the date of this
Agreement, and reflect all transactions referred to in such minutes accurately
in all material respects.
2.14 Complete Copies of Materials. Target has delivered true and
----------------------------
complete copies of each document which has been requested by Acquiror or its
counsel in connection with their legal and accounting review of Target and its
subsidiaries.
2.15 Material Contracts. All the material contracts and agreements
------------------
to which Target is a party are listed in Section 2.15 of the Target Disclosure
Schedule. With respect to each agreement so listed and with respect to each
agreement listed in Section 2.10 of the Target Disclosure Schedule: (i) the
agreement is legal, valid, binding and enforceable and in full force and effect
with respect to Target, and to Target's knowledge is legal, valid, binding,
enforceable and in full force and effect with respect to each other party
thereto, in either case subject to the effect of bankruptcy, insolvency,
moratorium or other similar laws affecting the enforcement of creditors' rights
generally and except as the availability of equitable remedies may be limited by
general principles of equity; (ii) the agreement will continue to be legal,
valid, binding and enforceable and in full force and effect immediately
following the Closing in accordance with the terms thereof as in effect prior to
the Closing, subject to the effect of bankruptcy, insolvency, moratorium or
other similar laws affecting the enforcement of creditors' rights generally and
except as the availability of equitable remedies may be limited by general
principles of equity; and (iii) neither the Target nor, to Target's knowledge,
any other party, is in breach or default, and no event has occurred which with
notice or lapse of time would constitute a breach of default by Target or, to
Target's knowledge, by any such other party, or permit termination, modification
or acceleration, under the agreement. Except as disclosed in Section 2.15 of the
Target Disclosure Schedule, Target is not a party to any material oral contract,
agreement or other arrangement. "Material Contract" means any contract,
agreement or commitment to which Target is a party (i) with expected receipts or
expenditures in excess of five thousand dollars ($5,000), (ii) requiring Target
to indemnify any Person, (iv) granting any exclusive rights to any party, (iv)
evidencing indebtedness for borrowed or loaned money of five thousand dollars
($5,000) or more, including guarantees of such indebtedness, or (v) which, if
breached by Target in such a manner as would (A) permit any other party to
cancel or terminate the same (with or without notice of passage of time) or (B)
provide a basis for any other party to claim money damages (either individually
or in the aggregate with all other such claims under that contract) from Target
or (C) give rise to a right of acceleration of any material obligation or loss
of any material benefit under any such contract, agreement or commitment, would
reasonably be expected to have a Material Adverse Effect on Target.
2.16 Accounts Receivable. Subject to any reserves set forth in
-------------------
the Financial Statements, the accounts receivable shown on the Financial
Statements are valid and genuine, have arisen solely out of bona fide sales and
deliveries of goods, performance of services, and other business transactions in
the ordinary course of business consistent with past practices in each case with
persons other than affiliates, are not subject to any prior assignment, lien or
security interest and are not subject to valid defenses, set-offs or counter
claims. The accounts receivable will be collected in accordance with their terms
at their recorded amounts, subject only to the reserve for doubtful accounts on
the Financial Statements.
2.17 Customers and Suppliers. As of the date hereof, no customer
-----------------------
and no supplier of Target, has canceled or otherwise terminated, or made any
written threat to Target to cancel or otherwise terminate its relationship with
Target or has at any time on or after the Target Balance Sheet, 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 to Target's knowledge, no such supplier or customer has indicated either
orally or in writing that it will cancel or otherwise terminate its relationship
with Target or to decrease materially its services or supplies to Target or its
usage of the services or products of Target, as the case may be. 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.
2.18 Employees and Consultants. The Target Disclosure Schedule or a
-------------------------
letter delivered to Acquiror by Target contains a list of the names of all
employees (including, without limitation part-time employees and temporary
employees), leased employees, independent contractors and consultants of Target,
their respective salaries or wages, other compensation and dates of employment
and positions.
2.19 Title to Property. Target and its subsidiaries have good and
-----------------
marketable title to all of their respective 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), or with respect to leased properties and
assets, valid leasehold interests therein, free and clear of all mortgages,
liens, pledges, charges or encumbrances of any kind or character, except (i) the
lien of current taxes not yet due and payable, (ii) such imperfections of title,
liens and easements 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 (iii) liens
securing debt which is reflected on the Target Balance Sheet. The plants,
property and equipment of Target and its subsidiaries that are used in the
operations of their businesses are in all material respects in good operating
condition and repair, subject to normal wear and tear. All properties used in
the operations of Target and its subsidiaries are reflected in the Target
Balance Sheet to the extent generally accepted accounting principles require the
same to be reflected. All leases to which Target is a party are in full force
and effect and are valid, binding and enforceable in accordance with their
respective terms, except as such enforceability may be limited by (i) bankruptcy
laws and other similar laws affecting creditors' rights generally and (ii)
general principles of equity, regardless of whether asserted in a proceeding in
equity or at law. True and correct copies of all such leases have been provided
to Acquiror. Target owns no real property.
2.20 Environmental Matters.
---------------------
(a) The following terms shall be defined as follows:
(i) "Environmental Laws" shall mean any applicable
------------------
local governmental laws (including common laws), statutes, ordinances, codes,
regulations, rules, policies, permits, licenses, certificates, approvals,
judgments, decrees, orders, directives, or requirements that pertain to the
protection of the environment, protection of public health and safety, or
protection of worker health and safety, or that pertain to the handling, use,
manufacturing, processing, storage, treatment, transportation, discharge,
release, emission, disposal, re-use, recycling, or other contact or involvement
with Hazardous Materials (defined below), including, without limitation, the
federal Comprehensive Environmental Response, Compensation and Liability Act of
1980, 42 U.S.C. Section 9601, et seq., as amended ("CERCLA"), and the federal
------
Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., as
amended ("RCRA").
----
(ii) "Hazardous Materials" shall mean any material,
-------------------
chemical, compound, substance, mixture, or by-product that is identified,
defined, designated, listed, restricted or otherwise regulated under
Environmental Laws (defined above) as a "hazardous constituent," "hazardous
substance," "hazardous material," "acutely hazardous material," "extremely
hazardous material," "hazardous waste," "hazardous waste constituent," "acutely
hazardous waste," "extremely hazardous waste," "infectious waste," "medical
waste," "biomedical waste," "pollutant," "toxic pollutant," or "contaminant," or
any other formulation or terminology intended to classify or identify
substances, constituents, materials, or wastes by reason of properties that are
deleterious to the environment, natural resources, worker health and safety, or
public health and safety, including, without limitation, ignitability,
corrosivity, reactivity, carcinogenicity, toxicity, and reproductive toxicity.
The term "Hazardous Materials" shall include, without limitation, any "hazardous
substances" as defined, listed, designated or
regulated under CERCLA, any "hazardous wastes" or "solid wastes" as defined,
listed, designated or regulated under RCRA, any asbestos or asbestos-containing
materials, any polychlorinated biphenyls, and any petroleum or hydrocarbonic
substance, fraction, distillate, or by-product.
(b) Target is and has been in compliance with all Environmental
Laws relating to the properties or facilities used, leased, or occupied by
Target at any time (collectively, "Target's Facilities;" such properties or
-------------------
facilities currently used, leased, or occupied by Target are defined herein as
"Target's Current Facilities"), and no discharge, emission, release, leak,
---------------------------
or spill of Hazardous Materials has occurred at any of Target's Facilities
which may or will give rise to liability of Target under Environmental
Laws. To Target's knowledge, there are no Hazardous Materials (including,
but not limited to, asbestos) present in the surface waters, structures,
groundwaters, or soils of or beneath any of Target's Current Facilities.
To Target's knowledge, there neither are nor have been any aboveground or
underground storage tanks for Hazardous Materials at Target's Current
Facilities. To Target's knowledge, no Target employee or other person has
claimed that Target is liable for alleged injury or illness resulting from
an alleged exposure to a Hazardous Material. No civil, criminal or
administrative action, proceeding or investigation is pending against
Target, or to Target's knowledge, threatened against Target, with respect
to Hazardous Materials or Environmental Laws, and Target is not aware of
any facts or circumstances which could form the basis for assertion of a
claim against Target or which could form the basis for liability of Target,
regarding Hazardous Materials or regarding actual or potential non-
compliance with Environmental Laws.
2.21 Taxes. As used in this Agreement, the terms "Tax" and,
----- ---
collectively, "Taxes" mean any and all federal, state and local taxes of any
-----
country, assessments and other governmental charges, duties, impositions and
liabilities, including taxes based upon or measured by gross receipts, income,
profits, sales, use and occupation, and value added, ad valorem, stamp transfer,
franchise, withholding, payroll, recapture, employment, excise and property
taxes, together with all interest, penalties and additions imposed with respect
to such amounts and any obligations under any agreements or arrangements with
any other person with respect to such amounts and including any liability for
taxes of a predecessor entity.
(a) Target has prepared and timely filed all returns, estimates,
information statements and reports required to be filed with any taxing
authority ("Returns") relating to any and all Taxes concerning or attributable
-------
to Target or its operations with respect to Taxes for any period ending on or
before the Closing Date and such Returns are true and correct in all material
respects and have been completed in accordance with applicable law.
(b) Target, as of the Closing Date: (i) will have paid all Taxes
shown to be payable on such Returns covered by Section 2.21(a) and (ii) will
have withheld with respect to its employees all Taxes required to be withheld.
(c) There is no Tax deficiency outstanding or assessed or, to
Target's knowledge, proposed against Target that is not reflected as a liability
on the Target Balance Sheet nor has Target executed any agreements or waivers
extending any statute of limitations on or extending the period for the
assessment or collection of any Tax.
(d) Target has no liabilities for unpaid Taxes that have not
been accrued for or reserved on the Target Balance Sheet, whether asserted or
unasserted, contingent or
otherwise and Target has no knowledge of any basis for the assertion of any such
liability attributable to Target, its assets or operations.
(e) Target is not a party to any tax-sharing agreement or
similar arrangement with any other party, and Target has not assumed to pay any
Tax obligations of, or with respect to any transaction relating to, any other
person or agreed to indemnify any other person with respect to any Tax.
(f) Target's Returns have never been audited by a government or
taxing authority, nor is any such audit in process or pending, and Target has
not been notified of any request for such an audit or other examination.
(g) Target has never been a member of an affiliated group of
corporations filing a consolidated federal income tax return.
