EXHIBIT 10.32
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
by and among
NATIONAL INFORMATION CONSORTIUM, INC.,
SDR ACQUISITION CORP.,
and
SDR TECHNOLOGIES, INC.
dated as of
February 16, 2000
TABLE OF CONTENTS
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AGREEMENT AND PLAN OF REORGANIZATION AND MERGER. . . . . . . . . . . . . . . 1
ARTICLE I
THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.1 The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.2 Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.3 Effective Time . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.4 Effects of the Merger. . . . . . . . . . . . . . . . . . . . . 3
Section 1.5 Charter and By-Laws. . . . . . . . . . . . . . . . . . . . . . 3
Section 1.6 Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.7 Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS. . 4
Section 2.1 Cancellation of Shares of Common Stock . . . . . . . . . . . . 4
Section 2.2 Conversion of Shares of Company Common Stock . . . . . . . . . 4
Section 2.3 Company Options. . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE III
EXCHANGE OF SHARES/ESCROW. . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 3.1 Exchange of Company Certificates . . . . . . . . . . . . . . . 7
Section 3.2 Transfer Taxes; Withholding. . . . . . . . . . . . . . . . . .10
Section 3.3 Dissenting Shares. . . . . . . . . . . . . . . . . . . . . . .10
Section 3.4 No Further Ownership Rights in Company Capital Stock . . . . .11
Section 3.5 Lost, Stolen or Destroyed Company Certificates . . . . . . . .11
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF COMPANY. . . . . . . . . . . . . . . . . .12
Section 4.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . .12
Section 4.2 Capitalization . . . . . . . . . . . . . . . . . . . . . . . .13
Section 4.3 Authority Relative to this Agreement . . . . . . . . . . . . .15
Section 4.4 Consents and Approvals; No Violations. . . . . . . . . . . . .15
Section 4.5 Financial Statements . . . . . . . . . . . . . . . . . . . . .16
Section 4.6 Absence of Certain Changes . . . . . . . . . . . . . . . . . .16
(i)
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Section 4.7 No Undisclosed Liabilities . . . . . . . . . . . . . . . . . .18
Section 4.8 Information in Disclosure Documents. . . . . . . . . . . . . .19
Section 4.9 No Default . . . . . . . . . . . . . . . . . . . . . . . . . .19
Section 4.10 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . .19
Section 4.11 Compliance with Laws. . . . . . . . . . . . . . . . . . . . .20
Section 4.12 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
Section 4.13 Employee Benefit Plans; ERISA . . . . . . . . . . . . . . . .23
Section 4.14 Intellectual Property . . . . . . . . . . . . . . . . . . . .27
Section 4.15 Contracts and Commitments . . . . . . . . . . . . . . . . . .32
Section 4.16 Labor Relations . . . . . . . . . . . . . . . . . . . . . . .33
Section 4.17 Personnel . . . . . . . . . . . . . . . . . . . . . . . . . .35
Section 4.18 Environmental Matters . . . . . . . . . . . . . . . . . . . .35
Section 4.19 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . .37
Section 4.20 Title to Properties; Encumbrances . . . . . . . . . . . . . .38
Section 4.21 Equipment . . . . . . . . . . . . . . . . . . . . . . . . . .38
Section 4.22 Leases. . . . . . . . . . . . . . . . . . . . . . . . . . . .38
Section 4.23 Related Party Transactions. . . . . . . . . . . . . . . . . .39
Section 4.24 Absence of Certain Payments . . . . . . . . . . . . . . . . .39
Section 4.25 Brokers or Finders. . . . . . . . . . . . . . . . . . . . . .39
Section 4.26 Books and Records . . . . . . . . . . . . . . . . . . . . . .40
ARTICLE V
REPRESENTATIONS AND
WARRANTIES OF PARENT AND MERGER SUB. . . . . . . . . . . . . . . . . . . . .40
Section 5.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . .40
Section 5.2 Capitalization . . . . . . . . . . . . . . . . . . . . . . . .40
Section 5.3 Authority Relative to this Agreement . . . . . . . . . . . . .41
Section 5.4 Consents and Approvals; No Violations. . . . . . . . . . . . .41
Section 5.5 SEC Reports and Financial Statements . . . . . . . . . . . . .42
Section 5.6 Absence of Certain Changes . . . . . . . . . . . . . . . . . .42
Section 5.7 Information in Disclosure Documents. . . . . . . . . . . . . .43
Section 5.8 Activities of Merger Sub . . . . . . . . . . . . . . . . . . .43
Section 5.9 No Default . . . . . . . . . . . . . . . . . . . . . . . . . .43
Section 5.10 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . .44
Section 5.11 Brokers or Finders. . . . . . . . . . . . . . . . . . . . . .44
(ii)
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ARTICLE VI
COVENANTS OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . .44
Section 6.1 Conduct of Business Pending Merger . . . . . . . . . . . . . .44
Section 6.2 No Solicitation of Competing Transaction . . . . . . . . . . .47
Section 6.3 Shareholder Approval . . . . . . . . . . . . . . . . . . . . .48
Section 6.4 Further Information. . . . . . . . . . . . . . . . . . . . . .48
Section 6.5 Access; Confidentiality. . . . . . . . . . . . . . . . . . . .49
Section 6.6 280G Consent . . . . . . . . . . . . . . . . . . . . . . . . .49
Section 6.7 Company Warrants . . . . . . . . . . . . . . . . . . . . . . .49
ARTICLE VII
OTHER COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .50
Section 7.1 Fairness Hearing . . . . . . . . . . . . . . . . . . . . . . .50
Section 7.2 Publicity. . . . . . . . . . . . . . . . . . . . . . . . . . .51
Section 7.3 Directors' and Officers' Indemnification . . . . . . . . . . .52
Section 7.4 Notification of Certain Matters. . . . . . . . . . . . . . . .54
Section 7.5 Tax-Free Reorganization. . . . . . . . . . . . . . . . . . . .54
Section 7.6 Nasdaq Listing . . . . . . . . . . . . . . . . . . . . . . . .55
Section 7.7 Company 401(k) Plan . . . . . . . . . . . . . . . . . . .55
ARTICLE VIII
CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .55
Section 8.1 Conditions to Each Party's Obligation To Effect the Merger . .55
Section 8.2 Conditions of Obligations of the Company . . . . . . . . . . .56
Section 8.3 Conditions of Obligations of Parent. . . . . . . . . . . . . .57
ARTICLE IX
TERMINATION AND AMENDMENT. . . . . . . . . . . . . . . . . . . . . . . . . .59
Section 9.1 Termination. . . . . . . . . . . . . . . . . . . . . . . . . .59
Section 9.2 Effect of Termination. . . . . . . . . . . . . . . . . . . . .61
(iii)
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ARTICLE X
INDEMNIFICATION AND ESCROW . . . . . . . . . . . . . . . . . . . . . . . . .62
Section 10.1 Survival of Representations and Warranties. . . . . . . . . .62
Section 10.2 Indemnification by the Shareholders Indemnitors . . . . . . .62
Section 10.3 Procedure for Third Party Claims. . . . . . . . . . . . . . .62
Section 10.4 Indemnity Period. . . . . . . . . . . . . . . . . . . . . . .64
Section 10.5 Satisfaction of Indemnification Claim . . . . . . . . . . . .64
Section 10.6 Indemnification Basket. . . . . . . . . . . . . . . . . . . .64
Section 10.7 FIRPTA Affidavit. . . . . . . . . . . . . . . . . . . . . . .65
ARTICLE XI
DEFINITIONS AND INTERPRETATION . . . . . . . . . . . . . . . . . . . . . . .65
Section 11.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . .65
Section 11.2 Interpretation. . . . . . . . . . . . . . . . . . . . . . . .73
ARTICLE XII
MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .74
Section 12.1 Fees and Expenses . . . . . . . . . . . . . . . . . . . . . .74
Section 12.2 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . .74
Section 12.3 Extension; Waiver . . . . . . . . . . . . . . . . . . . . . .75
Section 12.4 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . .75
Section 12.5 Descriptive Headings. . . . . . . . . . . . . . . . . . . . .76
Section 12.6 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . .76
Section 12.7 Entire Agreement; Assignment. . . . . . . . . . . . . . . . .76
Section 12.8 Governing Law . . . . . . . . . . . . . . . . . . . . . . . .77
Section 12.9 Specific Performance. . . . . . . . . . . . . . . . . . . . .77
Section 12.10 Parties in Interest. . . . . . . . . . . . . . . . . . . . .77
EXHIBITS
A Shareholders to Execute Voting Agreements. . . . . . . . . . . A-1
B Form of Voting and Warrant Exercise Agreement. . . . . . . . . B-1
C Indemnification Escrow Agreement . . . . . . . . . . . . . . . C-1
D Supplemental Indemnification Agreement . . . . . . . . . . . . D-1
(iv)
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
This AGREEMENT AND PLAN OF REORGANIZATION AND MERGER (this
"AGREEMENT"), dated as of February 16, 2000, by and among National
Information Consortium, Inc., a Colorado corporation ("PARENT"), SDR
Acquisition Corp., a California corporation and a wholly owned subsidiary of
Parent ("MERGER SUB"), and SDR Technologies, Inc., a California corporation
(the "COMPANY"). CERTAIN CAPITALIZED TERMS USED IN THIS AGREEMENT HAVE THE
MEANINGS ASCRIBED TO THEM IN SECTION 11.1 HEREOF.
W I T N E S S E T H:
WHEREAS, the Board of Directors of Parent has approved, and deems
it advisable and in the best interests of its stockholders to consummate, the
merger (the "MERGER") of Merger Sub with and into the Company, upon the terms
and subject to the conditions set forth herein;
WHEREAS, the Company Board, having carefully considered the
long-term prospects and interests of the Company and the Shareholders, has
approved the transactions contemplated hereby and has resolved to recommend
to the Shareholders the approval and adoption of this Agreement and the
consummation of the transactions contemplated hereby upon the terms and
subject to the conditions set forth herein;
WHEREAS, as a condition and inducement to Parent to enter into
this Agreement and incur the obligations set forth herein, concurrently with
the execution and delivery of this Agreement, the Shareholders set forth in
Exhibit A hereto, who include at least a majority of the voting power with
respect to each separate class vote of the Company Required Vote on a Fully
Diluted Basis, shall enter into Voting Agreement substantially in the form of
Exhibit B attached hereto (the "VOTING AND WARRANT EXERCISE AGREEMENT"),
pursuant to which, among other things, (a) each such holder has agreed to
vote shares of Company Common Stock and/or Company Preferred Stock
(collectively, the "COMPANY CAPITAL STOCK") held by such holder in favor of
approval and adoption of this Agreement and (b) each holder of a Company
Warrant has agreed to exercise such Company Warrant prior to the Effective
Time;
WHEREAS, as Parent's condition to the consummation of the
transactions contemplated by this Agreement and to incur the obligations set
forth
herein, Parent and the Shareholders shall enter into an indemnification
escrow agreement in the form of Exhibit C attached hereto (the
"INDEMNIFICATION ESCROW AGREEMENT"), pursuant to which a portion of the
Merger Consideration is to be placed in an escrow account to secure certain
indemnification obligations of the Company to Parent;
WHEREAS, each Shareholder shall, prior to the Closing, enter into
a supplemental escrow agreement in the form of Exhibit D attached hereto (the
"SUPPLEMENTAL INDEMNIFICATION AGREEMENT");
WHEREAS, in order to receive the Merger Consideration described
herein, each Shareholder shall execute the Indemnification Escrow Agreement
provided in the Letter of Transmittal;
WHEREAS, the Boards of Directors of each of Parent and Merger
Sub, and the sole stockholder of Merger Sub have approved this Agreement and
the transactions contemplated hereby in accordance with the provisions of the
California General Corporation Law ("CGCL"), and the Company Board has
approved this Agreement and the transactions contemplated hereby in
accordance with the provisions of the CGCL; and
WHEREAS, for United States federal income tax purposes, it is
intended that the Merger qualify as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended, and the
rules and regulations promulgated thereunder (the "CODE").
NOW, THEREFORE, in consideration of the foregoing and the
respective representations, warranties, covenants and agreements set forth
herein, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
ARTICLE I
THE MERGER
Section 1.1 THE MERGER. Upon the terms and subject to the
conditions set forth in this Agreement, and in accordance with section 1110
et seq. of the CGCL, Merger Sub shall be merged with and into the Company at
the Effective Time. Following the Merger, the separate corporate existence
of Merger Sub shall cease and the Company shall continue as the surviving
corporation (the "SURVIVING
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CORPORATION") and shall succeed to and assume all the rights, properties,
liabilities and obligations of Merger Sub in accordance with the CGCL.
Section 1.2 CLOSING. The closing of the Merger (the "CLOSING")
shall take place at 10:00 a.m., Los Angeles time, on a date to be specified
by the parties, which shall be no later than the third business day after
satisfaction or waiver of all of the conditions set forth in Article VIII of
this Agreement (the "CLOSING DATE"), at the offices of Skadden, Arps, Slate,
Xxxxxxx & Xxxx LLP, 000 Xxxxx Xxxxx Xxxxxx, Xxxxx 0000, Xxxxxxxxxx 00000,
unless another time, date or place is agreed to in writing by the parties
hereto.
Section 1.3 EFFECTIVE TIME. Concurrently with the Closing, the
parties hereto shall execute and file an agreement of merger between Merger
Sub and the Company together with the related officers' certificates required
by section 1103 of the CGCL, in the form attached to this agreement as
Exhibit D (the "CERTIFICATE OF MERGER"), with the Secretary of State of the
State of California (the "SECRETARY OF STATE"). The parties hereto shall
make all other filings, recordings or publications required by the CGCL in
connection with the Merger. The Merger shall become effective upon the
filing of the Certificate of Merger with the Secretary of State (the time at
which the Merger becomes effective being the "EFFECTIVE TIME").
Section 1.4 EFFECTS OF THE MERGER. The Merger shall have the
effects set forth in section 1107 of the CGCL. From and after the Effective
Time, the Surviving Corporation shall possess all rights, privileges,
immunities, powers and franchises and be subject to all of the obligations,
restrictions, disabilities, liabilities, debts and duties of the Company and
Merger Sub.
Section 1.5 CHARTER AND BY-LAWS. The articles of
incorporation of Merger Sub shall be the articles of incorporation of the
Surviving Corporation until thereafter amended as provided by law and such
articles of incorporation of the Surviving Corporation.
(b) The by-laws of Merger Sub shall be the by-laws of the
Surviving Corporation thereafter amended as provided by law and such by-laws
of the Surviving Corporation.
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Section 1.6 DIRECTORS. The directors of Merger Sub at the
Effective Time of the Merger shall be the directors of the Surviving
Corporation until the earlier of their resignation or removal or until their
respective successors are duly elected and qualified, as the case may be.
Section 1.7 OFFICERS. The officers of the Company at the
Effective Time of the Merger shall be the officers of the Surviving
Corporation until the earlier of their resignation or removal or until their
respective successors are duly elected and qualified, as the case may be.
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS
Section 2.1 CANCELLATION OF SHARES OF COMPANY CAPITAL STOCK. As
of the Effective Time, by virtue of the Merger and without any action on the
part of the holder of any shares of Company Common Stock or any shares of
capital stock of Merger Sub, each share of Common Stock, no par value of the
Company (the "COMPANY COMMON STOCK") and Company Preferred Stock held by the
Company as treasury stock immediately prior to the Effective Time (the
"CANCELLED SHARES") shall automatically be cancelled and retired and cease to
exist, and no consideration or payment shall be delivered therefor or in
respect thereto.
Section 2.2 CONVERSION OF SHARES OF COMPANY COMMON STOCK.
(a) As of the Effective Time, by virtue of the Merger and
without any action on the part of the holder of any shares of Company Common
Stock or any shares of capital stock of Merger Sub, each share of Company
Common Stock issued and outstanding immediately prior to the Effective Time
(other than Dissenting Shares and Cancelled Shares) shall be converted,
subject to subsection (b) of this Section 2.2, into a fraction of a fully
paid and nonassessable share ("PARENT SHARES") of Common Stock, no par value
per share, of Parent ("PARENT COMMON STOCK") equal to the Exchange Ratio (the
"MERGER CONSIDERATION"). The "EXCHANGE RATIO" shall be .5857.
All shares of Company Common Stock to be converted into the
Merger Consideration pursuant to this Section 2.2 shall, by virtue of the
Merger and without any action on the part of the holders thereof, cease to be
outstanding, be
4
cancelled and retired and cease to exist; and each holder of a certificate
representing, prior to the Effective Time any shares of Company Capital Stock
or Company Warrants, shall thereafter cease to have any rights with respect
to such shares of Company Capital Stock or Company Warrants, except the right
to receive (i) the Merger Consideration, (ii) any dividends and other
distributions in accordance with Section 3.1(c) hereof and (iii) any cash to
be paid in lieu of any fractional Parent Share in accordance with Section
3.1(d) hereof.
(b) INDEMNIFICATION ESCROW AGREEMENT. Notwithstanding
subsection (a) of this Section 2.2, (i) each Shareholder must execute the
Indemnification Escrow Agreement in order to be entitled to receive the
Merger Consideration and (ii) the Merger Consideration shall be reduced pro
rata by any amounts paid to Parent pursuant to the Indemnification Escrow
Agreement.
(c) TREATMENT OF COMPANY PREFERRED STOCK. (i) Subject to
subsection (b) of this Section 2.2, at the Effective Time each issued and
outstanding share of Company Preferred Stock, other than any shares of
Company Preferred Stock to be cancelled in accordance with Section 2.1 hereof
and other than Dissenting Shares, if any, shall be converted into the right
to receive the Merger Consideration that the holder of such Company Preferred
Stock would have received pursuant to Section 2.2(a) hereof (subject to the
proviso therein) had such holder converted such shares of Company Preferred
Stock into shares of Company Common Stock immediately prior to the Effective
Time.
(d) CAPITAL STOCK OF MERGER SUB. No shares of Merger
Sub stock will be issued directly or indirectly in the Merger. Each share of
Merger Sub issued and outstanding immediately prior to the Effective Time
shall be converted into and become one fully paid and nonassessable share of
common stock, no par value per share of the Surviving Corporation.
(e) TAKING OF NECESSARY ACTION; FURTHER ACTION. If, at
any time after the Effective Time, any further action is necessary or
desirable to carry out the purposes of this Agreement and to vest the
Surviving Corporation with full right, title and possession to all assets,
property, rights, privileges, powers and franchises of the Company and Merger
Sub, the officers and directors of the Surviving Corporation shall be fully
authorized in the name of either or both of the Company or Merger Sub or
otherwise to take, and Parent and the Company shall cause such officers and
directors to take, all such lawful and necessary action, so long as such
action is not inconsistent with the Agreement.
5
Section 2.3 COMPANY OPTIONS.
