Exhibit 1
AGREEMENT AND PLAN OF MERGER
by and among
UNIVERSAL MUSIC GROUP, INC.
UNIVERSAL ACQUISITION CORP.
and
XXXXXX.XXX INC.
Dated as of April 6, 2001
TABLE OF CONTENTS
Page
ARTICLE I
THE OFFER AND MERGER
Section 1.1 The Offer................................................ 1
Section 1.2 Company Actions.......................................... 3
Section 1.3 Directors................................................ 4
Section 1.4 The Merger............................................... 5
Section 1.5 Effective Time........................................... 6
Section 1.6 Closing.................................................. 6
Section 1.7 Directors and Officers of the Surviving Corporation...... 6
Section 1.8 Stockholders' Meeting.................................... 6
Section 1.9 Merger Without Meeting of Stockholders................... 7
ARTICLE II
CONVERSION OF SECURITIES
Section 2.1 Conversion of Capital Stock.............................. 7
Section 2.2 Exchange of Certificates................................. 8
Section 2.3 Dissenting Shares........................................ 9
Section 2.4 Company Stock Plans and Warrants......................... 10
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 3.1 Corporate Organization................................... 11
Section 3.2 Capitalization........................................... 12
Section 3.3 Authority................................................ 13
Section 3.4 Consents and Approvals; No Violations.................... 13
Section 3.5 SEC Documents; Undisclosed Liabilities................... 14
Section 3.6 Broker's Fees............................................ 15
Section 3.7 Absence of Certain Changes or Events..................... 15
Section 3.8 Legal Proceedings........................................ 15
Section 3.9 Compliance with Applicable Law........................... 16
Section 3.10 Company Information...................................... 16
Section 3.11 Employee Matters......................................... 16
Section 3.12 Environmental Matters.................................... 17
Section 3.13 Takeover Statutes........................................ 18
Section 3.14 Properties............................................... 18
Section 3.15 Tax Returns and Tax Payments............................. 18
Section 3.16 Intellectual Property.................................... 19
Section 3.17 Material Agreements...................................... 21
Section 3.18 Label and Artist Contracts............................... 22
Section 3.19 Insurance................................................ 22
Section 3.20 Affiliate Transactions................................... 22
-i-
TABLE OF CONTENTS
(continued)
Page
Section 3.21 Absence of Indemnifiable Claims, etc..................... 22
Section 3.22 No Undisclosed Liabilities............................... 23
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT
Section 4.1 Corporate Organization................................... 23
Section 4.2 Authority................................................ 23
Section 4.3 Consents and Approvals: No Violation..................... 23
Section 4.4 Broker's Fees............................................ 24
Section 4.5 Purchaser's Operation.................................... 24
Section 4.6 Parent or Purchaser Information.......................... 24
Section 4.7 Financing................................................ 24
Section 4.8 Stock Ownership.......................................... 25
Section 4.9 Purchaser Capitalization................................. 25
ARTICLE V
COVENANTS
Section 5.1 Conduct of Businesses Prior to the Effective Time........ 25
Section 5.2 No Solicitation.......................................... 27
Section 5.3 Publicity................................................ 29
Section 5.4 Notification of Certain Matters.......................... 29
Section 5.5 Access to Information.................................... 30
Section 5.6 Further Assurances....................................... 30
Section 5.7 Indemnification.......................................... 31
Section 5.8 Option to Acquire Additional Shares...................... 31
Section 5.9 Legal Opinion............................................ 32
Section 5.10 Additional Agreements.................................... 32
ARTICLE VI
CONDITIONS TO THE MERGER
Section 6.1 Conditions to Each Party's Obligation To Effect the
Merger.................................................. 32
Section 6.2 Conditions to Obligations of Parent and Purchaser to
Effect the Merger....................................... 33
ARTICLE VII
TERMINATION
Section 7.1 Termination.............................................. 33
Section 7.2 Effect of Termination.................................... 35
Section 7.3 Termination Fee; Expenses................................ 35
-ii-
TABLE OF CONTENTS
(continued)
Page
ARTICLE VIII
MISCELLANEOUS
Section 8.1 Amendment and Modification................................ 36
Section 8.2 Extension; Waiver......................................... 36
Section 8.3 Nonsurvival of Representations and Warranties............. 36
Section 8.4 Notices................................................... 36
Section 8.5 Counterparts.............................................. 37
Section 8.6 Entire Agreement; Third Party Beneficiaries............... 37
Section 8.7 Severability.............................................. 37
Section 8.8 Governing Law............................................. 38
Section 8.9 Assignment................................................ 38
Section 8.10 Headings; Interpretation.................................. 38
Section 8.11 Enforcement............................................... 38
Section 8.12 Guaranty by Parent........................................ 38
Exhibit A: Stockholders Agreement
-iii-
AGREEMENT AND PLAN OF MERGER
----------------------------
AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of April 6,
2001, by and among UNIVERSAL MUSIC GROUP, INC., a California corporation
("Parent"), UNIVERSAL ACQUISITION CORP., a Delaware corporation and a wholly
owned subsidiary of Parent (the "Purchaser"), and XXXXXX.XXX INC., a Delaware
corporation (the "Company").
WHEREAS, the Board of Directors of Parent, the Board of Directors of
Purchaser, and the Board of Directors of the Company have approved, and
determined that it is in the best interests of their respective companies and
stockholders to consummate, the transactions provided for herein; and
WHEREAS, Parent and Purchaser have proposed acquiring all of the
outstanding shares of Common Stock, par value $0.001 per share, of the Company
(the "Shares" or the "Company Common Stock") at a price of $0.57 per Share in
cash; and
WHEREAS, the Company, Parent and Purchaser desire to make certain
representations, warranties, covenants and agreements in connection with the
Offer (as defined herein) and the Merger (as defined herein); and
WHEREAS, concurrently with the execution and delivery of this
Agreement and as a condition to Parent's and Purchaser's willingness to enter
into this Agreement, Parent and Purchaser have entered into a Stockholders
Agreement, dated as of the date hereof, the form of which is attached as Exhibit
-------
A hereto (the "Stockholders Agreement"), with the stockholders named therein
-
(the "Stockholders"), pursuant to which each Stockholder has, among other
things, (1) agreed to tender all Shares owned by such Stockholder pursuant to
the Offer, (2) granted to Parent an option to purchase all of the Shares owned
by such Stockholder, and (3) agreed to vote all Shares beneficially owned by
such Stockholder in favor of the Merger and this Agreement and against any
Takeover Proposal (as defined herein), in each case subject to and on the
conditions set forth therein.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, the
parties hereto agree as follows:
ARTICLE I
THE OFFER AND MERGER
Section 1.1 The Offer.
---------
(a) Provided this Agreement shall not have been terminated in
accordance with Section 7.1 and no event set forth in Annex A hereto shall have
occurred and be continuing, as promptly as practicable (but in no event later
than ten (10) business days after the public announcement of the execution
hereof), the Purchaser shall, and Parent shall cause Purchaser to, commence
(within the meaning of Rule 14d-2 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") ) an offer (the "Offer") to purchase for cash all
of the
Shares at a price of $0.57 per Share, net to the seller in cash (such price, or
such other price per Share as may be paid in the Offer, being referred to herein
as the "Offer Price"), subject to reduction only for any applicable federal
back-up withholding or stock transfer taxes payable by such seller; provided,
--------
however, that Parent may designate another wholly owned, direct or indirect
-------
subsidiary of Parent as the bidder (within the meaning of Rule 14d-1(g) under
the Exchange Act) in, and at the commencement of, the Offer, in which case
reference herein to Purchaser shall be deemed to apply to such subsidiary, as
appropriate. The Company shall not tender Shares held by it or by any of its
subsidiaries pursuant to the Offer. The Purchaser shall, and Parent shall cause
the Purchaser to, on the terms and subject to the prior satisfaction or waiver
of the conditions to the Offer, accept for payment and pay for Shares tendered
as soon as it is legally permitted to do so under applicable law.
(b) The Offer shall be made by means of an offer to purchase (the
"Offer to Purchase") containing the terms set forth in this Agreement and the
conditions set forth in Annex A hereto and providing for an initial expiration
date (the "Expiration Date", which term shall also indicate any later date to
which the Offer is extended in accordance with this Agreement) of twenty (20)
business days (as defined in Rule 14d-1 under the Exchange Act) from the date of
commencement of the Offer. The Purchaser shall not, and Parent shall cause the
Purchaser not to, decrease the Offer Price or decrease the number of Shares
sought in the Offer, amend the conditions to the Offer set forth in Annex A or
impose conditions to the Offer in addition to those set forth in Annex A,
without the prior written consent of the Company. The Purchaser may, without the
consent of the Company, (A) extend the Offer for the shortest time periods which
it reasonably believes are necessary, in one or more such periods, but in no
event more than an additional fifteen (15) business days if Parent and Purchaser
are not in material breach of this Agreement and if any condition to the Offer
is not satisfied or waived and such condition is reasonably capable of being
satisfied and (B) if, on the Expiration Date, the Shares validly tendered and
not withdrawn pursuant to the Offer is less than eighty percent (80%) of the
outstanding Shares (on a fully diluted basis, as such term is defined in Annex
A), (1) extend the Offer for up to ten (10) business days, or (2) provide a
subsequent offering period of up to ten (10) business days in accordance with
Rule 14d-11 of the Exchange Act, in each case notwithstanding that all the
conditions to the Offer were satisfied as of the date such extension or
subsequent offering period, as the case may be, is announced. In addition, the
Offer Price may be increased and the Offer may be extended to the extent
required by law in connection with such increase, in each case without the
consent of the Company.
(c) On the date the Offer is commenced, Parent and Purchaser shall
file with the United States Securities and Exchange Commission (the "SEC") a
Tender Offer Statement on Schedule TO with respect to the Offer (together with
all amendments and supplements thereto and including the exhibits thereto, the
"Schedule TO"). The Schedule TO shall contain or shall incorporate by reference
the Offer to Purchase and a form of letter of transmittal and summary
advertisement (the Schedule TO, the Offer to Purchase and related letter of
transmittal and related summary advertisement, together with any amendments and
supplements thereto, collectively the "Offer Documents"). The Offer Documents
shall comply in all material respects with the provisions of applicable federal
securities laws and, on the date filed with the SEC and on the date first
published, sent or given to the Company's stockholders, shall not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the
2
circumstances under which they were made, not misleading, except that no
representation is made by Parent or the Purchaser with respect to information
supplied by the Company for inclusion in the Offer Documents. Each of Parent and
Purchaser shall further take all steps necessary to cause the Offer Documents to
be filed with the SEC and to be disseminated to holders of Shares, in each case
as and to the extent required by applicable federal securities laws. Each of
Parent and Purchaser, on the one hand, and the Company, on the other hand, shall
promptly correct any information provided by it for use in the Offer Documents
if and to the extent that it shall have become false and misleading in any
material respect prior to the Expiration Date and the Purchaser further shall
take all steps necessary to cause the Offer Documents as so corrected to be
filed with the SEC and to be disseminated to holders of Shares, in each case as
and to the extent required by applicable federal securities laws. The Company
and its counsel shall be given an opportunity to review and comment upon the
Offer Documents (and shall provide any comments thereon as soon as practicable)
prior to the filing thereof with the SEC. In addition, Parent shall, and shall
cause the Purchaser to, provide the Company and its counsel in writing with any
comments that Parent, Purchaser or their counsel may receive from the SEC or its
staff with respect to the Offer Documents promptly after receipt of such
comments and with copies of any written responses and telephonic notification of
any verbal responses by Parent, Purchaser or their counsel.
(d) Parent shall provide or cause to be provided to Purchaser all of
the funds necessary to purchase any Shares that Purchaser becomes obligated to
purchase pursuant to the Offer.
Section 1.2 Company Actions.
---------------
(a) The Company hereby approves of and consents to the Offer and
represents and warrants that (i) its Board of Directors, at a meeting duly
called and held, has (A) approved this Agreement (including all terms and
conditions set forth herein) and the transactions contemplated hereby, including
the Offer and the Merger (as defined in Section 1.4) (collectively, the
"Transactions"), (B) determined that the Merger is advisable and that the terms
of the Offer and the Merger are fair to, and in the best interests of, the
Company's stockholders and (C) recommended that the Company's stockholders
accept the Offer, tender their Shares thereunder to the Purchaser and approve
and adopt this Agreement and the Merger; provided, that such recommendation may
--------
be withdrawn, modified or amended as provided in Section 5.2(b) and (ii) Xxxxx &
Company Incorporated (the "Financial Advisor") has delivered to the Company's
Board of Directors its written opinion that as of the date hereof the
consideration to be received by the holders of Company Common Stock pursuant to
the Offer and the Merger is fair to such holders from a financial point of view.
The Company has been authorized by the Financial Advisor to permit the inclusion
of the fairness opinion referenced in clause (ii) above (including a description
thereof) in the Offer Documents. The Company hereby consents to the inclusion in
the Offer Documents of the recommendation of its Board of Directors described in
clause (i) above.
(b) Concurrently with the commencement of the Offer or as promptly
thereafter as practicable, the Company shall file with the SEC a
Solicitation/Recommendation Statement on Schedule 14D-9 (together with all
amendments and supplements thereto and including the exhibits thereto, the
"Schedule 14D-9") which shall contain the recommendation
3
referred to in Section 1.2 (a) hereof. The Schedule 14D-9 shall comply in all
material respects with the provisions of applicable federal securities laws and,
on the date filed with the SEC and on the date first published, sent or given to
the Company's stockholders, shall not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading, except that no representation is
made by the Company with respect to information supplied by Parent or the
Purchaser for inclusion in the Schedule 14D-9. The Company further shall take
all steps necessary to cause the Schedule 14D-9 to be filed with the SEC and to
be disseminated to holders of Shares, in each case as and to the extent required
by applicable federal securities laws, and shall mail such Schedule 14D-9 to the
stockholders of the Company promptly after commencement of the Offer, together
with the initial mailing of the Offer to Purchase. Each of the Company, on the
one hand, and Parent and Purchaser, on the other hand, shall promptly correct
any information provided by it for use in the Schedule 14D-9 if and to the
extent that it shall have become false and misleading in any material respect
and the Company further shall take all steps necessary to cause the Schedule
14D-9 as so corrected to be filed with the SEC and to be disseminated to holders
of the Shares, in each case as and to the extent required by applicable federal
securities laws. Parent, the Purchaser and their counsel shall be given an
opportunity to review and comment upon the Schedule 14D-9 (and shall provide any
comments thereon as soon as practicable) prior to the filing thereof with the
SEC. In addition, the Company shall provide Parent, the Purchaser and their
counsel in writing with any comments the Company or its counsel may receive from
the SEC or its staff with respect to the Schedule 14D-9 promptly after receipt
of such comments and with copies of any written responses and telephonic
notification of any verbal responses by the Company or its counsel.
(c) In connection with the Offer, the Company shall promptly furnish
or cause to be furnished to the Purchaser mailing labels, security position
listings and any available listing or computer file containing the names and
addresses of the record holders of the Shares as of a recent date, and shall
promptly furnish Parent with such additional information, including updated
lists of stockholders, mailing labels and security position listings, and such
other information and assistance as the Purchaser or its agents may reasonably
request in communicating the Offer to the stockholders of the Company.