(h) Target has disclosed to Acquiror (i) any Tax exemption, Tax
holiday or other Tax sparing arrangement that Target has in any jurisdiction,
including the nature, amount and lengths of such Tax exemption, Tax holiday or
other Tax-sparing arrangement and (ii) any expatriate tax programs or policies
affecting Target. Target is in compliance with all terms and conditions required
to maintain such Tax exemption, Tax holiday or other Tax-sparing arrangement or
order of any governmental entity and the consummation of the transactions
contemplated hereby will not have any adverse effect on the continuing validity
and effectiveness of any such Tax exemption, Tax holiday or other Tax-sparing
arrangement or order.
(i) Except as disclosed in Section 2.21(i) of the Target
Disclosure Schedule, Target has made available to Acquiror copies of all Returns
filed for all periods since its inception.
(j) Target has not filed any consent agreement under Section
341(f) of the Code or agreed to have Section 341(f)(4) apply to any disposition
of assets owned by Target.
(k) Target has not been at any time a United States Real
Property Holding Corporation within the meaning of Section 897(c)(2) of the
Code.
(l) Target is not a party to any contract, agreement, plan or
arrangement, including but not limited to the provisions of this Agreement,
covering any employee or former employee of Target that, individually or
collectively, could give rise to the payment of any amount that would not be
deductible pursuant to Sections 280G, 464 or 162(m) of the Code by Target or
Merger Sub as an expense under applicable law.
2.22 Employee Benefit Plans.
----------------------
(a) Section 2.22 of the Target Disclosure Schedule contains a
complete and accurate list of each plan, program, policy, practice, contract,
agreement or other arrangement providing for employment, compensation,
retirement, deferred compensation, loans, severance, separation, relocation,
repatriation, expatriation, visas, work permits, termination pay, performance
awards, bonus, incentive, stock option, stock purchase, stock bonus, phantom
stock, stock appreciation right, supplemental retirement, fringe benefits,
cafeteria benefits, or other benefits, whether written or unwritten, including,
without limitation, each "employee benefit
plan" within the meaning of Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") which is or has been sponsored,
-----
maintained, contributed to, or required to be contributed to by Target, any
subsidiary of Target and, with respect to any such plans which are subject to
Code Section 401(a), any trade or business (whether or not incorporated) which
is or, at any relevant time, was treated as a single employer with Target within
the meaning of Section 414(b), (c),(m) or (o) of the Code, (an "ERISA
-----
Affiliate") for the benefit of any person who performs or who has performed
---------
services for Target or with respect to which Target, any subsidiary, or ERISA
Affiliate has or may have any liability (including, without limitation,
contingent liability) or obligation (collectively, the "Target Employee Plans").
---------------------
(b) Documents Target has furnished to Acquiror true and
---------
complete copies of documents embodying each of the Target Employee Plans and
related plan documents, including (without limitation) trust documents, group
annuity contracts, plan amendments, insurance policies or contracts, participant
agreements, employee booklets, administrative service agreements, summary plan
descriptions, compliance and nondiscrimination tests for the last three plan
years, standard COBRA forms and related notices, registration statements and
prospectuses, and, to the extent still in its possession, any material employee
communications relating thereto. With respect to each Target Employee Plan which
is subject to ERISA reporting requirements, Target has provided copies of the
Form 5500 reports filed for the last five plan years. Target has 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) Compliance (i) Each Target Employee Plan has been
----------
administered 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), except as would not have, in the aggregate, a
Material Adverse Effect, and Target and each subsidiary or ERISA Affiliate have
performed all material obligations required to be performed by them under, are
not in material respect in default under or violation of and have no knowledge
of any material default or violation by any other party to, any of the Target
Employee Plans; (ii) 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,
including all amendments to the Code which are currently effective, or has time
remaining to apply under applicable Treasury Regulations or Internal Revenue
Service pronouncements for a determination or opinion letter and to make any
amendments necessary to obtain a favorable determination or opinion letter;
(iii) none of the Target Employee Plans promises or provides retiree medical or
other retiree welfare benefits to any person; (iv) there has been no "prohibited
transaction," as such term is defined in Section 406 of ERISA or Section 4975 of
the Code, with respect to any Target Employee Plan: (v) none of Target, any
subsidiary or any ERISA Affiliate is subject to any liability or penalty under
Sections 4976 through 4980 of the Code or Title I of ERISA with respect to any
Target Employee Plan; (vi) all contributions required to be made by Target, any
subsidiary or ERISA Affiliate to any Target Employee Plan have been paid or
accrued; (vii) 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 thirty (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 or
ERISA has occurred; (viii) each Target
Employee Plan subject to ERISA, has prepared in good faith and timely filed all
requisite governmental 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; (ix) 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 IRS or United States Department of Labor;
and (x) there has been no amendment to, written interpretation or announcement
by Target, any subsidiary or ERISA Affiliate which would materially increase the
expense of maintaining any Target Employee Plan above the level of expense
incurred with respect to that Plan for the most recent fiscal year included in
Target's financial statements.
(d) No Title IV or Multiemployer Plan None of Target, any
---------------------------------
subsidiary or any ERISA Affiliate has ever maintained, established, sponsored,
participated in, contributed to, or is obligated to contribute to, or otherwise
incurred any obligation or liability (including, without limitation, any
contingent liability) under any "multiemployer plan" (as defined in Section
3(37) of ERISA) or to any "pension plan" (as defined in Section 3(2) of ERISA)
subject to Title IV of ERISA or Section 412 of the Code. None of Target, any
subsidiary or any ERISA Affiliate has any actual or potential withdrawal
liability (including, without limitation, any contingent liability) for any
complete or partial withdrawal (as defined in Sections 4203 and 4205 of ERISA)
from any multiemployer plan.
(e) COBRA, FMLA, HIPAA, CANCER RIGHTS With respect to each
---------------------------------
Target Employee Plan, Target and each of its United States subsidiaries have
complied with (i) the applicable health care continuation and notice provisions
of the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") and the
-----
regulations thereunder or any state law governing health care coverage extension
or continuation; (ii) the applicable requirements of the Family and Medical
Leave Act of 1993 and the regulations thereunder; (iii) the applicable
requirements of the Health Insurance Portability and Accountability Act of 1996
("HIPAA"); and (iv) the applicable requirements of the Cancer Rights Act of
-----
1998, except to the extent that such failure to comply would not in the
aggregate have a Material Adverse Effect. Target has no material unsatisfied
obligations to any employees, former employees, or qualified beneficiaries
pursuant to COBRA, HIPAA, or any state law governing health care coverage
extension or continuation.
(f) Effect of Transaction The consummation of the transactions
---------------------
contemplated by this Agreement will not (i) entitle any current or former
employee or other service provider of Target, any subsidiary or any ERISA
Affiliate to severance benefits or any other payment (including, without
limitation, unemployment compensation, golden parachute, bonus or benefits under
any Target Employee Plan), except as expressly provided in this Agreement or
(ii) accelerate the time of payment or vesting of any such benefits or increase
the amount of compensation due any such employee or service provider. No benefit
payable or which may become payable by Target pursuant to any Target Employee
Plan or as a result of or arising under this Agreement shall constitute an
"excess parachute payment" (as defined in Section 280G(b)(1) of the Code) which
is subject to the imposition of an excise Tax under Section 4999 of the Code or
the deduction for which would be disallowed by reason of Section 280G of the
Code. Each Target Employee Plan can be amended, terminated or otherwise
discontinued after the Effective Time in accordance with its terms, without
material liability to
Acquirer or Target (other than ordinary administration expenses typically
incurred in a termination event).
2.23 Employee Matters. Target is in compliance with all currently
----------------
applicable laws and regulations respecting terms and conditions of employment
including, without limitation, applicant and employee background checking,
immigration laws, discrimination laws, verification of employment eligibility,
employee leave laws, classification of workers as employees and independent
contractors, wage and hour laws, and occupational safety and health laws. There
are no proceedings pending or, to Target's knowledge, reasonably expected or
threatened, between Target, on the one hand, and any or all of its current or
former employees, on the other hand, including, but not limited to, any claims
for actual or alleged harassment or discrimination based on race, national
origin, age, sex, sexual orientation, religion, disability, or similar tortious
conduct, breach of contract, wrongful termination, defamation, intentional or
negligent infliction of emotional distress, interference with contract or
interference with actual or prospective economic disadvantage. There are no
claims pending, or, to Target's knowledge, reasonably expected or threatened,
against Target under any workers' compensation or long term disability plan or
policy. Target has no material unsatisfied obligations to any employees, former
employees, or qualified beneficiaries pursuant to COBRA, HIPAA, or any state law
governing health care coverage extension or continuation. 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 its
employees. Target has provided all employees with all wages, benefits,
relocation benefits, stock options, bonuses and incentives, and all other
compensation which became due and payable through the date of this Agreement.
2.24 Insurance. Target has policies of insurance and bonds of the
---------
type and in amounts customarily carried by persons conducting businesses or
owning assets similar to those of Target. There is no material 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 are
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. Each such policy or bond is summarized in
Section 2.24 of the Target Disclosure Schedule.
2.25 Compliance With Laws. Target has complied with, is not in
--------------------
violation of and has not received any notices of violation with respect to any
federal state, local or foreign statute, law or regulation with respect to the
conduct of its business, or the ownership or operation of its business such that
a failure by Target to so comply would have a Material Adverse Effect on Target.
2.26 Brokers' and Finders' Fee. No broker, finder or investment
-------------------------
banker is entitled to brokerage or finders' fees or agents' commissions or
investment bankers' fees or any similar charges in connection with the Merger,
this Agreement or any transaction contemplated hereby.
2.27 Representations Complete. None of the representations or
------------------------
warranties made by Target or Shareholder herein or in any Schedule or Exhibit
hereto, including the Target Disclosure Schedule, or certificate furnished by
Target pursuant to this Agreement or any written statement furnished to Acquiror
pursuant hereto or in connection with the transactions contemplated hereby, when
all such documents are read together in their entirety, contain, 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; provided, however, that for
purposes of this representation, any document attached hereto and any document
specifically referenced in the Target Disclosure Schedule as a "Superseding
Document" (even if not attached hereto) that provides information inconsistent
with or in addition to any other written statement furnished to Acquiror in
connection with the transaction contemplated hereby, shall be deemed to
supersede any other document or written statement furnished to Acquiror with
respect to such inconsistent or additional information.