(a) At the Effective Time, each outstanding option to
purchase shares of Company Common Stock (each a "COMPANY OPTION") issued
under the Company Benefit Plan (each, a "COMPANY STOCK PLAN") or otherwise,
whether vested or unvested, shall be assumed by Parent and shall thereupon
constitute an option to acquire that number of shares of Parent Common Stock
equal to (i) the number of shares of Company Common Stock subject to the
Company Option immediately prior to the Effective Time, multiplied by (ii)
the Exchange Ratio, rounded to the nearest whole share, at a price per share
of Parent Common Stock equal to (x) the per share exercise price of the
Company Option immediately prior to the Effective Time, divided by (y) the
Exchange Ratio, rounded to the nearest whole cent. As soon as reasonably
practicable following the Effective Time, Parent shall deliver to each holder
of a Company Option an appropriate notice setting forth the terms of such
assumption.
(b) Except as may be otherwise agreed to by Parent
and the Company or as otherwise contemplated or required to effectuate this
Section 2.5, the Company Benefit Plans shall terminate as of the Effective
Time and the provisions in any other plan, program or arrangement providing
for the issuance or grant of any other interest in respect of the capital
stock of the Company shall be deleted as of the Effective Time.
(c) The Company shall take all necessary actions to
provide that as of the Effective Time no holder of Company Options will have
any right to receive shares of common stock of the Surviving Corporation upon
exercise of any such Company Option.
ARTICLE III
EXCHANGE OF SHARES/ESCROW
Section 3.1 EXCHANGE OF COMPANY CERTIFICATES/ESCROW DEPOSIT.
(a) At or within two business days of the Effective Time,
Parent shall deposit, or cause to be deposited (i) with the Exchange Agent
for the benefit of holders of shares of Company Common Stock, certificates
representing
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Parent Shares constituting 90% of the Merger Consideration (the "CURRENT
CONSIDERATION") and (ii) with the Escrow Agent (as defined in the
Indemnification Escrow Agreement) certificates representing Parent Shares
constituting 10% of the Merger Consideration. Such Merger Consideration
deposited with the Escrow Agent, together with any other securities of Parent
issued by means of dividend, distribution, split-up, recapitalization,
combination, exchange of shares or the like upon or with respect to the
Parent Shares (collectively, the "ESCROW SHARES") shall be held as collateral
for the indemnification obligations under Article X hereof and pursuant to
the Indemnification Escrow Agreement. The disposition of the Escrow Shares
by the Escrow Agent shall be governed by the terms of this Agreement and the
Indemnification Escrow Agreement.
(b) As of or promptly following the Effective Time, the
Surviving Corporation shall cause the Exchange Agent to send by courier or
overnight delivery (and to make available for collection by hand) to each
holder of record of a certificate or certificates, which immediately prior to
the Effective Time represented outstanding shares of Company Capital Stock
(the "COMPANY CERTIFICATES"), (i) a letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to the
Company Certificates shall pass, only upon proper delivery of the Company
Certificates to the Exchange Agent and that shall be in the form and have
such other provisions as Parent and the Company may reasonably specify) (the
"LETTER OF TRANSMITTAL") which shall, among other things, provide that each
Shareholder who executes such Letter of Transmittal shall become a party to
and be bound by the Indemnification Escrow Agreement which shall be attached
as an exhibit to the Letter of Transmittal; and (ii) instructions for use in
effecting the surrender of the Company Certificates in exchange for (A) a
certificate or certificates representing that number of whole Parent Shares,
if any, into which the number of shares of Company Capital Stock previously
represented by such Company Certificate shall have been converted pursuant to
this Agreement and (B) the amount of cash, if any, into which all or a
portion of the number of shares of Company Capital Stock previously
represented by such Company Certificate shall have been converted pursuant to
this Agreement in lieu of fractional Parent Shares (which instructions shall
provide that at the election of the surrendering holder, Company Certificates
may be surrendered, and the Merger Consideration in exchange therefor
collected by hand delivery). Upon surrender of a Company Certificate for
cancellation to the Exchange Agent, together with a Letter of Transmittal,
duly completed and validly executed in accordance with the instructions
thereto, and such other documents as may be required pursuant to such
instructions, the holder of such Company Certificate shall be entitled to
receive in exchange
7
therefor the Current Consideration for each share of Company Capital Stock
formerly represented by such Company Certificate, to be sent by courier or
overnight delivery (or made available for collection by hand if so elected by
the surrendering holder) within three business days of receipt thereof (but
in no case prior to the Effective Time), and the Company Certificate so
surrendered shall be forthwith cancelled. The Exchange Agent shall accept
such Company Certificates upon compliance with such reasonable terms and
conditions as the Exchange Agent may impose to effect an orderly exchange
thereof in accordance with normal exchange practices. No interest shall be
paid or accrued for the benefit of holders of the Company Certificates on the
Merger Consideration (or the cash pursuant to subsections (c) and (d) below)
payable upon the surrender of the Company Certificates.
(c) No dividends or other distributions with respect to
Parent Shares with a record date on or after the Effective Time shall be paid
to the holder of any unsurrendered Company Certificate with respect to the
Parent Shares represented thereby by reason of the conversion of shares of
Company Capital Stock pursuant to Section 2.2(a) hereof and no cash payment
in lieu of fractional Parent Shares shall be paid to any such holder pursuant
to Section 3.1(d) hereof until such Company Certificate is surrendered in
accordance with this Article III. Subject to the effect of applicable laws,
following surrender of any such Company Certificate, there shall be paid,
without interest, to the Person in whose name the Parent Shares representing
such securities are registered (i) at the time of such surrender, the amount
of any cash payable in lieu of fractional Parent Shares to which such holder
is entitled pursuant to Section 3.1(d) hereof and the proportionate amount of
dividends or other distributions with a record date after the Effective Time
theretofore paid with respect to Parent Shares issued upon conversion of
Company Capital Stock, and (ii) at the appropriate payment date or as
promptly as practicable thereafter, the proportionate amount of dividends or
other distributions with a record date after the Effective Time but prior to
such surrender and a payment date subsequent to such surrender payable with
respect to such Parent Shares.
(d) Notwithstanding any other provision of this
Agreement, no fraction of a Parent Share will be issued and no dividend or
other distribution, stock split or interest with respect to Parent Shares
shall relate to any fractional Parent Share, and such fractional interest
shall not entitle the owner thereof to vote or to any rights as a security
holder of Parent. In lieu of any such fractional security, each holder of
shares of Company Common Stock otherwise entitled to a fraction of a Parent
Share (after aggregating all fractional shares of Parent Common
8
Stock to be received by such holder) shall receive from Parent an amount of
cash (rounded to the nearest whole cent) equal to the product of (i) such
fraction, multiplied by (ii) the Exchange Ratio.
(e) Any portion of the Merger Consideration deposited
with the Exchange Agent pursuant to this Section 3.1 (the "EXCHANGE FUND")
that remains undistributed to the holders of the Company Certificates for
three months after the Effective Time shall be delivered to Parent, upon
demand, and any holders of shares of Company Capital Stock prior to the
Merger who have not theretofore complied with this Article III shall
thereafter look for payment of their claim, as general creditors thereof,
only to Parent for their claim for (1) Parent Shares, if any, (2) any cash
without interest, to be paid, in lieu of any fractional Parent Shares and (3)
any dividends or other distributions with respect to Parent Shares to which
such holders may be entitled.
(f) None of Parent, Merger Sub or the Company or the
Exchange Agent shall be liable to any Person in respect of any Parent Shares
held in the Exchange Fund (and any cash, dividends and other distributions
payable in respect thereof) delivered to a public official pursuant to any
applicable abandoned property, escheat or similar law. If any Company
Certificates shall not have been surrendered prior to one year after the
Effective Time (or immediately prior to such earlier date on which (i) any
Parent Shares, (ii) any cash in lieu of fractional Parent Shares or (iii) any
dividends or distributions with respect to Parent Shares in respect of such
Company Certificate would otherwise escheat to or become the property of any
Governmental Entity), any such Parent Shares, cash, dividends or
distributions in respect of such Company Certificate shall, to the extent
permitted by applicable law, become the property of Parent, free and clear of
all claims or interest of any Person previously entitled thereto.
(g) The Exchange Agent shall invest any cash, if any,
included in the Exchange Fund, as directed by Parent on a daily basis. Any
interest and other income resulting from such investments shall be paid to
Parent. Nothing contained in this Section 3.1(g) shall relieve Parent or the
Exchange Agent from making the payments required by this Article III to be
made to the holders of shares of Company Capital Stock.
9
Section 3.2 TRANSFER TAXES; WITHHOLDING. If any certificate for
a Parent Share is to be issued to, or cash is to be remitted to, a Person
(other than the Person in whose name the Company Certificate surrendered in
exchange therefor is registered), it shall be a condition of such exchange
that the Company Certificate so surrendered shall be properly endorsed and
otherwise in proper form for transfer and that the Person requesting such
exchange shall pay to the Exchange Agent any transfer or other Taxes required
by reason of the payment of the Merger Consideration to a Person other than
the registered holder of the Certificate so surrendered, or shall establish
to the satisfaction of the Exchange Agent that such Tax either has been paid
or is not applicable. Parent or the Exchange Agent shall be entitled to
deduct and withhold from the Parent Shares (or cash in lieu of fractional
Parent Shares) otherwise payable pursuant to this Agreement to any holder of
shares of Company Capital Stock such amounts as Parent or the Exchange Agent
are required to deduct and withhold under the Code, or any provision of
state, local or foreign Tax law, with respect to the making of such payment.
To the extent that amounts are so withheld by Parent or the Exchange Agent,
such withheld amounts shall be treated for all purposes of this Agreement as
having been paid to the holder of shares of Company Capital Stock in respect
of whom such deduction and withholding was made by Parent or the Exchange
Agent. Parent shall remit such withheld amounts to the appropriate
Governmental Entity.
Section 3.3 DISSENTING SHARES.
(a) "DISSENTING SHARES"shall have the meaning set forth
in section 1300 of the CGCL.
(b) Notwithstanding any provision of this Agreement to
the contrary, Dissenting Shares shall not be converted into or represent a
right to receive Parent Common Stock pursuant to Section 2.2 hereof, but the
holder thereof shall be entitled to only such rights as are granted by the
CGCL.
(c) If any holder of shares of Company Capital Stock who
demands appraisal of such holder's shares of Company Capital Stock under the
CGCL effectively withdraws or loses (through failure to perfect or otherwise)
such holder's right to appraisal, then as of the Effective Time or the
occurrence of such event, whichever later occurs, such holder's shares of
Company Capital Stock shall automatically be converted into and represent
only the right to receive Parent Common Stock as provided in Section 2.2(a)
hereof, without interest, upon surrender
10
of the Company Certificate or Company Certificates representing such shares
of Company Capital Stock pursuant to Section 3.1 hereof.
(d) The Company shall give Parent (i) prompt notice of
any written demands for appraisal or payment of the fair value of any shares
of Company Capital Stock, withdrawals of such demands, and any other
instruments served on the Company pursuant to the CGCL received by the
Company, and (ii) the opportunity to direct all negotiations and proceedings
with respect to demands for appraisal under the CGCL. Except with the prior
written consent of Parent, the Company shall not voluntarily make any payment
with respect to any demands for appraisal, settle or offer to settle any such
demands.
Section 3.4 NO FURTHER OWNERSHIP RIGHTS IN COMPANY CAPITAL
STOCK. The Merger Consideration (including Merger Consideration deposited
into the Escrow Fund) shall be deemed to have been issued (and paid) in full
satisfaction of all rights pertaining to the shares of Company Capital Stock
theretofore represented by Company Certificates surrendered for exchange, and
there shall be no further registration of transfers on the records of the
Surviving Corporation of shares of Company Capital Stock which were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Company Certificates are presented to the Surviving Corporation or the
Exchange Agent for any reason, they shall be canceled and exchanged as
provided in this Article III.
Section 3.5 LOST, STOLEN OR DESTROYED COMPANY CERTIFICATES. In
the event any Company Certificates shall have been lost, stolen or destroyed,
the Exchange Agent shall issue in exchange for such lost, stolen or destroyed
Company Certificates, upon the making of an affidavit of that fact by the
holder thereof, such shares of Parent Common Stock (and cash in lieu of
fractional shares) as may be required pursuant to Section 3.1 hereof;
PROVIDED, HOWEVER, that Parent or the Surviving Corporation may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed Company Certificates to deliver a
bond in such sum as it may reasonably direct as indemnity against any claim
that may be made against Parent, the Surviving Corporation or the Exchange
Agent with respect to the Company Certificates alleged to have been lost,
stolen or destroyed.
11
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF COMPANY
Except as set forth in Schedule A prepared and signed by an
appropriate officer of the Company delivered to Parent at the execution of
this Agreement setting forth specific exceptions to the Company's
representations and warranties set forth herein, including reference to the
applicable representation (the "COMPANY DISCLOSURE SCHEDULE"), the Company
represents and warrants to Parent as set forth below.
Section 4.1 ORGANIZATION. (a) The Company and each of its
Subsidiaries is a corporation duly incorporated, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has all
requisite corporate power and authority to own, lease and operate its
properties and to carry on its business as now being conducted. The Company
and each of its Subsidiaries is duly qualified or licensed and in good
standing to do business in each jurisdiction in which the property owned,
leased or operated by it or the nature of the business conducted by it makes
such qualification or licensing necessary, except in such other jurisdictions
where the failure to be so duly qualified or licensed and in good standing
could not reasonably be expected to have a Company Material Adverse Effect.
For purposes of this Agreement, "COMPANY MATERIAL ADVERSE EFFECT" means,
individually or in the aggregate, a material adverse effect on the business,
financial condition, results of operations of the Company and its
Subsidiaries, taken as a whole but shall not include (i) any effect or change
that results from the announcement or pendency of the Merger or any of the
other transactions contemplated by this Agreement (except with respect to
effects or changes related to employees of the Company), (ii) any effect or
change that results from the taking of any action contemplated by this
Agreement or expressly permitted by the consent of Parent pursuant to this
Agreement and (iii) any effect or change that results from continued
financial losses of the Company as a result of the operations of the Company
in the ordinary course of business consistent with past practice. The
Company has heretofore delivered to Parent accurate and complete copies of
its Articles of Incorporation (the "COMPANY ARTICLES") and Bylaws and the
organizational documents of each of its Subsidiaries, in each case, as
currently in effect.
(b) Section 4.1(a) of the Company Disclosure Schedule
sets forth a complete and accurate list of each Subsidiary of the Company.
Other
12
than as set forth in such list, the Company does not own directly or
indirectly, any capital stock or other equity securities of any corporation
or have any direct or indirect equity or ownership in trust in any business
other than publicly traded securities constituting less than five percent of
the outstanding equity of the issuing entity.
(c) The Company owns all of the outstanding shares of
capital stock of each of its Subsidiaries. There are no outstanding offers,
subscriptions, options, conversion rights, warrants or other agreements or
commitments (either firm or conditional) obligating the Company or any
Subsidiary to issue, sell, grant or otherwise dispose of (or cause to be
issued, sold, granted or otherwise disposed of) any capital stock of a
Subsidiary. Section 4.1(c) of the Company Disclosure Schedule lists, for
each Subsidiary, its authorized capital stock, the number of its shares
issued and outstanding and its jurisdiction of incorporation or organization.
Section 4.2 CAPITALIZATION.
(a) The authorized capital stock of the Company consists
of (i) 20,000,000 shares of Company Common Stock, of which 2,758,104 shares
were issued and outstanding as of January 25, 2000, (ii) 10,000,000 shares
of Company Preferred Stock, of which 1,000,000 have been designated Series A
Preferred Stock, 205,907 shares of which are issued and outstanding as of
January 25, 2000. As of January 25, 2000 (i) 150,000 shares of Company
Capital Stock were issued and held in the treasury of the Company, (ii)
1,000,000 shares of Company Common Stock are reserved for issuance pursuant
to outstanding Company Warrants, and (iii) 383,418 shares of Company Common
Stock are reserved for issuance pursuant to outstanding Company Options. All
of the outstanding shares of Company Capital Stock are, and all shares of
Company Capital Stock which may be issued pursuant to the exercise of
outstanding Company Options and Company Warrants will be, when issued in
accordance with the respective terms thereof, duly authorized, validly
issued, fully paid and non-assessable. The rights, preferences and
privileges of the Company Preferred Stock are as set forth in the Company
Articles. Since the date of the filing of the Company Articles or the
Certificate of Amendment thereto, there have not occurred any events that
would cause any adjustment or readjustment in the applicable conversion
prices of such Company Preferred Stock. Each share of Company Preferred
Stock is convertible into one share of Company Common Stock.
13
(b) As of the date hereof, (i) there are no shares of
capital stock of the Company authorized, issued or outstanding; (ii) there
are no existing options, warrants, calls, preemptive rights, indebtedness
having general voting rights or debt convertible into securities having such
rights ("VOTING DEBT") or subscriptions or other rights, agreements,
arrangements or commitments of any character, relating to the issued or
unissued capital stock of the Company obligating the Company to issue,
transfer or sell or cause to be issued, transferred or sold any shares of
capital stock or Voting Debt of, or other equity interest in, the Company or
securities convertible into or exchangeable for such shares or equity
interests, or obligating the Company to grant, extend or enter into any such
option, warrant, call, subscription or other right, agreement, arrangement or
commitment and (iii) there are no outstanding contractual obligations of the
Company to repurchase, redeem or otherwise acquire any shares of capital
stock of the Company, or to provide funds to make any investment (in the form
of a loan, capital contribution or otherwise) in any other entity.
(c) There are no voting trusts or other agreements or
understandings to which the Company is a party or of which the Company has
knowledge with respect to the voting of the capital stock of the Company.
(d) Following the Effective Time, no holder of Company
Options will have any right to receive shares of common stock of the
Surviving Corporation upon exercise of Company Options.
(e) No Indebtedness of the Company contains any
restriction upon (i) the prepayment of any of such Indebtedness, (ii) the
incurrence of Indebtedness by the Company, or (iii) the ability of the
Company to grant any lien on its properties or assets. For purposes of this
Agreement, "INDEBTEDNESS" shall mean (i) all indebtedness for borrowed money
or for the deferred purchase price of property or services (other than
current trade liabilities incurred in the ordinary course of business and
payable in accordance with customary practices), (ii) any other indebtedness
that is evidenced by a note, bond, debenture or similar instrument, (iii) all
obligations under financing leases, (iv) all obligations in respect of
acceptances issued or created, (v) all liabilities secured by any lien on any
property and (vi) all guarantee obligations.
(f) Section 4.2 of the Company Disclosure Schedule sets
forth each outstanding Company Option and identifies the holder thereof.
14
Section 4.3 AUTHORITY RELATIVE TO THIS AGREEMENT. The Company
has all requisite corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized and
approved by the Company Board and no other corporate proceedings on the part
of the Company are necessary to authorize this Agreement or to consummate the
transactions contemplated hereby, other than, with respect to the Merger, the
approval and adoption of this Agreement by the Company Required Vote.
Shareholders sufficient to assure the receipt by the Company Required Vote to
approve the Merger have duly executed and delivered the Voting and Warrant
Exercise Agreement.