Section 1.3 Directors. Promptly upon the purchase by Purchaser of Shares
---------
pursuant to the Offer, and from time to time thereafter as Shares are acquired
by Purchaser, Parent or their affiliates, Purchaser shall be entitled to
designate such number of directors, rounded up to the next whole number, on the
Board of Directors of the Company as will give Purchaser, subject to compliance
with Section 14(f) of the Exchange Act, representation on the Board of Directors
of the Company equal to that number of directors which equals the product of the
total number of directors on the Board of Directors of the Company (giving
effect to the directors appointed or elected pursuant to this sentence and
including current directors serving as officers of the Company) multiplied by
the percentage that the aggregate number of Shares beneficially owned by Parent,
Purchaser or any of their affiliates (including for purposes of this Section 1.3
such Shares as are accepted for payment pursuant to the Offer, but excluding
Shares held by the Company or any of its subsidiaries) bears to the total number
of shares of Company Common Stock then issued and outstanding. If, and at such
times as, requested by Purchaser, the Company will use its best efforts to cause
each committee of the Board of Directors of the Company and the Board of
Directors of each subsidiary of the Company to include persons
4
designated by Purchaser constituting the same percentage of each such committee
and the Board of Directors of each subsidiary of the Company as Purchaser's
designees are of the Board of Directors of the Company. The Company shall, upon
request by Purchaser, promptly increase the size of the Board of Directors of
the Company as is necessary to enable Purchaser's designees to be elected to the
Board of Directors of the Company in accordance with the terms of this Section
1.3 and shall cause Purchaser's designees to be so elected; provided, however,
-------- -------
that, if Purchaser's designees are appointed or elected to the Board of
Directors of the Company, until the Effective Time (as hereinafter defined) the
Board of Directors of the Company shall have at least two (2) directors who are
directors on the date hereof and who are neither officers of the Company nor
designees, stockholders, affiliates or associates (within the meaning of the
federal securities laws) of Parent (one or more of such directors, the
"Independent Directors"); provided further, that if less than two (2)
Independent Directors remain, the remaining Independent Director (if any) or if
no Independent Directors remain, the other directors, shall designate persons to
fill the vacancies who shall not be either officers of the Company or designees,
shareholders, affiliates or associates of Parent, and such persons shall be
deemed to be Independent Directors for purposes of this Agreement. Subject to
applicable law, the Company shall promptly take all action necessary pursuant to
Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder in order
to fulfill its obligations under this Section 1.3 and shall include in the
Schedule 14D-9 mailed to stockholders promptly after the commencement of the
Offer (or an amendment thereof or an information statement pursuant to Rule 14f-
1 if Purchaser has not theretofore designated directors) such information with
respect to the Company and its officers and directors as is required under
Section 14(f) and Rule 14f-1 in order to fulfill its obligations under this
Section 1.3. Parent and Purchaser will supply the Company and be solely
responsible for any information with respect to itself and its nominees,
officers, directors and affiliates required by Section 14(f) and Rule 14f-1.
Notwithstanding anything in this Agreement to the contrary, during the period
after the election of directors designated by Purchaser pursuant to this Section
1.3 but prior to the Effective Time, the Board of Directors of the Company shall
delegate to a committee of the Board of Directors of the Company comprised
solely of the Independent Directors (the "Committee") the sole responsibility
for (i) the amendment or termination of this Agreement (in either case in
accordance with this Agreement) on behalf of the Company, but excluding a
termination pursuant to Section 7.1(c)(ii) hereof, which is not delegated, (ii)
the waiver of any of the Company's rights or remedies hereunder, (iii) the
extension of the time for performance of Parent's or Purchaser's obligations
hereunder, or (iv) the assertion or enforcement of the Company's rights under
this Agreement to object to (a) a failure to consummate the Merger for a failure
of the condition set forth in Section 6.2 to be satisfied or (b) a termination
of this Agreement under Section 7.1(d)(iii).
Section 1.4 The Merger. Subject to the terms and conditions of this
----------
Agreement and the provisions of the Delaware General Corporation Law (the
"DGCL"), at the Effective Time (as defined in Section 1.5 hereof), the Company
and the Purchaser shall consummate a merger (the "Merger") pursuant to which (a)
the Purchaser shall be merged with and into the Company and the separate
corporate existence of the Purchaser shall thereupon cease, (b) the Company
shall be the successor or surviving corporation in the Merger (the "Surviving
Corporation") under the name "XXxxxx.xxx Inc." and shall continue to be governed
by the laws of the State of Delaware, and (c) the separate corporate existence
of the Company with all its rights, privileges, immunities, powers and
franchises shall continue unaffected by the Merger. After the Effective Time,
(x) the certificate of incorporation of the Company shall be
5
amended as desired by Parent and as so amended shall become the certificate of
incorporation of the Surviving Corporation, until thereafter amended as provided
by law and such certificate of incorporation, (y) the bylaws of the Purchaser,
as in effect immediately prior to the Effective Time, shall be the bylaws of the
Surviving Corporation, until thereafter amended as provided by law, the
certificate of incorporation and such bylaws. The Merger shall have the effects
set forth in the DGCL.
Section 1.5 Effective Time. Parent, Purchaser, and the Company shall
--------------
cause an appropriate Certificate of Merger or Certificate of Ownership and
Merger, as applicable (in either case, the "Certificate of Merger") to be
executed and filed on the date of the Closing (as defined in Section 1.6) (or on
such other date as Parent and the Company may agree) with the Secretary of State
of the State of Delaware (the "Secretary of State") as provided in the DGCL. The
Merger shall become effective on the date on which the Certificate of Merger has
been duly filed with the Secretary of State or such later time as is agreed upon
by the parties and specified in the Certificate of Merger, and such time is
hereinafter referred to as the "Effective Time."
Section 1.6 Closing. The closing of the Merger (the "Closing") shall take
-------
place at 10:00 a.m., on a date to be specified by the parties, which shall be as
soon as practicable, but in no event later than the fourth business day, after
satisfaction or waiver of all of the conditions set forth in Article VI hereof
(the "Closing Date"), at the offices of Xxxxxx, Xxxxxx & Xxxxx LLP, 000 Xxxxx
Xxxxx Xxxxxx, Xxx Xxxxxxx, Xxxxxxxxxx 00000, unless another date or place is
agreed to in writing by the parties hereto.
Section 1.7 Directors and Officers of the Surviving Corporation. The
---------------------------------------------------
directors of the Purchaser and the officers of the Company immediately prior to
the Effective Time shall, from and after the Effective Time, be the directors
and officers, respectively, of the Surviving Corporation until their successors
shall have been duly elected or appointed or qualified or until their earlier
death, resignation or removal in accordance with the Surviving Corporation's
certificate of incorporation and bylaws.
Section 1.8 Stockholders' Meeting.
---------------------
(a) If required by applicable law in order to consummate the Merger,
the Company, acting through its Board of Directors, shall, in accordance with
applicable law:
(i) duly call, give notice of, convene and hold a special
meeting of its stockholders for the purpose of considering and taking action
upon this Agreement (the "Special Meeting") as soon as practicable following the
acceptance for payment and purchase of Shares by the Purchaser pursuant to the
Offer and, if later, the expiration of any subsequent offering period under
Section 1.1(b) hereof;
(ii) prepare and file with the SEC a preliminary proxy or
information statement relating to the Merger and this Agreement and use its
reasonable efforts (x) to obtain and furnish the information required to be
included by the federal securities laws (and the rules and regulations
thereunder) in the Proxy Statement (as hereinafter defined) and, after
consultation with Parent, to respond promptly to any comments made by the SEC
with respect to the preliminary proxy or information statement and cause a
definitive proxy or
6
information statement (the "Proxy Statement") to be mailed to its stockholders
and (y) to obtain the necessary approvals of the Merger and this Agreement by
its stockholders; and
(iii) include in the Proxy Statement the recommendation of the
Board that stockholders of the Company vote in favor of the approval of the
Merger and the adoption of this Agreement, unless such recommendation has been
withdrawn, or as such recommendation has been modified or amended, in each case
in accordance with the provisions of this Agreement.
(b) Parent shall provide the Company with the information concerning
Parent and Purchaser required to be included in the Proxy Statement. Parent
shall vote, or cause to be voted, all of the Shares then owned by it, the
Purchaser or any of its other subsidiaries and affiliates in favor of the
approval of the Merger and the adoption of this Agreement.
Section 1.9 Merger Without Meeting of Stockholders. In the event that
--------------------------------------
Parent, the Purchaser and/or any other subsidiary of Parent, shall acquire at
least ninety percent (90%) of the then-outstanding shares of Company Common
Stock, pursuant to the Offer or otherwise, each of the parties hereto shall take
all necessary and appropriate action to cause the Merger to become effective as
soon as practicable after such acquisition, without a meeting of stockholders of
the Company, in accordance with Section 253 (in lieu of Section 251) of the
DGCL.
ARTICLE II
CONVERSION OF SECURITIES
Section 2.1 Conversion of Capital Stock. As of the Effective Time, by
---------------------------
virtue of the Merger and without any action on the part of the holders of any
shares of Company Common Stock or of the common stock, par value $.0l per share,
of the Purchaser (the "Purchaser Common Stock"):
(a) Purchaser Common Stock. Each issued and outstanding share of the
----------------------
Purchaser Common Stock shall be converted into and become one validly issued,
fully paid and nonassessable share of common stock, par value $.0l per share, of
the Surviving Corporation.
(b) Cancellation of Treasury Stock and Parent-Owned Stock. All
-----------------------------------------------------
shares of Company Common Stock that are owned by the Company as treasury stock,
all shares of Company Common Stock owned by any subsidiary of the Company and
any shares of Company Common Stock owned by Parent, the Purchaser or any other
wholly owned subsidiary of Parent shall be canceled and retired and shall cease
to exist and no consideration shall be delivered in exchange therefor.
(c) Conversion of Outstanding Shares. Each issued and outstanding
--------------------------------
share of Company Common Stock, other than Shares to be canceled in accordance
with Section 2.1(b) hereof and any Dissenting Shares (as defined in Section 2.3
hereof), shall be converted into the right to receive the Offer Price in cash,
without interest (the "Merger Consideration"), payable to the holder thereof
upon surrender of the certificate formerly representing such share of Company
Common Stock in the manner provided in Section 2.2 hereof. All such shares of
7
Company Common Stock, when so converted, shall no longer be outstanding and
shall automatically be canceled and retired and shall cease to exist, and each
holder of a certificate representing any such Shares shall cease to have any
rights with respect thereto, except the right to receive the Merger
Consideration therefor upon the surrender of such certificate in accordance with
Section 2.2 hereof, without interest.
Section 2.2 Exchange of Certificates.
------------------------
(a) Paying Agent. Parent shall designate a bank or trust
------------
company (the "Paying Agent") reasonably acceptable to the Company to make the
payments of the funds to which holders of shares of Company Common Stock shall
become entitled pursuant to Section 2.1(c) hereof. When and as needed, Parent
shall make available to the Paying Agent such funds for timely payment
hereunder. Such funds shall be invested by the Paying Agent as directed by
Parent or the Surviving Corporation. Any net profit resulting from, or interest
or income produced by, such investments will be payable to Parent.
(b) Exchange Procedures. As promptly as practicable after the
-------------------
Effective Time but in no event more than ten (10) days thereafter, Parent shall
cause the Paying Agent to mail to each holder of record of a certificate or
certificates, which immediately prior to the Effective Time represented
outstanding shares of Company Common Stock (the "Certificates"), whose shares
were converted pursuant to Section 2.1(c) into the right to receive the Merger
Consideration, (i) a letter of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon delivery of the Certificates to the Paying Agent and shall be in such
form and have such other provisions as Parent and the Surviving Corporation may
reasonably specify) and (ii) instructions for use in effecting the surrender of
the Certificates in exchange for payment of the Merger Consideration. Upon
surrender of a Certificate for cancellation to the Paying Agent, together with
such letter of transmittal, duly executed, the holder of such Certificate shall
be entitled to receive in exchange therefor the Merger Consideration (subject to
subsection (e), below) for each share of Company Common Stock formerly
represented by such Certificate and the Certificate so surrendered shall
forthwith be canceled. If payment of the Merger Consideration is to be made to a
person other than the person in whose name the surrendered Certificate is
registered, it shall be a condition of payment that the Certificate so
surrendered shall be properly endorsed or shall be otherwise in proper form for
transfer and that the person requesting such payment shall have paid any
transfer and other taxes required by reason of the payment of the Merger
Consideration to a person other than the registered holder of the Certificate
surrendered or shall have established to the satisfaction of the Surviving
Corporation that such tax either has been paid or is not applicable. Until
surrendered as contemplated by this Section 2.2, each Certificate shall be
deemed at any time after the Effective Time to represent only the right to
receive the Merger Consideration in cash as contemplated by this Section 2.2.
(c) Transfer Books; No Further Ownership Rights in Company
------------------------------------------------------
Common Stock. At the Effective Time, the stock transfer books of the Company
------------
shall be closed and thereafter there shall be no further registration of
transfers of shares of Company Common Stock on the records of the Company. From
and after the Effective Time, the holders of Certificates evidencing ownership
of shares of Company Common Stock outstanding immediately prior to the Effective
Time shall cease to have any rights with respect to such
8
Shares, except as otherwise provided for herein or by applicable law. If, after
the Effective Time, Certificates are presented to the Surviving Corporation for
any reason, they shall be canceled and exchanged as provided in this Article II.
(d) Return of Funds; No Liability. At any time following 180
-----------------------------
calendar days after the Effective Time, the Surviving Corporation shall be
entitled to require the Paying Agent to deliver to it any funds (including any
interest received with respect thereto) which had been made available to the
Paying Agent and which have not been disbursed to holders of Certificates, and
thereafter such holders shall be entitled to look only to the Surviving
Corporation (subject to abandoned property, escheat or other similar laws) as
general creditors thereof with respect to the payment of any Merger
Consideration that may be payable upon surrender of any Certificates such
stockholder holds, as determined pursuant to this Agreement, without any
interest thereon. Notwithstanding the foregoing, neither the Surviving
Corporation nor the Paying Agent shall be liable to any holder of a Certificate
for Merger Consideration delivered to a public official pursuant to any
applicable abandoned property, escheat or similar law.
(e) Withholding Taxes. If so specified in the Offer Documents,
-----------------
Parent, the Purchaser, the Surviving Corporation and the Paying Agent shall be
entitled to deduct and withhold from the consideration otherwise payable to a
holder of Shares pursuant to the Offer or Merger such amounts as Parent, the
Purchaser, the Surviving Corporation or the Paying Agent is required to deduct
and withhold with respect to the making of such payment under the Internal
Revenue Code of 1986, as amended, or the rules and regulations promulgated
thereunder (the "Code") or any provision of state, local or foreign tax law. To
the extent amounts are so withheld by Parent, the Purchaser, the Surviving
Corporation or the Paying Agent, the withheld amounts shall be treated for all
purposes of this Agreement as having been paid to the holder of the Shares in
respect of which the deduction and withholding was made.