3. Representations and Warranties of Acquiror and Merger Sub. Acquiror
---------------------------------------------------------
and Merger Sub represent and warrant to Target and the Target Shareholders that
the statements contained in this Section 3 are true and correct, except as
disclosed in a document of even date herewith and delivered by Acquiror to
Target on the date hereof referring to the representations and warranties in
this Agreement (the "Acquiror Disclosure Schedule"). The Acquiror Disclosure
----------------------------
Schedule will be arranged in paragraphs corresponding to the lettered and
numbered paragraphs contained in this Section 3, and the disclosure in any such
numbered and lettered section of the Acquiror Disclosure Schedule shall qualify
only the corresponding section in this Section 3 (except to the extent
disclosure in any numbered and lettered section of the Acquiror Disclosure
Schedule is specifically cross-referenced in another numbered and lettered
section of the Acquiror Disclosure Schedule.
3.1 Organization, Standing and Power. Each of Acquiror and 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 Merger Sub
has the corporate power to own its properties and to carry on its business as
now being conducted and as proposed to be 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 Certificate 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 Certificate of Incorporation
or Bylaws or equivalent organizational documents.
3.2 Authority. 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, or will
have been by the Closing, duly authorized by all necessary corporate action on
the part of Acquiror and Merger Sub. 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. 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 material obligation or loss of
a material benefit under (i) any provision of the Certificate of Incorporation
or Bylaws of Acquiror or any of its subsidiaries, as amended, or (ii) any
material 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. No consent, approval, order or
authorization of or registration, declaration or filing with, any Governmental
Entity, is required by or with respect to Acquiror or any of its subsidiaries 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 transactions
contemplated hereby, except for (i) the filing of the Articles of Merger,
together with the required officers' certificates, as provided in Section 1.2,
(ii) the filing of a Form D with the Securities and Exchange Commission in
accordance with Regulation D following the Effective Time, (iii) the filing of a
Form 8-K with the Securities and Exchange Commission ("SEC") and National
---
Association of Securities Dealers ("NASD") within 15 days after the Closing
----
Date, (iv) the filing with the NASDAQ National Market of a Notification Form for
Listing of Additional Shares, (v) any filings as may be required under
applicable state securities laws and the securities laws of any foreign country,
and (vi) 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.
3.3 SEC Documents: Financial Statements. Acquiror has made available
-----------------------------------
to Target or its counsel through XXXXX a true and complete copy of each
statement, report, registration statement (with the prospectus in the form filed
pursuant to Rule 424(b) of the Securities Act), definitive proxy statement, and
other filing filed with the SEC by Acquiror since April 19, 1999, and, prior to
the Effective Time, Acquiror will have made available to Target or its counsel
through XXXXX true and complete copies of any additional documents filed with
the SEC by Acquiror prior to the Effective Time (collectively, the "Acquiror SEC
------------
Documents"). As of their respective filing dates, the Acquiror SEC Documents
---------
complied in all material respects with the requirements of the Securities
Exchange Act of 1934, as amended (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 circumstances in
which they were made, not misleading, except to the extent corrected by a
subsequently filed Acquiror SEC Document prior to the date hereof. The
financial statements of Acquiror, including the notes thereto, included in the
Acquiror SEC Documents (the "Acquiror Financial Statements"), complied 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, and have been prepared in accordance with generally accepted accounting
principles applied on a basis consistent throughout the periods indicated and
consistent with each other (except as may be indicated in the notes thereto or,
in the case of unaudited statements included in Quarterly Reports on Form 10-Qs,
as permitted by Form 10-Q of the SEC). The Acquiror Financial Statements fairly
present in all material respects the consolidated financial condition and
operating results of Acquiror and its subsidiaries at the dates and during the
periods indicated therein (subject, in the case of unaudited statements, to
normal, recurring year-end adjustments). There has been no change in Acquiror
accounting policies except as described in the notes to the Acquiror Financial
Statements.
3.4 Capital Structure. The authorized capital stock of Acquiror
-----------------
consists of 50,000,000 shares of Common Stock, $.001 par value, and 5,000,000
shares of Preferred Stock, no par value, of which there were issued and
outstanding as of the date of this Agreement approximately twelve million five
hundred forty six thousand (12,546,000) shares of Common Stock and no shares of
Preferred Stock. There are no other outstanding shares of capital stock or
voting securities of Acquiror other than shares of Acquiror Common Stock issued
after March 31, 2000, upon the exercise of options issued under Acquiror's 1995
Stock Option Plan (the "Acquiror Stock Option Plan"), or shares of Acquiror
--------------------------
Common Stock issued under Acquiror's
1999 Employee Stock Purchase Plan (the "Acquiror ESPP"). The authorized capital
-------------
stock of Merger Sub consists of 1,000 shares of Common Stock, all of which are
issued and outstanding and are held by Acquiror. All outstanding shares of
Acquiror and Merger Sub have been duly authorized, validly issued, fully paid
and are nonassessable. The shares of Acquiror Common Stock to be issued pursuant
to the Merger will be duly authorized, validly issued, fully paid, and
nonassessable.
3.5 Interim Operations of Merger Sub. Merger Sub was formed solely
--------------------------------
for the purpose of engaging in the transactions contemplated by this Agreement,
has engaged in no other business activities and has conducted its operations
only as contemplated by this Agreement.
3.6 Representations Complete. None of the representations or
------------------------
warranties made by Acquiror or Merger Sub herein or in any Schedule hereto,
including the Acquiror Disclosure Schedule, or certificate furnished by Acquiror
or Merger Sub pursuant to this Agreement, or the Acquiror SEC Documents, or any
written statement furnished to Target pursuant hereto or in connection with the
transactions contemplated hereby, 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; provided, however, that for purposes of this representation, any
document attached hereto and any document specifically referenced in the
Acquiror Disclosure Schedule as a "Superseding Document" (even if not attached
--------------------
hereto) that provides information inconsistent with or in addition to any other
written statement furnished to Target in connection with the transactions
contemplated hereby, shall be deemed to supersede any other document or written
statement furnished to Target with respect to such inconsistent or additional
information.
4. Conduct Prior To The Effective Time.
-----------------------------------
4.1 Conduct of Business of Target. During the period from the date
-----------------------------
of this Agreement and continuing until the earlier of the termination of this
Agreement or the Effective Time, Target agrees (except to the extent expressly
contemplated by this Agreement or as consented to in writing by the other), to
carry on its and its subsidiaries' business in the usual regular and ordinary
course in substantially the same manner as heretofore conducted; to pay and to
cause its subsidiaries to pay debts and taxes when due subject (i) to good faith
disputes over such debts or taxes, and (ii) in the case of taxes of Target or
any of its subsidiaries, to Acquiror's consent to the filing of material tax
returns if applicable; to pay or perform other obligations when due, and to use
all reasonable efforts to preserve intact its present business organizations,
keep available the services of its and its subsidiaries' present officers and
key employees and preserve its and its subsidiaries' relationships with
customers, suppliers, distributors, licensors, licensees, and others having
business dealings with it or its subsidiaries, to the end that its and its
subsidiaries' goodwill and ongoing businesses shall be unimpaired at the
Effective Time. Each of Target and Acquiror agrees to promptly notify the other
of (x) any event or occurrence not in the ordinary course of its or its
subsidiaries' business, and of any event which could have a Material Adverse
Effect, and (y) any change in its capitalization as set forth in Sections 2.5
and 3.4, respectively. Without limiting the foregoing, except as expressly
contemplated by this Agreement or the Target Disclosure Schedule, Target shall
not do, cause or permit any of the following, or allow, cause or permit any of
its subsidiaries to do, cause or permit any of the following, without the prior
written consent of Acquiror:
(a) Charter Documents. Cause or permit any amendments to its
-----------------
Articles of Incorporation or Bylaws;
(b) Dividends; Changes in Capital Stock. Declare or pay any
-----------------------------------
dividends on or make any other distributions (whether in cash, stock or
property) in respect of any of its capital stock, or split, combine or
reclassify any of its capital stock or issue or authorize the issuance of any
other securities in respect of, in lieu of or in substitution for shares of its
capital stock, or repurchase or otherwise acquire, directly or indirectly, any
shares of its capital stock except from former employees, directors and
consultants in accordance with agreements providing for the repurchase of shares
in connection with any termination of service to it or its subsidiaries;
(c) Options, Warrants, Etc. Grant any options, warrants, or
----------------------
other rights to purchase Target Common Stock;
(d) Material Contracts. Enter into any material contract or
------------------
commitment, or violate, amend or otherwise modify or waive any of the terms of
any of its material contracts, other than in the ordinary course of business
consistent with past practice;
(e) Issuance of Securities. 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 other than the issuance of shares of its Common Stock
pursuant to the exercise of stock options, warrants or other rights therefore
outstanding as of the date of this Agreement;
(f) Proprietary Rights and Literary Rights. Transfer to any
--------------------------------------
person or entity any rights to its Proprietary Rights and Literary Rights other
than in the ordinary course of business consistent with past practice;
(g) Exclusive Rights. Enter into or amend any agreements
----------------
pursuant to which any other party is granted exclusive marketing or other
exclusive rights of any type or scope with respect to any of Target products or
Target Proprietary Rights and Literary Rights;
(h) Dispositions. Sell, lease, license or otherwise dispose of
------------
or encumber any of its properties or assets which are material individually or
in the aggregate, to its and its parent's/subsidiaries' business, taken as a
whole, except in the ordinary course of business, consistent with past practice;
(i) Indebtedness. Incur any indebtedness for borrowed money or
------------
guarantee any such indebtedness or issue or sell any debt securities or
guarantee any debt securities of others;
(j) Agreements. Enter into, terminate or amend, in a manner
----------
which will adversely affect the business of Target (i) any agreement involving
an obligation to pay or the right to receive $10,000 or more, (ii) any agreement
relating to the license, transfer or other disposition or acquisition of
Proprietary Rights and Literary Rights or rights to market or sell Target
Products, or (iii) any other agreement which is material to the business or
prospects of Target or which is or would be a Material Contract;
(k) Payment of Obligations. Pay, discharge or satisfy any
----------------------
claim, liability or obligation (absolute, accrued, asserted or unasserted,
contingent or otherwise) arising other than in the ordinary course of business,
other than the payment, discharge or satisfaction of liabilities reflected or
reserved against in the Target Financial Statements;
(l) Capital Expenditures. Make any capital expenditures,
--------------------
capital additions or capital improvements except in the ordinary course of
business and consistent with past practice;
(m) Insurance. Materially reduce the amount of any material
---------
insurance coverage provided by existing insurance policies;
(n) Termination or Waiver. Terminate or waive any right of
---------------------
substantial value, other than in the ordinary course of business;
(o) Employee Benefit Plans; New Hires; Pay Increases. Amend any
------------------------------------------------
Target Employee Plan or adopt any plan that would constitute a Target Employee
Plan or hire any new officer level employee, pay any special bonus, special
remuneration or special noncash benefit (except payments and benefits made
pursuant to written agreements outstanding on the date hereof, or increase the
benefits, salaries or wage rates of its employees except in the ordinary course
of business in accordance with its standard past practice;
(p) Severance Arrangements. Grant any severance or termination
----------------------
pay or benefits (i) to any director or officer or (ii) to any other employee
except payments made pursuant to written agreements outstanding on the date
hereof and disclosed on the Target Disclosure Schedule;
(q) Lawsuits. Commence a lawsuit 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
aspect 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;
(r) Acquisitions. 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 assets which are material individually or in the aggregate, to
its business, taken as a whole;
(s) Taxes. Other than in the ordinary course of business, make
-----
or change any material election in respect of taxes, adopt or change any
accounting method in respect of taxes, file any material tax return or any
amendment to a material tax return, enter into any closing agreement, settle any
material claim or assessment in respect of taxes, or consent to any extension or
waiver of the limitation period applicable to any material claim or assessment
in respect of taxes;
(t) Revaluation. Revalue any of its assets, including without
-----------
limitation writing down the value of inventory or writing off notes or accounts
receivable other than in the ordinary course of business; or
(u) Other. Take or agree in writing or otherwise to take, any
-----
of the actions described in Sections 4.1(a) through (t) above, or any action
which would cause a material breach of its representations or warranties
contained in this Agreement or prevent it from materially performing or cause it
not to materially perform its covenants hereunder.