Section 4.4 CONSENTS AND APPROVALS; NO VIOLATIONS. Except for
the hearing (the "FAIRNESS HEARING") to be held pursuant to section 25142 of
the California Corporate Securities Law of 1968, as amended (the "CSL") and
the filing and recordation of the Certificate of Merger and in accordance
with the requirements of the CGCL, no notice to, filing with, and no permit,
authorization, consent or approval of, any arbitrator, court, nation,
government, any state or other political subdivision thereof and any entity
exercising executive, legislative, judicial regulatory or administrative
functions of, or pertaining to, government (a "GOVERNMENTAL ENTITY"), or any
private third party is necessary for the consummation by the Company of the
transactions contemplated by this Agreement. Neither the execution and
delivery of this Agreement by the Company, the consummation by the Company of
the transactions contemplated hereby nor compliance by the Company with any
of the provisions hereof will (i) conflict with or result in any material
breach of any provision of the Company Articles or Bylaws or the
organizational documents of any Subsidiary of the Company, (ii) result in a
violation or breach of, or constitute (with or without due notice or lapse of
time or both) a default (or give rise to any right of termination,
cancellation or acceleration or result in the creation of any mortgage,
pledge, charge, security interest, claim or encumbrance of any kind
(collectively, a "LIEN")) under, any of the terms, conditions or provisions
of any note, bond, mortgage, indenture, license, contract, agreement or other
instrument or obligation to which the Company or any of its Subsidiaries is a
party or by which the Company or any of its Subsidiaries or any of their
respective properties or assets may be bound or (iii) violate any order,
writ, injunction, decree, statute, rule or regulation applicable to the
Company or any of its Subsidiaries, or its properties or assets, except with
respect to clauses (ii) and (iii), where such violation, breach, default,
termination, acceleration, cancellation or creation of a Lien could not
reasonably be expected to result in a Company Material Adverse Effect.
15
Section 4.5 FINANCIAL STATEMENTS. The Company has previously
provided Parent with its audited balance sheet as of December 31, 1999 (the
"DECEMBER BALANCE SHEET") and the related statements of results of operations
and statements of cash flows for the fiscal year and the period then ended,
including, with respect to the audited financial statements, the notes
thereto (the "COMPANY FINANCIAL STATEMENTS"). The Company Financial
Statements for the year ended December 31, 1999 have been audited by London &
Co., the Company's independent accountants. The Company Financial Statements
fairly present, in all material respects, in accordance with United States
generally accepted accounting principles ("US GAAP") consistently applied,
the financial position of the Company as of such dates and its results of
operations and cash flows for such fiscal periods except, in the case of such
unaudited statements, for normal recurring year end adjustments which
adjustments will not be material, either individually, or in the aggregate.
Section 4.6 ABSENCE OF CERTAIN CHANGES.
Except as and to the extent set forth in the Company Financial
Statements, from December 31, 1999 to the date of this Agreement, the Company
did not:
(a) suffer any Company Material Adverse Effect;
(b) incur any liabilities or obligations (absolute,
accrued, contingent or otherwise) except non-material items incurred in the
ordinary course of business and consistent with past practice, which neither
singly or in the aggregate exceed $25,000 except under any line of credit
existing on the December Balance Sheet (counting obligations or liabilities
arising from one transaction or a series of similar transactions, and all
periodic installments or payments under any lease or other agreement
providing for periodic installments or payments, as a single obligation or
liability), or increased, or experienced any change in any assumptions
underlying or methods of calculating, any bad debt, contingency or other
reserves other than trade payables incurred in the ordinary course of
business and consistent with past practice;
(c) pay, discharge or satisfy any claim, liabilities or
obligations (absolute, accrued, contingent or otherwise) other than the
payment, discharge or satisfaction in the ordinary course of business and
consistent with past practice of liabilities and obligations reflected or
reserved against in the December
16
Balance Sheet or incurred in the ordinary course of business and consistent
with past practice since December 31, 1999;
(d) permit or allow any of its property or assets (real,
personal or mixed, tangible or intangible) to be subjected to any Liens,
except for Liens for current taxes not yet due or Liens the incurrence of
which could not reasonably be expected to have a Company Material Adverse
Effect;
(e) write-down the value of any of its material inventory
(including write-downs by reason of shrinkage or xxxx-down) or write-off as
uncollectible any notes or accounts receivable, except for immaterial
write-downs or write-offs in the ordinary course of business and consistent
with past practice and except for write-downs or write-offs for which
reserves have been established on the December Balance Sheet;
(f) cancel any debts or waived any claims or rights of
substantial value;
(g) sell, transfer, or otherwise dispose of any of its
material properties or assets (real, personal or mixed, tangible or
intangible), except in the ordinary course of business and consistent with
past practice;
(h) grant any increase in the compensation or benefits of
any director, officer, employee or consultant of the Company (including any
such increase pursuant to any bonus, pension, profit sharing or other plan or
commitment) or any increase in the compensation or benefits payable or to
become payable to any director, officer, employee or consultant of the
Company, except in the case of employees other than officers of the Company
for such increases in compensation or benefits made in the ordinary course of
business and consistent with past practice;
(i) make any change in severance policy or practices;
(j) make any capital expenditure or acquire any property,
plant and equipment for a cost in excess of $50,000 per fiscal quarter in the
aggregate;
(k) declare, pay or set aside for payment any dividend or
other distribution in respect of its capital stock or redeemed, purchased or
otherwise
17
acquired, directly or indirectly, any shares of capital stock or other
securities of the Company;
(l) make any change in any method of tax or financial
accounting or accounting practice or make or change any election for federal,
state, local or foreign tax purposes;
(m) make any tax election, settle or compromise any
federal, state, local or foreign income tax liability, or waive or extend the
statute of limitations in respect of any such taxes;
(n) pay, loan or advance (other than reasonable travel
advances) any amount to, or sold, transferred or leased any material
properties or assets (real, personal or mixed, tangible or intangible) to, or
enter into any agreement or arrangement with, any of its officers, directors
or shareholders or any affiliate or associate of any of its officers,
directors or shareholders except for directors' fees, and compensation to
employees at rates not inconsistent with the Company's past practice or make
any changes in its existing borrowing or lending arrangements for or on
behalf of any such person; or
(o) agree, whether in writing or otherwise, to take any
action described in this Section.
Section 4.7 NO UNDISCLOSED LIABILITIES. Except as and to the
extent provided in the December Balance Sheet, except for liabilities for
future performance under contracts scheduled in Section 4.15 of the Company
Disclosure Schedule, neither the Company nor any of its Subsidiaries at
December 31, 1999 had any material liabilities (whether contingent or
absolute, direct or indirect, known or unknown to the Company or matured or
unmatured) that were not fully reflected or fully reserved against in the
December Balance Sheet, respectively, or incurred other than in the ordinary
course.
Section 4.8 INFORMATION IN DISCLOSURE DOCUMENTS. None of the
information supplied in writing by the Company for inclusion or incorporation
by reference in (i) the Application will, at the time the Application is
filed with the Commissioner and at the time the Fairness Hearing is held,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements
therein not misleading and (ii) the information provided to Shareholders
relating to the Special Meeting to be held in
18
connection with the Merger (the "INFORMATION STATEMENT") at the time it is
mailed to the Shareholders and at the time of the meeting of the Shareholders
to be held in connection with the Merger, will 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 are made, not misleading.
Section 4.9 NO DEFAULT. Neither the Company nor any of its
Subsidiaries is in default or violation (and no event has occurred which with
notice or the lapse of time or both would constitute a default or violation)
of any term, condition or provision of (i) the Company Articles or its Bylaws
or the organizational documents of the Company's Subsidiaries, respectively,
(ii) any note, bond, mortgage, indenture, license, contract, agreement or
other instrument or obligation to which the Company or any of its
Subsidiaries is a party or by which any of them or any of their respective
properties or assets may be bound, except as could not reasonably be expected
to have a Company Material Adverse Effect, (iii) any order, writ, injunction,
decree, or (iv) any statute, rule or regulation applicable to the Company or
any of its Subsidiaries, except as could not reasonably be expected to have a
Company Material Adverse Effect.
Section 4.10 LITIGATION. There is no action, suit, proceeding,
arbitration, investigation pending or, to the knowledge of the Company,
threatened by or before any Governmental Entity involving the Company or any
of its Subsidiaries except as could not reasonably be expected to have a
Company Material Adverse Effect. The foregoing includes, without limitation,
actions pending or threatened involving the prior employment of any employees
of the Company or any of its Subsidiaries or their obligations under any
agreements with prior employers. Neither the Company nor any of its
Subsidiaries is a party or subject to the provisions of any order or decree
of any Governmental Entity. There is no action, suit, proceeding,
arbitration or, to the knowledge of the Company, investigation involving the
Company or any of its Subsidiaries currently pending or which the Company or
any of its Subsidiaries presently intends to initiate.
Section 4.11 COMPLIANCE WITH LAWS. The Company and each of its
Subsidiaries is in compliance with, and has not violated any applicable law,
rule or regulation of any United States federal, state, local, or foreign
government or agency thereof, including 8 U.S.C. Section 1324a and all
related Immigration Reform and Control Act provisions which require the
hiring and employment of individuals authorized to work in the United States,
which materially affects the business, properties, assets or
19
prospects of the Company and its Subsidiaries taken as a whole, and no
notice, charge, claim or action has been received by the Company or any of
its Subsidiaries or has been filed, commenced or, to the Company's knowledge,
threatened against the Company alleging any such violation, except for any
matter otherwise covered by this sentence which could not reasonably be
expected to have, individually or in the aggregate, a Company Material
Adverse Effect. All licenses, permits and approvals required under such
laws, rules and regulations are in full force and effect except where the
failure to be in full force and effect could not reasonably be expected to
have a Company Material Adverse Effect.
Section 4.12 TAXES.
(a) The Company duly elected to be treated as an S
corporation under the Code and all pertinent state tax laws for all tax years
from the date of its organization through the tax year ended December 31,
1997, and had been qualified and treated as an S corporation for federal and
state income tax purposes from the date of its organization through the tax
year ended December 31, 1997.
(b) The Company and its Subsidiaries: (i) have duly and
timely filed (or there has been filed on their behalf) with the appropriate
taxing authorities all Tax Returns required by applicable laws to be filed by
them, and all such Tax Returns are true, correct and complete and (ii) have
timely paid or there has been paid on their behalf all Taxes due or claimed
to be due from them by any taxing authority with respect to any period prior
to or ending as of the Effective Time, or, with respect to Current Taxes,
have established an adequate accrual for the payment of Current Taxes on the
balance sheet for such fiscal period. For purposes of this Agreement,
"Current Taxes" shall include only Taxes with respect to the Company's and
its Subsidiaries' Taxable year that includes the Effective Time to the extent
such Taxes are not yet due and payable on or prior to the Effective Time.
(c) The Company and its Subsidiaries have complied in all
respects with all applicable laws, rules and regulations relating to the
payment and withholding of Taxes (including, without limitation, withholding
of Taxes pursuant to Section 1441 and 1442 of the Code or similar provisions
under any state, local or foreign law) and have, within the time and manner
prescribed by law, withheld and paid over to the proper taxing authorities
all amounts required to be withheld and paid over under all applicable laws.
20
(d) There are no Liens for Taxes upon the assets or
properties of the Company or any of its Subsidiaries except for statutory
Liens for current Taxes not yet due and for which adequate reserves have been
established.
(e) Neither the Company nor any of its Subsidiaries has
requested any extension of time within which to file any Tax Return in
respect of any taxable year which has not since been filed and no outstanding
waivers or comparable consents that are still in effect regarding the
application of the statute of limitations with respect to any Taxes or Tax
Returns has been given by or on behalf of the Company or any of its
Subsidiaries.
(f) No federal, state, local or foreign audits,
examinations or other administrative proceedings or court proceedings
("AUDITS") exist or have been initiated of which the Company has received
notice or completed with regard to any Taxes or Tax Returns of the Company or
any of its Subsidiaries, and neither the Company nor any of its Subsidiaries
has received any notice that such an Audit is pending or threatened with
respect to any Taxes due from or with respect to the Company or any of its
Subsidiaries or any Tax Return filed by or with respect to the Company or any
of its Subsidiaries, and no issue has been raised in writing by any tax
authority in any Audit of the Company or any of its Subsidiaries that, if
raised with respect to any other period not so audited, could be expected to
result in a proposed deficiency for any such period not so audited.
(g) Neither the Company nor any of its Subsidiaries has
requested or received an adverse ruling from any taxing authority or signed a
closing or other agreement with any taxing authority.
(h) The applicable statute of limitations for the
assessment of Taxes for taxable periods ending before December 31, 1995 has
expired for the Company and its Subsidiaries.
(i) Neither the Company nor any of its Subsidiaries is
required to include in income any adjustment pursuant to Section 481(a) of
the Code, by reason of any voluntary or involuntary change in accounting
method (nor has any taxing authority proposed any such adjustment or change
of accounting method).
(j) Neither the Company nor any of its Subsidiaries is a
party to, or bound by, or has any obligation under, any Tax sharing
agreement, Tax indemnification agreement or similar contract or arrangement.
21
(k) No power of attorney has been granted by or with
respect to the Company or any of its Subsidiaries with respect to any matter
relating to Taxes.
(l) The reserves for Taxes reflected in the December
Balance Sheet are adequate for the payment of all Taxes incurred or which may
be incurred by the Company and its Subsidiaries through the date thereof.
Since the date of the December Balance Sheet, the Company and its
Subsidiaries have not incurred any liability for Taxes other than in the
ordinary course of business.
(m) Neither the Company nor any of its Subsidiaries is or
has ever been a member of an affiliated group filing a consolidated Tax
Return (or similar state or local filing group for Tax purposes) other than a
consolidated Tax Return where the Company is the common parent.
(n) Neither the Company nor any of its Subsidiaries is,
or has ever been, a United States real property holding company as defined in
Section 897(c)(2) of the Code.
(o) Neither the Company nor any of its Subsidiaries has
filed a consent under Section 341(f) of the Code concerning collapsible
corporations.
(p) Neither the Company nor any of its Subsidiaries has
any liability for the Taxes of any Person (other than the Company and its
Subsidiaries) under Treasury Regulations Section 1.1502-6 (or any similar
provision of any state, local or foreign law), as a transferee or successor,
by contract or otherwise.
(q) Neither the Company nor any of its Subsidiaries is a
party to any agreement, plan, contract or arrangement that could result,
separately or in the aggregate, in the payment of any "excess parachute
payments" within the meaning of Section 280G of the Code.
(r) Neither the Company nor any of its Subsidiaries has
received notice of any claim made by a Governmental Entity in a jurisdiction
where the Company or any of its Subsidiaries, as applicable, does not file a
Tax Return, that the Company or any of its Subsidiaries is or may be subject
to taxation by that jurisdiction.
22
(s) The Company has previously delivered or made
available to Parent complete and accurate copies of each of: (i) all audit
reports, letter rulings, technical advice memoranda and similar documents
issued by a taxing authority relating to the United States federal, state,
local or foreign Taxes due from or with respect to the Company or any of its
Subsidiaries (ii) the United States federal income Tax Returns for the years
ended December 31, 1996 through December 31, 1998, and state, local and
foreign income Tax Returns, for the years ended December 31, 1996 through
December 31, 1998, filed by the Company or any of its Subsidiaries, and (iii)
any closing agreements entered into by the Company or any of its Subsidiaries
with any taxing authority in each case existing on the date hereof. The
Company will deliver to Parent all materials with respect to the foregoing
for all matters arising after the date hereof.
(t) For purposes of this Agreement, (i) "TAXES"
(including, with correlative meaning, the term "TAX") shall mean all taxes,
charges, fees, levies, penalties or other assessments imposed by any federal,
state, local or foreign taxing authority, including, but not limited to,
income, gross receipts, excise, property, sales, transfer, franchise,
payroll, withholding, social security or other taxes, including any interest,
penalties or additions attributable thereto, and (ii) "TAX RETURN" shall mean
any return, report, information return or other document (including any
related or supporting information) with respect to Taxes or the refiling of
any such Tax Return previously filed.
Section 4.13 EMPLOYEE BENEFIT PLANS; ERISA.
(a) Section 4.13 of the Disclosure Schedule contains a
true and complete list of each employment, bonus, deferred compensation,
incentive compensation, stock purchase, stock option, stock appreciation
right or other stock-based incentive, severance, change-in-control, or
termination pay, hospitalization or other medical, disability, life or other
insurance, supplemental unemployment benefits, profit-sharing, pension, or
retirement plan, program, agreement or arrangement and each other employee
benefit plan, program, agreement or arrangement, sponsored, maintained or
contributed to or required to be contributed to by the Company or any of its
Subsidiaries, or by any trade or business, whether or not incorporated (an
"ERISA AFFILIATE"), that together with the Company or any of its Subsidiaries
would be deemed a "single employer" within the meaning of Section 4001(b)(1)
of ERISA, for the benefit of any current or former employee or director of
the Company, or any of its Subsidiaries or any ERISA Affiliate (the "PLANS").
23
Section 4.13(a) of the Disclosure Schedule identifies each of the Plans that
is an "employee welfare benefit plan," or "employee pension benefit plan" as
such terms are defined in Sections 3(1) and 3(2) of ERISA (such plans being
hereinafter referred to collectively as the "ERISA PLANS"). None of the
Company, any of its Subsidiaries nor any ERISA Affiliate has any formal plan
or commitment, whether legally binding or not, to create any additional Plan
or modify or change any existing Plan that would affect any current or former
employee or director of the Company, any of its Subsidiaries or any ERISA
Affiliate.
(b) With respect to each of the Plans, the Company has
heretofore delivered to the Parent true and complete copies of each of the
following documents, as applicable:
(i) a copy of the Plan documents (including all
amendments thereto) for each written Plan or a written description of
any Plan that is not otherwise in writing;
(ii) a copy of the annual report or Internal
Revenue Service Form 5500 Series, if required under ERISA, with
respect to each ERISA Plan for the last three Plan years ending prior
to the date of this Agreement for which such a report was filed;
(iii) a copy of the actuarial report, if required
under ERISA, with respect to each ERISA Plan for the last three Plan
years ending prior to the date of this Agreement;
(iv) a copy of the most recent Summary Plan
Description ("SPD"), together with all Summaries of Material
Modification issued with respect to such SPD, if required under ERISA,
with respect to each ERISA Plan, and all other material employee
communications relating to each ERISA Plan;
(v) if the Plan is funded through a trust or any
other funding vehicle, a copy of the trust or other funding agreement
(including all amendments thereto) and the latest financial statements
thereof, if any;
24
(vi) all contracts relating to the Plans with
respect to which the Company, any of its Subsidiaries or any ERISA
Affiliate may have any liability, including insurance contracts,
investment management agreements, subscription and participation
agreements and record keeping agreements; and
(vii) the most recent determination letter received
from the IRS with respect to each Plan that is intended to be
qualified under Section 401(a) of the Code.