Section 2.3 Dissenting Shares. Notwithstanding any provision of this
-----------------
Agreement to the contrary, if and to the extent required by the DGCL, shares of
Company Common Stock which are issued and outstanding immediately prior to the
Effective Time and which are held by holders of such shares of Company Common
Stock who have properly exercised appraisal rights with respect thereto (the
"Dissenting Common Stock") in accordance with Section 262 of the DGCL, shall not
be exchangeable for the right to receive the Merger Consideration, and holders
of such shares of Dissenting Common Stock shall be entitled to receive payment
of the appraised value of such shares of Dissenting Common Stock in accordance
with the provisions of Section 262 of the DGCL unless and until such holders
fail to perfect or effectively withdraw or otherwise lose their rights to
appraisal and payment under the DGCL. If, after the Effective Time, any such
holder fails to perfect or effectively withdraws or loses such right, such
shares of Dissenting Common Stock shall thereupon be treated as if they had been
converted into and to have become exchangeable for, at the Effective Time, the
right to receive the Merger Consideration, without any interest thereon.
Notwithstanding anything to the contrary contained in this Section 2.3, if this
Agreement is terminated prior to the Effective Time, then the right of any
stockholder to be paid the fair value of such stockholder's Dissenting Common
Stock pursuant to Section 262 of the DGCL shall cease. The Company shall give
Parent (i) prompt written notice of any demands received by the Company for
appraisals of, or payment of the fair value for, shares of Dissenting Common
Stock, withdrawals of such
9
demands, and any other instruments served pursuant to the DGCL received by the
Company, and (ii) the opportunity to direct all negotiations and proceedings
with respect to demands for appraisal under the DGCL. The Company shall not,
except with the prior written consent of Parent, make any payment with respect
to any demands for appraisals or offer to settle or settle any such demands.
Section 2.4 Company Stock Plans and Warrants.
--------------------------------
(a) Stock Option Plans.
------------------
(i) The Company shall use its best efforts to cause each
holder of an outstanding option to purchase Company Common Stock (an "Option")
granted under the Company Benefit Plans (as defined herein), each as amended
(collectively, the "Option Plans"), whether or not then exercisable or vested,
which Option has an exercise price per Share lower than the Offer Price, to
execute, prior to and effective conditionally at the expiration of the Offer, an
agreement in the form approved by Parent and the Company (the "Option Cash-Out
Agreement") providing that such option be cancelled as of the consummation of
the Offer, and such holder be entitled to receive from the Company (or, at
Parent's option, Parent) upon consummation of the Offer, in respect of each
Share subject to such Option, an amount in cash equal to the excess of the Offer
Price over the exercise price per Share thereof (such payment to be net of
applicable withholding taxes); provided, however, that with respect to any
-------- -------
person subject to Section 16(a) of the Exchange Act, any such amount shall be
paid as soon as practicable after the first date payment can be made without
liability to such person under Section 16(b) of the Exchange Act. With respect
to any such holder who does not execute an Option Cash-Out Agreement prior to
the consummation of the Offer with respect to an Option with an exercise price
per Share lower than the Offer Price and with respect to any holder of an Option
which has an exercise price per Share equal to or greater than the Offer Price,
such holder's Options shall, if not theretofore exercised, terminate at the time
provided by the terms thereof, but in no event later than the Effective Time.
(ii) The Option Plans shall terminate at the time provided
by the terms thereof, but in no event later than the Effective Time, and, except
as contemplated in Section 2(b) below, all rights under any provision of any
other plan, program, agreement or arrangement providing for the issuance or
grant of any other interest in respect of the capital stock of the Company or
any subsidiary of the Company shall be terminated. The Company shall take all
actions necessary to ensure that, upon termination of the Option Plans as
provided in the immediately preceding sentence, no person shall have any right
under the Option Plans or, except as contemplated in Section 2(b) below, any
other plan, program, agreement or arrangement with respect to equity securities
of the Company, or any direct or indirect subsidiary of the Company. The Company
shall take all such steps as may be required to cause the transactions
contemplated by this Section 2.4 and any other dispositions of Company equity
securities (including derivative securities) in connection with this Agreement
by each individual who is a director or officer of the Company, to be exempt
under Rule 16b-3 promulgated under the Exchange Act.
10
(iii) The Company hereby represents and warrants that all
Option Plans provide, or have been or will be amended to provide, for the
actions described in Section 2.4(a)(i) and 2.4(a)(ii) hereof.
(b) Warrants. Parent and the Company shall take all actions
--------
necessary to provide that no later than the Effective Date (i) the outstanding
Warrants to purchase 3,386,017 shares of Company Common Stock that are
designated on Section 3.2(d) of the Company Disclosure Schedule as "terminable"
shall terminate on the Effective Date, and (ii) the Company shall assume the
obligations of the Company under the Warrants to purchase 4,225,085 shares of
Company Common Stock that are designated on Section 3.2(d) of the Company
Disclosure Schedule as "assumable"; provided, however, that with respect to any
-------- -------
person subject to Section 16(a) of the Exchange Act, any amount payable to
holders of Warrants shall be paid as soon as practicable after the first date
payment can be made without liability to such person under Section 16(b) of the
Exchange Act.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except a set forth in the corresponding sections of the disclosure
schedule, dated the date hereof, delivered by the Company to Parent and
Purchaser at or prior to delivery of this Agreement (the "Company Disclosure
Schedule"), the Company represents and warrants to Parent and Purchaser as
follows:
Section 3.1 Corporate Organization. Each of the Company and its
----------------------
subsidiaries (as defined below) is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization and has the requisite power and authority to own or lease all of
its properties and assets and to carry on its business as it is now being
conducted. Each of the Company and its subsidiaries is duly licensed or
qualified to do business in each jurisdiction in which the nature of the
business conducted by it or the character or location of the properties and
assets owned or leased by it makes such licensing or qualification necessary,
except where the failure to be so licensed or qualified would not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect
(as defined below) on the Company ("Company Material Adverse Effect"). As used
in this Agreement, the term "Material Adverse Effect" means, with respect to a
party, a material adverse effect on the business, operations, properties,
liabilities or condition (financial or otherwise) of such party and its
subsidiaries taken as a whole or a material adverse effect on the party's
ability to consummate the transactions contemplated hereby; provided, that, a
--------
"Material Adverse Effect" when determined with respect to the Company shall not
include any of the following or any combination of the following: any change or
effect that would not otherwise be or cause a breach of any representation,
warranty or covenant made by the Company in this Agreement and that results from
or is attributable to (A) an adverse change in the operations or operating
results of the Company or any subsidiary, which change is consistent with the
adverse changes in the operations and operating results of the Company and its
subsidiaries over the twelve (12) months preceding the date hereof or (B) the
announcement or pendency of this Agreement or the transactions contemplated
hereby. As used in this Agreement, the word "subsidiary" when used with respect
to any party means any corporation, partnership or other organization, whether
incorporated or unincorporated, of which
11
at least a majority of the securities or other interests having by their terms
voting power to elect a majority of the board of directors or others performing
similar functions with respect to such corporation or other organization is
directly or indirectly beneficially owned or controlled by such party or by any
one or more of its subsidiaries, or by such party and one or more of its
subsidiaries. The copies of the Certificate of Incorporation and Bylaws of the
Company (the "Company Charter" and "Company Bylaws"), as most recently filed
with the Company's SEC Documents (as hereinafter defined), are true, complete
and correct copies of such documents as in effect as of the date of this
Agreement.
Section 3.2 Capitalization.
--------------
(a) The authorized capital stock of the Company consists of (i)
200,000,000 shares of Company Common Stock, par value $0.001 per share, and (ii)
20,000,000 shares of Preferred Stock, par value $0.001 per share (the "Preferred
Stock") of the Company. At the date hereof, (A) there were 43,202,110 shares of
Company Common Stock issued and outstanding, (B) 13,203,224 shares of Company
Common Stock issuable upon the exercise of outstanding Options pursuant to the
Option Plans, (C) 7,391,514 shares of Company Common Stock issuable upon
exercise of outstanding warrants ("Warrants"), and (D) no shares of Preferred
Stock issued or outstanding. All of the issued and outstanding shares of Company
Common Stock have been duly authorized and validly issued and are fully paid,
nonassessable and free of preemptive rights. As of the date hereof, there are
not and, as of the Effective Time there will not be, any shares of capital stock
issued and outstanding or any subscriptions, options, warrants, calls,
commitments or agreements of any character calling for the purchase or issuance
of any securities of the Company, including any securities representing the
right to purchase or otherwise receive any Company Common Stock. The Company
represents and warrants that the Company's 1999 Employee Stock Purchase Plan has
been terminated, and no party has any right thereunder to acquire equity
securities of the Company.
(b) The Company owns, directly or indirectly, all of the issued
and outstanding shares of capital stock of each of its subsidiaries, free and
clear of any liens, charges, encumbrances, adverse rights or claims and security
interests whatsoever ("Liens"), and all of such shares are duly authorized and
validly issued and are fully paid, nonassessable and free of preemptive rights.
None of the Company's subsidiaries has or is bound by any outstanding
subscriptions, options, warrants, calls, commitments or agreements of any
character calling for the purchase or issuance of any security of such
subsidiary, including any securities representing the right to purchase or
otherwise receive any shares of capital stock or any other equity security of
such subsidiary.
(c) Disclosed in Section 3.2(c) of the Company Disclosure
Schedule is a true and complete list of all outstanding Options, the exercise
price therefor, and the holder thereof.
(d) Disclosed in Section 3.2(d) of the Company Disclosure
Schedule is a true and complete list of all outstanding Warrants, the exercise
price therefor, and the holder thereof.
12
Section 3.3 Authority.
---------
(a) The Company has all necessary corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby, subject only to obtaining the approval of
holders of a majority of the shares of Company Common Stock prior to the
consummation of the Merger in accordance with Section 251 of the DGCL and the
Company Charter. The execution, delivery and performance by the Company of this
Agreement, and the consummation by it of the transactions contemplated hereby,
have been duly authorized by its Board of Directors, no other corporate action
on the part of the Company is necessary to authorize the execution and delivery
by the Company of this Agreement and, except, to the extent required, for
obtaining the approval of its stockholders as contemplated by Section 1.8 hereof
and as required by the DGCL and the Company Charter, no other corporate action
on the part of the Company is necessary for the consummation by it of the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by the Company and, assuming due and valid authorization, execution
and delivery hereof by the other parties thereto, constitutes a valid and
binding obligation of the Company enforceable against the Company in accordance
with its terms, except as may be limited by (i) bankruptcy, insolvency,
moratorium or other similar laws affecting or relating to the enforcement of
creditors' rights generally or (ii) general principles of equity.
(b) The Board of Directors of the Company has approved and
taken all corporate action required to be taken by the Board of Directors for
the consummation of the transactions contemplated by this Agreement by the
Company.
Section 3.4 Consents and Approvals; No Violations.
-------------------------------------
(a) Except for (i) the filing with the SEC of the Offer
Documents and, if necessary, of the Proxy Statement, (ii) the filing of the
Certificate of Merger with the Secretary of State of the State of Delaware
pursuant to the DGCL, (iii) if necessary, the adoption of this Agreement by the
requisite vote of the stockholders of the Company and (iv) filings, permits,
authorizations, consents and approvals as may be required under, and other
applicable requirements of, the Exchange Act and the Securities Act, no consents
or approvals of, or filings, declarations or registrations with, any federal,
state or local court, administrative or regulatory agency or commission or other
governmental authority or instrumentality, domestic or foreign (each a
"Governmental Entity"), are necessary for the consummation by the Company of the
transactions contemplated hereby, other than such other consents, approvals,
filings, declarations or registrations that, if not obtained, made or given,
would not reasonably be expected to have, in the aggregate, a Company Material
Adverse Effect.
(b) Neither the execution and delivery of this Agreement by
the Company nor the compliance by the Company with any of the terms or
provisions hereof, will (i) conflict with or violate any provision of the
Company Charter or Company Bylaws or any of the similar organizational documents
of any of its subsidiaries or (ii) assuming that the authorizations, consents
and approvals referred to in Section 3.4(a) and the authorization hereof by the
Company's stockholders are duly obtained in accordance with the DGCL, (x)
violate any statute, code, ordinance, rule, regulation, judgment, order, writ,
decree or injunction applicable to the
13
Company or any of its subsidiaries or any of their respective properties or
assets, or (y) violate, conflict with, result in the loss of any material
benefit under, constitute a default (or an event which, with notice or lapse of
time, or both, would constitute a default) under, result in the termination of
or a right of termination or cancellation under, accelerate the performance
required by, or result in the creation of any Lien upon any of the respective
properties or assets of the Company or any of its subsidiaries under, any of the
terms, conditions or provisions of any note, bond, mortgage, indenture, deed of
trust, license, lease, agreement or other instrument or obligation to which the
Company or any of its subsidiaries is a party, or by which they or any of their
respective properties or assets may be bound or affected, except, in the case of
clause (ii) above, for such violations, conflicts, breaches, defaults, losses,
terminations of rights thereof, accelerations or Lien creations which, in the
aggregate, would not reasonably be expected to have a Company Material Adverse
Effect.
Section 3.5 SEC Documents; Undisclosed Liabilities. Since June 30,
--------------------------------------
2000, the Company has filed all required reports, schedules, forms and
registration statements with the SEC since the date on which it was required to
do so (collectively, and in each case including all exhibits and schedules
thereto and documents incorporated by reference therein, the "SEC Documents").
As of their respective dates, the SEC Documents complied as to form in all
material respects with the requirements of the Securities Act or the Exchange
Act, as the case may be, and the rules and regulations of the SEC promulgated
thereunder applicable to such SEC Documents, and none of the SEC Documents
(including, without limitation, any and all financial statements included
therein) as of such dates contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The consolidated financial statements of the
Company included in the SEC Documents (the "SEC Financial Statements"), as of
their respective dates, complied as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto, were prepared in accordance with generally
accepted accounting principles (except, in the case of unaudited consolidated
quarterly statements, as permitted by Form 10-Q of the Exchange Act) applied on
a consistent basis during the periods involved (except as may be indicated in
the notes thereto) and fairly presented in all material respects the
consolidated financial position of the Company and its consolidated subsidiaries
as of the dates thereof and the consolidated results of their operations and
cash flows for the periods then ended (subject, in the case of unaudited
quarterly statements, to normal year-end audit adjustments). Since June 30,
2000, neither the Company nor any of its subsidiaries, has incurred any
liabilities or obligations of any nature (whether accrued, absolute, contingent
or otherwise) required, if known, to be reflected or reserved against on a
consolidated balance sheet of the Company prepared in accordance with generally
accepted accounting principles applied on a consistent basis ("GAAP") except (i)
as and to the extent set forth on the audited balance sheet of the Company and
its subsidiaries as of June 30, 2000 (including the notes thereto), (ii) as
incurred in connection with the transactions contemplated by this Agreement,
(iii) as incurred after June 30, 2000 in the ordinary course of business and
consistent with past practice, (iv) as described in the SEC Documents filed
since June 30, 2000 (the "Recent SEC Documents"), or (v) as could not,
individually or in the aggregate, reasonably be expected to have a Company
Material Adverse Effect. If, at any time prior to the Effective Time, the
Company shall obtain knowledge of any facts with respect to itself, any of its
officers or directors or any of its subsidiaries that would require the
supplement or amendment to any of the foregoing documents in order to make the
14
statements therein, in the light of the circumstances under which they were
made, not misleading, or to comply with applicable laws, such amendment or
supplement shall be promptly filed with the SEC and, as required by law,
disseminated to the stockholders of the Company, and in the event Parent or
Purchaser shall advise the Company as to its obtaining knowledge of any facts
that would make it necessary to supplement or amend any of the foregoing
documents, the Company shall promptly amend or supplement such document, and
such amendment or supplement shall be promptly filed with the SEC, and as
required by law disseminated to the stockholders of the Company.