4.2 No Solicitation.
---------------
(a) From and after the date of this Agreement until the
Effective Time, Target shall not, directly or indirectly through any officer,
director, employee, representative or agent of Target or otherwise, (i) solicit,
initiate, or encourage any inquiries or proposals that constitute, or could
reasonably be expected to lead to, a proposal or offer for a merger,
consolidation, share exchange, business combination, sale of all or
substantially all assets, sale of shares of capital stock or similar
transactions involving Target other than the transactions contemplated by this
Agreement (any of the foregoing inquiries or proposals being referred to in this
Agreement as an "Acquisition Proposal"), (ii) engage or participate in
--------------------
negotiations or discussions concerning, or provide any non-public information to
any person or entity relating to, any Acquisition Proposal, or (iii) agree to,
enter into, accept, approve or recommend any Acquisition Proposal. Target
represents and warrants that it has the legal right to terminate any pending
discussions or negotiations relating to an Acquisition Proposal without payment
of any fee or other penalty.
(b) Target shall notify Acquiror immediately (and no later than
24 hours) after receipt by Target (or its advisors) of any Acquisition Proposal
or any request for nonpublic information in connection with an Acquisition
Proposal or for access to the properties, books or records of Target by any
person or entity that informs Target that it is considering making, or has made,
an Acquisition Proposal. Such notice shall be made orally and in writing and
shall indicate in reasonable detail the identity of the offeror and the terms
and conditions of such proposal, inquiry or contact.
5. Additional Agreements.
---------------------
5.1 Approval of Shareholders. Each of the Target Shareholders
------------------------
agrees, upon Target's request, to execute a written consent of shareholders
approving the Merger or to vote in favor of the Merger at any meeting of the
Target Shareholders called for that purpose.
5.2 Restricted Securities. The parties hereto acknowledge and agree
---------------------
that the shares of Acquiror Common Stock issuable to the Target Shareholders
pursuant to Section 1.6 hereof, shall constitute "restricted securities" within
the meaning of the Securities Act. The certificates of Acquiror Common Stock
shall bear the legends set forth in Section 1.6(g). It is acknowledged and
understood that Acquiror is relying on certain written representations made by
each shareholder of Target.
5.3 Access to Information. Target shall afford Acquiror and its
---------------------
accountants, counsel and other representatives, reasonable access during normal
business hours during the period prior to the Effective Time to (i) all of
Target's properties, personnel books, contracts, commitments and records, and
(ii) all other information concerning the business, properties and personnel of
Target as Acquiror may reasonably request.
(a) Subject to compliance with applicable law, from the date
hereof until the Effective Time, each of Acquiror and Target shall confer on a
regular and frequent basis with
one or more representatives of the other party to report operational matters of
materiality and the general status of ongoing operations.
(b) No information or knowledge obtained in any investigation
pursuant to this Section 5.3 shall affect or be deemed to modify any
representation or warranty contained herein or the conditions to the obligations
of the parties to consummate the Merger.
5.4 Confidentiality. The parties acknowledge that Acquiror and
---------------
Target have previously executed a non-disclosure agreement dated February 22,
2000 (the "Confidentiality Agreement"), which Confidentiality Agreement is
-------------------------
hereby incorporated herein by reference and shall continue in full force and
effect in accordance with its terms.
5.5 Public Disclosure. Unless otherwise permitted by this Agreement,
-----------------
Acquiror and Target shall consult with each other before issuing any press
release or otherwise making any public statement or making any other public (or
non-confidential) disclosure (whether or not in response to an inquiry)
regarding the terms of this Agreement and the transactions contemplated hereby,
and neither shall issue any such press release or make any such statement or
disclosure without the prior approval of the other (which approval shall not be
unreasonably withheld), except as may be required by law or by obligations
pursuant to any listing agreement with any national securities exchange or with
the NASD.
5.6 Regulatory Approval: Further Assurances.
---------------------------------------
(a) Each party shall use all reasonable efforts to file, as
promptly as practicable after the date of this Agreement, all notices, reports
and other documents required to be filed by such party with any Governmental
Body with respect to the Merger and the other transactions contemplated by this
Agreement, and to submit promptly any additional information requested by any
such Governmental Body. Acquiror and Target shall respond as promptly as
practicable to any inquiries or requests received from any state attorney
general or other Governmental Body in connection with antitrust or related
matters. Each of Acquiror and Target shall (1) give the other party prompt
notice of the commencement of any Legal Proceeding by or before any Governmental
Body with respect to the Merger or any of the other transactions contemplated by
this Agreement, (2) keep the other party informed as to the status of any such
Legal Proceeding, and (3) promptly inform the other party of any communication
to or from any Governmental Body regarding the Merger. Acquiror and Target will
consult and cooperate with one another, and will consider in good faith the
views of one another, in connection with any analysis, appearance, presentation,
memorandum, brief, argument, opinion or proposal made or submitted in connection
with any Legal Proceeding under any federal or state antitrust or fair trade
law. In addition, except as may be prohibited by any Governmental Body or by any
Legal Requirement, in connection with any Legal Proceeding under any federal or
state antitrust or fair trade law or any other similar Legal Proceeding, each of
Acquiror and Target will permit authorized Representatives of the other party to
be present at each meeting or conference relating to any such Legal Proceeding
and to have access to and be consulted in connection with any document, opinion
or proposal made or submitted to any Governmental Body in connection with any
such Legal Proceeding.
(b) Subject to Section 5.6(c), Acquiror and Target shall use all
reasonable efforts to take, or cause to be taken, all actions necessary to
effectuate the Merger and make effective the other transactions contemplated by
this Agreement. Without limiting the generality
of the foregoing, but subject to Section 5.6(c), each party to this Agreement
(i) shall make all filings (if any) and give all notices (if any) required to be
made and given by such party in connection with the Merger and the other
transactions contemplated by this Agreement, (ii) shall use all reasonable
efforts to obtain each consent (if any) required to be obtained (pursuant to any
applicable legal requirement or contract, or otherwise) by such party in
connection with the Merger or any of the other transactions contemplated by this
Agreement, and (iii) shall use all reasonable efforts to lift any restraint,
injunction or other legal bar to the Merger. Target shall promptly deliver to
Acquiror a copy of each such filing made, each such notice given and each such
consent obtained by Target during the period prior to the Effective Time. Each
party hereto, at the reasonable request of another party hereto, shall execute
and deliver such other instruments and do and perform such other acts and things
as may be necessary or desirable for effecting completely the consummation of
this Agreement and the transactions contemplated hereby.
(c) Notwithstanding anything to the contrary contained in this
Agreement, Acquiror shall not have any obligation under this Agreement: (i) to
dispose or transfer or cause any of its subsidiaries to dispose of or transfer
any assets, or to commit to cause Target to dispose of any assets; (ii) to
discontinue or cause any of its subsidiaries to discontinue offering any product
or service, or to commit to cause Target to discontinue offering any product or
service; (iii) to license or otherwise make available, or cause any of its
subsidiaries to license or otherwise make available, to any person, any
technology, software or other Proprietary Rights and Literary Rights, or to
commit to cause Target to license or otherwise make available to any person any
technology, software or other Proprietary Rights and Literary Rights; (iv) to
hold separate or cause any of its subsidiaries to hold separate any assets or
operations (either before or after the Closing Date), or to commit to cause
Target to hold separate any assets or operations; or (v) to make or cause any of
its Subsidiaries to make any commitment (to any Governmental Body or otherwise)
regarding its future operations or the future operations of Target.
5.7 Legal Requirements. Each of Acquiror, Merger Sub and Target will
------------------
take all reasonable actions necessary to comply promptly with all legal
requirements which may be imposed on them with respect to the consummation of
the transactions contemplated by this Agreement and will promptly cooperate with
and furnish information to any party hereto necessary in connection with any
such requirements imposed upon such other party in connection with the
consummation of the transactions contemplated by this Agreement and will take
all reasonable actions necessary to obtain (and will cooperate with the other
parties hereto in obtaining) any consent, approval, order or authorization of or
any registration, declaration or filing with, any Governmental Entity or other
person, required to be obtained or made in connection with the taking of any
action contemplated by this Agreement.
5.8 Blue Sky Laws. Acquiror shall take such steps as may be
-------------
necessary to comply with the securities and blue sky laws of all jurisdictions
which are applicable to the issuance of the Acquiror Common Stock in connection
with the Merger. Target shall use its commercially reasonable efforts to assist
Acquiror as may be necessary to comply with the securities and blue sky laws of
all jurisdictions which are applicable in connection with the issuance of
Acquiror Common Stock in connection with the Merger.
5.9 Nonaccredited Stockholders. Prior to the Closing, Target shall
--------------------------
not take any action, including the granting of employee stock options, that
would cause the number of Target stockholders who are not "accredited investors"
pursuant to Regulation D promulgated under the
Securities Act of 1933, as amended, to increase to more than 35 during the term
of this Agreement.