(c) At no time has the Company, any of its Subsidiaries
or any ERISA Affiliate ever maintained, established, sponsored, participated
in or contributed to any ERISA Plan that is subject to Title IV of ERISA.
(d) None of the Company, any of its Subsidiaries, any
ERISA Affiliate, any of the ERISA Plans, any trust created thereunder, nor to
the Company's knowledge, any trustee or administrator thereof has engaged in
a transaction or has taken or failed to take any action in connection with
which the Company, any of its Subsidiaries or any ERISA Affiliate could be
subject to any material liability for either a civil penalty assessed
pursuant to Section 409 or 502(i) of ERISA or a tax imposed pursuant to
Section 4975(a) or (b), 4976 or 4980B of the Code.
(e) All contributions and premiums which the Company, any
of its Subsidiaries or any ERISA Affiliate is required to pay under the terms
of each of the ERISA Plans and Section 412 of the Code, have, to the extent
due, been paid in full or properly recorded on the financial statements or
records of the Company or its Subsidiaries, and none of the ERISA Plans or
any trust established thereunder has incurred any "accumulated funding
deficiency" (as defined in Section 302 of ERISA and Section 412 of the Code),
whether or not waived, as of the last day of the most recent fiscal year of
each of the ERISA Plans ended prior to the date of this Agreement. No Lien
has been imposed under Section 412(n) of the Code or Section 302(f) of ERISA
on the assets of the Company, any of its Subsidiaries or any ERISA Affiliate,
and no event or circumstance has occurred that is reasonably likely to result
in the imposition of any such Lien on any such assets on account of any ERISA
Plan.
25
(f) At no time has the Company, any of its Subsidiaries
or any ERISA Affiliate ever contributed to or be requested to contribute to
any "multiemployer pension plan, " as such term is defined in Section 3(37)
of ERISA.
(g) To the knowledge of the Company, each of the Plans
has been operated and administered in all material respects in accordance
with applicable laws, including but not limited to ERISA and the Code.
(h) Each of the ERISA Plans that is intended to be
"qualified" within the meaning of Section 401(a) of the Code is so qualified.
The Company has applied for and received a currently effective determination
letter from the IRS stating that it is so qualified, and no event has
occurred which would affect such qualified status.
(i) Any fund established under an ERISA Plan that is
intended to satisfy the requirements of Section 501(c)(9) of the Code has so
satisfied such requirements.
(j) No amounts payable under any of the Plans or any
other contract, agreement or arrangement with respect to which the Company or
any of its Subsidiaries may have any liability could fail to be deductible
for federal income tax purposes by virtue of Section 280G of the Code.
(k) No Plan provides benefits, including without
limitation death or medical benefits (whether or not insured), with respect
to current or former employees of the Company, its Subsidiaries or any ERISA
Affiliate after retirement or other termination of service (other than (i)
coverage mandated by applicable laws, (ii) death benefits or retirement
benefits under any "employee pension plan" as that term is defined in Section
3(2) of ERISA, (iii) deferred compensation benefits accrued as liabilities on
the books of the Company, any of its Subsidiaries or an ERISA Affiliate, or
(iv) benefits, the full direct cost of which is borne by the current or
former employee (or beneficiary thereof)).
(l) The consummation of the transactions contemplated by
this Agreement will not, either alone or in combination with any other event,
(i) entitle any current or former employee, officer or director of the
Company, any of its Subsidiaries or any ERISA Affiliate to severance pay,
unemployment compensation or any other similar termination payment, or (ii)
accelerate the time of payment or
26
vesting, or increase the amount of or otherwise enhance any benefit due any
such employee, officer or director.
(m) There are no pending or, to the Company's knowledge,
threatened or anticipated claims by or on behalf of any Plan, by any employee
or beneficiary under any such Plan or otherwise involving any such Plan
(other than routine claims for benefits).
Section 4.14 INTELLECTUAL PROPERTY.
(a) "INTELLECTUAL PROPERTY" means any United States and
foreign, international and state: patents and patent applications,
industrial design registrations, certificates of invention and utility models
(collectively, "PATENTS"); trademarks, service marks, and trademark or
service xxxx registrations and applications, trade names, logos, designs,
slogans, and general intangibles of like nature, together with all goodwill
related to the foregoing (collectively, "TRADEMARKS"); Internet domain names;
copyrights, copyright registrations, renewals and applications for
copyrights, including without limitation for the Content and the Software
(collectively, "COPYRIGHTS"); Content; Software, technology, trade secrets
and other confidential information, know-how, proprietary processes,
formulae, algorithms, models and methodologies (collectively, "TRADE
SECRETS"); rights of privacy and publicity, including, but not limited to,
the names, likenesses, voices and biographical information of real persons;
and all license agreements and other agreements granting rights relating to
any of the foregoing. "SOFTWARE" means any and all (i) computer programs,
including any and all software implementations of algorithms, models and
methodologies, whether in source code or object code form, (ii) databases,
compilations, and any other electronic data files, including any and all
collections of data, whether machine readable or otherwise, (iii)
descriptions, flow-charts, technical and functional specifications, and other
work product used to design, plan, organize, develop, test, troubleshoot and
maintain any of the foregoing, (iv) without limitation to the foregoing, the
software technology supporting any functionality contained on Internet
site(s), and (v) all documentation, including technical, end-user, training
and troubleshooting manuals and materials, relating to any of the foregoing.
"CONTENT" means any and all information, pictures, images, graphics, video,
audio, text and any other content or information, in whatever form and on any
media.
(b) The Company and each of its Subsidiaries own or have the
valid right to use all Intellectual Property as currently used in connection
with the
27
business of the Company and its Subsidiaries, including, without limitation,
all license agreements and other agreements granting rights relating to any
Intellectual Property to which the Company or any of its Subsidiaries is a
party or is otherwise bound ("LICENSE AGREEMENTS") (collectively, "COMPANY
INTELLECTUAL PROPERTY").
(c) Section 4.14(c)(1) of the Company Disclosure Schedule sets
forth a complete and accurate list of all registrations, applications, or
materially unregistered United States, foreign, international and state (i)
Patents, (ii) Trademarks, (iii) Internet domain names, and (iv) Copyrights,
including Content and Software, indicating for each, the applicable
jurisdiction, record owner, registration number (or application number), and
date issued (or date filed). Section 4.14(c)(2) of the Company Disclosure
Schedule sets forth a complete and accurate list of all License Agreements
granting or restricting any right to use or practice any rights in connection
with any Intellectual Property, to which the Company or any of its
Subsidiaries is a party or is otherwise bound, except for those licenses for
software that may be readily obtained in the public marketplace for less than
$25,000 individually or $500,000 in the aggregate, indicating for each the
title, the parties, date executed, and the Intellectual Property covered
thereby.
(d) The Intellectual Property owned by the Company or any of
its Subsidiaries is solely and exclusively owned by the Company or its
Subsidiaries free and clear of all Liens, and the Company or its Subsidiaries
is listed in the records of the appropriate United States, state or foreign
agency as the sole owner of record for all registrations and applications for
any Intellectual Property that it owns.
(e) All Company Intellectual Property had been duly maintained,
is valid and subsisting, in full force and effect, and has not been
cancelled, expired, or abandoned. There is no pending or, to the knowledge
of the Company, threatened opposition, interference or cancellation
proceeding before any court or registration authority in any jurisdiction
against the items set forth on Section 4.14(c)(1) of the Company Disclosure
Schedule, or, to the best knowledge of the Company, against any Company
Intellectual Property licensed to the Company or any of its Subsidiaries as
set forth in Section 4.14(c)(2) of the Company Disclosure Schedule, which if
resolved adversely to the Company or its Subsidiaries, would have a Company
Material Adverse Effect.
(f) There are no settlements, forebearances to xxx, consents,
judgments, or orders or similar obligations to which the Company or any of
its Subsidiaries is a party or is otherwise bound, which (i) restrict the
rights of the
28
Company or any of its Subsidiaries to use any Company Intellectual Property,
(ii) restrict the business of the Company or any of its Subsidiaries in order
to accommodate a third party's Intellectual Property rights, or (iii) permit
third parties to use any Intellectual Property which would otherwise infringe
any Company Intellectual Property. The Company and each of its Subsidiaries
have not licensed or sublicensed their rights in any material Intellectual
Property other than pursuant to the License Agreements, and no royalties,
honoraria or other fees are payable by the Company or its Subsidiaries for
the use of or right to use any Company Intellectual Property in connection
with the business of the Company or its Subsidiaries as currently conducted,
except pursuant to the License Agreements set forth on Section 4.14(c)(2) of
the Company Disclosure Schedule. The License Agreements are valid and
binding obligations of all parties thereto, enforceable in accordance with
their terms except that (i) such enforcement may be subject to applicable
bankruptcy, insolvency or other similar laws, now or hereafter in effect,
affecting creditors' rights generally, and (ii) the remedy of specific
performance and injunctive relief and other forms of relief of equitable
relief may be subject to equitable defenses, and there exists no event or
condition which will result in a violation or breach of, or constitute (with
or without due notice or lapse of time or both) a default by the Company or
its Subsidiaries, or, to the knowledge of the Company, by any other party
under any such License Agreement.
(g) The Company and each of its Subsidiaries take reasonable
measures to protect the confidentiality of their Trade Secrets, including
requiring employees and independent contractors having access thereto to
execute written non-disclosure agreements. To the knowledge of the Company,
no Trade Secret material to the business of the Company or any of its
Subsidiaries as currently operated has been disclosed or authorized to be
disclosed to any third party, including any employee, agent, contractor or
other entity, other than pursuant to a non-disclosure agreement that
adequately protects the proprietary interests of the Company or any of its
Subsidiaries in and to such Trade Secrets. To the best knowledge of the
Company, no party to any non-disclosure agreement relating to its Trade
Secrets is in breach thereof.
(h) Neither the Company nor any of its Subsidiaries, nor, to
the knowledge of the Company, the employees of the Company or any of its
Subsidiaries have any agreements or arrangements with any Persons other than
the Company or its Subsidiaries related to confidential information or trade
secrets of such Persons or restricting any such Person's ability to engage in
business activities of any nature. To the knowledge of the Company, the
activities of the present employees of the
29
Company or any of its Subsidiaries on behalf of the Company or its
Subsidiaries, do not violate any such agreements or arrangements known to the
Company.
(i) The conduct of the business of the Company or any of its
Subsidiaries as currently conducted does not infringe upon any Intellectual
Property owned or controlled by any third party (either directly or
indirectly such as through contributory infringement or inducement to
infringe), except such infringement as would not reasonably be expected to
result in a Company Material Adverse Effect and is not libelous, slanderous,
defamatory, violative in any way of publicity or privacy rights, or obscene,
except for such violations as would not reasonably be expected to result in a
Company Material Adverse Effect. There are no Claims or suits pending or, to
the knowledge of the Company, threatened, and neither the Company nor its
Subsidiaries has received any notice of a third party claim or suit, (i)
alleging that its activities or the conduct of its business infringes upon or
constitutes the unauthorized use of the Intellectual Property rights of any
third party, nor alleging libel, slander, defamation, or other violation of a
personal right, or (ii) challenging the ownership, use, validity or
enforceability of any Company Intellectual Property, which if resolved
adversely to the Company or any of its Subsidiaries, would have a Company
Material Adverse Effect.
(j) To the knowledge of the Company, no third party is
misappropriating, infringing, diluting, or otherwise violating any Company
Intellectual Property, and, no such claims are pending against a third party
by the Company or any of its Subsidiaries.
(k) The consummation of the transactions contemplated hereby
will not result in the loss or impairment of the right of the Company or any
of its Subsidiaries to own or use any of the Company Intellectual Property
nor require the consent of any governmental authority or third party in
respect of any such Intellectual Property.
(l) To the knowledge of the Company, no current or former
director, officer or employee of the Company or any of its Subsidiaries (or
any of their respective predecessors in interest) will, after giving effect
to the transactions contemplated herein, own or retain any rights in or to
any of the Company Intellectual Property.
(m) Section 4.14(m) of the Company Disclosure Schedule sets
forth a complete and accurate list of all Software (other than Software
acquired in the
30
ordinary course of business or having an acquisition price of less than
$25,000 individually or $500,000 in the aggregate) owned, licensed, leased,
or otherwise used by the Company and each of its Subsidiaries, and identifies
which Software is owned, licensed, leased, or otherwise used, as the case may
be. With respect to the Software set forth in Section 4.15(m) of the Company
Disclosure Schedule that the Company and each of its Subsidiaries own, such
Software was either developed (i) by employees of the Company or any of its
Subsidiaries within the scope of their employment, or (ii) by independent
contractors who have assigned their rights to the Company or any of its
Subsidiaries pursuant to written agreements.
(n) The Company and each of its Subsidiaries own or have the
valid right to use (including, without limitation, the rights to copy,
distribute and sell to any party) all Software developed by the Company or
any of its Subsidiaries, whether developed for itself (as part of its core
technology or otherwise) or on behalf of any third party.
(o) The Company and each of its Subsidiaries have experienced
no material problems or failures with respect to Year 2000 Compliance, and to
the best knowledge of the Company, will not experience any such Year 2000
Compliance problems or failures in the future. As used herein, "Year 2000
Compliant" and "Year 2000 Compliance" mean for all dates and times,
including, without limitation, dates and times after December 31, 1999 and in
the multi-century scenario, when used on a stand-alone system or in
combination with other software or systems: (i) the application system
functions and receives and processes dates and times correctly without
abnormal results; (ii) all date-related calculations are correct (including,
without limitation, age calculations, duration calculations and scheduling
calculations); (iii) all manipulations and comparisons of date-related data
produce correct results for all valid date values within the scope of the
application; (iv) there is no century ambiguity; (v) all reports and displays
are sorted correctly; and (vi) leap years are accounted for and correctly
identified (including, without limitation, that 2000 is recognized as a leap
year).
Section 4.15 CONTRACTS AND COMMITMENTS.
(a) Section 4.15(a) of the Company Disclosure Schedule
sets forth all material contracts of the Company and its Subsidiaries.
31
(b) There are no purchase contracts or commitments under
which the Company or any of its Subsidiaries is required to pay in excess of
$50,000 which continue for a period of more than 12 months or is in excess of
the normal, ordinary, and usual requirements of business or at any excessive
price.
(c) There are no outstanding sales contracts,
commitments, or proposals of the Company or any of its Subsidiaries that call
for the payment or receipt of more than $50,000 in a fiscal quarter which
continue for a period of more than 12 months or which the Company believes
will result in any loss in excess of $10,000 to the Company and its
Subsidiaries, taken as a whole upon completion or performance thereof.
(d) Neither the Company nor any of its Subsidiaries has
any outstanding contracts with officers, employees, agents, consultants,
advisors, salesmen, sales representatives, distributors, or dealers that are
not cancellable by it on notice of not longer than 30 days and without
liability, penalty, or premium or any agreement or arrangement providing for
the payment of any bonus or commission based on sales or earnings.
(e) Neither the Company nor any of its Subsidiaries is in
default, nor, to the best knowledge of the Company, is there any basis for
any valid claim of default under any material contract made or obligation
owed by it.
(f) Neither the Company nor any of its Subsidiaries is
restricted by contract from carrying on its business anywhere in the world.
(g) Neither the Company nor any of its Subsidiaries is
under any material liability or obligation with respect to the return of
inventory or merchandise in the possession of wholesalers, distributors,
retailers or other customers.
(h) Neither the Company nor any of its Subsidiaries has
any obligation for borrowed money, including guarantees of or agreements to
acquire any such obligation of others.
(i) Neither the Company nor any of its Subsidiaries has
any outstanding loan to any Person other than to the Company or its
Subsidiaries.
32
(j) Neither the Company nor any of its Subsidiaries has
any power of attorney outstanding or any obligations or liabilities (whether
absolute, accrued, contingent, or otherwise), as guarantor, surety,
co-signer, endorser, co-maker or indemnitor in respect of the obligation of
any Person.
(k) None of the officers, directors or, to the best
knowledge of the Company, shareholders of the Company has any interest in any
property, real or personal, tangible or intangible, including, without
limitation, the Intellectual Property Rights, that is material to the conduct
of the business of the Company and its Subsidiaries taken as a whole.
Section 4.16 LABOR RELATIONS.
(a) (i) There is no labor strike, dispute, slowdown,
stoppage or lockout actually pending, or, to the knowledge of the Company,
threatened against or affecting the Company or its Subsidiaries and since
inception there has not been any such action; (ii) to the knowledge of the
Company, no union claims to represent the employees of the Company or its
Subsidiaries; (iii) neither the Company nor any of its Subsidiaries is a
party to or bound by any collective bargaining or similar agreement with any
labor organization, or work rules or practices agreed to with any labor
organization or employee association applicable to employees of the Company
or its Subsidiaries; (iv) none of the employees of the Company or its
Subsidiaries is represented by any labor organization and the Company has no
knowledge of any current union-organizing activities among the employees of
the Company or its Subsidiaries, nor does any question concerning
representation exist concerning such employees; (v) there are no written
personnel policies, rules or procedures applicable to employees of the
Company or its Subsidiaries other than those set forth in Section 4.16(a) of
the Company Disclosure Schedule, true, correct and complete copies of which
have heretofore been delivered to Parent; (vi) the Company and its
Subsidiaries are, and have at all times been, in material compliance with all
applicable laws respecting employment and employment practices, terms and
conditions of employment, wages, hours of work, immigration, equal employment
opportunity, and occupational safety and health, and are not engaged in any
unfair labor practices as defined in the National Labor Relations Act or
other applicable law, ordinance or regulation, except when the failure to be
in compliance could not reasonably be expected to have a Company Material
Adverse Effect; (vii) there is no unfair labor practice charge or complaint
against the Company or any of its Subsidiaries pending or, to the knowledge
of the Company, threatened before the National Labor Relations Board or any
similar state
33
agency; (viii) there is no grievance or arbitration proceeding pending which
arose out of any collective bargaining agreement or other grievance procedure
relating to the Company or any of its Subsidiaries; (ix) to the knowledge of
the Company, no charges with respect to or relating to the Company are
pending before the Equal Employment Opportunity Commission or any other
agency responsible for the prevention of unlawful employment practices; (x)
to the knowledge of the Company, no federal, state, or local agency
responsible for the enforcement of labor or employment laws intends to
conduct an investigation with respect to or relating to the Company, and no
such investigation is in progress; and (xi) there are no complaints,
controversies, lawsuits or other proceedings pending or, to the knowledge of
the Company, threatened to be brought by any applicant for employment of
current or former employees, or classes of the foregoing, alleging breach of
any express or implied contract for employment, any law or regulation
governing employment or the termination thereof or other discriminatory,
wrongful or tortious conduct in connection with the employment relationship.
Except as set forth in Section 4.16(a) of the Company Disclosure Schedule,
there are no employment contracts, severance agreements or confidentiality
agreements with any employees of the Company. The execution of this
Agreement and the consummation of the transactions contemplated hereby will
not result in a breach or other violation of any collective bargaining
agreement or any other employment contract to which the Company or any of its
Subsidiaries is a party, except, with respect to such employment contracts,
as could not reasonably be expected to have a Company Material Adverse Effect.