Section 3.6 Broker's Fees. Except for the services of Xxxxx &
-------------
Company Incorporated, neither the Company nor any subsidiary of the Company nor
any of their respective officers or directors on behalf of the Company or such
subsidiaries has employed any financial advisor, broker or finder or incurred
any liability for any broker's fees, commissions or finder's fees in connection
with any of the transactions contemplated hereby.
Section 3.7 Absence of Certain Changes or Events. Except as set
------------------------------------
forth in the Recent SEC Documents, since June 30, 2000, the Company and its
subsidiaries have conducted their businesses only in the ordinary course and in
a manner consistent with past practice and, since such date, there has not been:
(i) any event that, individually or in the aggregate, has had or could
reasonably be expected to have in the future a Company Material Adverse Effect,
(ii) any declaration, payment or setting aside for payment of any dividend or
other distribution or any redemption or other acquisition of any shares of
capital stock or securities of the Company by the Company, (iii) any material
damage or loss to any material asset or property, whether or not covered by
insurance, (iv) any change by the Company in accounting principles or practices,
(v) any revaluation by the Company of any of its material assets or liabilities,
including, without limitation, writing down the value of inventory or writing
off notes or accounts receivable other than in the ordinary course of business,
(vi) any entry by the Company or any of its subsidiaries into any commitment or
transactions material to the Company and its subsidiaries taken as a whole
(other than commitments or transactions entered into in the ordinary course of
business), (vii) any increase in or establishment of any Company Benefit Plan
(as defined in Section 3.12), or any other increase in the compensation payable
or to become payable to any present or former directors or officers, or any
employment, consulting or severance agreement or arrangement entered into with
any such present or former directors, officers or employees of the Company or
any of its subsidiaries, or (viii) any amendment (including any amendment of the
exercise or other price to be paid in connection therewith) or cancellation of
any rights, warrants, option, calls, commitments or any other agreements of any
character to purchase or acquire any shares of its capital stock or any
securities or rights convertible into, exchangeable for, or evidencing the right
to subscribe for, any shares of capital stock of the Company or any of its
subsidiaries. Since June 30, 2000, neither the Company nor any of its
subsidiaries has taken, or failed to take, any action that would have
constituted a breach of Section 5.1 hereof had the covenants therein applied
since that date.
Section 3.8 Legal Proceedings.
-----------------
(a) There is no action, suit or proceeding, claim,
arbitration or investigation pending or, to the Company's knowledge, threatened
in writing against the Company or any of its subsidiaries, and neither the
Company nor any of its subsidiaries is a party
15
to any action, suit or proceeding, arbitration or investigation, which,
individually or in the aggregate, could reasonably be expected to have a Company
Material Adverse Effect, as reasonably determined by Parent.
(b) There is no injunction, order, judgment, decree or
regulatory restriction imposed upon the Company, any of its subsidiaries or the
assets of the Company or any of its subsidiaries which, when aggregated with all
other such injunctions, orders, judgments, decrees and restrictions, would
reasonably be expected to have a Company Material Adverse Effect.
Section 3.9 Compliance with Applicable Law. The Company and each of
------------------------------
its subsidiaries hold all material licenses, franchises, permits and
authorizations from any Governmental Entity necessary for the lawful conduct of
their respective businesses as presently conducted and are in compliance with
the terms thereof, except where the failure to hold such license, franchise,
permit or authorization or such noncompliance would not, when aggregated with
all other such failures or noncompliance, reasonably be expected to have a
Company Material Adverse Effect, and neither the Company nor any of its
subsidiaries knows of, or has received notice of, any material violations of any
applicable law, statute, order, rule, regulation, policy and/or guideline of any
Governmental Entity relating to the Company or any of its subsidiaries, which,
in the aggregate, could reasonably be expected to have a Company Material
Adverse Effect.
Section 3.10 Company Information. The information relating to the
-------------------
Company and its subsidiaries to be provided by the Company for inclusion in the
Proxy Statement, if any, or the Offer Documents, or in any other document filed
with any other Governmental Entity in connection herewith at the respective
times filed with the SEC or such other Governmental Entity and first published,
sent or given to stockholders of the Company and, in addition, in the case of
the Proxy Statement, at the date it or any amendment or supplement is mailed to
holders of the shares of Company Common Stock, at the time of the Special
Meeting and at the Effective Time, will not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
therein, in light of the circumstances in which they are made, not misleading.
Section 3.11 Employee Matters.
----------------
(a) Disclosed in Section 3.11 of the Company Disclosure
Schedule are all employment, severance, bonus, change-in-control, profit
sharing, compensation, termination, stock option, stock appreciation right,
restricted stock, phantom stock, performance unit, pension, retirement, deferred
compensation, welfare or other employee benefit agreement, trust fund or other
arrangement and any union, guild or collective bargaining agreement maintained
or contributed to or required to be contributed to by the Company or any of its
ERISA Affiliates (as defined below), for the benefit or welfare of any director,
officer, employee or former employee of the Company or any of its ERISA
Affiliates (such plans and arrangements being collectively the "Company Benefit
Plans"). Each of the Company Benefit Plans is in material compliance with all
applicable laws including ERISA and the Code except where such noncompliance
could not reasonably be expected to have a Company Material Adverse Effect. The
Internal Revenue Service has determined that each Company Benefit Plan that is
intended to be a qualified plan
16
under Section 401(a) of the Code is so qualified and the Company is aware of no
event occurring after the date of such determination that would adversely affect
such determination. The liabilities accrued under each such plan are reflected
on the latest balance sheet of the Company included in the Recent SEC Reports in
accordance with GAAP. No condition exists that is reasonably likely to subject
the Company or any of its subsidiaries to any direct or indirect liability under
Title IV of ERISA or to a civil penalty under Section 502(j) of ERISA or
liability under Section 4069 of ERISA or 4975, 4976, or 4980B of the Code or the
loss of a federal tax deduction under Section 280G of the Code or other
liability with respect to the Company Benefit Plans that could reasonably be
expected to have a Company Material Adverse Effect and that is not reflected on
such balance sheet. There are no pending or, to the Company's knowledge,
threatened, claims (other than routine claims for benefits or immaterial claims)
by, on behalf of or against any of the Company Benefit Plans or any trusts
related thereto, except where such claims could not reasonably be expected to
have a Company Material Adverse Effect. "ERISA Affiliate" means, with respect to
any person, any trade or business, whether or not incorporated, that together
with such person would be deemed a "single employer" within the meaning of
Section 4001(a)(15) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA").
(b) Neither the Company nor any of its subsidiaries is a party
to, or bound by, any collective bargaining agreement or other contract or
understanding with a labor union or labor organization. Except for such matters
that would not reasonably be expected to have, individually or in the aggregate,
a Company Material Adverse Effect, there is no (i) unfair labor practice, labor
dispute (other than routine individual grievances) or labor arbitration
proceeding pending or, (ii) to the knowledge of the Company, any activity or
proceeding by a labor union or representative thereof to organize any employees
of the Company or any of its subsidiaries or (iii) lockout, strike, slowdown,
work stoppage or, to the knowledge of the Company, threat thereof by or with
respect to such employees.
Section 3.12 Environmental Matters. There are no legal,
---------------------
administrative, arbitral or other proceedings, claims, actions, causes of
action, required environmental remediation activities or governmental
investigations of any nature seeking to impose, or that reasonably could be
expected to result in the imposition, on the Company or any of its subsidiaries
of any liability or obligations arising under common law standards relating to
environmental protection, human health or safety, or under any local, state,
federal, national or supernational environmental statute, regulation or
ordinance, including the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended (collectively, "Environmental Laws"), pending
or, to the knowledge of the Company, threatened, against the Company or any of
its subsidiaries, which liability or obligation would have or would reasonably
be expected to have a Company Material Adverse Effect. To the knowledge of the
Company, during or prior to the period of (i) its or any of its subsidiaries'
ownership or operation of any of their respective current properties, (ii) its
or any of its subsidiaries' participation in the management of any property, or
(iii) its or any of its subsidiaries' holding of a security interest or other
interest in any property, there was no release or threatened release of
hazardous, toxic, radioactive or dangerous materials or other materials
regulated under Environmental Laws in, on, under or affecting any such property
which could reasonably be expected to have a Company Material Adverse Effect.
Neither the Company nor any of its subsidiaries is subject to any agreement,
order, judgment, decree, letter or memorandum by or with any court, governmental
authority,
17
regulatory agency or third party imposing any material liability or obligations
pursuant to or under any Environmental Law that would have or would reasonably
be expected to have a Company Material Adverse Effect.
Section 3.13 Takeover Statutes. The Company has taken all actions
-----------------
necessary such that neither the restrictions set forth in Section 203 of the
DGCL nor any restrictive provision of any other "fair price," "moratorium,"
"control share acquisition," "interested shareholder" or other similar anti-
takeover statute or regulation (each a "Takeover Statute") or restrictive
provision of any applicable anti-takeover provision in the governing documents
of the Company is, or at the Effective Time will be, applicable to the Company,
Parent, the Purchaser, the shares of Company Common Stock, the Offer, the Merger
or any other transaction contemplated by this Agreement.
Section 3.14 Properties. For any of the following which could not
----------
reasonably be expected to have a Company Material Adverse Effect, each of the
Company and its subsidiaries (i) has good and indefeasible title to all the
properties and assets reflected on the latest balance sheet included in the SEC
Documents as being owned by the Company or one of its subsidiaries or acquired
after the date thereof which are, individually or in the aggregate, material to
the Company's business on a consolidated basis (except properties sold or
otherwise disposed of since the date thereof in the ordinary course of
business), free and clear of (A) all Liens except (1) statutory liens securing
payments not yet due and (2) such imperfections or irregularities of title or
other Liens (other than real property mortgages or deeds of trust) as do not
materially affect the use of the properties or assets subject thereto or
affected thereby or otherwise materially impair business operations at such
properties, and (B) all real property mortgages and deeds of trust except such
secured indebtedness as is properly reflected in the latest balance sheet
included in the SEC Documents, and (ii) is the lessee of all leasehold estates
reflected in the latest financial statements included in the SEC Documents or
acquired after the date thereof which are material to its business on a
consolidated basis and is in possession of the properties purported to be leased
thereunder, and each such lease is valid without material default thereunder by
the lessee or, to the Company's knowledge, the lessor.
Section 3.15 Tax Returns and Tax Payments. The Company and its
----------------------------
subsidiaries have timely filed (or, as to subsidiaries, the Company has filed on
behalf of such subsidiaries) all Tax Returns (as defined below) required to be
filed by it. The Company and its subsidiaries have paid (or, as to subsidiaries,
the Company has paid on behalf of such subsidiaries) all Taxes (as defined
below) shown to be due on such Tax Returns or has provided (or, as to
subsidiaries, the Company has made provision on behalf of such subsidiaries)
reserves in its financial statements for any Taxes that have not been paid,
whether or not shown as being due on any Tax Returns. Neither the Company nor
any of its subsidiaries has granted any request that remains in effect for
waivers of the time to assess any Taxes. No claim for unpaid Taxes has been
asserted against the Company or any of its subsidiaries in writing by a Tax
authority which, if resolved in a manner unfavorable to the Company or any of
its subsidiaries, as the case may be, could reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse Effect. There are
no Liens for Taxes upon the assets of the Company or any subsidiary, except for
Liens for Taxes not yet due and payable or for Taxes that are being disputed in
good faith by appropriate proceedings and with respect to which adequate
reserves have been taken. No audit of any Tax Return of the Company or any of
its subsidiaries is being conducted by a Tax
18
authority. None of the Company or any of its subsidiaries has made an election
under Section 341(f) of the Code. Neither the Company nor any of its
subsidiaries has any liability for Taxes of any person (other than the Company
and its subsidiaries) under Treasury Regulation Section 1.1502-6 (or any
comparable provision of state, local or foreign law). As used herein, "Taxes"
shall mean all taxes of any kind, including, without limitation, those on or
measured by or referred to as income, gross receipts, sales, use, ad valorem,
franchise, profits, license, value added, property or windfall profits taxes,
customs, duties or similar fees, assessments or charges of any kind whatsoever,
together with any interest and any penalties, additions to tax or additional
amounts imposed by any governmental authority, domestic or foreign. As used
herein, "Tax Return" shall mean any return, report or statement required to be
filed with any governmental authority with respect to Taxes.
Section 3.16 Intellectual Property.
---------------------
(a) General. The Company or one of its subsidiaries owns or
-------
is licensed to use the following material to conduct its business as now
conducted: (i) all computer programs, specifications, source code, object code,
databases, data compilations, graphics, devices, techniques, algorithms,
methods, processes, procedures, formulae, drawings, designs, improvements,
discoveries, concepts, user interfaces, hardware, software, development tools,
inventions (whether or not patentable or copyrightable and whether or not
reduced to practice), know-how, concepts and other technology and content with
respect to all of the foregoing, developed, produced, used, marketed, acquired
or sold by the Company or one of its subsidiaries; (ii) all intellectual
property and other proprietary rights in the items set forth in clause (i),
above, including, without limitation, all trade names, trademarks, domain names,
service marks, logos, brand names and other identifiers, trade secrets, trade
dress, copyrights, and domestic and foreign letters patent, and the
registrations, applications, renewals, extensions and continuations (in whole or
in part) thereof, all goodwill associated therewith, and all rights and causes
of action for infringement, misappropriation, misuse, dilution or unfair trade
practices associated therewith; (iii) any and all updates, enhancements,
corrections, modifications, improvements and new releases related to the items
set forth in clause (i) above; (iv) any and all technology and work in progress
related to the items set forth in clauses (i) and (ii) above, and (v) all
inventions, discoveries, processes, designs, trade secrets, know-how and other
confidential or proprietary information related to the items set forth in
clauses (i), (ii), (iii) and (iv) above (collectively, the "Company
Technology").
(b) Third Party Technology.