5.10 Listing of Additional Shares. 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 Common Stock in the Merger.
5.11 Employees. Target will use reasonable commercial efforts in
---------
consultation with Acquiror to retain existing employees of Target through the
Effective Time and following the Merger.
5.12 Expenses. Whether or not the Merger is consummated, all costs
--------
and expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expense.
5.13 Registration of Shares Issued in the Merger. The Target
-------------------------------------------
Shareholders shall be entitled to rights to require Acquiror to cause the Shares
of Acquiror Common Stock issued in the Merger, including any and all Holdback
Shares (the "Registrable Securities"), to be registered under the Securities Act
-----------------------
so as to permit the resale thereof as set forth in the Registration Rights
Agreement attached hereto as Exhibit C.
---------
5.14 Audited Financial Statements. Target Financial Statements for
----------------------------
the period from inception through March 31, 2000 shall be audited and reported
on by a reputable independent public accounting firm with standing to appear
before the Securities and Exchange Commission, and such Target Financial
Statements shall be delivered to Acquiror within sixty (60) days of the date
hereof.
5.15 Tax Consequences. The Target Shareholders are responsible or
----------------
liable for any tax consequences to them related to their receipt of the Merger
Consideration. Target and the Target Shareholders will look solely to, and rely
upon, their own advisors with respect to the tax consequences to them of the
transactions contemplated by this Agreement. Notwithstanding the foregoing,
Acquiror agrees to treat the Merger as a reorganization under the provisions of
Section 368 of the Internal Revenue Code of 1986, as amended, on its federal and
state income tax returns for the tax year beginning April 1, 2000; provided,
--------
however, that it reasonably believes that the Merger meets the requirements
-------
therefor; and provided, further, that Acquiror shall be entitled to amend such
-------- -------
tax returns in the future in the event that it reasonably determines, following
consultation with its tax advisors, that the Merger no longer meets the
requirements therefor.
6. Conditions to the Merger.
------------------------
6.1 Conditions to Obligations of Each Party to Effect the Merger. The
------------------------------------------------------------
respective obligations of each party to this Agreement to consummate and effect
this Agreement and the transactions contemplated hereby shall be subject to the
satisfaction at or prior to the Effective Time of each of the following
conditions, any of which may be waived, in writing, by agreement of all the
parties hereto:
(a) Shareholder Approval. This Agreement and the Merger shall
--------------------
be approved and adopted by the unanimous vote or written consent of the Target
Shareholders.
(b) No Injunctions or Restraints; Illegality. No temporary
----------------------------------------
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Merger shall be and remain in
effect, nor shall any proceeding brought by an administrative agency or
commission or other governmental authority or instrumentality, domestic or
foreign, seeking any of the foregoing be pending, nor shall there be any action
taken, or any statute, rule, regulation or order enacted, entered, enforced or
deemed applicable to the Merger, which makes the consummation of the Merger
illegal.
(c) Governmental Approval. Acquiror, Target and Merger Sub and
---------------------
their respective subsidiaries shall have timely obtained from each Governmental
Entity (as defined below) all approvals, waivers and consents, if any, necessary
for consummation of or in connection with the Merger and the several
transactions contemplated hereby, including such approvals, waivers and consents
as may be required under the Securities Act, and under state Blue Sky laws other
than filings and approvals relating to the Merger or affecting Acquiror's
ownership of Target or any of its properties if failure to obtain such approval,
waiver or consent would not have a Material Adverse Effect on Acquiror after the
Effective Time.
6.2 Additional Conditions to the Obligations of Acquiror and Merger
---------------------------------------------------------------
Sub. The obligations of Acquiror and Merger Sub to consummate and effect this
---
Agreement and the transactions contemplated hereby shall be subject to the
satisfaction at or prior to the Effective Time of each of the following
conditions, any of which may be waived, in writing, by Acquiror:
(a) Representations, Warranties and Covenants. The
-----------------------------------------
representations and warranties of Target in this Agreement shall be true and
correct in all material respects (without regard to any qualification as to
materiality contained in such representation or warranty) on and as of the date
of this Agreement and on and as of the Closing as though such representations
and warranties were made on and as of such time (except for such representations
and warranties that speak specifically as of the date hereof or as of another
date, which shall be true and correct as of such date).
(b) Performance of Obligations. 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 it as of the
Closing.
(c) Certificate of Officers. Acquiror and Merger Sub shall have
-----------------------
received a certificate executed on behalf of Target by the chief executive
officer or chief financial officer of Target certifying that the conditions set
forth in Section 6.2(a) and Section 6.2(b) have been satisfied.
(d) Third Party Consents. All consents or approvals required to
--------------------
be obtained in connection with the Merger and the other transactions
contemplated by this Agreement shall have been obtained and shall be in full
force and effect.
(e) No Governmental Litigation. There shall not be pending or
--------------------------
threatened any legal proceeding in which a Governmental Body is or is threatened
to become a party or is otherwise involved, and neither Acquiror nor Target
shall have received any communication from any Governmental Body in which such
Governmental Body indicates the probability of commencing any legal proceeding
or taking any other action: (a) challenging or seeking to
restrain or prohibit the consummation of the Merger; (b) relating to the Merger
and seeking to obtain from Acquiror or any of its subsidiaries, or Target, any
damages or other relief that would be material to Acquiror; (c) seeking to
prohibit or limit in any material respect Acquiror's ability to vote, receive
dividends with respect to or otherwise exercise ownership rights with respect to
the stock of Target; or (d) which would materially and adversely affect the
right of Acquiror or Target to own the assets or operate the business of Target.
(f) No Other Litigation. There shall not be pending any legal
-------------------
proceeding: (a) challenging or seeking to restrain or prohibit the consummation
of the Merger or any of the other transactions contemplated by this Agreement;
(b) relating to the Merger and seeking to obtain from Acquiror or any of its
subsidiaries, or Target, any damages or other relief that would be material to
Acquiror; (c) seeking to prohibit or limit in any material respect Acquiror's
ability to vote, receive dividends with respect to or otherwise exercise
ownership rights with respect to the stock of Target; or (d) which would affect
adversely the right of Acquiror or Target to own the assets or operate the
business of Target.
(g) Employment Agreements. Xxxx Xxxxxxx and Xxxxxxx Xxxxxxx
---------------------
shall have entered into their respective Employment Agreements, copies of which
are attached as Exhibit D.
---------
(h) No Material Adverse Change. There shall not have occurred
--------------------------
any material adverse change in the financial condition, properties, assets
(including intangible assets), liabilities, business, operations, results of
operations or prospects of Target and its subsidiaries, taken as a whole.
(i) Investor Representation Statement. Each of the Target
---------------------------------
Shareholders shall have delivered to Acquiror a signed Investor Representation
Statement in substantially the form attached hereto as Exhibit E and each such
---------
Statement shall be in full force and effect.
(j) Offer Letters. The employees of Target, other than Xxxxxxx
-------------
Hustwit or Xxxx Xxxxxxx, shall have accepted employment with the Surviving
Corporation pursuant to the terms of an offer letter substantially in the form
attached hereto as Exhibit F.
---------
(k) Opinion. Counsel for Target shall have delivered to
-------
Acquiror an opinion in a form and substance reasonably satisfactory to Acquiror
and its counsel.
(l) Stock Powers. The Target Shareholders and/or the
------------
Shareholders' Agent shall have executed and delivered to the Holdback Agent such
executed stock powers, powers or attorney, letters of instruction necessary or
appropriate to enable the Holdback Agent to effect releases, forfeitures,
cancellations and any other transfers of Holdback Shares and Additional Holdback
Shares in accordance with the terms of Section 8.
6.3 Additional Conditions to Obligations of Target. The obligations
----------------------------------------------
of Target to consummate and effect this Agreement and the transactions
contemplated hereby shall be subject to the satisfaction at or prior to the
Effective Time of each of the following conditions, any of which may be waived,
in writing, by Target:
(a) Representations, Warranties and Covenants. The
-----------------------------------------
representations and warranties of Acquiror and Merger Sub in this Agreement
shall be true and correct in all material respects on and as of the date of this
Agreement and on and as of the Closing as though such
representations and warranties were made on and as of such time (except for such
representations and warranties that speak specifically as of the date hereof or
as of another date, which shall be true and correct as of such date).
(b) Performance of Obligations. 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 Closing.
(c) Certificate of Officers. Target shall have received a
-----------------------
certificate executed on behalf of each of Acquiror and Merger Sub by the chief
executive officer or chief financial officer of Acquiror and Merger Sub,
respectively, certifying that the conditions set forth in Sections 6.3(a) and
6.3(b) have been satisfied.
(d) NASDAQ Listing. 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 Common
Stock in the Merger.
(e) Opinion. Counsel for Acquiror shall have delivered to
-------
Target an opinion in a form and substance reasonably satisfactory to Target and
its counsel.
7. Termination, Amendment and Waiver.
---------------------------------
7.1 Termination. This Agreement may be terminated at any time prior
-----------
to the Effective Time (with respect to Section 7.1(b) through Section 7.1(d), by
written notice by the terminating party to the other party):
(a) by the mutual written consent of Acquiror and Target;
(b) by either Acquiror or Target if the Merger shall not have
been consummated by May 15, 2000, provided, however, that the right to terminate
--------
this Agreement under this Section 7.1(b) shall not be available to any party
whose failure to fulfill any obligation under this Agreement has been the cause
of or resulted in the failure of the Merger to occur on or before such date;
(c) by either Acquiror or Target if a court of competent
jurisdiction or other Governmental Entity shall have issued a nonappealable
final order, decree or ruling or taken any other action, in each case having the
effect of permanently restraining, enjoining or otherwise prohibiting the
Merger, except, if the party relying on such order, decree or ruling or other
action has not complied with its obligations under this Agreement;
(d) by Acquiror or Target, if there has been a breach of any
representation, warranty, covenant or agreement on the part of the other party
set forth in this Agreement, which breach (i) causes the conditions set forth in
Section 6.1 or 6.2 (in the case of termination by Acquiror) or Section 6.1 or
6.3 (in the case of termination by Target) not to be satisfied and (ii) shall
not have been cured within ten (10) business days following receipt by the
breaching party of written notice of such breach from the other party.
7.2 Effect of Termination. In the event of termination of this
---------------------
Agreement as provided in Section 7.1, there shall be no liability or obligation
on the part of Acquiror, Target, Sub or their respective officers, directors, or
stockholders, except to the extent that such
termination results from the willful breach by a party of any of its
representations, warranties or covenants set forth in this Agreement; provided
that the provisions of Section 7.1 shall remain in full force and effect and
survive any termination of this Agreement.
7.3 Amendment. This Agreement may be amended by the parties hereto,
---------
by action taken or authorized by their respective Boards of Directors. This
Agreement may not be amended except by an instrument in writing signed on behalf
of each of the parties hereto.
7.4 Extension; Waiver. At any time prior to the Effective Time, the
-----------------
parties hereto, by action taken or authorized by their respective Boards of
Directors, 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 contained
herein or in any document delivered pursuant hereto, and (iii) waive compliance
with any of the agreements or conditions 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 a written instrument signed on behalf of such party.
8. Holdback and Indemnification.
----------------------------
8.1 Holdback.
--------
(a) Definitions. For purposes of this Section 8:
-----------
(i) "Acquiror Indemnified Person" means individually and
---------------------------
"Acquiror Indemnified Persons" means collectively, Acquiror and the Surviving
----------------------------
Corporation and their respective officers, directors, agents, attorneys and
employees, and each person, if any, who controls or may control Acquiror or the
Surviving Corporation within the meaning of the Securities Act;
(ii) "Additional Holdback Shares" means any dividends paid
--------------------------
in stock declared with respect to the Holdback Shares.
(iii) "Damages" refers to any and all losses, costs,
-------
damages, liabilities and expenses arising from claims, demands, actions, causes
of action, including, without limitation, reasonable legal fees arising out of
any misrepresentation or breach of or default in connection with any of the
representations, warranties, covenants and agreements given or made by Target or
the Target Shareholders in this Agreement, the Target Disclosure Schedule or any
exhibit or schedule to this Agreement.
(iv) "Employee" means individually and "Employees" means
-------- ---------
collectively, Xxxx Xxxxxxx and Xxxxxxx Xxxxxxx.
(v) "Holdback Fund" means the Holdback Shares and any
-------------
Additional Holdback Shares relating thereto, held by Acquiror and governed by
the terms set forth herein.
(vi) "Indemnification Fund Shares" means two hundred fifty
---------------------------
three thousand six hundred (253,600) Acquiror Shares, which shall be available
to compensate Acquiror pursuant to the indemnification obligations of Target and
the Target Shareholders in accordance with Section 8.2 hereof.
(vii) "JAMS" refers to Judicial Arbitration and Mediation
----
Services.
(viii) "Officer's Certificate" refers to a certificate
---------------------
signed by any officer of Acquiror with respect to the indemnification
obligations of the Target Shareholders containing the information described in
Section 8.4.
(ix) "Shareholders' Agent" refers to the agent appointed
-------------------
for and on behalf of the Target Shareholders to give and receive notices and
communications, to authorize delivery to Acquiror of the Acquiror Common Stock
or other property from the Holdback Fund in satisfaction of claims by Acquiror,
to object to such deliveries, to make claims on behalf of the Target
Shareholders pursuant to Section 8.6, 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.
(b) Holdback Shares. The Holdback Shares shall be registered in
---------------
the name of the Shareholders' Agent, and shall be held by the Holdback Agent,
such shares and any Additional Holdback Shares to constitute the Holdback Fund
and to be governed by the terms set forth herein. In the event Acquiror issues
any Additional Holdback Shares, such shares will be issued in the name of the
Shareholders' Agent and held by the Holdback Agent in the same manner as the
Holdback Shares delivered at the Closing. Once released from the Holdback Fund,
shares of Acquiror Common Stock shall cease to be Holdback Shares and Additional
Holdback Shares.
(c) Payment of Dividends; Voting. Except for Additional
----------------------------
Holdback Shares, which shall be treated as Holdback Shares pursuant to Section
8.1(a) hereof, any cash dividends, dividends payable in securities or other
distributions of any kind made in respect of the Holdback Shares will be
delivered to the Shareholders' Agent on behalf of the Target Shareholders. The
Target Shareholders shall be entitled to designate, through the Shareholders'
Agent, how all shares in the Holdback Fund will be voted on any matters to come
before the shareholders of Acquiror.
(d) Distribution of Holdback Shares. The Holdback Shares shall
-------------------------------
be released to the Target Shareholders as follows:
(i) First Anniversary Earnout Shares. Three hundred
--------------------------------
seventeen thousand (317,000) Holdback Shares and any Additional Holdback Shares
relating thereto, less any Indemnification Fund Shares that have been used to
compensate Acquiror pursuant to the indemnification obligations of the Target
Shareholders pursuant to Section 8.2 below, shall be released from the Holdback
Fund to the Target Shareholders pro rata in accordance with their percentage
ownership of the outstanding shares of Target Common Stock immediately prior to
the Effective Time ("Pro Rata") if, on or before the first anniversary of the
--------
Closing Date, either (A) Target's combined site traffic on the XX0xxx.xxx and
XxxxXxxxx.xxx web sites totals six million (6,000,000) page views, and Target
produces twenty-five (25) Original LoudBooks recordings, or (B) either Xxxx
Xxxxxxx or Xxxxxxx Xxxxxxx has been terminated "Without Cause" as defined in
their respective Employment Agreements.
(ii) Second Anniversary Employment Condition Shares.
-----------------------------------------------
a) If, on the second anniversary of the Closing Date,
Xxxx Xxxxxxx either continues to be employed by Target, Acquiror or another
subsidiary of Acquiror or has been terminated "Without Cause" as defined in Xxxx
Xxxxxxx'x Employment Agreement, then ninety one thousand seven hundred and sixty
three (91,763) Holdback Shares and any Additional Shares relating thereto shall
be released to Xxxx Xxxxxxx
b) If, on the second anniversary of the Closing Date,
Xxxxxxx Xxxxxxx either continues to be employed by Target, Acquiror or another
subsidiary of Acquiror or has been terminated "Without Cause" as defined in
Xxxxxxx Xxxxxxx'x Employment Agreement, then sixty six thousand seven hundred
and thirty seven (66,737) Holdback Shares and any Additional Shares relating
thereto shall be released to Xxxxxxx Xxxxxxx.
(iii) Second Anniversary Earnout Shares. Two hundred fifty-
---------------------------------
three thousand six hundred (253,600) Holdback Shares and any Additional Holdback
Shares relating thereto shall be released from the Holdback Fund to the Target
Shareholders Pro Rata upon the second anniversary of the Closing Date if either
(A) Target's combined aggregate site traffic during the two-year period
following the Closing Date on the XX0xxx.xxx and XxxxXxxxx.xxx web sites totals
fifteen million (15,000,000) page views and Target has produced a total of fifty
(50) Original LoudBooks recordings during such two-year period, or (B) either
Xxxx Xxxxxxx or Xxxxxxx Xxxxxxx has been terminated "Without Cause" as defined
in their respective Employment Agreements.
(iv) Third Anniversary Employment Condition Shares.
----------------------------------------------
a) If, on the third anniversary of the Closing Date,
Xxxx Xxxxxxx either continues to be employed by Target, Acquiror or another
subsidiary of Acquiror or has been terminated "Without Cause" as defined in Xxxx
Xxxxxxx'x Employment Agreement, then ninety one thousand seven hundred and sixty
three (91,763) Holdback Shares and any Additional Shares relating thereto shall
be released to Xxxx Xxxxxxx; and
b) If, on the third anniversary of the Closing Date,
Xxxxxxx Xxxxxxx either continues to be employed by Target, Acquiror or another
subsidiary of Acquiror or has been terminated "Without Cause" as defined in
Xxxxxxx Xxxxxxx'x Employment Agreement, then sixty six thousand seven hundred
and thirty seven (66,737) Holdback Shares and any Additional Shares relating
thereto shall be released to Xxxxxxx Xxxxxxx.
(e) Forfeiture of Unreleased Holdback Shares. Any Holdback
----------------------------------------
Shares and any related Additional Holdback Shares described in subsections
(d)(i) through (d)(iv) above that are not released to the Target Shareholders as
described in such subsections will be deemed forfeited by the Target
Shareholders without further consideration, shall be cancelled by the Holdback
Agent, and the Holdback Agent shall have no obligation to release such Holdback
Shares and Additional Holdback Shares from the Holdback Fund. In the case of the
earnout shares described in subsections (d)(1) and (d)(3) above, the date of
such forfeiture will be the applicable anniversary of the Closing Date. In the
case of the employment condition shares described in subsections (d)(2) and
(d)(4) above, the date of such forfeiture will be the effective date of the
applicable Employee's voluntary resignation or termination of employment other
than "Without Cause". The Shareholders' Agent agrees to execute any stock
powers, powers of attorney, letters of instruction or other documents necessary
or appropriate to effect any such forfeiture and cancellation.
(f) Manner of Issuance; Restrictions; Fractional Shares. Except
---------------------------------------------------
as specifically provided for in this Agreement, Holdback Shares and Additional
Holdback Shares shall be released to the respective Target Shareholders Pro Rata
unless the Shareholders' Agent shall have instructed the Holdback Agent
otherwise in writing, in which case the Holdback Agent shall be entitled to rely
upon such instructions. Acquiror will take such action as may be necessary to
cause such certificates to be issued in the names of the appropriate persons.
Certificates representing Holdback Shares and Additional Holdback Shares so
issued that are subject to resale restrictions under applicable securities laws
will bear a legend to that effect. No fractional shares shall be released and
delivered from the Holdback Fund to the Target Shareholders. In lieu of any
fraction of an Holdback Share to which a Target Shareholder would otherwise be
entitled, such holder will receive from Acquiror an amount of cash (rounded to
the nearest whole cent) equal to the product of such fraction multiplied by the
Average Closing Price (as defined below).
(g) Assignability. No Holdback Shares or Additional Holdback
-------------
Shares or any beneficial interest therein may be pledged, sold, assigned or
transferred, including by operation of law, by any Target Shareholder or be
taken or reached by any legal or equitable process in satisfaction of any debt
or other liability of any such shareholder, prior to the delivery to such
shareholder of his pro rata portion of the Holdback Fund by the Holdback Agent
as provided herein.
8.2 Indemnification.
---------------
(a) Survival of Warranties. All representations and warranties
----------------------
made by Target or the Target Shareholders herein, or in any certificate,
schedule or exhibit delivered pursuant hereto, shall survive the Closing and
continue in full force and effect until the first anniversary of the Closing
Date (the "Indemnification Period").
----------------------
(b) Indemnification. Subject to the limitations set forth in this
---------------
Section 8, the Target Shareholders will jointly and severally indemnify and hold
harmless Acquiror and the Surviving Corporation and their respective officers,
directors, agents, attorneys and employees, and each person, if any, who
controls or may control Acquiror or the Surviving Corporation within the meaning
of the Securities Act from and against any and all Damages arising out of any
misrepresentation or breach of or default in connection with any of the
representations, warranties, covenants and agreements given or made by Target or
the Target Shareholders in this Agreement, the Target Disclosure Schedules or
any exhibit or schedule to this Agreement. Acquiror Indemnified Persons shall
act in good faith and in a commercially reasonable manner to mitigate any
Damages they may suffer. The sole recourse of the Acquiror Indemnified Persons
shall be against the Indemnification Fund Shares and claims against the
Indemnification Fund Shares shall be the sole and exclusive remedy of Acquiror
Indemnified Persons for any Damages hereunder.
(c) Limitations of Liability. The liability of the Target
------------------------
Shareholders under this Section 8 shall be limited to the total amount of
Indemnification Fund Shares, provided, however, that nothing in this Agreement
shall limit the liability in amount or otherwise (i) of Target for any breach of
any representation, warranty or covenant if the Merger does not close, or (ii)
of any Target Shareholder in connection with any breach by such shareholder of
any representation or covenant in the Investor Representation Statement, or
(iii) of Target with
respect to fraud, criminal activity or intentional breach of any covenant
contained in this Agreement.
8.3 Indemnification Period; Distribution upon Expiration of
-------------------------------------------------------
Indemnification Period. The Indemnification Period shall terminate Within three
----------------------
business days thereafter (the upon the first anniversary of the Closing.
"Release Date"), the Holdback Agent shall instruct Acquiror's transfer agent to
------------
release from the Holdback Fund a number of Holdback Shares and Additional
Holdback Shares determined as set forth in Section 8.1(d)(i) above, less (A) the
number of Indemnification Fund Shares delivered to Acquiror in accordance with
Sections 8.5 and 8.6 hereof in satisfaction of claims for Damages, and (B) the
number of Indemnification Fund Shares with a value (as determined pursuant to
Section 8.4) equal to the amount of Damages set forth in any Officer's
Certificate with respect to any pending but unresolved claims for Damages. Any
portion of the Holdback Fund held as a result of clause (B) shall be released to
the Target Shareholders or Acquiror (as appropriate) promptly upon resolution of
each specific claim for Damages in accordance with Sections 8.5 and 8.6 hereof.
8.4 Claims Upon Holdback Fund. If Acquiror asserts a claim upon the
-------------------------
Holdback Fund by delivering to the Shareholders' Agent on or before the Release
Date an Officer's Certificate stating that, with respect to the indemnification
obligations of the Target Shareholders set forth in Section 8.2, Damages exist
or are expected to exist and specifying in reasonable detail the individual
items of such Damages included in the amount so stated, the date each such item
was paid, or properly accrued or arose, or is reasonably expected to be paid,
accrue or arise, and the nature of the misrepresentation, breach of warranty,
covenant or claim to which such item is related, the Holdback Agent shall retain
in the Holdback Fund, subject to the provisions of Sections 8.5 and 8.6, shares
of Indemnification Fund Shares held in the Holdback Fund having a value equal to
such Damages. For the purpose of compensating Acquiror for its Damages pursuant
to this Agreement, the Indemnification Fund Shares shall be valued at the
average of (a) the average closing price of Acquiror Common Stock over the five
trading day period immediately prior to the Effective Time, and (b) the average
closing price of Acquiror Common Stock over the five trading days immediately
prior to the Release Date (the "Average Closing Price"); provided, however that
---------------------
such value will be no less than the average closing price of Acquiror Common
Stock over the five trading day period immediately prior to the Effective Time.
8.5 Objections to Claims. Unless the Shareholders' Agent shall
--------------------
notify Acquiror and the Holdback Agent in writing within thirty (30) days of
delivery of an Officer's Certificate that the Shareholders' Agent objects to any
claim or claims for Damages set forth therein, which notice shall include a
reasonable explanation of the basis for such objection, upon the expiration of
such thirty (30) day period the Holdback Agent shall deliver to Acquiror for
cancellation the Indemnification Fund Shares retained under Section 8.4 with
respect to the Damages claimed in such Officer's Certificate. If the
Shareholders' Agent shall timely notify Acquiror and the Holdback Agent in
writing that it objects to any claim or claims for Damages made in an Officer's
Certificate, Acquiror shall have thirty (30) days from receipt of such notice to
respond in a written statement to the objection of the Shareholders' Agent. If
after such thirty (30) day period there remains a dispute as to any claims set
forth in such Officer's Certificate, the Shareholders' Agent and Acquiror shall
attempt in good faith for sixty (60) days to agree upon the rights of the
respective parties with respect to each of such claims. If the Shareholders'
Agent and Acquiror should so agree, a memorandum setting forth such agreement
shall be prepared and signed by both parties. The Holdback Agent shall be
entitled to rely on any such
memorandum and distribute Indemnification Fund Shares from the Holdback Fund in
accordance with the terms thereof.
8.6 Resolution of Conflicts and Arbitration.
-----------------------------
(a) If no agreement can be reached after good faith negotiation
between the parties pursuant to Sections 8.4 or 8.5, either Acquiror or the
Shareholders' Agent may, by written notice to the other, demand arbitration of
the matter unless the amount of the Damages is at issue in pending litigation
with a third party, in which event arbitration shall not be commenced until such
amount is ascertained or both parties agree to arbitration; and in either such
event the matter shall be settled by arbitration conducted by one arbitrator.
Acquiror and the Shareholders' Agent shall agree on the arbitrator, provided
that if Acquiror and the Shareholders' Agent cannot agree on such arbitrator,
either Acquiror or Shareholders' Agent can request that JAMS select the
arbitrator. The arbitrator shall set a limited time period and establish
procedures designed to reduce the cost and time for discovery while allowing the
parties an opportunity, adequate in the sole judgment of the arbitrator, to
discover relevant information from the opposing parties about the subject matter
of the dispute. The arbitrator shall rule upon motions to compel or limit
discovery and shall have the authority to impose sanctions, including attorneys'
fees and costs, to the same extent as a court of competent law or equity, should
the arbitrator determine that discovery was sought without substantial
justification or that discovery was refused or objected to without substantial
justification. The decision of the arbitrator shall be written, shall be in
accordance with applicable law and with this Agreement, and shall be supported
by written findings of fact and conclusion of law which shall set forth the
basis for the decision of the arbitrator. The decision of the arbitrator as to
the validity and amount of any claim in such Officer's Certificate shall be
binding and conclusive upon the parties to this Agreement, and notwithstanding
anything in to the contrary in this Section 8, the Holdback Agent shall be
entitled to act in accordance with such decision and distribute Indemnification
Fund Shares from the Holdback Fund in accordance with the terms thereof.
(b) Judgment upon any award rendered by the arbitrator may be
entered in any court having jurisdiction. Any such arbitration shall be held in
San Francisco, California under the commercial rules then in effect of the
American Arbitration Association. For purposes of this Section 8.6(b), in any
arbitration hereunder in which any claim or the amount thereof stated in the
Officer's Certificate is at issue, the party seeking indemnification shall be
deemed to be the Non-Prevailing Party unless the arbitrators award the party
seeking indemnification more than one-half (1/2) of the amount in dispute, plus
any amounts not in dispute; otherwise, the person against whom indemnification
is sought shall be deemed to be the Non-Prevailing Party. The Non-Prevailing
Party to an arbitration shall pay its own expenses, the fees of the arbitrator,
any administrative fee of JAMS, and the expenses, including attorneys' fees and
costs, reasonably incurred by the other party to the arbitration.
8.7 Third-Party Claims. In the event Acquiror becomes aware of a
------------------
third-party claim which Acquiror believes may result in a demand against the
Holdback Fund, Acquiror shall notify the Shareholders' Agent of such claim, and
the Shareholders' Agent and the Target Shareholders for whom shares of Acquiror
Common Stock otherwise issuable to them are deposited in the Holdback Fund shall
be entitled, at their expense, to participate in any defense of such claim with
the consent of Acquiror which shall not be unreasonably withheld. Acquiror shall
have the right in its sole discretion to settle any such claim. In the event
that the Shareholders' Agent has consented to any such settlement, the
Shareholders' Agent shall have no
power or authority to object under Section 8.5 or any other provision of this
Section 8 to the amount of any claim by Acquiror against the Holdback Fund for
indemnity with respect to such settlement.
8.8 Shareholders' Agent.
-------------------
(a) Xxxx Xxxxxxx shall be constituted and appointed as the
Shareholders' Agent for and on behalf of the Target Shareholders to give and
receive notices and communications, to vote all Holdback Shares and Additional
Holdback Shares, to authorize delivery to Acquiror of the Acquiror Common Stock
or other property from the Holdback Fund in satisfaction of claims by Acquiror,
to object to such deliveries, to demand arbitration on behalf of the Target
Shareholders pursuant to Section 8.6, 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. Such agency may be changed by from time to
time upon not less than 10 days' prior written notice, executed by the
Shareholders' Agent, to Acquiror. No bond shall be required of the Shareholders'
Agent, and the Shareholders' Agent shall receive no compensation for his
services. Any fees and expenses incurred by the Shareholders' Agent in
connection with actions taken pursuant to the terms of this Section 8 will be
paid by the Target Shareholders to the Shareholders' Agent. Notices or
communications to or from the Shareholders' Agent shall constitute notice to or
from each of the Target Shareholders.
(b) The Shareholders' Agent shall not be liable for any act done
or omitted hereunder as Shareholder' Agent while acting in good faith and in the
exercise of reasonable judgment and any act done or omitted pursuant to the
advice of counsel shall be conclusive evidence of such good faith. 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 or in connection with the acceptance or administration of his duties
hereunder.
(c) The Shareholders' Agent shall have reasonable access to
information about Target and the reasonable assistance of Target's 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 to anyone (except on
a need to know basis to individuals who agree to treat such information
confidentially).
8.9 Actions of the Shareholders' Agent. A decision, act, consent or
----------------------------------
instruction of the Shareholders' Agent shall constitute a decision of all Target
shareholders for whom shares of Acquiror Common Stock otherwise issuable to them
are deposited in the Holdback Fund and shall be final, binding and conclusive
upon each such Target Shareholder, and Acquiror may rely upon any decision, act,
consent or instruction of the Shareholders' Agent as being the decision, act,
consent or instruction of each and every such Target Shareholder. The
Shareholders' Agent and Acquiror are hereby relieved from any liability to any
person for any acts done by them in accordance with such decision, act, consent
or instruction of the Shareholders' Agent.
8.10 Limitation of the Holdback Agent's Liability. For purposes of
--------------------------------------------
this Section 8 (the "Holdback Provisions"), references to the Holdback Agent
-------------------
shall be deemed to apply to it in its capacity as Holdback Agent and not in its
capacity as Acquiror.
(a) The parties acknowledge and agree that Acquiror has agreed
to act as the Holdback Agent for the convenience of the parties, and that
Acquiror's liability hereunder shall not be increased by reason of Acquiror
agreeing to so act. Acquiror, when acting as the Holdback Agent pursuant to this
Agreement, will incur no liability with respect to any action taken or suffered
by it pursuant to this Agreement in reliance upon any notice, direction,
instruction, consent, statement or other document believed by it to be genuine
and to have been signed by the proper person other than on its own behalf (and
shall have no responsibility to determine the authenticity or accuracy thereof),
nor for any other action or inaction, except its own willful misconduct, bad
faith or gross negligence. In no event shall the Holdback Agent be liable for
indirect or consequential damages. The Holdback Agent will not be responsible
for the validity or sufficiency of the Holdback Provisions, including the amount
of Holdback Fund. In all questions arising under the Holdback Provisions, the
Holdback Agent may rely on the advice of counsel, and for anything done, omitted
or suffered in good faith by the Holdback Agent based on such advice, the
Holdback Agent will not be liable to anyone.
(b) In the event conflicting demands are made or notices are
served upon the Holdback Agent with respect to the Holdback Fund or should a
third party make a claim on the Holdback Fund, the Holdback Agent will have the
absolute right, at the Holdback Agent's election, to do any of the following:
(i) resign so a successor can be appointed pursuant to Section 8.13, (ii) file a
suit in interpleader and obtain an order from a court of competent jurisdiction
requiring the parties to interplead and litigate in such court their several
claims and rights among themselves or (iii) retain all or any of the Holdback
Fund in its possession, without liability to anyone, until such dispute shall
have been settled as contemplated in this Section 8. In the event such
interpleader suit is brought, the Holdback Agent will thereby be fully released
and discharged from all further obligations imposed upon it under the Holdback
Provisions, and the Holdback Agent will pay (subject to reimbursement from the
Target Shareholders pursuant to Section 8.11) all reasonable costs, expenses and
reasonable attorney's fees expended or incurred by the Holdback Agent pursuant
to the exercise of the Holdback Agent's rights under this Section 8 (such costs,
fees and expenses will be treated as extraordinary fees and expenses for the
purposes of Section 8.11). The resignation of the Holdback Agent under this
section shall not affect the right of the Holdback Agent to be paid any amount
due to Holdback Agent hereunder.
8.11 Expenses of Holdback Agent. Acquiror will pay all fees and
-------------------------
expenses including attorney's fees incurred in the ordinary course of performing
its responsibilities as Holdback Agent hereunder. Any extraordinary fees and
expenses including attorney's fees, including without limitation any fees or
expenses incurred by the Holdback Agent in connection with a dispute over the
distribution of Holdback Fund or the validity of any claim or claims for Damages
by Acquiror will be advanced by Acquiror and subject to reimbursement by the
Target Shareholders (it being understood that such obligation shall be joint and
several), in accordance with Section 8.6(b), and the Holdback Agent may retain a
portion of the shares of Acquiror Common Stock contained in the Holdback Fund
equal to such fees and expenses as are reimbursable by the Target Shareholders
under Section 8.6(b).
8.12 [INTENTIONALLY LEFT BLANK]
8.13 Successor Holdback Agent. In the event the Holdback Agent
------------------------
becomes unavailable or unwilling to continue in its capacity as such, the
Holdback Agent may resign and be discharged from its duties or obligations
hereunder by giving not less than thirty (30) days' prior written notice of such
a date when such resignation will take effect. Acquiror will designate a
successor Holdback Agent prior to the expiration of such 30-day period by giving
written notice to the Holdback Agent and the Shareholders' Agent. The Holdback
Agent will promptly transfer the Holdback Fund to such designated successor. In
the event no successor Holdback Agent is appointed as described in this Section,
the Holdback Agent may apply to a court of competent jurisdiction for the
appointment of a successor Holdback Agent.
8.14 Limitation of Responsibility; Notices. The Holdback Agent's
-------------------------------------
duties are limited to those set forth in the Holdback Provisions, and no implied
duties or obligations shall be implied; and the Holdback Agent may rely upon the
written notices delivered to the Holdback Agent hereunder by the Shareholders'
Agent and under the Holdback Provisions.
9. General Provisions.
------------------
9.1 Notices. All notices and other communications hereunder shall be
-------
in writing and shall be deemed duly delivered if delivered personally (upon
receipt), or three (3) business days after being mailed by registered or
certified mail, postage prepaid (return receipt requested), or one (1) business
day after it is sent by commercial overnight courier service, or upon
transmission, if 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):
(a) if to Acquiror or Merger Sub, to:
Xxxxx.xxx
00 Xxxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxxxxxxx, XX 00000
Attention: Chief Financial Officer
Fax: (000) 000-0000
Tel: (000) 000-0000
with a copy to:
Xxxx Xxxx Xxxx & Freidenrich LLP
000 Xxxxxxxxxx Xxxxxx
Xxxx Xxxx, XX 00000-0000
Attention: Xxxxxx Xxxx, Esq.
Fax: (000) 000-0000
Tel: (000) 000-0000
(b) if to Target, to:
XX0Xxx.xxx, Inc.
000 Xxxxxxx Xx.
Xxx Xxxx, XX 00000
Attention: Chief Executive Officer
Fax: (000) 000-0000
Tel: (000) 000-0000
with a copy to:
Xxxxx Xxxxxxx Xxxx & Xxxxxx LLP
000 Xxxx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxxx Xxxx, Esq.
Fax: (000) 000-0000
Tel: (000) 000-0000
(c) if to the Shareholders' Agent, to:
Xxxx Xxxxxxx
000 Xxxxxxx Xx.
Xxx Xxxx, XX 00000
Fax: (000) 000-0000
Tel: (000) 000-0000
with a copy to:
Xxxxx Xxxxxxx Xxxx & Xxxxxx
000 Xxxx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxxx Xxxx, Esq.
Fax: (000) 000-0000
Tel: (000) 000-0000
(d) if to the Holdback Agent, to:
Xxxxx.xxx
00 Xxxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxxxxxxx, XX 00000
Attention: Chief Financial Officer
Fax: (000) 000-0000
Tel: (000) 000-0000
with a copy to:
Xxxx Xxxx Xxxx & Freidenrich LLP
000 Xxxxxxxxxx Xxxxxx
Xxxx Xxxx, XX 00000-0000
Attention: Xxxxxx Xxxx, Esq.
Fax: (000) 000-0000
Tel: (000) 000-0000
9.2 Definitions. In this Agreement any reference to any event,
-----------
change, condition or effect being "material" with respect to any entity or group
of entities means any material event, change, condition or effect related to the
financial condition, properties, assets (including intangible assets),
liabilities, business, operations or results of operations of such entity or
group of entities. In this Agreement any reference to a "Material Adverse
Effect" with respect to any entity or group of entities means any event, change
or effect that is materially adverse to the financial condition, properties,
assets, liabilities, business, operations, results of operations or prospects of
such entity and its subsidiaries, taken as a whole. In this Agreement any
reference to a party's "knowledge" means such party's actual knowledge after
reasonable inquiry of officers, directors and other employees of such party
reasonably believed to have knowledge of such matters.
9.3 Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
9.4 Entire Agreement; Nonassignability; Parties in Interest. This
-------------------------------------------------------
Agreement and the documents and instruments and other agreements specifically
referred to herein or delivered pursuant hereto, including the Exhibits, the
Schedules, including 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; (b) are not intended to confer upon any
other person any rights or remedies hereunder, and shall not be assigned by
operation of law or otherwise without the written consent of the other party.
9.5 Severability. In the event that any provision of this Agreement,
------------
or the application thereof becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the 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.
9.6 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.
9.7 Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the internal laws of California applicable to parties
residing in California, without regard applicable principles of conflicts of
law. Each of the parties hereto irrevocably consents to the exclusive
jurisdiction of any court located within California in connection with any
matter based upon or arising out of this Agreement or the matters contemplated
hereby and it agrees that process may be served upon it in any manner authorized
by the laws of the State of
California for such persons and waives and covenants not to assert or plead any
objection which it might otherwise have to such jurisdiction and such process.
9.8 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.
9.9 Expenses. Each party shall pay its own costs and expenses
--------
incurred in the negotiation and consummation of the Merger; provided, however,
if the costs and expenses of Target exceed one hundred thousand dollars
($100,000), then the total number of Acquiror Shares issued shall be reduced
that a number of shares having the same value as the excess.
IN WITNESS WHEREOF, Target, Acquiror, Merger Sub, the Target Shareholders,
the Shareholders' Agent and the Holdback Agent have caused this Agreement to be
executed and delivered by each of them or their respective officers thereunto
duly authorized, all as of the date first written above.
XX0XXX.XXX, INC.
By: /s/ Xxxx Xxxxxxx
-----------------------------------------
Xxxx Xxxxxxx, Chief Executive Officer
XXXXX.XXX
By: /s/ Xxxx Xxxxx
-----------------------------------------
Xxxx Xxxxx, Chief Financial Officer
TARGET ACQUISITION CORPORATION
By: /s/ Xxxx Xxxxx
-----------------------------------------
Xxxx Xxxxx, Chief Financial Officer
TARGET SHAREHOLDERS
/s/ Xxxx Xxxxxxx
--------------------------------------------
Xxxx Xxxxxxx
/s/ Xxxxxxx Xxxxxxx
--------------------------------------------
Xxxxxxx Xxxxxxx
/s/ Xxxxxxx Xxxxxxx
--------------------------------------------
Xxxxxxx Xxxxxxx
SHAREHOLDERS' AGENT
/s/ Xxxx Xxxxxxx
--------------------------------------------
Xxxx Xxxxxxx
HOLDBACK AGENT
XXXXX.XXX
By: /s/ Xxxx Xxxxx
--------------------------------------------
Xxxx Xxxxx, Chief Financial Officer