(b) From the enactment of Worker Adjustment and
Retraining Notification Act of 1988 (the "WARN ACT") to the date of this
Agreement, neither the Company nor any of it Subsidiaries has effectuated (i)
a "plant closing" (as defined in the WARN Act) affecting any site of
employment or one or more facilities or operating units within any site of
employment or facility of the Company or any of its Subsidiaries thereto, or
(ii) a "mass layoff" (as defined in the WARN Act) affecting any site of
employment or facility of the Company or any of its Subsidiaries, nor has the
Company been affected by any transaction or engaged in layoffs or employment
terminations sufficient in number to trigger application of any similar state
or local law. None of the employees of the Company or any of its
Subsidiaries has suffered an "employment loss" (as defined in the WARN Act)
during the ninety-day period prior to the execution of this Agreement.
34
Section 4.17 PERSONNEL. Section 4.17 of the Company Disclosure
Schedule sets forth a complete and correct list of the names and current
salaries of each employee of the Company and its Subsidiaries with a base
salary in excess of $85,000, and of all employment, compensation, severance,
consulting or indemnification contracts between the Company and its present
employees, officers, directors and consultants to the extent the Company has
any continuing obligations thereunder. The Company has made available to
Parent true and correct copies of all such agreements.
Section 4.18 ENVIRONMENTAL MATTERS.
(a) The Company and its Subsidiaries are in full
compliance with all Environmental Laws (as hereinafter defined), which
compliance includes, but is not limited to, the possession by the Company of
all material permits and other governmental authorizations required under
applicable Environmental Laws, and compliance in all material respects with
the terms and conditions thereof. Neither the Company nor any of its
Subsidiaries has received any communication, whether from a governmental
authority, citizens group, employee or otherwise, that alleges that the
Company or any of its Subsidiaries is not in full compliance, and, to the
knowledge of the Company, there are no material circumstances that may
prevent or interfere with such compliance in the future. All of the permits
the Company and its Subsidiaries have pursuant to Environmental Laws are
listed on Section 4.18(a) of the Company Disclosure Schedule.
(b) There are no Environmental Claims pending, alleged
or, to the knowledge of the Company or any of its Subsidiaries, threatened
against the Company or any of its Subsidiaries, or, to the knowledge of the
Company or any of its Subsidiaries, against any Person or entity whose
liability for any Environmental Claim the Company or any of its Subsidiaries
has retained or assumed either contractually or by operation of law.
(c) There are no past or present actions, activities,
circumstances, conditions, events or incidents, including, without
limitation, the release, emission, discharge, presence or disposal of any
Material of Environmental Concern by or attributable to the Company or any of
its Subsidiaries, that could form the basis of any Environmental Claim
against the Company or any of its Subsidiaries or, to the knowledge of the
Company, against any Person whose liability for any Environmental Claim the
Company or any of its Subsidiaries has retained or assumed either
contractually or by operation of law.
35
(d) Without in any way limiting the generality of the
foregoing, (i) all on-site and off-site locations where the Company or any of
its Subsidiaries has stored Materials of Environmental Concern are identified
in Section 4.18(d) of the Company Disclosure Schedule, (ii) any underground
storage tanks, and the capacity and contents of such tanks, if known to the
Company, located on property owned or leased by the Company or any of its
Subsidiaries are identified in Section 4.18(d) of the Company Disclosure
Schedule, (iii) except as could not reasonably be expected to cause a Company
Material Adverse Effect, there is no asbestos contained in or forming part of
any building, building component, structure or office space owned or leased
by the Company or any of its Subsidiaries, and (iv) no polychlorinated
biphenyls (PCB's) or PCB-containing items are used or stored at any property
owned, leased or operated by the Company or any of its Subsidiaries.
(e) The Company has provided to Parent all assessments,
reports, data, results of investigations or audits, and other information
that is in the possession of or reasonably available to the Company or any of
its Subsidiaries regarding environmental matters pertaining to or the
environmental condition of the business of the Company and its Subsidiaries,
or the compliance (or noncompliance) by the Company or any of its
Subsidiaries with any Environmental Laws.
(f) For purposes of this Agreement:
(i) "ENVIRONMENTAL CLAIM" means any material
claim, action, cause of action, investigation or notice (written or
oral) by any Person or entity alleging potential liability (including,
without limitation, potential liability for investigatory costs,
cleanup costs, governmental response costs, natural resources damages,
property damages, personal injuries, or penalties) arising out of,
based on or resulting from (a) the presence, or release into the
environment, of any Material of Environmental Concern at any location,
whether or not owned or operated by the Company or (b) circumstances
forming the basis of any violation, or alleged violation, of any
Environmental Law.
(ii) "ENVIRONMENTAL LAWS" means all federal, state,
local and foreign laws and regulations relating to pollution or
protection of human health (excluding those described in Section
4.16(a)(vi)) or the environment (including, without limitation,
36
ambient air, surface water, ground water, land surface or subsurface
strata), including, without limitation, laws and regulations relating
to emissions, discharges, releases or threatened releases of Materials
of Environmental Concern, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport
or handling of Materials of Environmental Concern.
(iii) "MATERIALS OF ENVIRONMENTAL CONCERN" means
chemicals, pollutants, contaminants, wastes, toxic substances,
hazardous substances, petroleum and petroleum products, but excluding
materials commonly employed or wastes commonly generated in office
operations and/or janitorial operations.
Section 4.19 INSURANCE.
(a) Section 4.19(a) of the Company Disclosure Schedule
contains an accurate and complete description of all material policies of
fire, liability, workmen's compensation and other forms of insurance owned or
held by the Company or any of its Subsidiaries. All such policies are in
full force and effect, all premiums with respect thereto covering all periods
up to and including the date of this Agreement will have been paid, and no
notice of cancellation or termination has been received with respect to any
such policy. Such policies (i) satisfy the obligations of the Company and
its Subsidiaries to procure and maintain insurance coverage as required by
the contracts set forth in Section 4.15 of the Company Disclosure Schedule
and (ii) will remain in full force and effect through the respective dates
set forth in Section 4.19(a) of the Company Disclosure Schedule without the
payment of additional premiums and will not in any way be affected by, or
terminate or lapse by reason of, the transactions contemplated by this
Agreement.
(b) All pending claims, if any, made against the Company
or any of its Subsidiaries that are covered by insurance have been disclosed
to and accepted by the appropriate insurance companies and are being defended
by such appropriate insurance companies and are described in Section 4.19(b)
of the Company Disclosure Schedule; no such claims have been denied coverage
since the Company's inception. During the last six months, no policy of the
Company or any of its Subsidiaries has been cancelled by the issuer thereof.
During the last six months, the Company or any of its Subsidiaries has not
been refused any insurance with respect to its assets or operations, nor has
its coverage been limited by any
37
insurance carrier to which it has applied for any such insurance or with
which it has carried insurance since the Company's inception.
Section 4.20 TITLE TO PROPERTIES; ENCUMBRANCES. The Company has
good, valid and marketable title to all the tangible properties and assets
that it or any of its Subsidiaries purports to own (real, personal and
mixed), including, without limitation, all the properties and assets
reflected in the December Balance Sheet as being owned by the Company or any
of its Subsidiaries, and all the material properties and assets purchased by
the Company or any of its Subsidiaries since the date of the December Balance
Sheet, which properties and assets (other than inventory) individually or in
the aggregate are not in excess of $50,000. All such properties and assets
are free and clear of all mortgages, title defects or objections, Liens,
claims, charges, security interests or other encumbrances including, without
limitation, leases, chattel mortgages, conditional sales contracts,
collateral security arrangements and other title or interest retention
arrangements, and are not, in the case of real property, subject to any
rights of way, building use restrictions, exceptions, variances, reservations
or limitations, except, with respect to all such material properties and
assets, (a) Liens shown on the December Balance Sheet as securing specified
liabilities or obligations and liens incurred in connection with the purchase
of property and/or assets, if such purchase was effected after the date of
the December Balance Sheet, with respect to which no default exists; (b)
imperfections of title, if any, none of which are substantial in amount,
materially detract from the value or impair the use of the property subject
thereto, or impair the operations of the Company and which have arisen only
in the ordinary course of business and consistent with past practice since
the date of the December Balance Sheet; and (c) Liens for current taxes not
yet due.
Section 4.21 EQUIPMENT. The equipment of the Company and its
Subsidiaries is in good operating condition and repair, normal wear and tear
excepted, and is adequate for the uses to which it is being put.
Section 4.22 LEASES. Section 4.22 of the Company Disclosure
Schedule contains a list of all leases relating to real property to which the
Company or any of its Subsidiaries is a party, all of which have been
previously delivered to Parent. All such leases are valid, binding and
enforceable against the Company or its Subsidiaries in accordance with their
terms except that (i) such enforcement may be subject to applicable
bankruptcy, insolvency or other similar laws, now or hereafter in effect,
affecting creditors' rights generally, and (ii) the remedy of specific
performance and injunctive relief and other forms of equitable relief may be
subject
38
to equitable defenses, and are in full force and effect; there are no
existing material defaults by the Company or its Subsidiaries thereunder; and
no event of default has occurred which (whether with or without notice, lapse
of time or the happening or occurrence of any other event) would constitute a
default by the Company or its Subsidiaries thereunder, except for defaults
that could not reasonably be expected to have a Company Material Adverse
Effect.
Section 4.23 RELATED PARTY TRANSACTIONS. No contracts or
agreements are in effect as of the date hereof between the Company or its
Subsidiaries, on the one hand, and officers, directors or Shareholders of the
Company or their respective Affiliates, on the other hand.
Section 4.24 ABSENCE OF CERTAIN PAYMENTS. Neither the Company,
any of its Subsidiaries nor any of their respective officers, directors,
employees or agents or other people acting on behalf of any of them have (i)
engaged in any activity prohibited by the United States Foreign Corrupt
Practices Act of 1977 or any other similar law, regulation, decree, directive
or order of any Governmental Entity and (ii) without limiting the generality
of the preceding clause (i), used any corporate or other funds for unlawful
contributions, payments, gifts or entertainment, or made any unlawful
expenditures relating to political activity to government officials or
others. Neither the Company, any of its Subsidiaries, nor any of their
respective directors, officers, employees or agents of other persons acting
on behalf of any of them, has accepted or received any unlawful
contributions, payments, gifts or expenditures.
Section 4.25 BROKERS OR FINDERS. Except for any fees payable to
Xxxxxxxx Xxxxx Xxxxxx and Xxxxx Capital, the Company represents, as to
itself, and its Affiliates, that no agent, broker, investment banker,
financial advisor or other firm or Person is or will be entitled to any
brokers' or finder's fee or any other commission or similar fee in connection
with any of the transactions contemplated by this Agreement. True and correct
copies of all agreements between the Company or any of its Subsidiaries and
Xxxxxxxx Xxxxx Xxxxxx and Xxxxx Capital, including, without limitation, any
fee arrangements are included in Section 4.26 of the Company Disclosure
Schedule.
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Section 4.26 BOOKS AND RECORDS. The minute books and stock
record books of the Company and each of its Subsidiaries contain all (i)
minutes of meetings of the shareholders and boards of directors, (ii) written
statements of actions taken by the shareholders and boards of directors
without a meeting, and (iii) records of the issuance, transfer and
cancellation of all shares of capital stock and other securities, in each
case since the date of incorporation of the Company and each of its
Subsidiaries, respectively. Such minute book and stock record book are true
and complete in all material respects.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub represent and warrant to the Company and
the Shareholders as set forth below:
Section 5.1 ORGANIZATION. (a) Parent is a corporation duly
organized, validly existing and in good standing under the laws of Colorado
and has all requisite corporate power and authority and all necessary
government approvals to own, lease and operate its properties and to carry on
its business as now being conducted except where the failure to be so
organized, existing and in good standing or to have such power, authority and
governmental approvals would not have a material adverse effect on the
business, financial condition or results of operation of Parent and its
Subsidiaries, taken as a whole (a "PARENT MATERIAL ADVERSE EFFECT"). Parent
is duly qualified or licensed and in good standing to do business in each
jurisdiction in which the property owned, leased or operated by it or the
nature of the business conducted by it makes such qualification or licensing
necessary, except where the failure to be so duly qualified or licensed and
in good standing could not reasonably be expected to have, in the aggregate,
a Parent Material Adverse Effect.
Section 5.2 CAPITALIZATION.
(a) As of December 31, 1999, Parent had 200,000,000
shares of Parent Common Stock authorized for issuance, of which 53,165,370
shares of Parent Common Stock were issued and outstanding. All of the issued
and outstanding shares of Parent Common Stock are validly issued, fully paid
and nonassessable.
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(b) All of the Parent Shares will be validly issued,
fully paid and nonassessable.
Section 5.3 AUTHORITY RELATIVE TO THIS AGREEMENT. Each of
Parent and Merger Sub has full corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated
hereby. The execution, delivery and performance of this Agreement and the
consummation of the Merger have been duly and validly authorized by the
respective Board of Directors of Parent and Merger Sub and approved by Parent
in its capacity as sole stockholder of Merger Sub, and no other corporate
proceedings on the part of Parent or Merger Sub are necessary to authorize
this Agreement or to consummate the Merger. This Agreement has been duly
executed by Parent and Merger Sub and constitutes a valid and binding
agreement of Parent and Merger Sub enforceable against Parent and Merger Sub
in accordance with its terms except that (i) such enforcement may be subject
to applicable bankruptcy, insolvency or other similar laws, now or hereafter
in effect, affecting creditors' rights generally, and (ii) the remedy of
specific performance and injunctive and other forms of equitable relief may
be subject to equitable defenses and to the discretion of the court before
which any proceeding therefor may be brought.
Section 5.4 CONSENTS AND APPROVALS; NO VIOLATIONS. Except for
the Fairness Hearing and the filing and recordation of the Certificate of
Merger in accordance with the requirements of the CGCL, neither the
execution, delivery or performance of this Agreement by Parent and Merger
Sub, the consummation by Parent and Merger Sub of the transactions
contemplated hereby, nor compliance by Parent with any of the provisions
hereof will (i) require any notice to, filing with, or permit, authorization,
consent or approval of, any Governmental Entity or any private third party,
(ii) conflict with or result in any breach of any provision of the charter or
bylaws of Parent or Merger Sub, (iii) result in a violation or breach of, or
constitute (with or without due notice or lapse of time or both) a default
(or give rise to any right of termination, cancellation or acceleration or
result in the creation of any Lien) under, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, license, contract,
agreement or other instrument or obligation to which Parent or Merger Sub is
a party or by which any of them or any of their properties or assets may be
bound or (iv) violate any order, writ, injunction, decree, statute, treaty,
rule or regulation applicable to Parent, Merger Sub or any of their
properties or assets except, in the case of clauses (i), (iii) and (iv),
where the failure to obtain such permits, authorizations, consents or
approvals or to make such filings, or where such violations, breaches or
defaults would not, individually or in the
41
aggregate, materially impair the ability of Parent or Merger Sub to
consummate the transactions contemplated by this Agreement and would not
reasonably be expected to result in a Parent Material Adverse Effect.
Section 5.5 SEC REPORTS AND FINANCIAL STATEMENTS. Parent has
filed with the SEC, and has heretofore made available to the Company true and
complete copies of, all forms, reports, schedules, statements and other
documents required to be filed by it and its Subsidiaries since January 28,
2000 under the Exchange Act or the Securities Act (as such documents have
been amended since the time of their filing, collectively, the "PARENT SEC
DOCUMENTS"). As of their respective dates or, if amended, as of the date of
the last such amendment, the Parent SEC Documents, including, without
limitation, any financial statements or schedules included therein (a) did
not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements made therein, in light of the circumstances under which they were
made, not misleading, and (b) complied in all material respects with the
applicable requirements of the Exchange Act and the Securities Act, as the
case may be, and the applicable rules and regulations of the SEC thereunder.
Each of the consolidated financial statements included in the Parent SEC
Documents has been prepared from, and is in accordance with, the books and
records of Parent and its Subsidiaries, complies in all material respects
with applicable accounting requirements and with the published rules and
regulations of the SEC with respect thereto, has been prepared in accordance
with US GAAP applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto or in the case of unaudited
financial statements, as permitted for presentation in Quarterly Reports on
Form 10-Q) and fairly presents the consolidated financial position and the
consolidated results of operations and cash flows of the Parent and its
consolidated Subsidiaries as at the dates thereof or for the periods
presented therein.
Section 5.6 ABSENCE OF CERTAIN CHANGES. Except to the extent
disclosed in the Parent SEC Documents filed prior to the date of this
Agreement, since November 15, 1999 through the date of this Agreement, Parent
and its Subsidiaries have conducted their respective businesses and
operations in all material respects consistent with past practice only in the
ordinary course and there has not occurred any event, change, or effect
(including the incurrence of any liabilities of any nature, whether or not
accrued, contingent or otherwise) that would reasonably be expected to have a
Parent Material Adverse Effect.
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Section 5.7 INFORMATION IN DISCLOSURE DOCUMENTS. None of the
information supplied in writing by Parent for inclusion or incorporation by
reference in (i) the Application will, at the time the Application is filed
with the Commissioner and at the time the Fairness Hearing is held, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statement therein not
misleading and (ii) the Information Statement will, at the time it is mailed
to the Shareholders and at the time of the Special Meeting to be held in
connection with the Merger, 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 are made, not misleading. The Application will comply in all
material respects with the provisions of the CSL and the rules and
regulations thereunder, except that no representation is made by Parent with
respect to statements made therein based on information supplied by the
Company in writing for inclusion or incorporation by reference therein.
Section 5.8 ACTIVITIES OF MERGER SUB. Merger Sub was formed for
the purpose of participating in the Merger as contemplated in this Agreement.
Merger Sub has engaged in no other business activities and has conducted its
operations only as contemplated by this Agreement.
Section 5.9 NO DEFAULT. The businesses of Parent and its
Subsidiaries are not being conducted in default or violation (and no event
has occurred which with notice, lapse of time or both, would constitute a
default or violation) of any term, condition or provision of (i) their
respective organizational documents, (ii) any note, bond, mortgage,
indenture, guarantee, other instrument or obligation to which Parent is a
party or by which it or any of its properties or assets may be bound, or
(iii) any United States federal, state, local or foreign law, statute,
regulation, rule, ordinance, judgment, decree, order, writ, injunction,
concession, grant, franchise, permit or license or other governmental
authorization or approval applicable to Parent, excluding from the foregoing
clauses (ii) and (iii), defaults or violations that could not reasonably be
expected to have a Parent Material Adverse Effect. As of the date of this
Agreement, no investigation or review by any Governmental Entity or other
entity with respect to Parent or any of its Subsidiaries is pending or, to
the best knowledge of Parent, threatened, nor has any Governmental Entity or
other entity indicated an intention to conduct the same, other than, in each
case, those the outcome of which, as far as reasonably can be foreseen, in
the future would not have a Parent Material Adverse Effect.