----------------------
(i) Section 3.16(b) of the Company Disclosure Schedule sets
forth a list of all material software and databases used by the Company or any
of its subsidiaries or for which the Company or any of its subsidiaries does not
own all right, title and interest (collectively, the "Company Third Party
Technologies"), and all license agreements or other contracts pertaining thereto
(the "Company Third Party Licenses"), indicating, with respect to each of the
Company Third Party Technologies listed therein, the owner thereof and the
Company Third Party License applicable thereto, in each case other than
commercially available software and the "shrinkwrap" licenses ancillary thereto.
The Company or one of its subsidiaries has the lawful right to use (free of any
material restriction not expressly set forth in Company Third Party Licenses)
(x) all Company Third Party Technology that is incorporated in or used in
19
the development or production of Company Technology, and (y) all other Company
Third Party Technology necessary for the conduct of the business of the Company
and its subsidiaries as now conducted, except where such failure to obtain such
lawful right could not reasonably be expected to have, individually or in the
aggregate, a Company Material Adverse Effect.
(ii) All the Company Third Party Licenses are valid, binding
and in full force and effect subject to the effect of applicable bankruptcy,
insolvency, moratorium or other similar laws affecting or relating to the
enforcement of creditors' rights generally and to general principles of equity.
Each other party thereto has performed in all material respects their
obligations thereunder, and neither the Company nor any of its subsidiaries, or,
to the Company's knowledge, any other party thereto, is in default under any of
the Company Third Party Licenses, nor has there occurred any event or
circumstance which with notice or lapse of time or both would constitute a
default or event of default on the part of the Company or any of its
subsidiaries or any other party thereto or give to any other party thereto the
right to terminate or modify any Company Third Party License. Neither the
Company nor any of its subsidiaries has received notice that any party to any
Company Third Party License intends to cancel, terminate or refuse to renew (if
renewable) such Company Third Party License or to exercise or decline to
exercise any option or right thereunder.
(c) Trademarks. Section 3.16(c) of the Company Disclosure
----------
Schedule sets forth a list of all material common law trademarks, trade names,
brand names, service marks, logos or other identifiers currently used by the
Company or its subsidiaries in their business (the "Company Marks").
(d) Intellectual Property Rights. Section 3.16(d) of the
----------------------------
Company Disclosure Schedule sets forth all patents, patent applications,
copyright registrations (and applications therefor) and trademark or service
xxxx registrations (and applications therefor) owned by the Company or any of
its subsidiaries (unless otherwise disclosed thereon) (collectively, the
"Company IP Registrations"). The Company or one of its subsidiaries owns all
right, title and interest, free and clear of any Liens, in and to the Company IP
Registrations, together with any other material rights, currently used in the
operation of their businesses, any material unregistered copyrights, rights in
the Company Marks, trade secret rights and other intellectual property rights
(including, without limitation, rights of enforcement) contained or embodied in
the Company Technology (collectively, the "Company IP Rights").
(e) Maintenance of Rights. Neither the Company nor any of its
---------------------
subsidiaries has conducted its business in a manner that would result in the
abandonment, cancellation or unenforceability of any item of the Company IP
Registrations, and neither the Company nor any of its subsidiaries has taken (or
failed to take) any action that would result in the forfeiture or relinquishment
of any Company IP Registrations, in each case where such abandonment,
cancellation, unenforceability, forfeiture or relinquishment could reasonably be
expected to have a Company Material Adverse Effect. Neither the Company nor any
of its subsidiaries has granted to any third party any rights or permissions to
use any of the Company Technology or the Company IP Registrations. Except
pursuant to reasonably prudent safeguards or as required by any applicable law,
government order or regulation, or by order or decree of any court of competent
jurisdiction, (a) neither the Company nor any of its subsidiaries has disclosed
any confidential information relating to the Company Technology, and (b) neither
the
20
Company nor any of its subsidiaries is under any contractual or other obligation
to disclose to any third party any confidential information relating to the
Company Technology.
(f) Challenges to the Company's Rights. Neither the Company
----------------------------------
nor any of its subsidiaries has received any notice or claim (whether written,
oral or otherwise) challenging the Company's ownership or rights in the Company
Technology, the Company IP Rights, the Company IP Registrations or the Company
Domain Names (as defined below) alleging any conflict or infringement of any
third party property rights; and, to the Company's knowledge, no other person or
entity is infringing or misappropriating or otherwise making any unauthorized
use of Company Technology, the Company IP Rights or the Company IP
Registrations.
(g) Infringement By the Company. The use of any of Company
---------------------------
Technology, Company IP Rights and Company IP Registrations in the business of
the Company and each of its subsidiaries does not infringe or constitute an
appropriation of any right, title or interest (including, without limitation,
any patent, copyright or trade secret right) held by any other person or entity,
and there have been no claims made with respect thereto.
(h) Confidentiality. (i) Neither the Company nor any of its
---------------
subsidiaries has disclosed any source code regarding the Company Technology to
any person or entity other than an employee or independent contractor of the
Company or any of its subsidiaries and, with respect to independent contractors,
under a written nondisclosure agreement or a work-for-hire agreement, (ii) the
Company and its subsidiaries have at all times maintained and diligently
enforced commercially reasonable procedures to protect all confidential
information relating to the Company Technology, (iii) neither the Company, nor
any of its subsidiaries, nor any escrow agent, is under any contractual or other
obligation to disclose the source code or any other proprietary information
included in or relating to the Company Technology, (iv) neither the Company nor
any of its subsidiaries has deposited any source code relating to the Company
Technology into any source code escrows, and (v) all officers and substantially
all other employees of the Company have entered into a valid and binding written
agreement with the Company sufficient to vest title in the Company of all
Company Technology, including all accompanying intellectual property rights,
created by such employee in the scope of his or her employment with the Company.
(i) Warranty Against Defects. The Company Technology is free
------------------------
from known material defects.
(j) Domain Names. Section 3.16(j) of the Company Disclosure
------------
Schedule sets forth a list of all Internet domain name registrations (i) used by
the Company or any of its subsidiaries to conduct their business on the Internet
or (ii) owned by the Company or any of its subsidiaries (collectively, the
"Company Domain Names"). The Company or one of its subsidiaries owns all right,
title and interest, free and clear of any Liens, in and to the Company Domain
Names, together with any other material rights therein, currently used in the
operation of its business.
Section 3.17 Material Agreements. Neither the Company nor any of its
-------------------
subsidiaries is a party to, or is bound by, any Material Agreement of any kind
to be performed in
21
whole or in part after the Effective Time. The term "Material Agreement" shall
mean any agreement to which the Company or any of its subsidiaries is a party
and (i) is outside of the ordinary course of business of the Company or its
subsidiaries, (ii) a customer of the Company or one of its subsidiaries is a
party and either (1) involves the payment or receipt by the Company or any of
its subsidiaries, subsequent to the date of this Agreement, of more than $50,000
or (2) is not terminable without penalty by the Company or such subsidiary party
thereto on fewer than 180 days' notice or (iii) except for customer contracts,
either (A) involves the payment or receipt by the Company or any of its
subsidiaries, subsequent to the date of this Agreement, of more than $25,000, or
(B) is not terminable without penalty by the Company or such subsidiary party
thereto on fewer than 180 days' notice. Except for any such breaches or defaults
that would not reasonably be expected to have, individually or in the aggregate,
a Company Material Adverse Effect, neither the Company nor any of its
subsidiaries is in breach or default under, and, to the Company's knowledge,
there are no facts which with notice or the passage of time would cause the
Company to be in breach or default under, or give rise to any right of
termination, amendment, cancellation or acceleration of other parties under,
whether as a result of the consummation of the transactions contemplated hereby
or otherwise, any Material Agreement.
Section 3.18 Label and Artist Contracts. Section 3.18 of the Company
--------------------------
Disclosure Schedule sets forth a true and complete list of all payment
commitments and other payment obligations of the Company and its subsidiaries,
other than royalties payable to the licensee on an "as earned" basis (which, for
purposes of clarification, shall not include committed advance payments or other
minimum payment obligations), under all agreements of the Company and its
subsidiaries pursuant to which the Company or its subsidiaries acquired rights
to distribute music content digitally and/or by physical media.
Section 3.19 Insurance. Section 3.19 of the Company Disclosure
---------
Schedule setss forth all of the Company's insurance policies relating to the
assets, business, operations, employees, officers or directors of the Company
and its subsidiaries. Such insurance policies are in full force and effect.
There are no material claims by the Company or any subsidiary pending under any
of such policies as to which coverage has been questioned, denied or disputed by
the underwriter of such policies or in respect of which such underwriters have
reserved their rights.
Section 3.20 Affiliate Transactions. There are no material
----------------------
contracts, commitments, agreements, arrangements or other transactions between
the Company or any of its subsidiaries, on the one hand, and any (i) present or
former officer or director of the Company or any of its subsidiaries or any of
their immediate family members (including their spouses), (ii) record or
beneficial owner of five percent or more of the voting securities of the Company
or (iii) affiliate of any such officer, director, family member or beneficial
owner, on the other hand.
Section 3.21 Absence of Indemnifiable Claims, etc. There are no
------------------------------------
pending claims or claims threatened in writing by any director, officer or
employee of the Company or any of its subsidiaries for indemnification from the
Company or any of its subsidiaries under applicable law, the Company Charter or
Company Bylaws or any of the similar organizational documents of any of its
subsidiaries or any insurance policy maintained by the Company or any of its
subsidiaries.
22
Section 3.22 No Undisclosed Liabilities. There are no liabilities or
--------------------------
obligations of any nature whatsoever (whether accrued, absolute, contingent or
otherwise) of the Company or any of its subsidiaries required by GAAP to be
reflected or disclosed on the June 30, 2000 balance sheet of the Company, other
than (i) liabilities reflected or reserved against therein, (ii) liabilities
which, individually or in the aggregate, could not reasonably be expected to
exceed $50,000; (iii) liabilities under this Agreement (or contemplated hereby)
or disclosed in the Company Disclosure Schedule Statement and (iv) liabilities
incurred since June 30, 2000 in the ordinary course of business and consistent
with past practices.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT
Parent represents and warrants to the Company as follows:
Section 4.1 Corporate Organization. Each of Parent and Purchaser is
----------------------
a corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its organization and has the requisite corporate
power and authority to carry on its business as it is now being conducted.
Section 4.2 Authority. Each of Parent and Purchaser has all
---------
necessary corporate power and authority to execute and deliver this Agreement
and to consummate the transactions contemplated hereby. The execution, delivery
and performance by Parent and Purchaser of this Agreement, and the consummation
of the transactions contemplated hereby, have been duly authorized and approved
by them and no other corporate action on the part of Parent or Purchaser is
necessary to authorize the execution and delivery by Parent and Purchaser of
this Agreement and the consummation by them of the transactions contemplated
hereby. This Agreement has been duly executed and delivered by Parent and
Purchaser, and, assuming due and valid authorization, execution and delivery
hereof by the Company, is a valid and binding obligation of each of Parent and
Purchaser, enforceable against each of them in accordance with its terms, except
as may be limited by (i) bankruptcy, insolvency, moratorium or other similar
laws affecting or relating to the enforcement of creditors' rights generally or
(ii) general principles of equity.
Section 4.3 Consents and Approvals: No Violation.
------------------------------------
(a) Except for (i) the filing with the SEC of the Offer
Documents, (ii) the filing of the Certificate of Merger with the Secretary of
State of the State of Delaware pursuant to the DGCL, and (iii) filings, permits,
authorizations, consents and approvals as may be required under, and other
applicable requirements of, the Exchange Act and the Securities Act of 1933, as
amended (the "Securities Act"), no consents or approvals of, or filings,
declarations or registrations with, any Governmental Entity are necessary for
the consummation by Parent and Purchaser of the transactions contemplated
hereby, other than such other consents, approvals, filings, declarations or
registrations that, if not obtained, made or given, would not reasonably be
expected to have, in the aggregate, a Material Adverse Effect on the Parent.
23
(b) Neither the execution and delivery of this Agreement by
Parent or the Purchaser, nor the consummation by Parent or the Purchaser of the
transactions contemplated hereby, nor compliance by Parent or the Purchaser with
any of the terms or provisions hereof, will (i) conflict with or violate any
provision of the organizational documents of Parent or Purchaser or (ii)
assuming that the authorizations, consents and approvals referred to in Section
4.3(a) are obtained, (x) violate any statute, code, ordinance, rule, regulation,
judgment, order, writ, decree or injunction applicable to Parent or any of its
properties or assets, or (y) violate, conflict with, result in the loss of any
material benefit under, constitute a default (or an event which, with notice or
lapse of time, or both, would constitute a default) under, result in the
termination of or a right of termination or cancellation under, accelerate the
performance required by, or result in the creation of any Lien upon any of the
properties or assets of Parent under, any of the terms, conditions or provisions
of any note, bond, mortgage, indenture, deed of trust, license, lease, agreement
or other instrument or obligation to which Parent is a party, or by which they
or any of their respective properties or assets may be bound or affected,
except, in the case of clause (ii) above, for such violations, conflicts,
breaches, defaults, losses, terminations of rights thereof, accelerations or
Lien creations which, in the aggregate, could not reasonably be expected to have
a Material Adverse Effect on the Parent.
Section 4.4 Broker's Fees. Neither Parent nor any subsidiary of
-------------
Parent nor any of their respective officers or directors on behalf of Parent or
such subsidiaries has employed any financial advisor, broker or finder in a
manner that would result in any liability of the Company for any broker's fees,
commissions or finder's fees in connection with any of the transactions
contemplated hereby or that would result in any reduction of the consideration
payable to the stockholders of the Company.
Section 4.5 Purchaser's Operation. Purchaser was formed solely for
---------------------
the purpose of engaging in the transactions contemplated hereby and has not
engaged in any business activities or conducted any operations other than in
connection with the transactions contemplated hereby nor will it have done so
prior to the consummation of the Offer.
Section 4.6 Parent or Purchaser Information. The information
-------------------------------
relating to Parent and its subsidiaries to be provided by Parent to be contained
in the Offer Documents and the Proxy Statement, if any, or in any other document
filed with any other Governmental Entity in connection herewith, at the
respective time filed with the SEC or such other Governmental Entity and, in
addition, in the case of the Proxy Statement, at the date it or any amendment or
supplement is mailed to holders of the Shares, at the time of the Special
Meeting and at the Effective Time, will not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
therein, in light of the circumstances in which they are made, not misleading.
Section 4.7 Financing. Parent and Purchaser collectively have and
---------
will have at the Expiration Date of the Offer and at the Effective Time, and
Parent will make available to Purchaser, sufficient funds to enable Purchaser to
pay for all outstanding shares of Company Stock purchased pursuant to the Offer
or converted into cash pursuant to the Merger, to perform Parent's and
Purchaser's obligations under this Agreement and to pay all fees and expenses
related to the transactions contemplated by this Agreement payable by them.
24
Section 4.8 Stock Ownership. As of the date hereof, neither Parent
---------------
nor the Purchaser beneficially owns any Shares.
Section 4.9 Purchaser Capitalization. The authorized capital stock
------------------------
of Purchaser consists of 100 shares of common stock, par value $.01 per share,
all of which shares have been validly issued, are fully paid and nonassessable
and are owned by Parent free and clear of any Liens.
ARTICLE V
COVENANTS
Section 5.1 Conduct of Businesses Prior to the Effective Time.
-------------------------------------------------
Except as expressly contemplated or permitted by this Agreement, or as required
by applicable law, rule or regulation, during the period from the date of this
Agreement to the Effective Time, unless Parent otherwise agrees in writing, the
Company shall, and shall cause its subsidiaries to, in all material respects,
(i) conduct its business and maintain its books of account and records in the
usual, regular and ordinary course consistent with past practice (provided,
--------
that, the Company may take into account its financial condition and the need to
preserve assets) and (ii) use all reasonable efforts to maintain and preserve
intact its business organization and the goodwill of those having business
relationships with it and retain the services of its present officers and key
employees. Without limiting the generality of the foregoing, and except as set
forth in Section 5.1 of the Company Disclosure Schedule, as expressly
contemplated or permitted by this Agreement, or as required by applicable law,
rule or regulation, during the period from the date of this Agreement to the
Effective Time, the Company shall not, and shall not permit any of its
subsidiaries to, without the prior written consent of Parent in each instance:
(a) (i) issue, sell, grant, dispose of, pledge or otherwise
encumber, or authorize or propose the issuance, sale, disposition or pledge or
other encumbrance of (A) any additional shares of capital stock of the Company
or any of its subsidiaries, or any securities or rights convertible into,
exchangeable for, or evidencing the right to subscribe for any shares of capital
stock of the Company or any of its subsidiaries, or any rights, warrants,
option, calls, commitments or any other agreements of any character to purchase
or acquire any shares of its capital stock or any securities or rights
convertible into, exchangeable for, or evidencing the right to subscribe for,
any shares of capital stock of the Company or any of its subsidiaries, or (B)
any other securities in respect of, in lieu of, or in substitution for, any
shares of capital stock of the Company or any of its subsidiaries, outstanding
on the date hereof, other than, in the case of either (A) or (B) above, pursuant
to the exercise of Options or Warrants outstanding as of the date hereof; (ii)
redeem, purchase or otherwise acquire, or propose to redeem, purchase or
otherwise acquire, any of outstanding shares of capital stock of the Company or
any of its subsidiaries; or (iii) split, combine, subdivide or reclassify any
shares of capital stock of the Company or any of its subsidiaries, or declare,
set aside for payment or pay any dividend, or make any other actual,
constructive or deemed distribution, in respect of any shares of capital stock
of the Company or any of its subsidiaries, or otherwise make any payments to
stockholders in their capacity as such;
25
(b) incur any indebtedness for borrowed money or guarantee any
such indebtedness or make any loans, advances or capital contributions to, or
investments in, any other person other than the Company or its subsidiaries;
(c) sell, transfer, mortgage, encumber or otherwise dispose of
any of its properties or assets to any individual, corporation or other entity
other than a direct or indirect wholly owned subsidiary, or cancel, release or
assign any indebtedness to any such person or any claims held by any such
person, except (i) in the ordinary course of business consistent with past
practice, or (ii) pursuant to contracts or agreements in effect at the date of
this Agreement;
(d) make any acquisition or investment in a business either by
purchase of stock or securities, merger or consolidation, contributions to
capital, property transfers, or purchases of any property or assets of any other
individual, corporation or other entity other than a wholly owned subsidiary
thereof, or purchase or enter into any agreement to purchase equipment,
materials, supplies, or services in excess of $25,000 in any one transaction or
$100,000 in the aggregate;
(e) increase in any manner the compensation of any of its
directors, officers or employees or enter into, establish, amend or terminate
any Company Benefit Plans, other than as required pursuant to the terms of
agreements in effect on the date of this Agreement;
(f) amend the Company Charter or the Company Bylaws;
(g) waive or fail to enforce any provision of any
confidentiality or standstill agreement to which it is a party;
(h) change its method of accounting in effect at June 30, 2000,
except as required by changes in GAAP as concurred in by the Company's
independent public accountants;
(i) change its fiscal year or make any material tax election,
other than in the ordinary course of business;
(j) assume, guarantee or otherwise become liable or responsible
(whether directly, contingently or otherwise) for the obligations of any other
person, except subsidiaries of the Company;
(k) make or forgive any loans to any other person;
(l) make any material changes in the type or amount of their
insurance coverage or permit any material insurance policy naming the Company or
any subsidiary as a beneficiary or a loss payee to be canceled or terminated;
(m) enter into, terminate, fail to renew, or accelerate any
license, distributorship, dealer, sales representative, joint venture, credit or
other agreement if such action could reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse Effect;
26
(n) fail to comply with all applicable filing, payment and
withholding obligations under all applicable federal, state, local or foreign
laws relating to Taxes;
(o) pay, discharge, settle or satisfy any claims, liabilities or
objections (absolute, accrued, asserted or unasserted, contingent or otherwise),
other than the payment, discharge or satisfaction of the foregoing in the
ordinary course of business consistent with past practice, or, if not in the
ordinary course of business, the payment, discharge or satisfaction of the
foregoing that, individually and in the aggregate, does not exceed $25,000; or
(p) make any commitment to take any of the actions prohibited by
this Section 5.1.
Section 5.2 No Solicitation.
---------------
(a) The Company shall immediately cease any discussions or
negotiations with any parties that may be ongoing with respect to a Takeover
Proposal (as defined below). From the date hereof, the Company shall not, nor
shall it permit any of its subsidiaries to, nor shall it authorize or permit any
of its officers, directors or employees or any affiliate, investment banker,
financial advisor, attorney, accountant or other representative retained by it
or any of its subsidiaries to, directly or indirectly, (i) solicit, initiate or
knowingly encourage (including by way of furnishing information which has not
been previously publicly disseminated), or take any other action designed to
facilitate, any inquiries or the making of any proposal which constitutes, or
may reasonably be expected to lead to, any Takeover Proposal or (ii) participate
in any discussions or negotiations regarding any Takeover Proposal; provided,
--------
however, that if, prior to the Expiration Date and following the receipt of a
-------
Superior Proposal (as hereinafter defined) or a proposal which is reasonably
expected to lead to a Superior Proposal that was unsolicited and made after the
date hereof in circumstances not otherwise involving a breach of this Agreement,
the Board of Directors of the Company determines in good faith, after
considering applicable provisions of state law and after consultation with
outside counsel, that a failure to do so would constitute a breach of its
fiduciary duties to the Company's stockholders under applicable law, the Company
may, in response to such Takeover Proposal and subject to compliance with
Section 5.2(c), (x) furnish information with respect to the Company to the party
making such Takeover Proposal pursuant to a customary confidentiality agreement,
provided that (i) such confidentiality agreement must not be less favorable to
the Company than the confidentiality agreement between Parent and the Company,
dated as of May 17, 2000 (the "Confidentiality Agreement"), and may not include
any provision calling for an exclusive right to negotiate with the Company and
(ii) the Company advises Parent of all such nonpublic information delivered to
such person concurrently with its delivery to the requesting party, and (y)
participate in discussions and negotiations with such party regarding such
Takeover Proposal. It is agreed that any violation of the restrictions set forth
in the preceding sentence by any executive officer of the Company or any of its
subsidiaries or any affiliate, director or investment banker, attorney or other
advisor or representative of the Company or any of its subsidiaries, shall be
deemed to be a breach of this Section 5.2(a) by the Company.
(b) Except as expressly permitted in this Section 5.2, neither
the Board of Directors of the Company nor any committee thereof shall (i)
withdraw or modify, or propose publicly to withdraw or modify, in a manner
adverse to Parent, the approval, determination of
27
advisability, or recommendation by such Board of Directors or such committee of
the Transactions, (ii) approve, determine to be advisable, or recommend, or
propose publicly to approve, determine to be advisable, or recommend, any
Takeover Proposal or (iii) cause the Company to enter into any letter of intent,
agreement in principle, acquisition agreement or other similar agreement (each,
an "Acquisition Agreement") related to any Takeover Proposal. Notwithstanding
the foregoing, in the event that prior to the Expiration Date the Board of
Directors of the Company determines in good faith to do so, in response to a
Superior Proposal that was unsolicited and made after the date hereof in
circumstances not otherwise involving a breach of this Agreement, after
considering applicable provisions of state law and after consultation with
outside counsel, that the failure to do so would constitute a breach of its
fiduciary duties to the Company's stockholders under applicable law, the Board
of Directors of the Company may (subject to this and the following sentences and
to compliance with Section 5.2(a)) (x) withdraw or modify its approval,
determination, or recommendation of the Transactions, (y) approve, determine to
be advisable, or recommend a Superior Proposal, or (z) cause the Company to
enter into an Acquisition Agreement; provided, however, that any actions
-------- -------
described in clauses (x), (y) or (z) may be taken only at a time that is after
(A) the fifth business day following Parent's receipt of written notice (the
"Offer Notice") from the Company advising Parent that the Board of Directors of
the Company has received a Superior Proposal, specifying the material terms and
conditions of such Superior Proposal, identifying the person making such
Superior Proposal and providing notice of the determination of the Board of
Directors of the Company of what action referred to herein the Board of
Directors of the Company has determined to take and (B) the Company shall have
provided Parent and Purchaser for at least five (5) business days following
receipt of the Offer Notice an opportunity to amend this Agreement to provide
for terms and conditions no less favorable (in the good faith determination of
the Board of Directors of the Company after consultation with its financial and
legal advisors) than the contemplated Superior Proposal, in which event the
Company shall cause the Financial Advisor and its legal counsel to negotiate in
good faith with Parent to make such adjustments to the terms and conditions of
this Agreement as would enable Parent and Purchaser to proceed with the
transactions contemplated hereby, as so amended. The provisions of the
immediately preceding proviso shall apply to successive Superior Proposals.
(c) In addition to the obligations of the Company set forth in
paragraphs (a) and (b) of this Section 5.2, the Company shall promptly advise
Parent orally and in writing of any request for confidential information or of
any Takeover Proposal, the material terms and conditions of such request or the
Takeover Proposal and the identity of the person making such request or Takeover
Proposal and shall keep Parent promptly advised of all significant developments
which could reasonably be expected to culminate in the Board of Directors of the
Company withdrawing, modifying or amending its recommendation of the Offer, the
Merger and the transactions contemplated by this Agreement or in exercising any
of its other rights under Section 5.2(a) or (b).
(d) Nothing contained in this Section 5.2 shall prohibit the
Company from taking and disclosing to its stockholders a position contemplated
by Rule 14e-2(a) promulgated under the Exchange Act or from making any
disclosure to the Company's stockholders; provided, however, neither the Company
-------- -------
nor its Board of Directors nor any committee thereof shall, except as in
accordance with Section 5.2(b), withdraw or modify, or propose publicly to
withdraw or modify, its approval, determination or recommendation with
28
respect to the Transactions or approve, determine to be advisable, or recommend,
or propose publicly to approve, determine to be advisable, or recommend, a
Takeover Proposal.
(e) For purposes of this Agreement:
(i) "Takeover Proposal" means any inquiry, proposal or
offer from any person (other than Parent and its subsidiaries, affiliates, and
representatives) relating to any direct or indirect acquisition or purchase of
15% or more (by value) of the assets of the Company and its subsidiaries or 15%
or more of any class of equity securities of the Company or any of its
subsidiaries, any tender offer or exchange offer that if consummated would
result in any person beneficially owning 15% or more of any class of equity
securities of the Company or any of its subsidiaries, or any merger,
consolidation, share exchange, business combination, recapitalization,
liquidation, dissolution or similar transaction involving the Company or any of
its subsidiaries, other than the transactions contemplated by this Agreement.
(ii) For purposes of this Agreement, a "Superior Proposal"
means a bona fide written offer from any person (other than Parent and its
subsidiaries, affiliates and representatives) for a direct or indirect
acquisition or purchase of 50% or more of the assets of the Company or any of
its subsidiaries or 50% or more of any class of equity securities of the Company
or any of its subsidiaries, any tender offer or exchange offer that if
consummated would result in any person beneficially owning 50% or more of any
class of equity securities of the Company or any of its subsidiaries, or any
merger, consolidation, share exchange, business combination, recapitalization,
liquidation, dissolution or similar transaction involving the Company or any of
its subsidiaries, other than the transactions contemplated by this Agreement,
(A) which provides for cash consideration on a per share basis to the
stockholders of the Company with a value (taking into account, among other
things, the likelihood of such offer resulting in a consummated transaction and
the reasonably likely timing of the consummation of such a transaction)
exceeding the Offer Price, (B) which, considering all relevant factors, is more
favorable to the Company and its stockholders than the Offer and the Merger, and
(C) for which there is no financing contingency, and the third party has
demonstrated that financing for such offer is fully committed or is highly
likely to be obtained, in each case as determined by the Board of Directors in
its good faith judgment (based on the advice of independent financial advisors
and outside counsel). Any Superior Proposal is a Takeover Proposal.
Section 5.3 Publicity. The initial press release with respect to the
---------
execution of this Agreement shall be a joint press release reasonably acceptable
to Parent and the Company. Thereafter, so long as this Agreement is in effect,
neither the Company, Parent nor any of their respective affiliates shall issue
or cause the publication of any press release or other announcement relating to
the Offer, the Merger, this Agreement or the other transactions contemplated
hereby without the prior consultation of the other party, except as may be
required by law or by any listing agreement with a national securities exchange
as determined in the good faith judgment of the party wanting to make such
release.
Section 5.4 Notification of Certain Matters. The Company shall give
-------------------------------
prompt notice to Parent if any of the following occur after the date of this
Agreement: (i) receipt of any notice or other communication in writing from any
person alleging that the consent or approval of such third party is or may be
required in connection with the transactions contemplated by this
29
Agreement; (ii) receipt of any notice or other communication from any
Governmental Entity (including, without limitation, the National Association of
Securities Dealers, Inc. or any securities exchange) in connection with the
transactions contemplated by this Agreement; (iii) the occurrence of an event
which would or would be reasonably likely in the future to (A) have a Company
Material Adverse Effect or prevent or delay the consummation of the Offer or the
Merger or (B) cause any condition to the Offer set forth in Annex A hereto to be
unsatisfied at any time prior to the consummation of the Offer; (iv) any breach
by the Company of any provision hereof; or (v) the commencement or threat of any
litigation involving or affecting the Company or any of its subsidiaries, or any
of their respective properties or assets, or, to its knowledge, any employee,
agent, director or officer, in his or her capacity as such, of the Company or
any of its subsidiaries which, if pending on the date hereof, would have been
required to have been disclosed in this Agreement or which relates to the
consummation of the Offer or the Merger.
Section 5.5 Access to Information. Upon reasonable notice and
---------------------
subject to applicable laws relating to the exchange of information, the Company
shall, and shall cause each of its subsidiaries to, afford to the officers,
employees, accountants, counsel and other representatives of the Parent, during
normal business hours during the period prior to the Effective Time, reasonable
access to all its properties, books, contracts, commitments and records, and to
its officers, employees, accountants, counsel and other representatives and,
during such period, the Company shall, and shall cause its subsidiaries to, make
available to the Parent (i) a copy of each report, schedule, registration
statement and other document filed or received by it during such period pursuant
to the requirements of federal securities laws and (ii) all other information
concerning its business, properties and personnel as Parent may reasonably
request. No investigation by any of the parties or their respective
representatives shall affect the representations, warranties, covenants or
agreements of the other set forth herein.
Section 5.6 Further Assurances.
------------------
(a) Subject to the terms and conditions of this Agreement, each
of Parent and the Company shall, and shall cause its subsidiaries to, use all
reasonable efforts (i) to take, or cause to be taken, all actions necessary,
proper or advisable to comply promptly with all legal requirements which may be
imposed on such party or its subsidiaries with respect to the Merger and,
subject to the conditions set forth in Article VI hereof, to consummate the
transactions contemplated by this Agreement, including, without limitation, the
Offer and the Merger, as promptly as practicable and (ii) to obtain (and to
cooperate with the other party to obtain) any consent, authorization, order or
approval of, or any exemption by, any Governmental Entity and any other third
party which is required to be obtained by the Company or Parent or any of their
respective subsidiaries in connection with the Merger and the other transactions
contemplated by this Agreement, and to comply with the terms and conditions of
any such consent, authorization, order or approval.
(b) Subject to the terms and conditions of this Agreement, each
of Parent and the Company shall use all reasonable efforts to take, or cause to
be taken, all actions, and to do, or cause to be done, all things necessary,
proper or advisable to consummate and make effective, as soon as practicable
after the date of this Agreement, the transactions contemplated hereby,
including, without limitation, using all reasonable efforts to lift or rescind
any injunction
30
or restraining order or other order adversely affecting the ability of the
parties to consummate the transactions contemplated hereby and using all
reasonable efforts to defend any litigation seeking to enjoin, prevent or delay
the consummation of the transactions contemplated hereby or seeking material
damages.
Section 5.7 Indemnification.
---------------
(a) All rights to indemnification and exculpation from
liabilities for acts or omissions occurring at or prior to the Effective Time
existing in favor of the current or former directors or officers of the Company
as provided in the Company Charter, the Company Bylaws or in separate agreements
between the Company and individual officers and directors, shall be assumed by
the Surviving Corporation, and Parent shall cause the Surviving Corporation to
honor such obligations in accordance with the terms thereof, as of the Effective
Time, and such rights will continue in full force and effort in accordance with
their respective terms and shall not be amended, repealed or modified so as to
materially and adversely affect any indemnified party. The provisions of this
Section 5.7 are intended to be for the benefit of, and will be enforceable by,
each indemnified party, his or her heirs and his or her representatives and are
in addition to, and not in substitution for, any other rights to indemnification
or contribution that any such person may have by contract or otherwise.
(b) Parent shall, and shall cause the Surviving Corporation to,
maintain in effect for not less than six (6) years after the Effective Time
policies of directors' and officers' liability insurance equivalent in all
material respects to that maintained by or on behalf of the Company and its
subsidiaries on the date hereof (and having coverage and containing terms and
conditions which in the aggregate are not less advantageous to the persons
currently covered by such policies as insureds) with respect to claims arising
from any actual or alleged wrongful act or omission occurring prior to the
Effective Time for which a claim has not been made against any director or
officer of the Company or any director or officer of a Company subsidiary prior
to the Effective Time; provided, however, that if the aggregate annual premiums
-------- -------
for such insurance at any time during such period exceed 150% of the per annum
rate of premium currently paid by the Company and its subsidiaries for such
insurance on the date of this Agreement, then Parent will cause the Surviving
Corporation to, and the Surviving Corporation will, provide the maximum coverage
that will then be available at an annual premium equal to 150% of such rate.
Section 5.8 Option to Acquire Additional Shares.
-----------------------------------
(a) The Company hereby grants to Parent and Purchaser an
irrevocable option (the "Purchaser Option") to purchase up to that number of
newly issued shares of the Company Common Stock (the "Purchaser Option Shares")
equal to the number of shares of Company Common Stock that, when added to the
number of shares of Company Common Stock owned by Parent, Purchaser and their
affiliates immediately following consummation of the Offer, shall constitute one
share more than ninety percent (90%) of the shares of Company Common Stock then
outstanding on a fully diluted basis (after giving effect to the issuance of the
Purchaser Option Shares) for a consideration per Purchaser Option Share equal to
the Offer Price.
31
(b) Such Purchaser Option shall be exercisable only after the
purchase of and payment for shares of Company Common Stock pursuant to the Offer
by Parent or Purchaser as a result of which Parent, Purchaser and their
affiliates own beneficially at least 80% of the outstanding shares of the
Company Common Stock. Such Purchaser Option shall not be exercisable if the
number of shares of Company Common Stock subject thereto exceeds the number of
authorized shares of Company Common Stock available for issuance.
(c) In the event Parent and Purchaser wish to exercise the
Purchaser Option, Purchaser shall give the Company one-day prior written notice
specifying the number of shares of the Company Common Stock that are or will be
owned by Parent, Purchaser and their affiliates immediately following
consummation of the Offer and specifying a place and a time for the closing of
such purchase. The Company shall, as soon as practicable following receipt of
such notice, deliver written notice to Purchaser specifying the number of
Purchaser Option Shares. At the closing of the purchase of the Purchaser Option
Shares, the portion of the purchase price owing upon exercise of such Purchaser
Option which equals the product of (x) the number of shares of Company Common
Stock purchased pursuant to such Purchaser Option, multiplied by (y) the Offer
Price, shall be paid to the Company in cash by wire transfer or cashier's check.
Section 5.9 Legal Opinion. Prior to the consummation of the Offer,
-------------
the Company shall cause to be delivered to Parent an opinion of Xxxx Xxxx Xxxx &
Freidenrich LLP, special counsel to the Company, addressing the matters
described in Section 5.9 of the Company Disclosure Schedule.
Section 5.10 Additional Agreements. In case at any time after the
---------------------
Effective Time any further action is necessary or desirable to carry out the
purposes of this Agreement or to vest the Surviving Corporation with full title
to all properties, assets, rights, approvals, immunities and franchises of any
of the parties to the Merger, the proper officers and directors of each party to
this Agreement and their respective subsidiaries shall take all such necessary
action as may be reasonably requested by, and at the sole expense of, Parent.
ARTICLE VI
CONDITIONS TO THE MERGER
Section 6.1 Conditions to Each Party's Obligation To Effect the
---------------------------------------------------
Merger. The respective obligation of each party to effect the Merger shall be
------
subject to the satisfaction on or prior to the Closing Date of each of the
following conditions:
(a) Stockholder Approval. This Agreement shall have been duly
--------------------
approved and adopted by the requisite vote of the holders of Company Common
Stock, if required by applicable law in order to consummate the Merger;
(b) Statutes; Consents. No statute, rule, order, decree or
------------------
regulation shall have been enacted or promulgated by any Governmental Entity or
authority of competent jurisdiction which prohibits the consummation of the
Merger and all foreign or domestic governmental consents, orders and approvals
required for the consummation of the Merger and
32
the transactions contemplated hereby shall have been obtained and shall be in
effect at the Effective Time;
(c) Injunctions. There shall be no order or injunction of any
-----------
Governmental Entity of competent jurisdiction in effect precluding, restraining,
enjoining or prohibiting consummation of the Merger; provided, however, that
each of the parties hereto shall have used its reasonable best efforts to
prevent the entry of any such injunction or other order and to appeal as
promptly as possible any injunction or other order that may be entered; and
(d) Purchase of Shares in Offer. Purchaser shall have accepted
---------------------------
for payment and purchased all shares of Company Common Stock validly tendered in
the Offer and not withdrawn.
Section 6.2 Conditions to Obligations of Parent and Purchaser to
----------------------------------------------------
Effect the Merger. The obligations of Parent and Purchaser to effect the Merger
-----------------
are subject to the satisfaction of the further condition (which may be waived in
whole or in part by Parent) that the Company shall have performed all
obligations required to be performed by it under this Agreement on or before the
earlier of (i) such time as Parent's or Purchaser's designees shall constitute
at least a majority of the Company's Board of Directors pursuant to Section 1.3
of this Agreement and (ii) the Closing Date, except where the failure to perform
such obligations could not, when aggregated with all other such failures,
reasonably be expected to have a Company Material Adverse Effect.
ARTICLE VII
TERMINATION
Section 7.1 Termination. Notwithstanding anything herein to the
-----------
contrary, this Agreement may be terminated and the Merger contemplated herein
may be abandoned at any time prior to the Effective Time, whether before or
after stockholder approval of the Company thereof:
(a) By the mutual consent of the Parent and the Company by
action of their respective board of directors.
(b) By either of the Company or Parent:
(i) if any Governmental Entity shall have issued an order,
decree or ruling or taken any other action in each case permanently restraining,
enjoining or otherwise prohibiting the transactions contemplated by this
Agreement and such order, decree, ruling or other action shall have become final
and non-appealable; provided, that, the party seeking to terminate this
--------
Agreement shall have used all reasonable efforts to challenge such order,
decree, ruling or other action;
(ii) if the Offer shall have expired, terminated or been
withdrawn pursuant to its terms without any Shares being purchased therein,
provided, however, that the right to terminate this Agreement under this Section
-------- -------
7.1(b)(ii) shall not be available to
33
any party whose failure to fulfill any obligation under this Agreement has been
the cause of, or has resulted in, the failure of the Purchaser to purchase
Shares in the Offer; or
(iii) if the Offer shall not have been consummated on or
before June 25, 2001, (the "Outside Date"), provided, that, a party may not
--------
terminate the Agreement pursuant to this Section 7.1(b)(iii) if its failure to
perform any of its obligations under this Agreement results in the failure of
the Offer to be so consummated by such time;
(c) By the Company:
(i) if Parent, the Purchaser or any of their affiliates
shall have failed to commence the Offer on or prior to ten (10) business days
following the date of the initial public announcement of the Offer; provided,
--------
that the Company may not terminate this Agreement pursuant to this Section
7.1(c)(i) if the Company is in material breach of this Agreement;
(ii) if concurrently or immediately following such
termination it enters into a definitive agreement providing for a Superior
Proposal in compliance with this Agreement, provided, that, prior thereto or
simultaneously therewith the Company has paid the Termination Fee to Parent in
accordance with Section 7.3; or
(iii) if the representations and warranties of Parent set
forth in this Agreement that are qualified by materiality shall not be true and
correct in any respect, or if the representations and warranties of Parent set
forth in this Agreement that are not so qualified shall not be true and correct
in all material respects, in each case as of the date of this Agreement and as
of the Expiration Date as if made on such date, or either Parent or Purchaser
shall have breached or failed in any material respect to perform or comply with
any material obligation, agreement or covenant required by this Agreement to be
performed or complied with by it, which inaccuracy or breach cannot be cured or
has not been cured within one business day prior to the Expiration Date, except,
in the case of the failure of any representation or warranty, for changes
specifically permitted by this Agreement, and for those representations and
warranties that address matters only as of a particular date which are true and
correct as of such date.
(d) By Parent:
(i) if, due to an occurrence that if occurring after the
commencement of the Offer would result in a substantial likelihood of a failure
to satisfy any of the conditions set forth in Annex A hereto on the Expiration
Date and such conditions shall not have been waived by all applicable parties,
Parent, Purchaser, or any of their affiliates shall have failed to commence the
Offer on or prior to ten (10) business days following the date of the initial
public announcement of the Offer; provided, that Parent may not terminate this
--------
Agreement pursuant to this Section 7.1(d)(i) if Parent is in material breach of
this Agreement;
(ii) if (i) the Board of Directors of the Company or any
committee thereof shall have withdrawn or modified, or proposed publicly to
withdraw or modify, in a manner adverse to Parent its approval or recommendation
of the Transactions, or failed to reconfirm its recommendation within three (3)
business days after a written request to do so, or approved or recommended, or
proposed publicly to approve or recommend, any
34
Takeover Proposal, (ii) the Board of Directors of the Company or any committee
thereof shall have resolved to take any of the foregoing actions, or (iii) the
Company enters into a definitive agreement providing for a Superior Proposal; or
(iii) if the representations and warranties of the
Company set forth in this Agreement that are qualified by materiality shall not
be true and correct in any respect, or if the representations and warranties of
the Company set forth in this Agreement that are not so qualified shall not be
true and correct in all material respects, in each case as of the date of this
Agreement and as of the Expiration Date as if made on such date, or the Company
shall have breached or failed in any material respect to perform or comply with
any material obligation, agreement or covenant required by this Agreement to be
performed or complied with by it, which inaccuracy or breach cannot be cured
following three (3) business days' notice thereof or has not been cured within
one business day prior to the Expiration Date, except, in the case of the
failure of any representation or warranty, for changes specifically permitted by
this Agreement, and for those representations and warranties that address
matters only as of a particular date which are true and correct as of such date.
Section 7.2 Effect of Termination. In the event of the termination
---------------------
of this Agreement as provided in Section 7.1, written notice thereof shall
forthwith be given to the other party or parties specifying the provision hereof
pursuant to which such termination is made, and this Agreement (other than
Sections 7.2, 7.3, 8.4, 8.6, 8.7, 8.8 and 8.9 hereof) shall forthwith become
null and void, and there shall be no liability on the part of the Parent, the
Purchaser or the Company, except as provided in Section 7.3; provided, however,
-------- -------
that no such termination shall relieve any party hereto from any liability for
any breach of this Agreement prior to termination.
Section 7.3 Termination Fee; Expenses. Except as provided in this
-------------------------
Section 7.3, all fees and expenses incurred by the parties hereto shall be borne
solely and entirely by the party which has incurred such fees and expenses. In
the event that (A) a Takeover Proposal shall have been made known to the Company
or shall have been made directly to its stockholders generally or any person
shall have publicly announced an intention (whether or not conditional) to make
a Takeover Proposal and thereafter this Agreement is terminated by the Company
pursuant to Section 7.1(b)(iii) hereof and such Takeover Proposal is consummated
within one (1) year of such termination or (B) this Agreement (i) is terminated
by Parent pursuant to Section 7.1(d)(ii), or (ii) is terminated by the Company
pursuant to Section 7.1(c)(ii), then the Company shall pay to Parent within one
(1) day of such termination, or in the case of subclause (A) such consummation,
a termination fee equal to $1,000,000 (the "Termination Fee"), payable by wire
transfer of same day funds. The Company acknowledges that the agreements
contained in this Section 7.3 are an integral part of the transactions
contemplated by this Agreement and that, without these agreements, Parent and
Purchaser would not enter into this Agreement. In the event the Termination Fee
becomes payable pursuant to this Section 7.3, the Company shall also promptly
pay upon Parent's request, all reasonably documented out-of-pocket fees and
expenses incurred by Parent and Purchaser in connection with this Agreement and
the transactions contemplated hereby in an amount not to exceed $200,000, which
payments shall be in addition to the Termination Fee. The fee arrangement
contemplated hereby is the sole remedy hereunder and shall be paid pursuant to
this Section 7.3 regardless of any alleged breach by Parent of its obligations
hereunder, provided, that, no payment made by the Company pursuant to this
--------
Section
35
7.3 shall operate or be construed as a waiver by the Company of any
breach of this Agreement by Parent or Purchaser or of any rights of the Company
in respect thereof.
ARTICLE VIII
MISCELLANEOUS
Section 8.1 Amendment and Modification. Subject to applicable law,
--------------------------
this Agreement may be amended, modified and supplemented in any and all
respects, whether before or after any vote of the stockholders of the Company
contemplated hereby, by written agreement of the parties hereto at any time
prior to the Closing Date with respect to any of the terms contained herein;
provided, however, that no amendment, modification or supplement of this
-------- -------
Agreement shall be made which adversely effects such holders after the
consummation of the Offer or requires by law or the organizational documents of
the Company the further approval of the stockholders, unless approved by the
Independent Directors.
Section 8.2 Extension; Waiver. At any time prior to the Effective
-----------------
Time, the parties may (a) extend the time for the performance of any of the
obligations or other acts of the other parties, (b) waive any inaccuracies in
the representations and warranties contained in this Agreement or in any
document delivered pursuant to this Agreement or (c) subject to the proviso of
Section 8.1, waive compliance with any of the agreements or conditions contained
in this Agreement. Any agreement on the part of a party to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party. The failure of any party to this Agreement to assert any
of its rights under this Agreement or otherwise shall not constitute a waiver of
such rights.
Section 8.3 Nonsurvival of Representations and Warranties. None of
---------------------------------------------
the representations and warranties in this Agreement or in any schedule,
instrument or other document delivered pursuant to this Agreement shall survive
the Effective Time.
Section 8.4 Notices. All notices and other communications hereunder
-------
shall be in writing and shall be deemed given if delivered personally or sent by
a nationally recognized overnight courier service, such as Federal Express, to
the parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
(a) if to Parent or Purchaser, to:
Universal Music Group, Inc.
0000 Xxxxxxxx Xxxxxx
Xxxxx Xxxxxx, Xxxxxxxxxx 00000
Attention: President, eLabs Division
Telephone No.: (000) 000-0000
Telecopier No.: (000) 000-0000
36
with a copy to:
Xxxxxx, Xxxxxx & Xxxxx LLP
000 Xxxxx Xxxxx Xxxxxx
Xxxxx 0000
Xxx Xxxxxxx, Xxxxxxxxxx 00000-0000
Attention: Xxxx X. Xxxxxx, Esq.
Telephone No.: (000) 000-0000
Telecopier No.: (000) 000-0000
(b) if to the Company, to:
XXxxxx.xxx, Inc.
0000 Xxxxxxxx
0xx Xxxxx
Xxxxxxx Xxxx, Xxxxxxxxxx 00000
Attention: President
Telephone No.: (000) 000-0000
Telecopier No.: (000) 000-0000
with a copy to:
Xxxx Xxxx Xxxx & Freidenrich LLP
000 Xxxxxxx Xxxxxx
Xxxx Xxxx, Xxxxxxxxxx 00000
Attention: Xxxxx Xxxxxx, Esq.
Telephone No.: (000) 000-0000
Telecopier No.: (000) 000-0000
Section 8.5 Counterparts. This Agreement may be executed in two or
------------
more counterparts, all of which shall be considered one and the same agreement
and shall become effective when two or more counterparts have been signed by
each of the parties and delivered to the other parties, it being understood that
all parties need not sign the same counterpart.
Section 8.6 Entire Agreement; Third Party Beneficiaries. Except for
-------------------------------------------
the Confidentiality Agreement which shall remain in full force and effect in
accordance with its terms, this Agreement (including the documents and the
instruments referred to herein): (a) constitutes the entire agreement and
supersedes all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereof, and (b) except as
provided in Section 5.7 is not intended to confer upon any person other than the
parties hereto any rights or remedies hereunder.
Section 8.7 Severability. If any term, provision, covenant or
------------
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void, unenforceable or against its regulatory
policy, the remainder of the terms, provisions, covenants and restrictions of
this Agreement shall remain in full force and effect and shall in no way be
affected, impaired or invalidated.
37
Section 8.8 Governing Law. This Agreement shall be governed and
-------------
construed in accordance with the laws of the State of Delaware, without giving
effect to the principles of conflicts of law thereof or of any other
jurisdiction.
Section 8.9 Assignment. Neither this Agreement nor any of the rights,
----------
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties, except that the Purchaser may assign, in its sole
discretion, any or all of its rights, interests and obligations hereunder to
Parent or to any direct or indirect wholly owned subsidiary of Parent. Subject
to the preceding sentence, this Agreement shall be binding upon, inure to the
benefit of and be enforceable by the parties and their respective successors and
assigns.
Section 8.10 Headings; Interpretation. The descriptive headings used
------------------------
herein are inserted for convenience of reference only and are not intended to be
part of or to affect the meaning or interpretation of this Agreement. "Include,"
"includes," and "including" shall be deemed to be followed by "without
limitation" whether or not they are in fact followed by such words or words of
like import. "Knowledge" means the actual knowledge after reasonable inquiry of
the executive officers of the Company or Purchaser, as the case may be.
Section 8.11 Enforcement. The parties agree that irreparable damage
-----------
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the State of Delaware
or of the United States located in the State of Delaware in the event any
dispute arises out of this Agreement or any of the transactions contemplated by
this Agreement, and each party will not attempt to deny or defeat personal
jurisdiction or venue in any such court by motion or other request for leave
from any such court.
Section 8.12 Guaranty by Parent. Parent hereby unconditionally and
------------------
irrevocably guarantees the performance by Purchaser of all of Purchaser's
obligations under this Agreement (or any successor thereto).
38
IN WITNESS WHEREOF, Parent, Purchaser and the Company have caused this
Agreement to be signed by their respective officers thereunto duly authorized as
of the date first written above.
UNIVERSAL MUSIC GROUP, INC.
By: /s/ Xxxxxxx X. Xxxxxxxx
----------------------------------------
Name: Xxxxxxx X. Xxxxxxxx
Title: President and Chief Operating Officer
UNIVERSAL ACQUISITION CORP.
By: /s/ Xxxxxxx X. Xxxxxxxx
----------------------------------------
Name: Xxxxxxx X. Xxxxxxxx
Title: President, Secretary and Treasurer
XXXXXX.XXX INC.
By: /s/ Xxxx Xxxxxxx, Xx.
----------------------------------------
Name: Xxxx Xxxxxxx, Xx.
Title: President & C.E.O.
39
ANNEX A
-------
CONDITIONS TO THE OFFER
-----------------------
Notwithstanding any other provision of the Offer (subject to the provisions
of the Agreement), Purchaser shall not be required to accept for payment or,
subject to any applicable rules and regulations of the SEC, including Rule 14e-
l(c) under the Exchange Act (relating to Purchaser's obligation to pay for or
return tendered Shares promptly after termination or withdrawal of the Offer),
pay for, and may delay the acceptance for payment of or, subject to the
restriction referred to above, the payment for, any tendered Shares, and may
terminate the Offer and not accept for payment any tendered shares if:
(i) there shall not have been validly tendered and not withdrawn prior
to the expiration of the Offer such number of Shares which would constitute at
least a majority of the Shares outstanding on a fully diluted basis on the date
of purchase (on a "fully diluted basis" meaning the number of Shares
outstanding, together with the Shares which the Company may be required to issue
pursuant to options or obligations outstanding at that date and which do not
terminate upon consummation of the Offer under employee stock or similar benefit
plans or otherwise, whether or not vested or then exercisable) (the "Minimum
Condition");
(ii) the fees and expenses (the "Advisor Fees") paid or payable to the
Company's financial and legal advisors (including, without limitation, the fees
and expenses of Xxxx Xxxx Xxxx & Freidenrich LLP and the Financial Advisor) for
services performed and to be performed in connection with the transactions
contemplated by this Agreement (including, without limitation, the Merger)
exceeds $2 million in aggregate;
(iii) (a) all of the other conditions set forth herein are satisfied on or
prior to April 30, 2001 (the "Target Date"), and the Company shall not have at
least $5,000,000 in Cash Equivalents (as defined below), or, (b) if all of the
other conditions set forth herein are not satisfied on or prior to the Target
Date, then on the date on which all such other conditions are satisfied, the
Company shall have at least $5,000,000 in Cash Equivalents, less $48,387
multiplied by the number of days after the Target Date to the date on which such
other conditions are satisfied; provided, however, that all amounts referred to
-------- -------
in this clause (iii) shall be net of the Advisor Fees and any Sale Proceeds (as
defined below); or
(iv) at any time on or after the date of the Agreement, and before the
time of acceptance of Shares for payment pursuant to the Offer, any of the
following events shall occur and be continuing:
(a) there shall be any statute, rule, regulation, judgment, order
or injunction promulgated, entered, enforced, enacted, issued or applicable
to the Offer or the Merger by any domestic or foreign federal or state
governmental regulatory or administrative agency or authority or court or
legislative body or commission which (1) prohibits, or imposes any material
limitations on, Parent's, Purchaser's, or the Company's ownership or
operation of all or a material portion of the Company's and its
subsidiaries' businesses and assets, (2) prohibits, or makes illegal the
acceptance for payment, payment for or purchase of Shares or the
consummation of the Offer or the Merger, (3) renders Purchaser unable to
accept for payment, pay for or purchase some or all of the Shares, or
ANNEX A - i
(4) imposes material limitations on the ability of Purchaser or Parent
effectively to exercise full rights of ownership of the Shares, including,
without limitation, the right to vote the Shares purchased by it on all
matters properly presented to the Company's stockholders; provided, that,
--------
Parent shall have used all reasonable efforts to cause any such judgment,
order or injunction to be vacated or lifted;
(b) there shall be any action or proceeding instituted and pending by
any domestic or foreign federal or state governmental regulatory or
administrative agency or authority which (1) seeks to prohibit, or impose
any material limitation on, Parent's, Purchaser's, or the Company's
ownership or operation of all or a material portion of the Company's and
its subsidiaries' businesses and assets, (2) seeks to prohibit or make
illegal the acceptance for payment, payment for or purchase of Shares or
the consummation of the Offer or the Merger, (3) is reasonably likely to
result in a material delay in or seeks to restrict the ability of
Purchaser, or render Purchaser unable to accept for payment, pay for or
purchase some or all of the Shares, or (4) seeks to impose material
limitations on the ability of Purchaser or Parent effectively to exercise
full rights of ownership of the Shares, including, without limitation, the
right to vote the Shares purchased by it on all matters properly presented
to the Company's stockholders; provided, that, Parent shall have used all
--------
reasonable efforts to cause any such action or proceeding to be dismissed;
(c) the representations and warranties of the Company set forth in
the Agreement that are qualified by materiality shall not be true and
correct in any respect, or the representations and warranties of the
Company set forth in this Agreement that are not so qualified shall not be
true and correct in any material respect, in either case, as of the
Expiration Date as though made on or as of such date, or the Company shall
have breached or failed in any material respect to perform or comply with
any material obligation, agreement or covenant required by the Agreement to
be performed or complied with by it (including, without limitation, if the
Company shall have entered into any Acquisition Agreement in violation of
Section 5.2), except, in the case of the failure of any representation or
warranty, for changes specifically permitted by the Agreement, and for
those representations and warranties that address matters only as of a
particular date which are true and correct as of such date;
(d) (1) any general suspension of trading in securities on any
national securities exchange or in the over-the-counter market, (2) the
declaration of a banking moratorium or any suspension of payments in
respect of banks by a United States Governmental Entity, or (3) any
mandatory limitation by a United States Governmental Entity that materially
and adversely effects the extension of credit by banks or other financial
institutions;
(e) it shall have been publicly disclosed or Parent shall have
otherwise learned that beneficial ownership (determined for the purposes of
this paragraph as set forth in Rule 13d-3 promulgated under the Exchange
Act) of more than 15% of the outstanding Company Common Stock has been
acquired by any person (including the Company, any of its subsidiaries or
affiliates thereof) or group (as defined in Section 13(d)(3) of the
Exchange Act), other than Parent, Purchaser or any of their affiliates;
ANNEX A - ii
(f) the Company's Board of Directors shall have withdrawn or modified
in a manner adverse to Parent or Purchaser (including by amendment of the
Schedule 14D-9) its approval of the Agreement and the transactions
contemplated thereby, or its recommendation that the holders of the shares
of Company Common Stock accept the Offer and tender all of their shares of
Company Common Stock to Purchaser and approve the Agreement and the
transactions contemplated thereby, including the Offer and the Merger, or
shall have approved or recommended any Takeover Proposal or Superior
Proposal;.
(g) there has been a Company Material Adverse Effect; or
(h) the Agreement shall have been terminated in accordance with its
terms;
which in the sole judgment of Parent or Purchaser, in any such case, and
regardless of the circumstances giving rise to such condition, makes it
inadvisable to proceed with the Offer or with such acceptance for payment or
payments for shares of the Company Common Stock or to proceed with the Merger.
The foregoing conditions are for the sole benefit of Parent and Purchaser
and may be asserted by Parent and Purchaser regardless of the circumstances
giving rise to any such condition (except for any action or inaction by Parent
and Purchaser or any of its affiliates constituting a breach of this Agreement)
or may be waived by Parent in whole or in part at any time and from time to time
in its sole discretion (subject to the terms of this Agreement). The failure by
Parent and Purchaser at any time to exercise any of the foregoing rights shall
not be deemed a waiver of any such right, the waiver of any such right with
respect to particular facts and other circumstances shall not be deemed a waiver
with respect to any other facts and circumstances, and each such right shall be
deemed an ongoing right that may be asserted at any time and from time to time.
For purposes of this Annex A, (a) "Cash Equivalents" means, as at any date
of determination, (i) cash, (ii) marketable securities (A) issued or directly
and unconditionally guaranteed as to interest and principal by the United States
government, or (B) issued by any agency of the United States, the obligations of
which are backed by the full faith and credit of the United States, in each case
maturing within three (3) months after such date, (iii) marketable direct
obligations issued by any state of the United States or any political
subdivision of any such state or any public instrumentality thereof, in each
case maturing within three (3) months after such date and having, at the time of
the acquisition thereof, the highest rating obtainable from either Standard &
Poor's or Xxxxx'x Investors Service, Inc., and (iv) any other instrument in
which the Company's cash is invested on the date of the Agreement, provided,
--------
that such other instrument is set forth on a schedule of the Company's
----
marketable securities included in the Company Disclosure Schedule, and provided,
--------
further, that upon the maturity of any such instrument, the funds therefrom
------- ----
shall be reinvested only in the instruments described in clauses (i), (ii) or
(iii) above; and (b) "Sale Proceeds" means any and all Cash Equivalents received
by the Company or any of its subsidiaries in connection with (i) the sale or
other transfer (a "Sale") by the Company or any of its subsidiaries of (A) a
subsidiary of the Company (including, without limitation, Internet Underground
Music Archive, Inc.) or (B) any material asset of the
ANNEX A - iii
Company or its subsidiaries, or (ii) the sale or other transfer of any non-Cash
Equivalent consideration received by the Company or any or its subsidiaries in a
Sale.
ANNEX A - iv