43
Section 5.10 LITIGATION. As of the date hereof, except as set
forth in the Parent SEC Documents, there is no action, suit, proceeding or,
to the knowledge of Parent, investigation pending or, to the knowledge of
Parent, threatened, involving Parent or any of its Subsidiaries, by or before
any court, governmental or regulatory authority or by any third party that
would reasonably be expected to have a Parent Material Adverse Effect.
Section 5.11 BROKERS OR FINDERS. Neither Parent nor any of its
Subsidiaries or Affiliates has entered into any agreement or arrangement
entitling any agent, broker, investment banker, financial advisor or other
firm or person to any brokers' or finders' fee or any other commission or
similar fee in connection with any of the transactions contemplated by this
Agreement except for Xxxxxx Xxxxxx Partners LLC, whose fees and expenses will
be paid by Parent in accordance with Parent's agreement with such firm.
ARTICLE VI
COVENANTS OF THE COMPANY
The Company covenants and agrees to perform as follows:
Section 6.1 CONDUCT OF BUSINESS PENDING MERGER. Except as
otherwise specifically provided in this Agreement, from the date of this
Agreement to the earlier of the Effective Time or termination hereof, the
Company agrees to (i) conduct its operations only in the ordinary and usual
course of business and consistent with past practices and (ii) use its
reasonable best efforts to preserve intact its present business organization,
keep available the services of its present officers, key employees and
consultants and preserve its present relationships with licensors, licensees,
customers, suppliers, key employees, labor organizations and others having
business relationships with it. Without limiting the generality of the
foregoing, and except as otherwise specifically provided in this Agreement,
the Company will not, directly or indirectly, prior to the Effective Time,
without the prior written consent of Parent:
(a) except to authorize sufficient capital stock as
required to effect the transactions contemplated in connection with the
Merger, propose or adopt any amendment to or otherwise change the Company
Articles or Bylaws;
44
(b) authorize for issuance, sale, pledge, disposition or
encumbrance, or issue, sell, pledge, dispose of or encumber (whether through
the issuance or granting of options, warrants, commitments, subscriptions,
rights to purchase, convertible securities or otherwise), any capital stock
of any class or any other securities of, or any other ownership interest in,
the Company or any of its Subsidiaries (except for the issuance of shares of
Company Common Stock upon conversion of Preferred Stock, upon exercise of
Company Options or Company Warrants, in each case outstanding as of the date
of this Agreement or amend any of the terms of any such securities or
agreements outstanding on the date hereof except that the Company Warrants
may be amended to provide for a cashless exercise procedure such that no more
than 205,907 shares of Company Common Stock shall be issued upon conversion
of the Company Warrants); PROVIDED, HOWEVER, that holders of Company Options
or Company Warrants may exercise such Company Options or Company Warrants.
(c) reclassify, combine, split or subdivide any shares of
its or its Subsidiaries' capital stock, declare, set aside or pay any
dividend or other distribution (whether in cash, securities or property or
any combination thereof) in respect of any class or series of its capital
stock, other than any dividend declared prior to the date hereof;
(d) redeem, purchase or otherwise acquire, or propose or
offer to redeem, purchase or otherwise acquire, any outstanding Company
Capital Stock, Company Warrants or Company Options or other securities of the
Company except pursuant to the Company Benefit Plan;
(e) organize any new Subsidiary, acquire any capital
stock or equity securities of any corporation or acquire any equity or
ownership interest (financial or otherwise) in any business;
(f) (i) incur, assume or prepay any material liability,
or incur any indebtedness for borrowed money other than in accordance with
the Company's current financing arrangements, (ii) assume, guarantee, endorse
or otherwise become liable or responsible (whether directly, contingently or
otherwise) for the obligations of any third party, (iii) make any loans,
advances or capital contributions to, or investments in, any third party,
(iv) mortgage or pledge any of its material properties or assets, tangible or
intangible, or create or suffer to exist any Lien thereupon, or (v) authorize
any new capital expenditures for property, plant and
45
equipment that, individually or in the aggregate, are in excess of $100,000
per fiscal quarter;
(g) make any change in the compensation payable or to
become payable to any of its or any of its Subsidiaries' officers, directors,
employees, agents or consultants (other than normal recurring salary
adjustments in the ordinary course of business consistent with past practice)
or to Persons providing management services, or enter into or amend, in any
material respect, any existing employment, severance, consulting, termination
or other agreement or employee benefit plan or make any loans to any of its
officers, directors, employees, Affiliates, agents or consultants (other than
reasonable travel advances) or make any change in its existing borrowing or
lending arrangements for or on behalf of any such Persons pursuant to an
employee benefit plan or otherwise;
(h) license (except in the ordinary course of business
consistent with past practice) or otherwise transfer or dispose of, any
material Intellectual Property Rights of the Company or any of its
Subsidiaries, or dispose of or disclose to any Person any trade secret,
formula, process or know-how not theretofore a matter of public knowledge
other than in the ordinary course of business consistent with past practice;
(i) enter into any material contract or transaction other
than in the ordinary course of business, consistent with past practices;
(j) cancel any debts or waive, release or relinquish any
contract rights or other rights of substantial value other than in the
ordinary course of business, consistent with past practices;
(k) except as explicitly contemplated by Section 6.2
hereof, authorize, recommend, propose or enter into or announce an intention
to authorize, recommend, propose or enter into a term sheet, letter of
intent, agreement in principle or a definitive agreement with respect to any
merger, consolidation, liquidation, dissolution, or business combination, any
acquisition of a material amount of property or assets or securities, or any
disposition of a material amount of property or assets or securities;
(l) make any change with respect to accounting policies
or procedures in effect as of the Company's fiscal year ended December 31,
1999;
46
(m) pay, discharge or satisfy any material claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise) other than the payment, discharge or satisfaction in
the ordinary course of business, consistent with past practices, of
liabilities reflected or reserved against in the Company's Financial
Statements or incurred in the ordinary course of business consistent with
past practices since the date thereof;
(n) take or commit or agree (in writing or otherwise) to
take any of the foregoing actions, or fail to take any action, as a result of
which a failure of the conditions set forth in Section 8.1 or 8.2 is likely
to occur; or
(o) make any election relating to Taxes, change any
election relating to Taxes already made, adopt or change any accounting
method relating to Taxes, enter into any closing agreement relating to Taxes,
settle any claim or assessment relating to Taxes or consent to any claim or
assessment relating to Taxes or any waiver of the statute of limitations for
any such claim or assessment.
Section 6.2 NO SOLICITATION OF COMPETING TRANSACTION.
(a) (i) Except as contemplated by this Section 6.2, none
of the Company or any Affiliate of the Company shall (and the Company shall
not authorize or permit the officers, directors, employees, representatives
and agents of the Company and each Affiliate of the Company, including, but
not limited to, investment bankers, attorneys and accountants, to), directly
or indirectly, solicit, initiate, facilitate or encourage (including by way
of furnishing or disclosing financial or operational or other non-public
information) any inquiries or the making of any proposal with respect to any
acquisition of the capital stock, business or material assets of the Company
or any of its Subsidiaries, whether by merger, tender offer, exchange offer,
sale of assets or similar transactions involving the Company or any
Subsidiary, division or operating or principal business unit of the Company
(an "ACQUISITION TRANSACTION") or negotiate, explore or otherwise engage in
discussions with any Person with respect to any Acquisition Transaction or
enter into any agreement, arrangement or understanding with respect to any
such Acquisition Transaction or that would require it to abandon, terminate
or fail to consummate the Merger or any other transaction contemplated by
this Agreement. Upon execution of this Agreement, the Company will
immediately cease any existing activities, discussions or negotiations with
any parties conducted heretofore with respect to any of the foregoing.
47
(ii) Notwithstanding the foregoing, nothing contained
in this Agreement shall prevent the Company, the Company Board or its
Affiliates from furnishing nonpublic information to, or entering into
discussions or negotiations with, any Person in connection with an
unsolicited bona fide written proposal relating to an Acquisition Transaction
to the Company, the Company Board or its Affiliates from Persons other than
Affiliates of the Company, if any, only to the extent that the Company Board
by action of a majority of the directors, determines in good faith, upon the
written advice of outside counsel or its financial advisor, with a copy sent
to the Parent that (i) such bona fide written proposal is more favorable from
a financial point of view to the Shareholders than the Merger and (ii) such
action is necessary for the Company Board to comply with its fiduciary duties
to the Company under applicable law.
(iii) The Company will immediately notify Parent of
the existence of any proposal or inquiry, including a request for non-public
information, received by the Company, the Shareholders or their respective
representatives and the terms thereof (and will immediately provide to Parent
copies of any written materials received by the Company in connection with
such proposal, discussion, negotiation or inquiry) and the identity of the
party making such proposal or inquiry or engaging in such discussion or
negotiation.
(b) Except as set forth in Section 6.2(a)(ii), neither
the Company Board nor any committee thereof shall (i) withdraw or modify, or
propose to withdraw or modify, in a manner adverse to Parent or Merger Sub,
its approval or recommendation of this Agreement or the Merger, (ii) approve
or recommend or propose to approve or recommend, any Acquisition Transaction
or (iii) enter into any agreement with respect to any Acquisition
Transaction.
Section 6.3 SHAREHOLDER APPROVAL. Subject to the provisions of
Section 6.2, the Company shall take all action necessary, in accordance with
the CGCL and the Company Articles and Bylaws, to cause its shareholders to
consider at a special meeting of the Shareholders (the "Special Meeting") and
act upon this Agreement and the Merger no later than three (3) business days
after the Commissioner shall determine to issue a permit to issue shares of
Parent Common Stock in connection with the Merger following the Fairness
Hearing.
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Section 6.4 FURTHER INFORMATION. As soon as such information
becomes available, and in any event not later than thirty days after the end
of each fiscal month, the Company shall provide to Parent an unaudited
balance sheet as of the end of such month and the related statements of
results of operations and statements of cash flows for such period together
with a list of the ages and amounts of all accounts and notes due and
uncollected as of the end of such month.
Section 6.5 ACCESS; CONFIDENTIALITY. Subject to the Company's
confidentiality obligations to third parties, the Company shall afford to the
officers, employees, accountants and counsel of Parent, full access during
normal business hours from the date hereof until the Effective Time or
termination of this Agreement in accordance with the terms hereof, to all its
properties, books, contracts, commitments and records and, during such
period, the Company shall furnish promptly to Parent all other information
concerning its business, properties and personnel as Parent may reasonably
request. Notwithstanding anything herein to the contrary, the terms of the
confidentiality agreement previously entered into by and between Parent and
the Company shall remain in full force and effect.
Section 6.6 280G CONSENT. Prior to the Closing, the Company
shall take such steps as may be necessary to prevent any payment or benefit
from being subject to the excise tax payable under section 4999 of the Code
or the loss of deductibility under section 280G of the Code in connection
with the transactions contemplated by this Agreement, including, but not
limited, to taking the steps necessary to qualify for the exemption for small
business corporations under section 280G(b)(5) of the Code.
Section 6.7 COMPANY WARRANTS. Prior to the Closing, the Company
shall use its best efforts to cause the holder of each issued and outstanding
warrant to purchase shares of Company Common Stock (collectively, the
"COMPANY WARRANTS") to exercise such Company Warrant.
Section 6.8 OUTSTANDING DEBT. Prior to the Closing, the Company
shall take all necessary action to effect the conversion of the indebtedness
set forth on Section 6.8 of the Company Disclosure Schedule into Company
Common Stock.
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ARTICLE VII
OTHER COVENANTS
Section 7.1 FAIRNESS HEARING.
(a) Prior to the Closing, upon the terms and subject to
the conditions of this Agreement, Parent and the Company agree to use their
respective reasonable best efforts to take, or cause to be taken, all actions
and to do, or cause to be done, all things necessary, proper or advisable
(subject to any applicable laws) to consummate and make effective the Merger
as promptly as practicable including, but not limited to (i) the prompt
preparation and filing with the Commissioner of the documents required by the
CSL including, but not limited to, any required Application, request for a
hearing ("HEARING REQUEST") or notice of a hearing ("HEARING NOTICE")
pursuant to Sections 25121 and 25142 of the CSL (collectively, the "NOTICE
MATERIALS"), in connection with the Merger and the issuance of Parent Common
Stock, in order to perfect the exemption from registration provided by
Section 3(a)(10) of the Securities Act and the preparation and filing of all
other forms, registrations and notices required to be filed to consummate the
Merger and the taking of such actions as are necessary to obtain any
requisite approvals, consents, orders, exemptions or waivers by any third
party or Governmental Entity, and (ii) the satisfaction of the other parties'
conditions to Closing. Each of Parent and the Company shall use reasonable
efforts to have the Permit Application, Hearing Request and Hearing Notice
declared effective under the CSL as promptly as practicable after such
filing. In addition, Parent and the Company will prepare, and the Company
will distribute, an information statement or proxy statement (the
"INFORMATION STATEMENT") along with the Notice Materials, as may be required
by California Law, at the earliest practicable date to submit this Agreement,
the Merger, and the transactions contemplated hereby, to the Company
shareholders. Each of the Parent and the Company will promptly provide all
information relating to their respective business and operations necessary
for inclusion in the Notice Materials to satisfy all requirements of
applicable state and federal securities laws. Each of Parent and the Company
shall be solely responsible for any statement, information, or omission, in
the Notice Materials relating to it or its affiliates based upon the written
information furnished by it or its representatives. Notwithstanding the
foregoing, or any other covenant herein contained, Parent shall not be
required to divest or hold separate or otherwise take or commit to take any
action that limits
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Parent's freedom of action with respect to, or its ability to retain, the
Company or any material portions thereof or any of the businesses, product
lines, properties or assets of the Company.
(b) Prior to the Closing, each party shall promptly
consult with the other parties hereto with respect to all filings made by
such party with any Governmental Entity or any other information supplied by
such party to a Governmental Entity in connection with this Agreement and the
Merger. Each party hereto shall promptly inform the other of any
communication from any Governmental Entity regarding the Merger. If any
party hereto or Affiliate thereof receives a request for additional
information or documentary material from any such Governmental Entity with
respect to the Merger, then such party shall promptly notify the other and
endeavor in good faith to make, or cause to be made, as soon as reasonably
practicable and after consultation with the other parties, an appropriate
response in compliance with such request. To the extent that transfers,
amendments or modifications of permits (including environmental permits) are
required as a result of the execution of this Agreement or consummation of
the Merger, the Company shall use reasonable best efforts to effect such
transfers, amendments or modifications.
(c) Each of Company and Parent shall (i) give the other
party prompt notice of the commencement of any material legal proceeding by
or before any court or other governmental body with respect to the Merger or
any of the other transactions contemplated by this Agreement and (ii) keep
the other party generally informed as to the status of any such legal
proceeding.
(d) Notwithstanding the foregoing, nothing in this
Agreement shall be deemed to require Parent or the Company to commence any
litigation against any Person in order to facilitate the consummation of the
Merger or to defend against any litigation brought by any third party or
Governmental Entity seeking to prevent the consummation of the Merger.
Section 7.2 PUBLICITY. The initial press release with respect
to the execution of this Agreement shall be a joint press release acceptable
to Parent and the Company. Thereafter, until the Effective Time, or the date
this Agreement is terminated or abandoned pursuant to Article IX hereof,
neither party hereto nor any of their respective Affiliates shall issue or
cause the publication of any press release or other announcement with respect
to the Merger or this Agreement without prior
51
approval of the other party, except as may be required by law or by any
listing agreement with a national securities exchange or trading market.
Section 7.3 DIRECTORS' AND OFFICERS' INDEMNIFICATION.
(a) For purposes of this Section 7.3:
(i) "INDEMNIFIED PARTIES" shall mean the current
officers and directors of Company and each other person who is or was
a director or officer of the Company at or at any time prior to the
Effective Time.
(ii) "LOSSES" shall include costs, expenses
(including reasonable expenses of investigation and attorneys' fees),
judgments, awards, fines, penalties, amounts paid in settlement,
losses, claims, damages and liabilities.
(iii) "PROCEEDING" shall mean any action, suit,
proceeding, arbitration, hearing, audit or investigation (whether
civil, criminal, administrative or investigative and whether formal or
informal).
(b) From and after the Effective Time, Parent will cause
the Surviving Corporation to fulfill and honor in all respects the
obligations of Company pursuant to (i) each indemnification agreement in
effect between Company and any indemnified Party identified in Section 7.3 of
the Company Disclosure Schedule and (ii) any indemnification provision
contained in the Company Articles or Bylaws (as in effect on the date of this
Agreement). Parent and the Surviving Corporation shall ensure that each
provision that is currently included in the articles of incorporation or
by-laws of Merger Sub relating to indemnification or exculpation from
liability shall remain in effect as provisions of the articles of
incorporation of the Surviving Corporation at and after the Effective Time,
and that no such provision shall be repealed or modified within three years
following the Effective Time in any manner that might adversely affect the
rights thereunder of any Indemnified Party.
(c) Without limiting the generality or the effect of
Section 7.3(b), during the period commencing as of the Effective Time and
ending on the sixth anniversary of the Effective Time, Parent shall cause the
Surviving Corporation to indemnify and hold harmless each Indemnified Party
against and
52
from any Losses arising from or relating directly or indirectly to any claim
or Proceeding that arises or has arisen from or that relates directly or
indirectly to (i) any action or omission or alleged action or omission on the
part of such Indemnified Party in such Indemnified Party's capacity as a
director or officer of Company (regardless of whether such action or
omission, or alleged action or omission, shall have occurred prior to, at or
after the Effective Time) or (ii) the Merger or any of the other transactions
contemplated by or referred to in this Agreement; PROVIDED, HOWEVER, that if,
at any time prior to the sixth anniversary of the Effective Time, any
Indemnified Party delivers to the Surviving Corporation a written notice
asserting a right to indemnification under this Section 7.3(c), then the
right to indemnification asserted in such notice shall survive beyond the
sixth anniversary of the Effective Time. The Surviving Corporation will have
the right (at its sole expense) to control the defense of any such claim or
Proceeding after the Effective Time; PROVIDED, HOWEVER, that: (1) Parent
will not be permitted to enter into any settlement or compromise, or to
consent to the entry of any judgment, with respect to such claim or
Proceeding unless such settlement, compromise or consent imposes no
obligation of any nature on any Indemnified Party and includes an
unconditional release of all Indemnified Parties from all liability relating
to such claim or Proceeding; and (2) if any Indemnified Party determines in
good faith (after consultation with counsel) that, under applicable standards
of professional conduct, an actual or potential conflict exists or might
reasonably be expected to arise between the position of such Indemnified
Party and the position of Parent, the Surviving Corporation or any other
Person, then the Indemnified Parties, as a group, at the expense of the
Surviving Corporation, shall be entitled to one separate counsel reasonably
acceptable to the Surviving Corporation to participate in such Proceeding.
(d) During the period commencing as of the Effective Time
and ending on the sixth anniversary of the Effective Time, Parent shall use
its reasonable best efforts to include the officers and directors of the
Company on the directors' and officers' liability insurance policy of Parent
currently in effect, so long as the aggregate annual premiums for insurance
under this Section 7.3(d) do not exceed $25,000.
(e) Parent shall bear and pay, and shall reimburse the
Indemnified Parties for, all reasonable costs and expenses, including
reasonable attorneys' fees, that may be incurred by the Indemnified Parties
in seeking to enforce their rights against Parent and the Surviving
Corporation under this Section 7.3, but only to the extent that the
Indemnified Parties are entitled to indemnification hereunder.
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(f) This Section 7.3 shall survive the consummation of
the Merger and the Effective Time, is intended to benefit and may be enforced
by the Indemnified Parties and their respective heirs, successors and assigns
(each of whom shall be entitled to enforce this provision against Parent and
the Surviving Corporation) and shall be binding on Parent and the Surviving
Corporation and their respective successors and assigns.
Section 7.4 NOTIFICATION OF CERTAIN MATTERS. The Company shall
give prompt notice to Parent, and Parent shall give prompt notice to the
Company, of the occurrence (or non-occurrence) of any event of which the
Company or Parent, respectively, has knowledge, the occurrence (or
non-occurrence) of which would be likely to cause any representation or
warranty contained in this Agreement of the Company or the Parent, as
applicable, to be untrue or inaccurate (if such representation or warranty is
qualified by materiality) or untrue or inaccurate in any material respect (if
not so qualified) and of the occurrence of any failure of either party to
comply with or satisfy any covenant, condition or agreement to be complied
with or satisfied by it hereunder; PROVIDED, HOWEVER, that (x) delivery of
any notice pursuant to this Section 7.4 shall not limit or otherwise affect
the remedies available to either party hereunder, (y) shall not constitute an
admission by the party delivering such notice that any such representation or
warranty has been breached and (z) shall not have an effect in determining
whether the conditions set forth in Article VIII have been satisfied.
Section 7.5 TAX-FREE REORGANIZATION. No party hereto shall
intentionally take, or cause or allow to be taken, any action whether before
or after the Effective Time which would disqualify the Merger as a
"reorganization" within the meaning of Section 368(a) of the Code.
Section 7.6 NASDAQ LISTING. Parent shall use its commercially
reasonable efforts to cause the Parent shares to be issued in the Merger to
be approved for quotation on the Nasdaq National Market, subject to official
notice of issuance, prior to the Closing Date.
Section 7.7 COMPANY 401(k) PLAN. The Company shall take all
necessary or prudent action to terminate the Company's 401(k) Plan prior to
the Effective Time.
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Section 7.8 The Company shall not, at or prior to the Closing,
prepay the Promissory Note with funds other than (a) the proceeds of the
Promissory Note or (b) funds obtained in the ordinary course of business
consistent with past practice.
ARTICLE VIII
CONDITIONS
Section 8.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGER. The respective obligations of each party to effect the Merger shall
be subject to the satisfaction at or prior to the Closing Date of the
following conditions, any and all of which may be waived in whole or in part
by the Company or Parent, as the case may be, to the extent permitted by
applicable law:
(a) No statute, rule or regulation shall have been
enacted or promulgated by any Governmental Entity which prohibits the
consummation of the Merger; and there shall be no order, decree or injunction
of a court of competent jurisdiction in effect precluding consummation of the
Merger.
(b) The Commissioner shall have issued the CSL Permit and
the qualification thereunder shall not be the subject of any stop order or
proceedings seeking a stop order.
(c) The Parent Shares to be issued to the Shareholders
pursuant to this Agreement and upon exercise of Company Options shall have
been authorized for trading on Nasdaq effective upon the Closing Date.
(d) This Agreement shall have been adopted and the Merger
shall have been approved by the Company Required Vote. For purposes of this
Agreement, "Company Required Vote" shall mean the affirmative vote of the
holders of a majority of the outstanding shares of (i) Company Common Stock,
(ii) Company Common Stock and Company Preferred Stock and (iii) Company
Preferred Stock, in each case, voting separately as a single class as of the
record date for the Special Meeting.
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Section 8.2 CONDITIONS OF OBLIGATIONS OF THE COMPANY. The
obligations of the Company to effect the Merger are further subject to the
satisfaction at or prior to the Closing Date of the following conditions,
unless waived in writing by the Company:
(a) The representations and warranties of Parent and
Merger Sub set forth in this Agreement shall be true and correct in all
material respects (except for representations and warranties qualified by
materiality which shall be true and correct in all respects) as of the date
of this Agreement and, except for representations and warranties that speak
as of a specific date other than the Closing Date (which need only be true
and correct in all respects as of such date), as of the Closing Date, with
the same force and effect as though such representations and warranties had
been made on and as of the Closing Date.
(b) Parent and Merger Sub shall have performed and
complied, in all material respects, with all obligations and covenants
required to be performed or complied with by it under this Agreement at or
prior to the Closing Date.
(c) The Company shall have received from Parent an
officer's certificate certifying to the fulfillment of the conditions
specified in Section 8.2(a), 8.2(b) and 8.2(d).
(d) From the date of this Agreement through the Effective
Time, Parent shall not have suffered a Parent Material Adverse Effect and no
events or facts which would reasonably be expected to have a Parent Material
Adverse Effect shall have occurred or arisen.
(e) The Company shall have received an opinion of Troop
Xxxxxxx Xxxxxx Xxxxxxx & Xxxxx, LLP in form and substance reasonably
satisfactory to the Company, dated as of the date of the Effective Time,
substantially to the effect that, on the basis of facts, representations and
assumptions set forth in the opinion, for United States federal income tax
purposes, the Merger will constitute a "reorganization" within the meaning of
Section 368(a) of the Code. In rendering such opinion, Troop Xxxxxxx Pasich
Reddick & Xxxxx, LLP may request, receive and rely upon representations
contained in the certifications of Parent, Merger Sub, the Company and
others, and Parent, Merger Sub and the Company agree to provide such
certifications as Troop Xxxxxxx Pasich Reddick & Xxxxx, LLP may reasonably
request.
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(f) The Company shall have received a legal opinion from
counsel to Parent in a form reasonably satisfactory to the Company.
Section 8.3 CONDITIONS OF OBLIGATIONS OF PARENT. The
obligations of Parent and Merger Sub to effect the Merger are further subject
to the satisfaction at or prior to the Closing Date of the following
conditions, unless waived in writing by Parent:
(a) The representations and warranties of the Company set
forth in this Agreement shall be true and correct in all material respects
(except for representations and warranties qualified by materiality which
shall be true and correct in all respects) as of the date of this Agreement
and, except for representations and warranties that speak as of a specific
date other than the Closing Date (which need only be true and correct in all
material respects as of such date), as of the Closing Date, with the same
force and effect as though such representations and warranties had been made
on and as of the Closing Date.
(b) The Company shall have performed and complied, in all
material respects, with all obligations and covenants required to be
performed or complied with by it under this Agreement at or prior to the
Closing Date.
(c) Parent shall have received from the Company an
officer's certificate certifying to the fulfillment of the conditions
specified in Sections 8.3(a), 8.3(b), 8.3(d), 8.3(e), 8.3(h), 8.3(m) and
8.3(n).
(d) From the date of this Agreement through the Effective
Time, the Company shall not have suffered a Company Material Adverse Effect
and no events or facts that would reasonably be expected to have a Company
Material Adverse Effect shall have occurred or arisen.
(e) All consents, permits and approvals of Governmental
Entities and other private third parties listed in Section 4.4 of the Company
Disclosure Schedule and identified with an asterisk shall have been obtained
with no material adverse conditions attached and no material expense imposed
on the Company.
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(f) Parent shall have received an opinion of Skadden,
Arps, Slate, Xxxxxxx & Xxxx LLP, in form and substance reasonably
satisfactory to Parent, dated as of the date of the Effective Time,
substantially to the effect that, on the basis of facts, representations and
assumptions set forth in the opinion, for United States federal income tax
purposes, the Merger will constitute a "reorganization" within the meaning of
section 368(a) of the Code. In rendering such opinion, Skadden, Arps, Slate,
Xxxxxxx & Xxxx LLP may request, receive and rely upon representations
contained in the certifications of Parent, Merger Sub, the Company and
others, and Parent, Merger Sub and the Company agree to provide such
certifications as Skadden, Arps, Slate, Xxxxxxx & Xxxx LLP may reasonably
request.
(g) Parent shall have received a legal opinion from Troop
Xxxxxxx Pasich Reddick & Xxxxx, LLP in a form satisfactory to Parent.
(h) As of the Effective Time, no litigation or proceeding
shall be threatened or pending against Parent or the Company by any
Governmental Entity that seeks to enjoin or prevent the consummation of the
Merger, or to require Parent to divest or hold separate any business in
connection with the Merger, or which would reasonably be expected to have a
Company Material Adverse Effect.
(i) The Company shall have terminated the Company's
401(k) Plan.
(j) Holders of no more than three percent (3%) of the
outstanding Company Common Stock shall have asserted appraisal rights for
shares of Company Common Stock in accordance with the CGCL.
(k) Parent shall have received from the Company the
FIRPTA Affidavit.
(l) Each of the employees of the Company listed on
Section 8.3(l) of the Company Disclosure Schedule shall have executed
employment agreements with Parent in a form satisfactory to Parent.
(m) The Shareholders set forth in Section 8.3(m) of the
Company Disclosure Schedule, holding at least 60 percent of the voting power
of the Company on a Fully Diluted Basis shall have entered into a shareholder
agreement
58
substantially in the form attached hereto as Exhibit H (the "SHAREHOLDER
AGREEMENT").
(n) Each of the Shareholders shall have executed the
Supplemental Indemnification Agreement.
(o) Each issued and outstanding Company Warrant shall
have been exercised in full.
(p) The Company indebtedness set forth on Section 6.8 of
the Company Disclosure Schedule shall have been converted to Company Common
Stock on a basis reasonably satisfactory to Parent.
(q) Parent shall be satisfied as of midnight, February
23, 2000, in its sole discretion, with the results of its due diligence
investigation of the Company; PROVIDED, HOWEVER, that such date shall be
extended by two business days if Parent has not received all materials it has
reasonably requested and had an opportunity to review such materials at least
two business days, PROVIDED, FURTHER, that such extension shall apply only to
matters arising out of those materials requested and not received.
ARTICLE IX
TERMINATION AND AMENDMENT
Section 9.1 TERMINATION. This Agreement may be terminated at
any time prior to the Effective Time, whether before or after approval of the
matters presented in connection with the Merger by the shareholders of the
Company:
(a) by mutual written consent of the Company and Parent;
(b) by either the Company or Parent, if
(i) any Governmental Entity shall have issued an
order, decree or ruling or taken any other action (which order,
decree, ruling or other action the parties hereto shall use their
reasonable best efforts to lift), which permanently restrains, enjoins
or otherwise prohibits the consummation of the Merger and such order,
59
decree, ruling or other action shall have become final and
non-appealable;
(ii) the Merger is not approved and adopted by the
Company Required Vote in accordance with the CGCL and the Company
Articles at the Special Meeting;
(iii) the Merger shall not have been consummated
before April 17, 2000 (unless the failure to consummate the Merger by
such date shall be due to the action or failure to act of the party
seeking to terminate); or
(iv) the Commissioner shall finally determine to
deny a permit to issue shares of Parent Common Stock in connection
with the Merger following the Fairness Hearing.
(c) by the Company, if Parent shall have breached any of
its representations or warranties if such representation or warranty is
qualified by materiality or breached in any material respect if not so
qualified, or breached a covenant in any material respect contained in this
Agreement, and which breach cannot be or has not been cured within 30 days
after the giving of written notice by the Company to Parent;
(d) by Parent,
(i) if the Company shall have breached Section
6.2(b);
(ii) if the Company shall have breached any
representation or warranty if such representation or warranty is
qualified by materiality or breached in any material respect if not so
qualified, or breached a covenant in any material respect contained in
this Agreement, and which breach cannot be or has not been cured
within 30 days after the giving of written notice by Parent to the
Company; or
(iii) if the Company Board shall have taken action
pursuant to Section 6.2(a)(ii).
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Section 9.2 EFFECT OF TERMINATION. (a) In the event of the
termination of this Agreement by any party hereto pursuant to the terms of
this Agreement, 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 the Merger shall be deemed abandoned and this
Agreement shall forthwith become void, without liability on the part of any
party hereto, except as provided in this Section 9.2, Section 6.5 and Section
12.1, and except that nothing herein shall relieve any party from liability
for any breach of this Agreement.
(b) If, so long as Parent is not in material breach of
this Agreement and (x) Parent or the Company shall have terminated this
Agreement pursuant to Section 9.1(b)(ii) or (iv) or (y) Parent or the Company
shall have terminated this Agreement pursuant to Section 9.1(b)(iii) or
9.1(d)(iii) and within one year after a termination pursuant to this clause
(y), the Company (or any of its Subsidiaries) shall have directly or
indirectly consummated an Acquisition Transaction, then, in either such case,
the Company shall pay Parent (A) the Termination Fee, plus (B) an amount
equal to Parent's actual, documented out-of-pocket expenses directly
attributable to the negotiation and execution of this Agreement and the
attempted completion of the Merger. Any fees or amounts payable under this
Section 9.2(b) shall be paid in same day funds no later than (i) two business
days after a termination described in clause (x) of this Section 9.2(b), or
(ii) concurrently with or prior to the consummation of, such Acquisition
Transaction, in the case of a termination described in clause (y) of this
Section 9.2(b).
(c) Nothing herein shall preclude any of the parties from
bringing a cause of action for breach of this Agreement by any of the other
parties hereto.
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ARTICLE X
INDEMNIFICATION AND ESCROW
Section 10.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties made herein shall survive beyond the Effective
Time and shall continue in full force and effect until the date that is
eighteen months following the Effective Time except that representations and
warranties contained in Sections 4.12, 4.13 and 4.18 shall survive until
thirty (30) days after the expiration of all applicable statute of limitation
periods including any waivers or extensions thereof, at which time such
representations and warranties shall expire except for claims made prior to
such date.
Section 10.2 (a) INDEMNIFICATION BY THE SHAREHOLDERS
INDEMNITORS. The Shareholder Indemnitors shall, jointly but not severally,
indemnify, hold harmless and reimburse each of Parent and the Surviving
Corporation and any employee, director, officer or agent of each of them (the
"INDEMNIFIED PARTIES") for (1) any claim, cost, loss, liability or expense
(including reasonable attorneys' fees and expenses) or other actual damages
(collectively, "DAMAGES") arising, directly or indirectly, from: (a) any
breach of any of the warranties or representations of the Company in this
Agreement, (b) any failure by the Company to perform or comply with any of
its covenants or obligations in this Agreement, (c) any Third Party Claim (as
defined below) relating to a breach referred to in clause (a) or (b) above;
(2) any liabilities of the Company at the Effective Time in excess of the
estimated liabilities as of the date hereof, including any expenses pursuant
to Section 12.1; and (3) the outstanding balance under the Promissory Note as
of the Effective Time plus any principal on the Promissory Note which the
Company has paid with funds other than funds obtained in the ordinary course
of business, consistent with past practice.
(b) INDEMNIFICATION BY PARENT. Parent shall indemnify, hold
harmless and reimburse each Shareholder Indemnitor for any Damages arising,
directly or indirectly from any breach of any warranty or representation of
Parent in this Agreement and any failure by Parent to perform or comply with
any of its covenants or obligations in this Agreement.
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Section 10.3 PROCEDURE FOR THIRD PARTY CLAIMS. Promptly after
receipt by an indemnified party under Section 10.2 (each an "Indemnified
Party") of notice of the commencement of any action or demand or claim by a
third party (a "THIRD PARTY CLAIM") which gives rise to Damages, such
Indemnified Party shall, if a claim in respect thereof is to be made against
an indemnifying party (each an "Indemnifying Party") under such Section, give
notice to the Indemnifying Party (or the Shareholder Representative if the
Shareholder Indemnitors are the Indemnified Parties) of its assertion of such
claim for indemnification and of the commencement of the action of its
assertion of such claim for indemnification and of the commencement of the
action or assertion of the Third Party Claim with respect to which the claim
for indemnification pertains. Failures to so notify the Indemnifying Party
(or the Shareholder Representative, as the case may be) shall not relieve the
Indemnifying Party of any liability that they may have to any Indemnified
Party except to the extent that the defense of such action or Third Party
Claim is materially prejudiced thereby. If any such action shall be brought
or a Third Party Claim shall be asserted against an Indemnified Party and it
shall give notice to the Indemnifying Party or the Shareholder
Representative, as the case may be, of the commencement or assertion thereof,
the Indemnifying Party shall be entitled, at the sole expense of the
Indemnifying Party to participate therein and, to the extent that it shall
wish, to assume the defense thereof with counsel reasonably satisfactory to
such Indemnified Party PROVIDED, HOWEVER, that: (1) the Indemnifying Party
shall not be permitted to enter into any settlement or compromise, or to
consent to the entry of any judgment, with respect to such claim or
Proceeding unless such settlement, compromise or consent imposes no
obligation of any nature on any Indemnified Party and includes an
unconditional release of all Indemnified Parties from all liability relating
to such claim or Proceeding; and (2) if any Indemnified Party determines in
good faith (after consultation with counsel) that, under applicable standards
of professional conduct, an actual or potential conflict exists or might
reasonably be expected to arise between the position of such Indemnified
Party and the position of the Indemnifying Party or any other Person, then
the Indemnified Parties, as a group, at the expense of the Indemnifying
Parties, shall be entitled to separate counsel reasonably acceptable to the
Indemnifying Party to participate in such Proceeding. After notice from the
Indemnifying Party to such Indemnified Party or the Shareholder
Representative, as the case may be, of its election to assume the defense
thereof, the Indemnifying Party shall not be liable to such Indemnified Party
under this Article X for any fees of other counsel or any other expense
(unless such fees or expenses are incurred at the request of the Shareholder
Representative), in each case subsequently incurred by such Indemnified Party
in connection with the defense thereof. If the Indemnified Party or the
Shareholder Representative, as the case may be, receives notice of any
63
action or Third Party Claim, it shall promptly notify the Indemnified Party
as to whether, at its expense, it intends to control the defense thereof on
behalf of the Indemnifying Party. If the Indemnifying Party defends an
action, it shall have full control over the litigation, including settlement
and compromise thereof, subject only to the following: no compromise or
settlement thereof may be effected by the Indemnifying Party without the
Indemnified Party's consent (which shall not be unreasonably withheld) unless
(i) there is no finding or admission of any violation of law and no effect on
any other claims that may be made against the Indemnified Party, (ii) the
sole relief provided is monetary damages that are paid in full by the
Indemnifying Party or in the case of a final disposition of such action or
Third Party Claim, out of the Escrow Fund and (iii) there is no effect of the
compromise or settlement of the litigation on future Taxes of the Parent or
the Company. If notice is given to the Indemnified Party or the Shareholder
Representative, as the case may be, of the commencement of any action and it
does not, within 20 days after the Indemnified Party's notice is given, give
notice to the Indemnified Party of its election to assume the defense
thereof, the Indemnified Party shall have full control over the litigation,
including settlement and compromise thereof.
Section 10.4 INDEMNITY PERIOD. No claim for indemnification
under Section 10.2 of the Agreement may be made unless notice is given by the
party seeking such indemnification to the party from whom indemnification is
sought on or prior to the date on which the applicable representation or
warranty expires.
Section 10.5 SATISFACTION OF INDEMNIFICATION CLAIM. Except as
provided in the Shareholder Agreement, following the Effective Time any
indemnification or recovery by Parent or the Surviving Corporation under this
Agreement, any agreement or instrument contemplated hereby, any document
relating hereto or thereto or any Exhibit or Schedule to this Agreement or
otherwise relating to the transactions contemplated hereby shall be limited
solely to the Escrow Shares then in the Escrow Fund, and each Shareholder
Indemnitor's liability shall be limited to such Shareholder Indemnitor's pro
rata share of the Escrow Shares in accordance with the terms of the Escrow
Agreement. In all such cases, the value of the Parent Common Stock to be so
delivered shall be determined pursuant to the terms of the Escrow
Indemnification Agreement.
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Section 10.6 INDEMNIFICATION BASKET. The provisions for
indemnity contained in Section 10.1 shall become effective only in the event
that the aggregate amount of all indemnifiable damages for which the
Shareholder Indemnitors are liable under this Article XI exceeds $500,000
(the "INDEMNIFICATION BASKET"); PROVIDED, HOWEVER, that in the event the
indemnification damages for which the Shareholders are liable exceed the
Indemnification Basket, the Shareholder Indemnitors shall be responsible for
the entire amount of all such damages, consistent with Section 10.1 hereof;
and PROVIDED, FURTHER, that the foregoing limitation shall not apply in
respect of the indemnification obligations described in clause (3) of
Section 10.2. For purposes of determining whether the Indemnification Basket
has been satisfied with respect to any breach of the representations and
warranties contained in Article IV hereof that are qualified by the phrase
"Company Material Adverse Effect," any such representation or warranty so
qualified shall be deemed breached if it is untrue or incorrect, regardless
of whether such breach would or could have a Company Material Adverse Effect.
For the purposes of determining individual or aggregate Damages, the amount
of each claim shall be deemed to be an amount (i) net of any insurance
proceeds and any indemnity contribution or other similar payment recoverable
by the Indemnified Party or any Affiliate from any third party with respect
thereto, (ii) net of any reserves provided for the specific item in question
on the December Balance Sheet and (iii) net of any refund, credit or other
reduction in otherwise required Tax payments of the Indemnified Party of any
Affiliate thereof for the taxable period in which the indemnity payment is
mad, or (by reason of a carryback) any taxable period prior to the date of
such indemnity payment, which is attributable to or arising out of such
payment; provided, however, that the determination of any refund, credit or
other reduction in otherwise required Tax payments pursuant to this clause
(iii) shall be determined by the Parent in its sole and absolute discretion.
Section 10.7 FIRPTA AFFIDAVIT. At the Closing, the Company
shall provide an affidavit, in a form reasonably satisfactory to Parent,
stating under penalties of perjury that the Company is not and has never been
a United States real property holding corporation (as defined in section
897(c)(2) of the Code) (the "FIRPTA AFFIDAVIT").
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ARTICLE XI
DEFINITIONS AND INTERPRETATION
Section 11.1 DEFINITIONS. For all purposes of this Agreement,
except as otherwise expressly provided or unless the context clearly requires
otherwise:
"Acquisition Transaction" shall have the meaning set forth in
Section 6.2 hereof.
"Affiliate" shall have the meaning set forth in Rule 12b-2 of the
Exchange Act.
"Agreement" or "this Agreement" shall mean this Agreement and
Plan of Reorganization and Merger, together with the Exhibits and Schedules
hereto and the Company Disclosure Schedule.
"Ancillary Agreements" shall mean the Voting and Warrant Exercise
Agreement, the Shareholders Agreement and the Indemnification Escrow
Agreement.
"Application" shall mean the Application for Permit under Section
25121 of the California Corporations Code to be filed in accordance with
Section 4.8 of this Agreement with the California Department of Corporations,
including the disclosure documents relating thereto.
"Audits" shall have the meaning set forth in Section 4.12 hereof.
"Bylaws" shall mean the Bylaws of the Company.
"CGCL" shall mean the California General Corporation Law.
"Cancelled Shares" shall have the meaning set forth in Section 2.1
hereof.
"Certificate of Merger" shall have the meaning set forth in
Section 1.3 hereof.
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"Closing" shall mean the closing referred to in Section 1.2
hereof.
"Closing Date" shall mean the date on which the Closing occurs.
"Code" shall have the meaning set forth in the recitals hereto.
"Commissioner" shall mean the Commission of Corporations of the
State of California.
"Company" shall have the meaning set forth in the preamble
hereto.
"Company Articles" shall have the meaning set forth in 4.1 hereof.
"Company Benefit Plan" shall mean the Company's 1999 Stock Option
Plan.
"Company Board" shall mean the Board of Directors of the Company.
"Company Capital Stock" shall mean the Company Common Stock and
Company Preferred Stock.
"Company Certificates" shall have the meaning set forth in
Section 3.1 hereof.
"Company Common Stock" shall mean the common stock, no par value,
of the Company.
"Company Disclosure Schedule" shall have the meaning set forth in
Article IV.
"Company Financial Statements" shall have the meaning set forth
in Section 4.5 hereof.
"Company Intellectual Property" shall have the meaning set forth
in Section 4.14 hereof.
"Company Material Adverse Effect" shall have the meaning set
forth in Section 4.1 hereof.
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"Company Option" shall have the meaning set forth in Section 2.3
hereof.
"Company Preferred Stock" shall mean the Series A Preferred
Stock, no par value, of the Company.
"Company Required Vote" shall have the meaning set forth in
Section 8.1 hereof.
"Company Stock Plan" shall have the meaning set forth in Section 2.
"Company Warrants" shall have the meaning set forth in Section 2.2
hereof.
"Content" shall have the meaning set forth in Section 4.14 hereof.
"Copyrights" shall have the meaning set forth in Section 4.14
hereof.
"Current Taxes" shall have the meaning set forth in Section 4.12
hereof.
"CSL" shall have the meaning set forth in Section 4.4 hereof.
"CSL Permit" shall mean the permit issued by the Commissioner
authorizing the issuance of the Parent Common Stock pursuant to the terms and
conditions of this Agreement.
"Date Data" shall have the meaning set forth in Section 4.14
hereof.
"Damages" shall have the meaning set forth in Section 10.2 hereof.
"December Balance Sheet" shall have the meaning set forth in
Section 4.5 hereof.
"Dissenting Shares" shall have the meaning set forth in Section 3.3
hereof.
"Effective Time" shall have the meaning set forth in Section 1.3
hereof.
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"Environmental Claim" shall have the meaning set forth in
Section 4.18 hereof.
"Environmental Laws" shall have the meaning set forth in
Section 4.18 hereof.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"ERISA Affiliate" shall have the meaning set forth in Section 4.13
hereof.
"ERISA Plans" shall have the meaning set forth in Section 4.13
hereof.
"Escrow Shares" shall have the meaning set forth in Section 3.1
hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
"Exchange Agent" shall mean the Person or Persons designated by
the Parent and reasonably acceptable to the Company to act as exchange agent
for payment of the Merger Consideration.
"Exchange Fund" shall have the meaning set forth in Section 3.1
hereof.
"Exchange Ratio" shall have the meaning set forth in Section 2.2.
"Fairness Hearing" shall have the meaning set forth in Section 4.4
hereof.
"FIRPTA Affidavit" shall have the meaning set forth in Section 10.7
hereof.
"Fully Diluted Basis" - calculations made on a Fully Diluted
Basis shall include:
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(a) the number of shares of Company Common Stock
outstanding immediately prior to the Effective Time;
(b) the number of shares of Company Common Stock issuable
upon the conversion of any shares of Company Preferred Stock outstanding
immediately prior to the Effective Time;
(c) the number of shares of Company Common Stock issuable
upon the exercise of any Company Options outstanding immediately prior to the
Effective Time (whether or not such Company Options are then exercisable);
(d) the number of shares of Company Common Stock issuable
upon the exercise of any Company Warrants outstanding immediately prior to
the Effective Time (whether or not such Company Warrants are then
exercisable);
(e) the number of shares of Company Common Stock issuable
upon the exercise of, and, if applicable, subsequent conversion of, any other
rights to acquire any securities of the Company of any nature whatsoever; and
(f) the reduction in the number of shares of Company
Common Stock received by a holder of any Company Option or Company Warrant as
a result of a "cashless exercise" of such Company Option or Company Warrant
at any time between February 16, 2000 and the Effective Time.
"Governmental Entity" shall have the meaning set forth in
Section 4.4 hereof.
"Hearing Notice" shall have the meaning set forth in Section 7.1
hereof.
"Hearing Request" shall have the meaning set forth in Section
7.1 hereof.
"Indebtedness" shall have the meaning set forth in Section 4.2
hereof.
"Indemnification Escrow Agreement" shall have the meaning set
forth in the recitals hereto.
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"Indemnification Basket" shall have the meaning set forth in
Section 10.6 hereof.
"Indemnified Parties" shall have the meaning set forth in
Section 10.2 hereof.
"Information Statement"shall have the meaning set forth in
Section 4.8 hereof.
"Intellectual Property" shall have the meaning set forth in
Section 4.14 hereof.
"Letter of Transmittal" shall have the meaning set forth in
Section 3.1 hereof.
"License Agreements" shall have the meaning set forth in
Section 4.14 hereof.
"Lien" shall have the meaning set forth in Section 4.4 hereof.
"Loan Obligations" shall have the meaning set forth in Section 7.7
hereof.
"Losses" shall have the meaning set forth in Section 7.3 hereof.
"Materials of Environmental Concern" shall have the meaning set
forth in Section 4.18 hereof.
"Merger" shall have the meaning set forth in the recitals hereto.
"Merger Consideration" shall have the meaning set forth in
Section 2.2.
"Merger Sub" shall have the meaning set forth in the preamble
hereto.
"Notice Materials" shall have the meaning set forth in Section 7.1
hereof.
"Parent" shall have the meaning set forth in the preamble hereto.
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"Parent Common Stock" shall have the meaning set forth in
Section 2.2 hereof.
"Parent Material Adverse Effect" shall have the meaning set
forth in Section 5.1 hereof.
"Parent SEC Documents" shall have the meaning set forth in
Section 5.5 hereof.
"Parent Shares" shall have the meaning set forth in Section 2.2
hereof.
"Patents" shall have the meaning set forth in Section 4.14 hereof.
"PBGC" shall have the meanings set forth in Section 4.13 hereof.
"Person" shall mean a natural person, partnership, corporation,
limited liability company, business trust, joint stock company, trust,
unincorporated association, joint venture, Governmental Entity or other
entity or organization.
"Proceeding" shall have the meaning set forth in Section 7.3
hereof.
"Promissory Note" shall mean the Convertible Promissory Note of
the Company payable to Parent, dated January 28, 2000.
"Secretary of State" shall mean the Secretary of State of the
State of California.
"Plans" shall have the meaning set forth in Section 4.13 hereof.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Shareholder Agreement" shall have the meaning set forth in
Section 8.2 hereof.
"Shareholders" shall mean the holders of the Company Capital
Stock and Company Warrants.
"Software" shall have the meaning set forth in Section 4.14 hereof.
72
"Special Meeting" shall mean the special meeting of Shareholders
convened for the purpose of approving and adopting this Agreement and the
transactions contemplated herein.
"Subsidiary" shall mean, with respect to any person, any
corporation or other organization, whether incorporated or unincorporated, of
which (i) at least a majority of the securities or other interests having by
their terms ordinary 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 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 or (ii) such party or any
other Subsidiary of such party is a general partner (excluding any such
partnership where such party or any Subsidiary of such party does not have a
majority of the voting interest in such partnership).
"Surviving Corporation" shall mean the successor or surviving
corporation in the Merger.
"System" shall have the meaning set forth in Section 4.14 hereof.
"Tax" or "Taxes" shall have the meaning set forth in Section 4.12
hereof.
"Tax Return" shall have the meaning set forth in Section 4.12
hereof.
"Termination Fee" shall mean $5,000,000.
"Third Party Claim" shall have the meaning set forth in Section 10.3
hereof.
"Trade Secrets" shall have the meaning set forth in Section 4.14
hereof.
"Trademarks" shall have the meaning set forth in Section 4.14
hereof.
"US GAAP" shall have the meaning set forth in Section 4.5 hereof.
"Voting Debt" shall have the meaning set forth in Section 4.2
hereof.
00
"XXXX Xxx" shall have the meaning set forth in Section 4.16 hereof.
"Year 2000 Compliant" and "Year 2000 Compliance" shall have the
meaning set forth in Section 4.14 hereof.
Section 11.2 INTERPRETATION.
(a) When a reference is made in this Agreement to a section or
article, such reference shall be to a section or article of this Agreement
unless otherwise clearly indicated to the contrary.
(b) Whenever the words "include," "includes" or "including" are
used in this Agreement they shall be deemed to be followed by the words
"without limitation."
(c) The words "hereof," "herein" and "herewith" and words of
similar import shall, unless otherwise stated, be construed to refer to this
Agreement as a whole and not to any particular provision of this Agreement,
and article, section, paragraph, exhibit and schedule references are to the
articles, sections, paragraphs, exhibits and schedules of this Agreement
unless otherwise specified.
(d) The plural of any defined term shall have a meaning
correlative to such defined term and words denoting any gender shall include
all genders. Where a word or phrase is defined herein, each of its other
grammatical forms shall have a corresponding meaning.
(e) A reference to any party to this Agreement or any other
agreement or document shall include such party's successors and permitted
assigns.
(f) A reference to any legislation or to any provision of any
legislation shall include any modification or re-enactment thereof, any
legislative provision substituted therefor and all regulations and statutory
instruments issued thereunder or pursuant thereto.
(g) The parties have participated jointly in the negotiation
and drafting of this Agreement. In the event an ambiguity or question of
intent or interpretation arises, this Agreement shall be construed as if
drafted jointly by the parties, and no presumption or burden of proof shall
arise favoring or disfavoring any party by virtue of the authorship of any
provisions of this Agreement.
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ARTICLE XII
MISCELLANEOUS
Section 12.1 FEES AND EXPENSES. Except as specifically provided
to the contrary in this Agreement, all costs and expenses incurred in
connection with this Agreement and the consummation of the Merger shall be
paid by the party incurring such expenses; PROVIDED, that (i) any fees and
expenses of the Company in excess of $800,000 incurred in connection with
this Agreement and the consummation of the Merger shall be borne by the
Shareholder Indemnitors and (ii) if any legal action is instituted to enforce
or interpret the terms of this Agreement, the prevailing party in such action
shall be entitled, in addition to any other relief to which the party is
entitled, to reimbursement of its actual attorneys fees.
Section 12.2 AMENDMENT. This Agreement may be amended by the
written agreement by each of the parties hereto but no amendment shall be
made that by law requires further approval by the Shareholders without such
approval. This Agreement may not be amended except by an instrument in
writing signed on behalf of Parent, Merger Sub and the Company.
Section 12.3 EXTENSION; WAIVER. At any time prior to the
Effective Time, the parties hereto may, to the extent legally allowed, (i)
extend the time for the performance of any of the obligations or other acts
of the other parties hereto, (ii) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (iii) waive compliance with any of the agreements or
conditions contained herein. Any agreement on the part of a party hereto to
any such extension or waiver shall be valid only if set forth in a written
instrument signed on behalf of such party.
Section 12.4 NOTICES. All notices and other communications
hereunder shall be in writing (and shall be deemed given upon receipt) if
delivered personally, sent by facsimile transmission (receipt of which is
confirmed) or by mail to the parties at the following addresses (or at such
other address for a party as shall be specified by like notice):
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(a) if to the Company, to
SDR Technologies, Inc.
00000 Xx Xxxx Xxxxx, Xxxxx 000
Xxxxxxxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxx Xxxxxxx
Facsimile No.: (000) 000-0000
with a copy to:
Troop Xxxxxxx Xxxxxx Xxxxxxx & Xxxxx, LLP
0000 Xxxxxxx Xxxx Xxxx, 00xx Xxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: V. Xxxxxx Xxxxxx, Esq.
Facsimile No.: (000) 000-0000
and
(b) if to Parent, to
National Information Consortium, Inc.
00000 Xxxxxx Xxxxxx
Xxxxx 000, 12 Corporate Xxxxx
Xxxxxxxx Xxxx, Xxxxxx 00000
Attention: Xxxxx Childress
Facsimile No.: (000) 000-0000
with a copy to:
Skadden, Arps, Slate, Xxxxxxx & Xxxx LLP
000 X. Xxxxx Xxxxxx, Xxxxx 0000
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxx X. Xxxxxx, Esq.
Facsimile No.: (000) 000-0000
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Section 12.5 DESCRIPTIVE HEADINGS. The descriptive headings
herein are inserted for convenience only and are not intended to be part of
or to affect the meaning or interpretation of this Agreement.
Section 12.6 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 12.7 ENTIRE AGREEMENT; ASSIGNMENT. This Agreement
(including the Exhibits and Schedules attached hereto) together with the
agreements to be delivered at Closing (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, any
provisions of any such latter agreement which are inconsistent with the
transactions contemplated by this Agreement being waived hereby, and (b)
shall not be assigned by operation of law or otherwise except that Parent and
Merger Sub may assign, in their sole discretion, any or all of their rights,
interests and obligations hereunder to any direct or indirect wholly or
majority owned Subsidiary or Affiliate of Parent; PROVIDED, HOWEVER, that
such assignment shall not relieve Parent of its obligations hereunder.
Section 12.8 GOVERNING LAW. This Agreement shall be governed
and construed in accordance with the laws of the State of California without
regard to any applicable principles of conflicts of law.
Section 12.9 SPECIFIC PERFORMANCE. The parties hereto agree
that if any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached, irreparable
damage would occur, no adequate remedy at law would exist and damages would
be difficult to determine, and that the parties shall be entitled to specific
performance of the terms hereof, in addition to any other remedy at law or
equity.
Section 12.10 PARTIES IN INTEREST. Except as set forth in
Sections 7.3 and 10.2 hereof (which are intended to be for the benefit of the
Persons referred to therein and their beneficiaries, and may be enforced by
such Persons as intended third-party beneficiaries), this Agreement shall be
binding upon and inure solely to the benefit of each party hereto, and
nothing in this Agreement, express or implied, is
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intended to or shall confer upon any other Person or Persons any rights,
benefits or remedies of any nature whatsoever under or by reason of this
Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be signed by their respective officers thereunto duly authorized as of the
date first written above.
NATIONAL INFORMATION CONSORTIUM, INC.
By:
--------------------------------
Name:
Title:
SDR ACQUISITION CORP.
By:
--------------------------------
Name:
Title:
SDR TECHNOLOGIES, INC.
By:
-----------------------------
Name:
Title:
