Exhibit 10.25
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
XXXXXXXXXXXXX.XXX,
AND
XXXXXX.XXX, INC.
October 25, 1999
TABLE OF CONTENTS
Page
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SCHEDULES
Company Disclosure Schedule
Buyer Disclosure Schedule
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AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and
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entered into as of October 25, 1999, by and among XxxxxxXxxxxxx.xxx, a
California corporation ("Buyer"), XxXxxx.xxx, Inc., a California corporation
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("Company"), and the Company Shareholders listed on the signature page hereto.
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RECITALS
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A. The Boards of Directors of the Company and Buyer believe it is in the
best interests of their respective companies and the shareholders of their
respective companies that Company and Buyer combine into a single company
through the statutory merger of Company with and into Buyer (the "Merger") and,
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in furtherance thereof, have approved the Merger.
B. Pursuant to the Merger, among other things, all outstanding shares of
common stock of the Company shall be converted into shares of common stock of
the Buyer (the "Buyer Common Stock") at the rate specified herein.
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C. The Company and Buyer desire to make certain representations and
warranties and other agreements in connection with the Merger.
D. As a condition and inducement to Buyer's willingness to enter into
this Agreement, the Company shareholders holding all of the issued and
outstanding capital stock of the Company have, concurrently with the execution
of this Agreement, executed and delivered a Written Consent of Shareholders in
the form attached as Exhibit A (the "Shareholder Consent"), pursuant to which
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such shareholders have, among other things, approved this Agreement, the Merger
and the transactions contemplated hereby.
E. As a condition and inducement to Buyer's willingness to enter into
this Agreement, the Company and Xxxxxx Xxxxxx Partners ("TWP") have,
concurrently with the execution of this Agreement, executed and delivered an
amendment to that certain engagement letter dated July 1, 1999 between Xxxxxx
and the Company, in the form attached as Exhibit B.
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NOW, THEREFORE, in consideration of the covenants and representations set
forth herein, and for other good and valuable consideration, the parties agree
as follows:
ARTICLE I
THE MERGER
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1.1 The Merger. At the Effective Time (as defined in Section 1.2) and
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subject to and upon the terms and conditions of this Agreement, the Agreement of
Merger attached hereto as Exhibit 1.1 (the "Agreement of Merger") and the
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applicable provisions of the California General Corporations Law ("California
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Law"), Company shall be merged with and into Buyer, the separate corporate
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existence of Company shall cease and Buyer shall continue as the surviving
corporation. Buyer as the surviving corporation after the Merger is hereinafter
sometimes referred to as the "Surviving Corporation."
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1.2 Closing; Effective Time. The closing of the transactions contemplated
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hereby (the "Closing") shall take place as soon as practicable after the
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satisfaction or waiver of each of the conditions set forth in Article VI hereof
or at such other time as the parties hereto agree (the "Closing Date"). The
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Closing shall take place at the offices of Venture Law Group, 0000 Xxxx Xxxx
Xxxx, Xxxxx Xxxx, Xxxxxxxxxx, or at such other location as the parties hereto
agree. In connection with the Closing, the parties hereto shall cause the Merger
to be consummated by filing the Agreement of Merger, together with the required
officers' certificates, with the Secretary of State of the State of California,
in accordance with the relevant provisions of California Law (the time of such
filing being the "Effective Time").
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1.3 Effect of the Merger. At the Effective Time, the effect of the Merger
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shall be as provided in this Agreement, the Agreement of Merger and the
applicable provisions of California Law. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time, all the property, rights,
privileges, powers and franchises of Company shall vest in the Surviving
Corporation, and all debts, liabilities and duties of Company shall become the
debts, liabilities and duties of the Surviving Corporation.
1.4 Charter Documents; Bylaws.
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(a) At the Effective Time, the Articles of Incorporation of Buyer,
as in effect immediately prior to the Effective Time, shall become the Articles
of Incorporation of the Surviving Corporation until thereafter amended as
provided by California Law and such Articles of Incorporation.
(b) The Bylaws of Buyer, as in effect immediately prior to the
Effective Time, shall become the Bylaws of the Surviving Corporation until
thereafter amended.
1.5 Directors and Officers. At the Effective Time, the directors of
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Buyer, as in effect immediately prior to the Effective Time, shall become the
directors of the Surviving Corporation, until their respective successors are
duly elected or appointed and qualified. The officers of Buyer, as in effect
immediately prior to the Effective Time, shall become the officers of the
Surviving Corporation until their respective successors are duly elected or
appointed and qualified.
1.6 Effect on Capital Stock.
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(a) Merger Consideration
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(i) Merger Share Number. Subject to Section 1.6(b) below, the
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aggregate number of shares of Buyer Common Stock to be issued in exchange for
all outstanding shares of common stock of the Company immediately prior to the
Effective Time, after the conversion of all options, warrants and rights to
purchase shares of Company Common Stock, if any (the "Aggregate Company
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Shares") shall be 673,000 shares (before giving effect to the Buyer's proposed
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1.4 for 1 stock split), as shall be appropriately adjusted to reflect the effect
of
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any stock split, reverse stock split, stock dividend or the like with respect
to the Buyer Common Stock occurring after the date hereof and prior to the
Effective Time (the "Merger Share Number").
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(ii) Note. In addition, at the Effective Time, each shareholder of
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the Company immediately prior to the Effective Time (a "Company Shareholder"
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and, collectively, the "Company Shareholders") shall receive a promissory note
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executed by the Buyer (a "Note," and, collectively, the "Notes") in the form
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attached as Exhibit 1.6(a) in an amount equal to: the product of (1) $2,600,000
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(the "Aggregate Cash Consideration") multiplied by (2) the quotient of (i) the
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number of shares of Company Common Stock owned by such shareholder immediately
prior to the Effective Time, divided by (ii) the Aggregate Company Shares.
(b) Conversion of Company Common Stock. Subject to the terms and
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conditions of this Agreement and the Agreement of Merger 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, at the Effective Time, each share of
Company Common Stock issued and outstanding immediately prior to the Effective
Time (other than shares to be canceled pursuant to Section 1.6(d)) shall be
converted into the right to receive, subject to the provisions of Section 1.6(e)
and Section 1.11:
(i) that number of shares of Buyer Common Stock determined by
dividing (i) the Merger Share Number less the Excess Expense Shares (as defined
in Section 5.7) and less the TWP Shares (as defined in Section 5.11) (ii) by the
Aggregate Company Shares, and
(ii) a Note, as determined in accordance with Section
1.6(a)(ii).
The aggregate number of shares of Buyer Common Stock issued to holders of
Company Common Stock in the Merger are the "Merger Shares."
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(c) No Conversion of Warrants, Options or Other Rights to Purchase
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Company Common Stock. Immediately prior to the Effective Time, each warrant,
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option and other right to purchase Company Common Stock issued and outstanding
immediately prior to the Effective Time shall be exercised (to the extent such
option, warrant or right is exercisable at such time) or terminated.
(d) Cancellation of Company Common Stock Owned by Company. At the
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Effective Time, all shares of Company Common Stock that are owned by Company as
treasury stock immediately prior to the Effective Time shall be canceled and
extinguished without any conversion thereof.
(e) Fractional Shares. No fraction of a share of Buyer Common Stock
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will be issued, but in lieu thereof each holder of shares of Company Common
Stock who would otherwise be entitled to a fraction of a share of Buyer Common
Stock (after aggregating all fractional shares of Buyer Common Stock to be
received by such holder) shall receive from Buyer such whole number of shares of
Buyer Common Stock as is equal to the precise number of shares of Buyer Common
Stock to which such person would be entitled, rounded up or down to
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the nearest whole number (with a fractional interest equal to .5 rounded to the
next greater number).
1.7 Surrender of Certificates.
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(a) Buyer to Provide Merger Shares and Notes. Promptly after the
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Effective Time, Buyer shall make available for exchange in accordance with this
Article I, through such reasonable procedures as Buyer may adopt, (A) the shares
of Buyer Common Stock issuable pursuant to Section 1.6(b) in exchange for shares
of Company Common Stock outstanding immediately prior to the Effective Time,
less the Escrow Shares, and (B) the Notes. The portion of the Escrow Shares
contributed on behalf of each Company Shareholder shall be in proportion to the
aggregate number of Merger Shares which such Company Shareholder would otherwise
be entitled to receive in the Merger by virtue of such Company Shareholder's
percentage ownership of outstanding shares of Company Common Stock immediately
prior to the Effective Time (the "Pro Rata Portion").
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(b) Exchange Procedures. The Company will deliver to Buyer at
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closing all certificates (the "Certificates") which immediately prior to the
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Effective Time represented outstanding shares of Company Common Stock, whose
shares were converted into the right to receive Merger Shares and a Note
pursuant to Section 1.6, with duly and validly executed stock powers
transferring such Certificates to Buyer. Upon surrender of a Certificate for
cancellation to Buyer, the holder of such Certificate shall be entitled to
receive in exchange therefor a certificate representing the number of whole
shares of Buyer Common Stock which such holder has the right to receive pursuant
to Section 1.6 (less the number of Escrow Shares pursuant to Section 1.11
hereof) and a Note, and the Certificate so surrendered shall forthwith be
canceled. Until so surrendered, each outstanding Certificate that, prior to the
Effective Time, represented shares of Company Common Stock will be deemed from
and after the Effective Time, for all corporate purposes, other than the payment
of dividends, to evidence the ownership of the number of full shares of Buyer
Common Stock into which such shares of Company Capital Stock shall have been so
converted in accordance with Section 1.6 and a Note. Buyer shall be responsible
for the payment of all transfer or other taxes required by reason of the
issuance of certificates for shares of Buyer Common Stock to Company
Shareholders who are United States residents.
(c) Transfers of Ownership. If any certificate for shares of Buyer
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Common Stock is to be issued in a name other than that in which the Certificate
surrendered in exchange therefor is registered, it will be a condition of the
issuance thereof that the Certificate so surrendered will be properly endorsed
and otherwise in proper form for transfer and that the person requesting such
exchange will have paid to Buyer any transfer or other taxes required by reason
of the issuance of a certificate for shares of Buyer Common Stock in any name
other than that of the registered holder of the Certificate surrendered, or
established to the satisfaction of Buyer or any agent designated by it that such
tax has been paid or is not payable.
(d) No Liability. Notwithstanding anything to the contrary in this
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Section 1.7, none of the Buyer, the Surviving Corporation or any party hereto
shall be liable to any person for
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any amount properly paid to a public official pursuant to any applicable
abandoned property, escheat or similar law.
1.8 No Further Ownership Rights in Company Common Stock. The shares of
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Buyer Common Stock and Note issued upon the surrender for exchange of shares of
Company Common Stock in accordance with the terms hereof (together with the
Escrow Shares) shall be deemed to have been issued in full satisfaction of all
rights pertaining to such shares of Company Common Stock, and there shall be no
further registration of transfers on the records of the Surviving Corporation of
shares of Company Common Stock which were outstanding immediately prior to the
Effective Time. If, after the Effective Time, Certificates are presented to the
Surviving Corporation for any reason, they shall be canceled and exchanged as
provided in this Article I.
1.9 Tax Consequences. It is intended by the parties hereto that the
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Merger shall constitute a reorganization within the meaning of Section 368 of
the Code and the parties hereto agree to report it as such for all tax purposes.
1.10 Escrow Agreement. At the Effective Time, Buyer will, on behalf of
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the Company Shareholders deposit in escrow certificates representing fifteen
percent (15%) of the Merger Shares (the "Escrow Shares"). The Escrow Shares
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shall be held in escrow on behalf of the Company Shareholders in accordance with
each holder's Pro Rata Portion. The Escrow Shares shall be held and applied
pursuant to the provisions of an escrow agreement (the "Escrow Agreement") to be
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executed pursuant to Sections 6.2 and 6.3. The Escrow Agreement shall terminate
six (6) months after the Closing, provided that if a proper notice of claim is
given in accordance with the Escrow Agreement before the expiration of such six
month period, an amount equal to any claimed amount which has not been resolved
at such termination date shall be retained in escrow until the resolution of
such claim. All calculations to determine the number of Escrow Shares to be
delivered by each Company Shareholder into escrow as aforesaid shall be rounded
up or down to the nearest whole share.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF COMPANY
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The Company and each of the Company Shareholders represents and warrants to
the Buyer that the statements contained in this Article II are true and correct,
except as set forth in the disclosure schedule attached hereto (the "Company
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Disclosure Schedule"). The Company Disclosure Schedule shall be arranged in
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paragraphs corresponding to the numbered and lettered paragraphs contained in
this Article II, and the disclosures in any paragraph of the Company Disclosure
Schedule shall qualify any other paragraph in this Article II where such
disclosure would be appropriate to the extent that it is clear from such
disclosure that it relates to such other paragraph.
2.1 Organization, Qualification and Corporate Power. The Company is a
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corporation duly incorporated or formed, validly existing and in corporate and
tax good standing under the laws of the state of California. The Company is
duly qualified to conduct business and is in
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corporate and tax good standing under the laws of each jurisdiction in which the
failure to be so qualified would have a Material Adverse Effect. The Company has
all requisite corporate power and authority to carry on the businesses in which
it is engaged and to own and use the properties owned and used by it. The
Company has furnished to the Buyer true and complete copies of its Articles of
Incorporation and Bylaws, each as amended and as in effect on the date hereof.
The Company is not in default under or in violation of any provision of its
Articles of Incorporation or Bylaws.
2.2 Capitalization. The authorized capital stock of the Company
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consists of 10,000,000 shares of Common Stock of the Company, of which 2,000
shares are issued and outstanding and no shares are held in the treasury of the
Company. Section 2.2 of the Company Disclosure Schedule sets forth a complete
and accurate list of all Company Shareholders, indicating the number of shares
of Company Common Stock held by each Company Shareholder. All of the issued and
outstanding shares of Company Common Stock are duly authorized, validly issued,
fully paid, nonassessable and free of all preemptive rights. There are no
outstanding or authorized options, warrants, rights, agreements or commitments
to which the Company is a party or which are binding upon the Company providing
for the issuance, disposition or acquisition of any of its capital stock. There
are no outstanding or authorized stock appreciation, phantom stock or similar
rights with respect to the Company. There are no agreements, voting trusts,
proxies, or understandings with respect to the voting, or registration under the
Securities Act of 1933, as amended (the "Securities Act"), of any shares of
Company Common Stock. All of the issued and outstanding shares of Company
Common Stock were issued in compliance with applicable federal and state
securities laws.
2.3 Authorization of Transaction. The Company has all requisite corporate
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power and authority to execute and deliver this Agreement and to perform its
obligations hereunder and under each of the other agreements and instruments to
be executed and delivered by some or all of the parties hereto in connection
with the consummation of the transactions contemplated hereby (the "Transaction
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Documents") to which the Company is a party. All corporate action on the part of
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the Company, its officers, directors and shareholders necessary for the
authorization, execution and delivery of this Agreement , the Transaction
Documents and the performance of all obligations of the Company hereunder and
thereunder has been taken or will be taken prior to the Closing, and this
Agreement constitutes, and each of the Transaction Documents to which the
Company will be a party, will constitute, a valid and legally binding obligation
of the Company, enforceable in accordance with its respective terms, except (i)
as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and
other laws of general application affecting enforcement of creditors' rights
generally, and (ii) as limited by laws relating to the availability of specific
performance, injunctive relief, or other general equitable remedies .
2.4 Compliance with Laws and Other Instruments. The Company is not in
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violation or default of any provision of Articles of Incorporation or Bylaws,
or, to the best of its knowledge, of any instrument, judgment, order, writ,
decree, lease, license, permit, contract or other arrangement to which it is a
party or by which it is bound. The Company is not in violation of copyright
laws with respect to the Company's use and posting of information on its
website, and, to the best of its knowledge, the Company is not in violation of
any other provision of any federal or state statute, rule or regulation
applicable to the Company. The execution, delivery
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and performance of this Agreement, and the consummation of the transactions
contemplated hereby, will not result in any such violation or default, or be in
conflict with or constitute, with or without the passage of time and giving of
notice, either a default under any such provision, instrument, judgment, order,
writ, decree, lease, license, permit, contract or other arrangement or an event
that results in the creation of any lien, charge or encumbrance upon any assets
of the Company or the suspension, revocation, impairment, forfeiture, or
nonrenewal of any permit, license, authorization, or approval applicable to the
Company, its business or operations or any of its assets or properties, or
result in the acceleration of, or create in any party the right to accelerate,
terminate, modify or cancel, or require any notice, consent or waiver under, any
contract, lease, license, permit or other arrangement to which the Company is a
party or by which the Company is bound or to which its assets are subject. For
purposes of this Agreement, a "Material Adverse Effect" means, with respect to a
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party, any material adverse effect on the assets, business, financial condition
or the results of operations of such party and its subsidiaries, if any, taken
as a whole.
2.5 Subsidiaries. The Company does not have and has never had any
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subsidiaries or entities which it controls (as defined under federal securities
laws) and does not otherwise own and has never otherwise owned any shares of
stock or any interest in, or control of, directly or indirectly, any other
corporation, partnership, association, joint venture or entity.
2.6 Company Financial Statements. The Company has attached hereto as
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Section 2.6 to the Company Disclosure Schedule the unaudited balance sheet and
statements of income, changes in shareholders' equity and cash flows for the
period from the Company's incorporation through September 30, 1999 for the
Company (the "Company's Most Recent Balance Sheet Date"). Such financial
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statements (collectively, the "Company Financial Statements") have been prepared
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in accordance with United States generally accepted accounting principles
("GAAP") applied on a consistent basis throughout the periods covered thereby,
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fairly present the financial condition, results of operations and cash flows of
the Company as of the respective dates thereof and for the periods referred to
therein and are consistent with the books and records of the Company; provided,
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however, that the Company Financial Statements are subject to normal recurring
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year-end adjustments (which will not be material) and do not include footnotes.
2.7 Absence of Certain Changes. Since the Company's Most Recent Balance
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Sheet Date, there has not been any material adverse change in the assets,
business, financial condition or results of operations of the Company, nor has
there occurred any event or development which could reasonably be foreseen to
result in such a material adverse change in the future.
2.8 No Undisclosed Liabilities. The Company has no liability (whether
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known or unknown, whether absolute or contingent, whether liquidated or
unliquidated and whether due or to become due), and there is no existing
condition, situation or set of circumstances which could reasonably be expected
to result in such a liability, except for (a) liabilities shown on the September
30, 1999 (the "Company's Most Recent Balance Sheet Date") balance sheet (the
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"Company's Most Recent Balance Sheet"), (b) liabilities which have arisen since
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the Company's Most Recent Balance Sheet Date in the ordinary course of business
consistent with past custom and practice (including with respect to frequency
and amount) ("Ordinary Course of Business"), (c) contractual liabilities
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incurred in the Ordinary Course of Business which are not required by
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XXXX to be reflected on a balance sheet and (d) liabilities for accounting,
investment banking and legal fees incurred in connection with the Merger and the
transactions contemplated thereby in an amount not in excess of $830,000.
2.9 Tax Matters.
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(a) The Company has filed all Tax Returns (as defined below) that
it was required to file and all such Tax Returns were correct and complete in
all material respects. The Company has paid all Taxes (as defined below) owed in
respect of the periods covered by such Tax Returns whether or not shown as due
on such Tax Return. The unpaid Taxes of the Company for tax periods through the
date of the Company's Most Recent Balance Sheet do not exceed the accruals and
reserves for Taxes set forth on the Company's Most Recent Balance Sheet, and no
Taxes have been or prior to the Closing will be incurred by the Company. The
Company has no actual or potential liability for any Tax obligation of any
taxpayer (including without limitation any affiliated group of corporations or
other entities that included the Company during a prior period) other than the
Company. All Taxes that the Company is or was required by law to withhold or
collect have been duly withheld or collected and, to the extent required, have
been paid to the proper Governmental Entity (as defined below). For purposes of
this Agreement, "Taxes" means all taxes, charges, fees, levies or other similar
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assessments or liabilities, including without limitation income, gross receipts,
ad valorem, premium, value-added, excise, real property, personal property,
sales, use, transfer, withholding, employment, payroll and franchise taxes
imposed by the United States of America or any state, local or foreign
government, or any agency thereof, or other political subdivision of the United
States or any such government, and any interest, fines, penalties, assessments
or additions to tax resulting from, attributable to or incurred in connection
with any tax or any contest or dispute thereof. For purposes of this Agreement,
"Tax Returns" means all reports, returns, declarations, statements or other
information required to be supplied to a taxing authority in connection with
Taxes. For purposes of this Agreement, "Governmental Entity" means any
government, municipality or political subdivision thereof, whether federal,
state, local or foreign, or any governmental or quasi-governmental agency,
authority, board, bureau, commission, department, instrumentality or public
body, or any court, arbitrator, administrative tribunal or public utility.
(b) The Company has not yet been obligated to file any federal
income Tax Returns. The Company has never had any examination reports or
statements of deficiencies assessed against it. No Tax Returns of the Company
have been audited by any Governmental Entity. No examination or audit of any Tax
Returns of the Company by any Governmental Entity is currently in progress or,
to the knowledge of the Company, threatened or contemplated. The Company has not
waived any statute of limitations with respect to taxes or agreed to an
extension of time with respect to a tax assessment or deficiency.
(c) The Company is not a "consenting corporation" within the meaning
of Section 341(f) of the Internal Revenue Code ("Code") and none of the assets
of the Company are subject to an election under Section 341(f) of the Code. The
Company has not been a United States real property holding corporation within
the meaning of Section 897(c)(2) of the Code during the applicable period
specified in Section 897(c)(l)(A)(ii) of the Code. The Company is not a party to
any Tax allocation or sharing agreement.
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(d) The Company is not and has never been a member of an "affiliated
group" of corporations (within the meaning of Section 1504 of the Code). The
Company has not made an election under Treasury Reg. Section 1.1502-20(g). The
Company is not and has not been required to make a basis reduction pursuant to
Treasury Reg. Section 1.1502-20(b) or Treasury Reg. Section 1.337(d)-2T(b).
(e) As of the date of this Agreement and as of the Closing Date, the
Company has not, and will not have, taken any action that could reasonably be
expected to cause the Merger to fail to qualify as a reorganization within the
meaning of Section 368(a) of the Code.
2.10 Assets. The Company has good and defensible title to all properties,
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interests in properties and assets, real and personal, necessary for the conduct
of its business as presently conducted and as presently proposed to be
conducted, all of which are reflected in the Company's Most Recent Balance Sheet
(except properties, interests in properties and assets sold or otherwise
disposed of since the Company's Most Recent Balance Sheet Date in the ordinary
course of business) or acquired after the Most Recent Balance Sheet Date, or
with respect to leased properties and assets, valid leasehold interests in, free
and clear of all mortgages, liens, pledges, charges or encumbrances of any kind
or character, except the lien of current taxes not yet due and payable. The
plants, property and equipment of Company that are used in the operations of its
business are in good operating condition and repair subject to ordinary wear and
tear and to requirements for periodic maintenance. All properties used in the
operations of Company, except for those acquired after the Most Recent Balance
Sheet Date, are reflected in the Company's Most Recent Balance Sheet to the
extent required by GAAP. Section 2.10 of the Company Disclosure Schedule
identifies all personal property leases. No asset of the Company (tangible or
intangible) is subject to any Security Interest except as listed on Section 2.10
of the Company Disclosure Schedule. For purposes of this Agreement, "Security
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Interest" means any mortgage, pledge, security interest, encumbrance, charge, or
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other lien (whether arising by contract or by operation of law), other than (i)
mechanic's, materialmen's, and similar liens, (ii) liens arising under worker's
compensation, unemployment insurance, social security, retirement, and similar
legislation, (iii) liens on goods in transit incurred pursuant to documentary
letters of credit, and (iv) liens for Taxes not yet due and payable, in each
case arising in the Ordinary Course of Business of the Company and not material
to the Company. The Company does not own or lease any real property.
2.11 Intellectual Property.
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(a) The Company owns, or licenses or otherwise possesses legally
enforceable rights to use, all patents, trademarks, trade names, service marks,
Internet domain names, copyrights, and any applications for such patents,
trademarks, trade names, service marks, Internet domain names and copyrights,
schematics, technology, trade secrets, know-how, computer software programs or
applications, processes and other tangible or intangible proprietary information
or material that are used to conduct its business as currently conducted, or
currently planned to be conducted, including without limitation the technology,
information, databases, data lists, data compilations, and all proprietary
rights developed or discovered or used in connection with or contained in all
versions and implementations of any World Wide Web sites, free and clear of all
liens, claims and encumbrances (including without limitation licensing
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and distribution rights) all of which are "Intellectual Property." Section 2.11
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of the Company Disclosure Schedule contains an accurate and complete (i) list of
all patents and patent applications and all trademarks (indicating registered
and unregistered trademarks) and applications therefor, registered copyrights,
trade names, service marks and Internet domain names owned or licensed by the
Company, including the jurisdictions in which each such Intellectual Property
right has been issued or registered or in which any such application for such
issuance or registration has been filed, (ii) list of all written licenses,
sublicenses and other agreements to which the Company is a party and pursuant to
which any person is authorized to use any Intellectual Property rights of the
Company, and (iii) list of all written licenses, sublicenses and other
agreements as to which the Company is a party and pursuant to which the Company
is authorized to use any third party Intellectual Property ("Company Third Party
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Intellectual Property Rights"). The Company is not a party to any oral license,
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sublicense or agreement which, if reduced to written form, would be required to
be listed in Section 2.11 of the Company Disclosure Schedule under the terms of
this Section 2.11(a).
(b) All of the Company's patents, copyrights, trademarks, trade
names or Internet domain name registrations related to its current or currently
proposed business are valid and in full force and effect and will not be altered
or impaired by the consummation of the transactions contemplated hereby. The
Company is not, and will not be as a result of the execution and delivery of
this Agreement or the performance of the Company's obligations under this
Agreement, in breach of any license, sublicense or other agreement relating to
the Company's Intellectual Property or Company Third Party Intellectual Property
Rights.
(c) Neither the Company nor, to the Company's knowledge, any of the
Company's employees has received a claim, or is aware of a reasonable basis for
a claim, of infringement or violation of any Intellectual Property right of any
third party. The manufacturing, marketing, licensing or sale of the products or
performance of the service offerings of the Company do not infringe or violate
any Intellectual Property right of any third party; and, to the knowledge of the
Company, the Intellectual Property rights of the Company are not being infringed
or violated by activities, products or services of any third party.
2.12 Contracts. Section 2.12 of the Company Disclosure Schedule lists
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all material written agreements to which the Company is a party or by which it
is bound, including but not limited to:
(a) any written arrangement for the provision of products or
services to customers or other third parties;
(b) any written arrangement for the purchase of raw materials,
commodities, supplies, products or other personal property or for the receipt of
consulting or other services;
(c) any written arrangement establishing a partnership, joint
venture development, marketing or distribution arrangement;
(d) any written arrangement under which it has created, incurred,
assumed, or guaranteed (or may create, incur, assume, or guarantee) indebtedness
(including capitalized lease
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obligations) or under which it has imposed (or may impose) a Security Interest
on any of its assets, tangible or intangible;
(e) any written arrangement concerning confidentiality or
noncompetition (other than standard confidentiality agreements between the
Company and any of its employees in the Ordinary Course of Business);
(f) any written agreement, contract or commitment that calls for
fixed and/or contingent payments or expenditures by or to the Company (including
without limitation any advertising or revenue sharing arrangement).
(g) any written outstanding sales or advertising contract,
commitment or proposal (including, without limitation, insertion orders,
slotting agreements or other agreements under which Company has allowed third
parties to advertise on or otherwise be included in Company's World Wide Web
sites)
(h) any written agreements, contracts or commitments with officers,
employees, agents, consultants, advisors, salesmen, sales representatives,
distributors or dealers that are not cancelable by Company "at will" and without
liability, penalty or premium.
(i) any written employment, independent contractor or similar
agreement, contract or commitment that is not terminable on thirty (30) days'
notice or less without penalty, liability or premium of any type, including,
without limitation, severance or termination pay.
(j) any written arrangement involving any of the Company
Shareholders or their affiliates ("Affiliates"), as defined in Rule 12b-2 under
the Securities Exchange Act of 1934, as amended (the "Exchange Act").
The Company is not a party to any oral contract, agreement or other
arrangement which, if reduced to written form, would be required to be listed in
Section 2.12 of the Company Disclosure Schedule. All of the agreements listed
in the Company Disclosure Schedule to which the Company is a party are valid,
binding, in full force and effect and enforceable by the Company in accordance
with their respective terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization or other similar laws
affecting the enforcement of creditors' rights generally and except that the
availability of equitable remedies is subject to the discretion of the court
before which any proceeding therefor may be brought (whether at law or in
equity). No such contract contains any liquidated damages, penalty or similar
provision. To the Company's knowledge, no party to any such contract intends to
cancel, withdraw, modify or amend such contract, agreement or arrangement. The
Company is not in default under or in breach or violation of, nor, to the
Company's knowledge, is there any valid basis for any claim of default by the
Company under, or breach or violation by the Company of, any material provision
of any contract listed on the Company Disclosure Schedule. To Company's
knowledge, no other party is in default under or in breach or violation of, nor
is there any valid basis for any claim of default by any other party under or
any breach or violation by any other party of, any such contract.
-11-
2.13 Accounts Receivable. All accounts receivable of the Company
-------------------
reflected on the Company's Most Recent Balance Sheet are valid receivables, and,
to the Company's knowledge, are subject to no setoffs or counterclaims and are
current and collectible (within 90 days after the date on which it first became
due and payable), net of the applicable reserve for bad debts on the Company's
Most Recent Balance Sheet. All accounts receivable reflected in the financial or
accounting records of the Company that have arisen since the Company's Most
Recent Balance Sheet Date are valid receivables, and to the Company's knowledge,
subject to no setoffs or counterclaims and are collectible, net of a reserve for
bad debts in an amount proportionate to the reserve shown on the Company's Most
Recent Balance Sheet.
2.14 Insurance. Section 2.14 of the Company Disclosure Schedule sets
---------
forth a true, correct and complete list of all insurance policies and fidelity
bonds covering the assets, business, equipment, properties, operations, software
errors and omissions, employees, officers and directors of the Company and all
claims made under any insurance policy since January 1, 1996. There is no claim
by the Company pending under any of such policies or bonds as to which coverage
has been questioned, denied or disputed by the underwriters of such policies or
bonds. All premiums due and payable under all such policies and bonds have been
paid and the Company is otherwise in compliance in all material respects with
the terms of such policies and bonds. Such policies of insurance and bonds are
of the type and in amounts customarily carried by persons conducting businesses
similar to those of the Company. The Company has no knowledge of any threatened
termination of, or material premium increase with respect to, any of such
policies.
2.15 Litigation. Section 2.15 of the Company Disclosure Schedule
----------
identifies, and contains a brief description of, (a) any unsatisfied judgment,
order, decree, stipulation or injunction issued by or enforceable by a
Governmental Entity, (b) any written claim, demand, complaint, action, suit,
proceeding, or hearing or, to the Company's knowledge any investigation of or
in, any Governmental Entity or before any arbitrator to which the Company or is
a party or, to the knowledge of the Company, is threatened to be made a party,
and (c) any written or oral claims by third persons of which the Company is
aware and any reasonable basis for any third party claims. None of the demands,
claims, complaints, actions, suits, proceedings, hearings, and investigations
set forth in Section 2.15 of the Company Disclosure Schedule could reasonably be
expected to have a Material Adverse Effect.
2.16 Employees and Consultants. Section 2.16 of the Company Disclosure
-------------------------
Schedule contains a list of all current and former employees and consultants of
the Company, along with the position and the annual rate of compensation of each
such person. Except as specified on the Company Disclosure Schedule, each
current and former employee and consultant to the Company has entered into a
confidentiality and assignment of inventions agreement with the Company, a copy
of each of which has previously been delivered to the Buyer. To the knowledge
of the Company, no key employee or consultant or group of employees or
consultants has any plans to terminate employment or the provision of consulting
services with the Company. The Company is not a party to or bound by any
collective bargaining agreement, nor has it experienced any strikes, grievances,
claims of unfair labor practices or other collective bargaining disputes. The
Company has no knowledge of any organizational effort made or threatened, either
currently or since its inception, by or on behalf of any labor union with
respect
-12-
to employees of the Company. The Company has no oral agreements with any
employees or consultants. The Company has no agreements or arrangements with
persons titled as independent contractors or consultants, as a result of which,
by virtue of the control exercised by the Company, the type of work performed by
the persons or any other circumstances, said persons could reasonably be deemed
to be employees of the Company. The Company has complied with all record keeping
and tax reporting obligations relating to income and employment taxes due with
respect to compensation paid to employees or independent contractors providing
services to the Company.
2.17 Employee Benefits.
-----------------
(a) The Company has no "Employee Benefit Plans" as defined in the
Employee Retirement Income Security Act of 1974 as amended.
(b) The Company has no: (i) written, and, to the Company's
knowledge, oral, agreement with any director, officer or other employee of the
Company and affiliates (A) the benefits of which are contingent, or the terms of
which are materially altered, upon the occurrence of a transaction involving the
Company or its affiliates of the nature of any of the transactions contemplated
by this Agreement, (B) providing any term of employment or compensation
guarantee or (C) providing severance benefits or other benefits after the
termination of employment of such director, officer or employee; (ii) agreement,
plan or arrangement under which any person may receive payments from the Company
or its affiliates that may be subject to the tax imposed by Section 4999 of the
Code or included in the determination of such person's "parachute payment" under
Section 280G of the Code; and (iii) agreement or plan binding the Company or its
affiliates, including without limitation any stock option plan, stock
appreciation right plan, restricted stock plan, stock purchase plan, severance
benefit plan, or any Company Employee Benefit Plan, any of the benefits of which
will be increased, or the vesting of the benefits of which will be accelerated,
by the occurrence of any of the transactions contemplated by this Agreement or
the value of any of the benefits of which will be calculated on the basis of any
of the transactions contemplated by this Agreement.
2.18 Intentionally omitted.
2.19 Permits. Section 2.19 of the Company Disclosure Schedule sets forth
-------
a list of all permits, licenses, registrations, certificates, orders or
approvals from any Governmental Entity (including without limitation those
issued or required under Environmental Laws and those relating to the occupancy
or use of owned or leased real property) ("Permits") issued to or held by the
-------
Company that are material to the operation of its business. Such listed Permits
are the only Permits that are required for the Company to conduct its business
as presently conducted or as currently proposed to be conducted, except for
those the absence of which could not reasonably be expected to have any Material
Adverse Effect. Each such Permit is in full force and effect.
2.20 Certain Business Relationships With Affiliates. No Affiliate of the
----------------------------------------------
Company (a) owns any property or right, tangible or intangible, which is used in
the business of the
-13-
Company, (b) has any claim or cause of action against the Company, (c) owes any
money to the Company, or (d) has loaned any money to the Company. Section 2.20
of the Company Disclosure Schedule describes any transactions or relationships
between the Company and any Affiliate thereof.
2.21 Brokers' Fees. Except as listed on Section 2.21 of the Company
-------------
Disclosure Schedule, the Company has no liability or obligation to pay any fees
or commissions to any broker, finder or agent with respect to the transactions
contemplated by this Agreement.
2.22 Minute Books. The minute books and other similar records of the
------------
Company contain true and complete records of all actions taken at any meetings
of the Company's shareholders, Board of Directors or any committee thereof and
of all written consents executed in lieu of the holding of any such meeting, and
all charter and bylaw documents and amendments thereto. All of these documents
have been delivered to counsel for the Buyer.
2.23 Customers and Suppliers. No material licensor to or supplier of the
-----------------------
Company has indicated to an officer of the Company since the Company's inception
that it will stop, or decrease the rate of, licensing intellectual property or
supplying materials, products or services to the Company (and no officer of the
Company is aware of any such indication) and no material customer of the Company
has indicated to an officer of the Company since the Company's inception that it
will stop, or decrease the rate of, buying, leasing or licensing materials,
products or services from the Company (and no officer of the Company is aware of
any such indication). Section 2.23 of the Company Disclosure Schedule sets forth
a list of each supplier that is the sole supplier of any significant product,
component or service to the Company
2.24 Corporate Approvals. The Board of Directors of Company has (i)
-------------------
approved this Agreement and the Merger and (ii) determined that the Merger is in
the best interests of the shareholders of the Company and is on terms that are
fair to such shareholders. The Shareholder Consent represents the only vote of
the holders of any of the shares of Company Common Stock necessary to approve
this Agreement and the transactions contemplated hereby. There will be no
shareholders or persons entitled to receive dissenters rights (as such term is
defined in the California Law) related to the transactions contemplated hereby.
2.25 Third Party Consents. No consent or approval is needed from any
--------------------
third party in order to effect the Merger, this Agreement or any of the
transactions contemplated hereby.
2.26 Disclosure. No representation or warranty by the Company contained
----------
in this Agreement, and no statement contained in the final Company Disclosure in
this Agreement, and no statement contained in the final Company Disclosure
Schedule or in the final form of any other Transaction Document delivered to or
to be delivered by the Company pursuant to this Agreement, contains or will
contain any untrue statement of a material fact or omits or will omit to state
any material fact necessary, in light of the circumstances under which it was or
will be made, in order to make the statements herein or therein not misleading.
2.27 Year 2000 Compliance. The Company's worldwide website and business
--------------------
as presently conducted and as presently proposed to be conducted will be fully
compatible in normal operation with changes to outputs, data or other
information in relation to dates arising in
-14-
the year 2000 and beyond, without a material loss of performance or use,
provided that third party software is also year 2000 compliant. The Company
estimates that the costs of fixing year 2000 issues faced by it (whether by
modification or replacement) shall not exceed $5,000.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE BUYER
-------------------------------------------
The Buyer represents and warrants to the Company that the statements
contained in this Article III are true and correct, except as set forth in the
disclosure schedule attached hereto (the "Buyer Disclosure Schedule"). The
-------------------------
Buyer Disclosure Schedule shall be arranged in paragraphs corresponding to the
numbered and lettered paragraphs contained in this Article III, and the
disclosures in any paragraph of the Buyer Disclosure Schedule shall qualify any
other paragraph in this Article III where such disclosure would be appropriate
to the extent that it is clear from such disclosure that it relates to such
other paragraph.
3.1 Organization, Qualification and Corporate Power. Buyer is a
-----------------------------------------------
corporation duly organized, validly existing and in corporate and tax good
standing under the laws of the state of its incorporation. Buyer is duly
qualified to conduct business and is in corporate and tax good standing under
the laws of each jurisdiction in which the failure to be so qualified would have
a Material Adverse Effect. Buyer has all requisite corporate power and
authority to carry on the businesses in which it is engaged and to own and use
the properties owned and used by it. The Buyer has furnished to the Company
true and complete copies of the charter documents and Bylaws of Buyer, each as
amended and as in effect on the date hereof. Buyer is not in default under or
in violation of any provision of its charter documents or Bylaws.
3.2 Capitalization. The authorized capital stock of the Buyer consists
--------------
of: (i) 22,200,000 shares of Buyer Common Stock, of which 6,929,422 shares of
Buyer Common Stock are issued and outstanding and (ii) 4,700,000 shares of
Preferred Stock, of which (A) 1,208,600 shares have been designated Series A
Preferred Stock, of which 810,000 shares are issued and outstanding and 398,600
shares are issuable on exercise of warrants to purchase Series A Preferred Stock
outstanding, and (B) 3,400,000 shares have been designated Series B Preferred
Stock, of which 3,230,769 shares are issued and outstanding and 62,051 shares
are issuable on exercise of warrants to purchase Series B Preferred Stock
outstanding. Buyer has reserved an aggregate of 2,400,000 shares of Buyer Common
Stock for issuance pursuant to the 1998 Stock Plan, of which 319,133 shares have
been issued directly or pursuant to option exercise (and are included in the
Common Stock outstanding number above), 1,722,642 shares are subject to
outstanding options and 358,225 shares are available for issuance. Subject to
the receipt of shareholder approval, the Buyer has reserved for issuance an
aggregate of 3,700,000 shares of Buyer Common Stock for issuance pursuant to the
1999 Stock Plan, of which 200,000 shares are subject to outstanding options and
3,500,000 shares are available for issuance. Under the assumed ePills 1999 Stock
Option Plan, there are options to purchase 69,575 shares of Common Stock
outstanding and 151,625 shares available for issuance. In addition, the Buyer
has issued warrants to purchase 72,449 shares of Buyer Common Stock and has
committed to issue warrants as described in the Buyer Disclosure Schedule. All
of the issued and outstanding shares of Buyer Common Stock and Preferred Stock
are, and all shares of Buyer Common Stock or Preferred
-15-
Stock that may be issued upon exercise of options and warrants and conversion
thereof will be, duly authorized, validly issued, fully paid, nonassessable and
free of all preemptive rights. There are no outstanding or authorized options,
warrants, rights, agreements or commitments to which the Buyer is a party or
which are binding upon the Buyer providing for the issuance, disposition or
acquisition of any of its capital stock, other than pursuant to the above
referenced stock and option plans or as described in Section 3.2 of the Buyer
Disclosure Schedule. There are no outstanding or authorized stock appreciation,
phantom stock or similar rights with respect to the Buyer. There are no
agreements, voting trusts, proxies, or understandings with respect to the
voting, or registration under the Securities Act, of any shares of Buyer Common
Stock or Preferred Stock. All of the issued and outstanding shares of Buyer
Common Stock and Preferred Stock were issued in compliance with applicable
federal and state securities laws.
3.3 Authorization of Transaction. Buyer has all requisite corporate power
----------------------------
and authority to execute and deliver this Agreement and to perform its
obligations hereunder and under each of the Transaction Documents to which Buyer
is a party. All corporate action on the part of the Buyer, or its respective
officers, directors and shareholders necessary for the authorization, execution
and delivery of this Agreement, the Transaction Documents and the performance of
all obligations of the Buyer hereunder and thereunder has been taken or will be
taken prior to the Closing, and this Agreement constitutes, and each of the
Transaction Documents to which Buyer will be a party, will constitute, a valid
and legally binding obligation of the Buyer, enforceable in accordance with its
respective terms, except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, and other laws of general application affecting
enforcement of creditors' rights generally, and (ii) as limited by laws relating
to the availability of specific performance, injunctive relief, or other general
equitable remedies.
3.4 Compliance with Laws and Other Instruments. Buyer is not in violation
------------------------------------------
or default of any provision of its charter documents or Bylaws, or, to the best
of its knowledge, of any instrument, judgment, order, writ, decree, lease,
license, permit, contract or other arrangement to which it is a party or by
which it is bound, or, to the best of its knowledge, of any provision of any
federal or state statute, rule or regulation applicable to the Buyer. The
execution, delivery and performance of this Agreement, and the consummation of
the transactions contemplated hereby, will not result in any such violation or
default, or be in conflict with or constitute, with or without the passage of
time and giving of notice, either a default under any such provision,
instrument, judgment, order, writ, decree, lease, license, permit, contract or
other arrangement or an event that results in the creation of any lien, charge
or encumbrance upon any assets of the Buyer or its subsidiaries or the
suspension, revocation, impairment, forfeiture, or nonrenewal of any permit,
license, authorization, or approval applicable to the Buyer or its subsidiaries,
its business or operations or any of its assets or properties, or result in the
acceleration of, or create in any party the right to accelerate, terminate
modify or cancel, or require any notice, consent or waiver under, any contract,
lease, license, permit or other arrangement to which the Buyer is a party or by
which the Buyer is bound or to which its assets are subject.
3.5 Subsidiaries. Except for Xxxxxx Health Enterprises, Inc. and
------------
xXxxxx.xxx, Inc., the Buyer does not have and has never had any subsidiaries or
affiliated companies (other than 10% or greater shareholders in the Company) and
does not otherwise own and has never
-16-
otherwise owned any shares of stock or any interest in, or control of, directly
or indirectly, any other corporation, partnership, association, joint venture or
entity.
3.6 Buyer Financial Statements. The Buyer has attached hereto as Section
--------------------------
3.6 to the Buyer Disclosure Schedule (a) the audited consolidated balance sheets
and statements of income, changes in shareholders' equity and cash flows for
each of 1997 and 1998 for the Buyer and its subsidiaries; and (b) the unaudited
consolidated balance sheet as of September 30, 1999 (the "Buyer's Most Recent
-------------------
Balance Sheet") and statements of income, changes in shareholders' equity and
-------------
cash flows for the nine month period ending September 30, 1999 (the "Buyer's
-------
Most Recent Balance Sheet Date") Such financial statements (the "Buyer Financial
------------------------------ ---------------
Statements") have been prepared in accordance with GAAP applied on a consistent
----------
basis throughout the periods covered thereby, fairly present the financial
condition, results of operations and cash flows of the Buyer and its
subsidiaries as of the respective dates thereof and for the periods referred to
therein and are consistent with the books and records of the Buyer and its
subsidiaries; provided, however, that the Buyer Financial Statements referred to
-------- -------
in clause (b) above are subject to normal recurring year-end adjustments (which
will not be material) and do not include footnotes.
3.7 Absence of Certain Changes. Since the Most Recent Balance Sheet,
--------------------------
there has not been any material adverse change in the assets, business,
financial condition or results of operations of the Buyer or any subsidiary, nor
has there occurred any event or development which could reasonably be foreseen
to result in such a material adverse change in the future.
3.8 No Undisclosed Liabilities. None of the Buyer and its subsidiaries
--------------------------
has any liability (whether known or unknown, whether absolute or contingent,
whether liquidated or unliquidated and whether due or to become due), and there
is no existing condition, situation or set of circumstances which could
reasonably be expected to result in such a liability, except for (a) liabilities
shown on the Buyer's Most Recent Balance Sheet, (b) liabilities which have
arisen since the Buyer's Most Recent Balance Sheet Date in the Ordinary Course
of Business, (c) contractual liabilities incurred in the Ordinary Course of
Business which are not required by GAAP to be reflected on a balance sheet and
(d) liabilities for accounting, investment banking and legal fees incurred in
connection with the Merger and the transactions contemplated thereby and the IPO
Form S-1 and transaction contemplated thereby.
3.9 Tax Matters.
-----------
(a) Each of the Buyer and its subsidiaries has filed all Tax Returns
that it was required to file and all such Tax Returns were correct and complete
in all material respects. Each of the Buyer and its subsidiaries has paid all
Taxes owed in respect of the periods covered by such Tax Returns. The unpaid
Taxes of the Buyer and its subsidiaries for tax periods through the date of the
Buyer's Most Recent Balance Sheet do not exceed the accruals and reserves for
Taxes set forth on the Buyer's Most Recent Balance Sheet. Neither the Buyer nor
any subsidiary has any actual or potential liability for any Tax obligation of
any taxpayer (including without limitation any affiliated group of corporations
or other entities that included the Buyer or any subsidiary during a prior
period) other than the Buyer and its subsidiaries. All Taxes that the Buyer or
any subsidiary is or was required by law to withhold or collect have been duly
withheld or collected and, to the extent required, have been paid to the proper
Governmental Entity.
-17-
(b) No Tax Returns of the Buyer nor any subsidiary has been audited
by the Internal Revenue Service. No examination or audit of any Tax Returns of
the Buyer or any subsidiary by any Governmental Entity is currently in progress
or, to the knowledge of the Buyer and its subsidiaries, threatened or
contemplated. Neither the Buyer nor any subsidiary has waived any statute of
limitations with respect to taxes or agreed to an extension of time with respect
to a tax assessment or deficiency.
(c) As of the date of this Agreement and the Closing Date, Buyer has
not taken and will not have taken any action that could reasonably be expected
to cause the Merger to fail to qualify as a reorganization within the meaning of
Section 368(a) of the Code.
3.10 Title to Property. Each of Buyer and its subsidiaries has good and
-----------------
defensible title to all properties, interests in properties and assets, real and
personal, necessary for the conduct of its business as presently conducted and
as presently proposed to be conducted, all of which are reflected in the Buyer's
Most Recent Balance Sheet (except properties, interests in properties and assets
sold or otherwise disposed of since the Buyer's Most Recent Balance Sheet Date
in the ordinary course of business) or acquired after the Buyer's Most Recent
Balance Sheet Date, or with respect to leased properties and assets, valid
leasehold interests in, free and clear of all mortgages, liens, pledges, charges
or encumbrances of any kind or character, except the lien of current taxes not
yet due and payable. The plants, property and equipment of Buyer and its
subsidiaries that are used in the operations of their businesses are in good
operating condition and repair subject to ordinary wear and tear and to
requirements for periodic maintenance. All properties used in the operations of
Buyer, except for those acquired after the Most Recent Balance Sheet Date, are
reflected in the Buyer's Most Recent Balance Sheet to the extent required by
GAAP. No asset of the Buyer (tangible or intangible) is subject to any Security
Interest. Neither the Buyer nor any of its subsidiaries owns any real property.
3.11 Intellectual Property.
---------------------
(a) Each of the Buyer and its subsidiaries owns, or licenses or
otherwise possesses legally enforceable rights to use, all Intellectual Property
that is used to conduct its business as currently conducted or currently planned
to be conducted.
(b) All of the Buyer's patents, copyrights, trademarks, trade names
or Internet domain name registrations related to its current or currently
proposed business are valid and in full force and effect and will not be altered
or impaired by the consummation of the transactions contemplated hereby. Neither
the Buyer nor any of its subsidiaries is, nor will any of them be as a result of
the execution and delivery of this Agreement or the performance of the Buyer's
obligations under this Agreement, in breach of any license, sublicense or other
agreement relating to the Buyer's Intellectual Property or any written licenses,
sublicenses and other agreements to which either Buyer or its subsidiary is a
party and pursuant to which Buyer or its subsidiary is authorized to use any
third party Intellectual Property (the "Buyer Third Party Intellectual Property
---------------------------------------
Rights").
------
(c) Neither the Buyer nor any of its subsidiaries (nor, to the
Buyer's knowledge, any of the Buyer's employees) has received a claim, or is
aware of a reasonable basis
-18-
for a claim, of infringement or violation of any Intellectual Property right of
any third party. The manufacturing, marketing, licensing or sale of the products
or performance of the service offerings of the Buyer and its subsidiaries do not
infringe or violate any Intellectual Property right of any third party; and, to
the knowledge of the Buyer and its subsidiaries, the Intellectual Property
rights of the Buyer and its subsidiaries are not being infringed or violated by
activities, products or services of any third party.
3.12 Contracts. All of the agreements that are material agreements to
---------
the Buyer and its subsidiaries, when taken as a whole, are referenced in the IPO
Form S-1, as filed with the SEC on September 29, 1999, or have been provided to
the Company or its counsel. All such material agreements to which the Buyer or a
subsidiary is a party are valid, binding, in full force and effect and
enforceable by either Buyer or its subsidiaries in accordance with their
respective terms, except as such enforceability may be limited by applicable
bankruptcy and other similar laws affecting the enforcement of creditor's rights
generally and except that the availability of equitable remedies is subject to
the discretion of the court before which any proceeding therefor may be brought
(whether at law or in equity). To the knowledge of the Buyer, no party to any
such contract intends to cancel, withdraw, modify or amend such contract,
agreement or arrangement. Neither Buyer nor any of its subsidiaries is in
default under or in breach or violation of, nor, to the knowledge of the Buyer,
is there any valid basis for any claim of default by Buyer or any of its
subsidiaries under, or breach or violation by Buyer or any of its subsidiaries
of, any material provision of any contract referenced in the IPO Form S-1. To
the knowledge of the Buyer, no other party is in default under or in breach or
violation of, nor is there any valid basis for any claim of default by any other
party under or any breach or violation by any other party of, any such contract.
3.13 Accounts Receivable. All accounts receivable of the Buyer and the
-------------------
subsidiaries reflected on the Buyer's Most Recent Balance Sheet are valid
receivables, and to the Buyer's knowledge are subject to no setoffs or
counterclaims and are current and collectible (within 90 days after the date on
which it first became due and payable), net of the applicable reserve for bad
debts on the Buyer's Most Recent Balance Sheet. All accounts receivable
reflected in the financial or accounting records of the Buyer that have arisen
since the Buyer's Most Recent Balance Sheet Date are valid receivables, and to
the Buyer's knowledge, subject to no setoffs or counterclaims and are
collectible, net of a reserve for bad debts in an amount proportionate to the
reserve shown on the Buyer's Most Recent Balance Sheet.
3.14 Insurance. Each of Buyer and its subsidiaries has in full force and
---------
effect all policies of insurance and bonds of the type and in amounts
customarily carried by persons conducting businesses similar to those of the
Buyer, including, but not limited to, fire and casualty insurance policies,
sufficient in amount (subject to reasonable deductibles) to allow it to replace
any of its or its subsidiaries properties that might be damaged or destroyed.
There is no claim by the Buyer or its subsidiaries pending under any of such
policies or bonds as to which coverage has been questioned, denied or disputed
by the underwriters of such policies or bonds. All premiums payable under all
such policies and bonds have been paid and the Buyer and its subsidiaries are
otherwise in compliance with the terms of such policies and bonds. The Buyer
and its subsidiaries have no knowledge of any threatened termination of, or
material premium increase with respect to, any of such policies.
-19-
3.15 Litigation. Section 3.15 of the Buyer Disclosure Schedule
----------
identifies, and contains a brief description of, (a) any unsatisfied judgment,
order, decree, stipulation or injunction issued by or enforceable by a
Governmental Entity, (b) any claim, demand, complaint, action, suit, proceeding,
hearing, or to the Buyer's knowledge any investigation, of or in any
Governmental Entity or before any arbitrator to which the Buyer or any
subsidiary is a party or, to the knowledge of the Buyer and the subsidiaries, is
threatened to be made a party, and (c) any written or oral claims by third
persons of which the Buyer is aware and any reasonable basis for any third party
claims. None of the demands, claims, complaints, actions, suits, proceedings,
hearings, and investigations set forth in Section 3.15 of the Buyer Disclosure
Schedule could reasonably be expected to have a Material Adverse Effect.
3.16 Employees. Each officer, current and former employee and consultant
---------
of the Buyer and its subsidiaries has entered into a confidentiality/assignment
of inventions agreement with the Buyer or a subsidiary of the Buyer. To the
knowledge of the Buyer and its subsidiaries, no key employee or consultant or
group of employees or consultants has any plans to terminate employment or the
provision of consulting services with the Buyer or any subsidiary of the Buyer.
Neither the Buyer nor any subsidiary of the Buyer is a party to or bound by any
collective bargaining agreement, nor has any of them experienced any strikes,
grievances, claims of unfair labor practices or other collective bargaining
disputes. The Buyer and the subsidiaries of the Buyer have no knowledge of any
organizational effort made or threatened, either currently or within the past
two years, by or on behalf of any labor union with respect to employees of the
Buyer or any subsidiary of the Buyer.
3.17 Employee Benefits. For purposes of this Agreement, "Buyer Employee
-----------------
Benefit Plan" means any "employee pension benefit plan" (as defined in Section
3(2) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")), any "employee welfare benefit plan" (as defined in Section 3(1) of
ERISA), and any other written or oral plan, agreement or arrangement involving
direct or indirect compensation, including without limitation insurance
coverage, severance benefits, disability benefits, deferred compensation,
bonuses, stock options, stock purchase, phantom stock, stock appreciation or
other forms of incentive compensation or post-retirement compensation maintained
or contributed to, by the Buyer or any Buyer ERISA Affiliate. For purposes of
this Agreement, "Buyer ERISA Affiliate" means any entity which is a member of
(i) a controlled group of corporations (as defined in Section 414(b) of the
Code), (ii) a group of trades or businesses under common control (as defined in
Section 414(c) of the Code), or (iii) an affiliated service group (as defined
under Section 414(m) of the Code or the regulations under Section 414(o) of the
Code), any of which includes Buyer. Each Buyer Employee Benefit Plan has been
administered in all material respects in accordance with its terms, and each of
the Buyer and the Buyer ERISA Affiliates has in all material respects met its
obligations with respect to such Buyer Employee Benefit Plan and has made all
contributions thereto which are required to be made prior to the date hereof.
To the knowledge of the Buyer, Buyer and all Buyer Employee Benefit Plans are in
compliance in all material respects with the currently applicable provisions of
ERISA and the Code and the regulations thereunder.
(a) There are no investigations by any Governmental Entity,
termination proceedings or other claims (except claims for benefits payable in
the normal operation of the
-20-
Buyer Employee Benefit Plans and proceedings with respect to qualified domestic
relations orders) suits or proceedings against or involving any Buyer Employee
Benefit Plan or asserting any rights or claims to benefits under any Buyer
Employee Benefit Plan that could give rise to any material liability.
(b) All the Buyer Employee Benefit Plans that are intended to be
qualified under Section 401(a) of the Code have received determination letters
from the Internal Revenue Service to the effect that such Buyer Employee Benefit
Plans are qualified and the plans and the trusts related thereto are exempt from
federal income taxes under Sections 401(a) and 501(a), respectively, of the
Code, no such determination letter has been revoked, and revocation has not been
threatened, and no such Buyer Employee Benefit Plan has been amended since the
date of its most recent determination letter or application therefor in any
respect, and no act or omission has occurred, that would adversely affect its
qualification or materially increase its cost.
(c) Neither Buyer nor any Buyer ERISA Affiliate has ever maintained
a Buyer Employee Benefit Plan subject to Section 412 of the Code or Title IV of
ERISA.
(d) At no time has Buyer or any Buyer ERISA Affiliate been obligated
to contribute to any "multi-employer plan" (as defined in Section 4001(a)(3) of
ERISA).
(e) There are no unfunded obligations under any Buyer Employee
Benefit Plan providing benefits after termination of employment to any employee
of Buyer or any Buyer ERISA Affiliate (or to any beneficiary of any such
employee), including but not limited to retiree health coverage and deferred
compensation, but excluding continuation of health coverage required to be
continued under Section 4980B of the Code and insurance conversion privileges
under state law.
(f) To the knowledge of the Buyer, no act or omission has occurred
and no condition exists with respect to any Buyer Employee Benefit Plan that
would subject Buyer or any Buyer ERISA Affiliate to any material fine, penalty,
tax or fiduciary liability imposed under ERISA or the Code.
(g) No Buyer Employee Benefit Plan is funded by, associated with, or
related to a "voluntary employee's beneficiary association" within the meaning
of Section 501(c)(9) of the Code.
(h) No Buyer Employee Benefit Plan, plan documentation or agreement,
summary plan description or other written communication distributed generally to
employees by its terms prohibits Buyer or any Buyer ERISA Affiliate from
amending or terminating any such Buyer Employee Benefit Plan.
(i) Section 3.17 of the Buyer Disclosure Schedule discloses each:
(i) written and, to the Buyer's knowledge, oral agreement with any director,
officer or other employee of Buyer or any of its subsidiaries and affiliates (A)
the benefits of which are contingent, or the terms of which are materially
altered, upon the occurrence of a transaction involving the Buyer or any of its
subsidiaries or its affiliates of the nature of any of the transactions
contemplated by this
-21-
Agreement, (B) providing any term of employment or compensation guarantee or (C)
providing severance benefits or other benefits after the termination of
employment of such director, officer or employee; (ii) agreement, plan or
arrangement under which any person may receive payments from the Buyer or any of
its subsidiaries or its affiliates that may be subject to the tax imposed by
Section 4999 of the Code or included in the determination of such person's
"parachute payment" under Section 280G of the Code; and (iii) agreement or plan
binding the Buyer or any of its subsidiaries or its affiliates, including
without limitation any stock option plan, stock appreciation right plan,
restricted stock plan, stock purchase plan, severance benefit plan, or any Buyer
Employee Benefit Plan, any of the benefits of which will be increased, or the
vesting of the benefits of which will be accelerated, by the occurrence of any
of the transactions contemplated by this Agreement or the value of any of the
benefits of which will be calculated on the basis of any of the transactions
contemplated by this Agreement.
3.18 Intentionally omitted.
3.19 Permits. The Buyer or its subsidiaries hold all Permits that are
-------
required for the operation of its business as presently conducted or as proposed
to be conducted, except for those the absence of which could not reasonably be
expected to have any Material Adverse Effect. Each such Permit is in full force
and effect.
3.20 Certain Business Relationships With Affiliates. No Affiliate of
----------------------------------------------
the Buyer or of any subsidiary (a) owns any property or right, tangible or
intangible, which is used in the business of the Buyer or any subsidiary, (b)
has any claim or cause of action against the Buyer or any subsidiary, (c) owes
any money to the Buyer or any subsidiary, or (d) has loaned any money to the
Buyer.
3.21 Brokers' Fees. Neither the Buyer nor any subsidiary has any
-------------
liability or obligation to pay any fees or commissions to any broker, finder or
agent with respect to the transactions contemplated by this Agreement.
3.22 Minute Books. The minute books and other similar records of the
------------
Buyer contain true and complete records of all actions taken at any meetings of
the Buyer's shareholders, Board of Directors or any committee thereof and of all
written consents executed in lieu of the holding of any such meeting.
3.23 Customers and Suppliers. No material licensor to or supplier of
-----------------------
the Buyer or any subsidiary has indicated to an officer of the Buyer within the
past year that it will stop, or decrease the rate of, licensing intellectual
property or supplying materials, products or services to them (and no officer of
the Buyer is aware of any such indication) and no material customer of the Buyer
or any Subsidiary has indicated to an officer of the Buyer within the past year
that it will stop, or decrease the rate of, buying, leasing or licensing
materials, products or services from them (and no officer of the Buyer is aware
of any such indication).
3.24 Corporate Approvals. The Board of Directors of Buyer has (i)
-------------------
approved this Agreement and the Merger, and (ii) determined that the Merger is
in the best interests of the shareholders of Buyer and is on terms that are fair
to such shareholders.
-22-
3.25 Third Party Consents. No consent or approval is needed from any
--------------------
third party in order to effect the Merger, this Agreement or any of the
transactions contemplated hereby.
3.26 Disclosure. No representation or warranty by the Buyer contained
----------
in this Agreement, and no statement contained in the final Buyer Disclosure
Schedule or in the final form of any other Transaction Document delivered to or
to be delivered by the Buyer pursuant to this Agreement, contains or will
contain any untrue statement of a material fact or omits or will omit to state
any material fact necessary, in light of the circumstances under which it was or
will be made, in order to make the statements herein or therein not misleading.
3.27 Disclosure With Respect to the Amendment to Form S-1. The Amendment
----------------------------------------------------
to Form S-1 (except for the RxList Description), on the date it will be filed
with the Securities and Exchange Commission, will not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
3.28 Year 2000 Compliance. The IPO Form S-1 summarizes the Buyer's
--------------------
reasonable judgment as to its exposure to the Year 2000 problem.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
-----------------------------------
4.1 Conduct of Business of Company and Buyer. During the period from
----------------------------------------
the date of this Agreement and continuing until the earlier of the termination
of this Agreement or the Effective Time, each of Company and Buyer agrees
(except to the extent expressly contemplated by this Agreement or as otherwise
consented to in writing by the other) to conduct its and its subsidiaries'
business in the usual, regular and ordinary course consistent with past
practices, to pay debts and perform obligations when due, and to use all
reasonable efforts consistent with past practice and policies to preserve intact
its and its subsidiaries' present business organization, keep available the
services of its and its subsidiaries' key employees and preserve its and its
subsidiaries' relationships with customers, suppliers, distributors, licensors,
licensees, and others having business dealings with it or its subsidiaries, to
the end that its and its subsidiaries' goodwill and ongoing businesses shall be
unimpaired at the Effective Time. Each of Company and Buyer agrees not to take,
and not to agree in writing or otherwise to take, any action which would make
any of its representations or warranties contained in this Agreement untrue or
incorrect or prevent it from performing or cause it not to perform its covenants
hereunder.
4.2 No Solicitation.
---------------
(a) Neither the Company nor any of the officers, directors or
employees of the Company will, directly or indirectly, (i) take any action to
solicit, initiate, entertain or knowingly encourage any Proposal (defined below)
or (ii) participate in any negotiations regarding, or furnish to any person any
nonpublic information relating to Company to further, or afford access to the
properties, books or records of Company to further, or otherwise cooperate with,
facilitate or knowingly encourage any person that has advised Company that it
may be considering making, or
-23-
that has made, a Proposal. Company will promptly notify Buyer after receipt of
any Proposal or any notice that any person is considering making a Proposal or
any request for nonpublic information relating to Company or for access to the
properties, books or records of Company by any person that has advised Company
that it may be considering making, or that has made, a Proposal. For purposes of
this Agreement, "Proposal" means any offer or proposal for, or any indication of
--------
interest in, a merger, consolidation, or other business combination involving
Company or the acquisition of any significant equity interest in, or a
significant portion of the assets of, Company other than the transactions
contemplated by this Agreement.
(b) Neither Buyer nor any of its subsidiaries, nor any of their
respective officers, directors, or employees, will, directly or indirectly, (i)
take any action to solicit, initiate, entertain or knowingly encourage any
proposal regarding Buyer's or any of its subsidiary's possible acquisition of a
significant portion of the equity or assets of an online pharmaceutical database
company other than the Company or (ii) participate in any negotiations
regarding, or furnish to any person any non public information relating to Buyer
or any of its subsidiaries to further, or afford access to the properties, books
or records of Buyer or any of its subsidiaries to further, or otherwise
cooperate with, facilitate or knowingly encourage any person that has advised
Buyer or any of its subsidiaries that it may be considering such a transaction.
Buyer will promptly notify Company after receipt of any such proposal or any
notice that any person is considering making such a proposal to the Buyer.
4.3 Reorganization Treatment. Neither party will take any action that
------------------------
could reasonably be expected to cause the Merger to fail to qualify as a
reorganization under Section 368(a).
4.4 Restrictions on Company's Actions. Without limiting the generality
---------------------------------
of Section 4.1, prior to the Closing, the Company shall not, without the written
consent of the Buyer:
(a) issue, sell, deliver or agree or commit to issue, sell or
deliver (whether through the issuance or granting of options, warrants,
commitments, subscriptions, rights to purchase or otherwise) or authorize the
issuance, sale or delivery of, or redeem or repurchase, any stock of any class
or any other securities or any rights, warrants or options to acquire any such
stock or other securities, or amend any of the terms of any such convertible
securities or options or exercise any discretionary right in respect thereof;
(b) split, combine or reclassify any shares of its capital stock;
declare, set aside or pay any dividend or other distribution (whether in cash,
stock or property or any combination thereof) in respect of its capital stock;
(c) create, incur or assume any debt not currently outstanding
(including obligations in respect of capital leases); assume, guarantee, endorse
or otherwise become liable or responsible (whether directly, contingently or
otherwise) for the obligations of any other person or entity; or make any loans,
advances or capital contributions to, or investments in, any other person or
entity;
-24-
(d) enter into, adopt or amend any Employee Benefit Plan (except as
required under ERISA or the Code with respect to any Employee Benefit Plan
qualified under Code section 401(a)) or any employment or severance agreement or
arrangement of the type described in Section 2.17(j) or increase in any manner
the compensation or fringe benefits of, or materially modify the employment
terms of, its directors, officers or employees, generally or individually, or
pay any benefit not required by the terms in effect on the date hereof of any
existing Employee Benefit Plan;
(e) acquire, sell, lease, license, encumber or dispose of any assets
or property in excess of $15,000 for any single such transaction or series of
related transactions or in excess of $50,000 in the aggregate (including without
limitation any shares or other equity interests in or securities of any
subsidiary or any corporation, partnership, association or other business
organization or division thereof), other than purchases, sales and licenses of
assets in the Ordinary Course of Business;
(f) amend its charter or Bylaws;
(g) change in any material respect its accounting methods,
principles or practices, except insofar as may be required by a generally
applicable change in GAAP;
(h) discharge or satisfy any Security Interest or pay any obligation
or liability other than in the Ordinary Course of Business;
(i) mortgage or pledge any of its property or assets or subject any
such assets to any Security Interest;
(j) sell, assign, transfer or license any Intellectual Property,
other than in the Ordinary Course of Business;
(k) enter into, amend, terminate, take or omit to take any action
that would constitute a material violation of or default under, or waive any
material rights under, any material contract or agreement;
(l) make or commit to make any capital expenditure in excess of
$15,000 per item or $50,000 in the aggregate;
(m) take any action or fail to take any action permitted by this
Agreement with the knowledge that such action or failure to take action would
result in (i) any of the representations and warranties of the Company set forth
in this Agreement becoming materially untrue or (ii) any of the conditions to
the Closing not being satisfied; or
(n) agree in writing or otherwise to take any of the foregoing
actions.
-25-
ARTICLE V
ADDITIONAL AGREEMENTS
---------------------
5.1 Access to Information.
---------------------
(a) Each party shall afford the other party and its accountants,
counsel and other representatives, reasonable access during normal business
hours during the period prior to the Effective Time to (i) all of such party's
and its subsidiaries properties, books, contracts, commitments and records, and
(ii) all other information concerning the business, properties and personnel of
such party and its subsidiaries as the requesting party may reasonably request.
Each party agrees to provide to the other party and its accountants, counsel and
other representatives copies of internal financial statements promptly upon
request.
(b) No information or knowledge obtained in any investigation
pursuant to this Section 5.1 shall affect or be deemed to modify any
representation or warranty contained herein or the conditions to the obligations
of the parties to consummate the Merger.
5.2 Confidentiality. The parties acknowledge that Buyer and Company have
---------------
executed a Mutual Non-Disclosure Agreement dated October 20, 1999 (the
"Confidentiality Agreement"), which Confidentiality Agreement shall continue in
-------------------------
full force and effect in accordance with its terms.
5.3 Public Disclosure. Unless otherwise permitted by this Agreement,
-----------------
Buyer and Company shall consult with each other before issuing any press release
or otherwise making any public statement or making any other public (or non-
confidential) disclosure (whether or not in response to an inquiry) regarding
the terms of this Agreement and the transactions contemplated hereby, and
neither shall issue any such press release or make any such statement or
disclosure without the prior approval of the other (which approval shall not be
unreasonably withheld), except as may be required by law. The parties
acknowledge and agree that this agreement may be filed as a material agreement
to the Amendment to Form S-1 in connection with Buyer's initial public offering,
and the relationship between the parties shall be described in the Amendment to
Form S-1.
5.4 Consents; Cooperation.
---------------------
(a) Consents. Each of Buyer and Company shall promptly apply for or
--------
otherwise seek, and use its commercially reasonable efforts to obtain, all
consents, approvals, authorizations, and filings required to be obtained by it
from any Governmental Entity or other third person or entity for the
consummation of the Merger, and each party shall use its commercially reasonable
efforts and shall cooperate with the other party to obtain all necessary
consents, approvals, authorizations, and filings in connection with the Merger,
including as needed in connection with any material contracts of Company or
Buyer or otherwise.
(b) The Amendment to Form S-1. The Company and its officers,
-------------------------
employees and counsel shall use all reasonable, best efforts to cooperate with
Buyer in the drafting, reviewing and filing of the Amendment to Form S-1 and the
exhibits thereto, and the preparation
-26-
of any subsequent amendments to the IPO Form S-1, with the intent that the
RxList Description contained in the IPO Form S-1 on and as of the effective date
of such initial public offering, will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
5.5 FIRPTA. Company shall, prior to the Closing Date, provide Buyer with
------
a properly executed Foreign Investment and Real Property Tax Act of 1980
("FIRPTA") Notification Letter, substantially in the form of Exhibit 5.5A
------ ------------
attached hereto, which states that shares of capital stock of Company do not
constitute "United States real property interests" under Section 897(c) of the
Code, for purposes of satisfying Buyer's obligations under Treasury Regulation
Section 1.1445-2(c)(3). ). In addition, simultaneously with delivery of such
Notification Letter, Company shall have provided to Buyer, as agent for Company,
a form of notice to the Internal Revenue Service in accordance with the
requirements of Treasury Regulation Section 1.897-2(h)(2) and substantially in
the form of Exhibit 5.5B attached hereto along with written authorization for
Buyer to deliver such notice form to the Internal Revenue Service on behalf of
Company upon the Closing of the Merger.
5.6 Securities Laws. Buyer shall take such steps as may be necessary to
---------------
comply with the securities and blue sky laws of all jurisdictions which are
applicable to the issuance of the Buyer Common Stock in connection with the
Merger. Company shall use its commercially reasonable efforts to assist Buyer as
may be necessary to comply with the securities and blue sky laws of all
jurisdictions which are applicable in connection with the issuance of Buyer
Common Stock in connection with the Merger. The Merger Shares will be issued
under a Section 4(2) "private placement" exemption from the registration
requirements of federal securities laws.
5.7 Expenses. Whether or not the Merger is consummated, $17.09. all costs
--------
and expenses incurred in connection with this Agreement, the Agreement of Merger
and the transactions hereby and thereby shall be paid by the party incurring
such expense; provided, however, that any transaction fees, including but not
-------- -------
limited to legal, accounting, banking and other advisory fees (the "Transaction
-----------
Fees") in excess of $20,000 in legal fees (including but not limited to all
----
filing fees and other non-fee disbursements and expenses (such as copy, fax and
word processing charges) incurred in connection with the consummation in this
Agreement) on behalf of the Company (other than those that are paid directly by
the Company Shareholders or any of their affiliates or are reimbursed to the
Company by the Company Shareholders or any of their affiliates) shall be
reimbursed to the Buyer at the Closing through a closing adjustment in the
number of shares to be issued to the Company Shareholders. The aggregate number
of shares of Buyer Common Stock to be issued to the Company Shareholders shall
be reduced by the Excess Expense Shares. The "Excess Expense Shares" means the
---------------------
quotient of: (i) the dollar amount of Transaction Fees incurred by the Company
in connection with the transactions contemplated hereby in excess of the stated
maximums above, divided by (ii)
5.8 Good Faith Efforts and Further Assurances. Each of the parties to
-----------------------------------------
this Agreement shall use its good faith efforts to effectuate the transactions
contemplated hereby and to fulfill and cause to be fulfilled the conditions to
closing under this Agreement. Each party hereto, at the reasonable request of
another party hereto, shall execute and deliver such other instruments and
-27-
do and perform such other acts and things as may be necessary or desirable for
effecting completely the consummation of this Agreement and the transactions
contemplated hereby.
5.9 Registration of Merger Shares issued to Company Shareholders.
------------------------------------------------------------
(a) Filing and Effectiveness. If, at any time after the date that is
------------------------
180 days after the closing of an initial public offering of Buyer, Buyer shall
receive from any Company Shareholder or the Company Shareholders (for the
purpose of this Section 5.9 each a "Holder") owning in the aggregate at least a
------
majority of the Merger Shares less the Escrow Shares a written request or
requests (the "Demand Notice") that the Buyer effect a registration on Form S-1
-------------
(the "Resale S1 Registration Statement") and any related qualification or
--------------------------------
compliance for the purpose of offering for resale the Merger Shares less the
Escrow Shares issued to the Company Shareholders in the Merger, the Buyer will:
(1) promptly give written notice of the proposed registration,
and any related qualification or compliance, to all other Holder(s) and any
other Buyer shareholders who would have the right to sell shares in such an
offering (who shall also be deemed to be "Holders" hereunder); and
(2) as promptly as practicable, but in any event within thirty
(30) business days after the date that Buyer receives the Demand Notice, file
with the Securities and Exchange Commission (the "SEC") under the Securities Act
---
a Registration Statement on Form S-1 (the "Resale S-1 Registration Statement")
---------------------------------
for the purpose of offering for resale (i) the Merger Shares less the Escrow
Shares and (ii) any other shares of Buyer Common Stock held by Buyer
shareholders who have the right to and elect to sell shares in such an offering
(the "Registrable Securities"), provided, however, that the Buyer shall not be
---------------------- -------- ------
obligated to file any such registration statement if Buyer shall furnish to the
Company Shareholders a certificate signed by the Chief Executive Officer of
Buyer stating that, in the good faith judgment of the Board of Directors or
Chief Executive Officer of Buyer, it would be seriously detrimental to Buyer and
its shareholders for the Resale S-1 Registration Statement to be filed on or
before the date filing would otherwise be required, and it is therefore in the
best interests of Buyer to defer the filing of the Resale S-1 Registration
Statement, in which case Buyer may delay the filing of the Resale S-1
Registration Statement not in excess of forty-five (45) calendar days after the
original filing deadline .
(3) as soon as practicable, effect such registration and all
such qualifications and compliances as may be reasonably so requested and as
would permit and facilitate the sale and distribution of all or such portion of
such Holder's or Holders' Registrable Securities as are specified in such
request, together with all or such portion of the Registrable Securities of any
other Holder(s) and other Buyer shareholders joining in such request as are
specified in a written request given within ten (10) calendar days after receipt
of such written notice from the Company; provided, however, that the Company
-------- -------
shall not be obligated to cause any such registration, qualification or
compliance, pursuant to this Section 5.9 to become effective:
-28-
(i) prior to the date six (6) months following the effective date
of the Buyer's initial public offering or later than the date eleven (11) months
after the Closing of the Merger.
(ii) if the Holder(s), together with the holders of any other
securities of the Company entitled to inclusion in such registration, propose to
sell Registrable Securities at an aggregate price to the public of less than
$1,500,000; o r
(iii) if the Company has already effected one (1) registration
for the Holder(s) pursuant to this Section 5.9 or as a result of the inclusion
of such Registrable Securities in another similar offering.
(b) Requirement to Keep Effective. Subject to Section 5.9(k), the
-----------------------------
Buyer shall use its reasonable best efforts to cause the Resale S-1 Registration
Statement to remain effective until the first to occur of (i) the one year
anniversary of the Closing Date of the Merger or (ii) the date by which all
Registrable Securities are sold.
(c) Expenses of Registration. Buyer shall pay all Registration
------------------------
Expenses (as hereafter defined) in connection with any registration,
qualification or compliance pursuant to this Section 5.9, and each Holder shall
pay all Selling Expenses (as hereafter defined) and other expenses that are not
Registration Expenses relating to the Registrable Securities resold by him or
her. For purposes of this Section 5.9 "Registration Expenses" shall mean all
---------------------
expenses, except as otherwise stated below, incurred by Buyer in complying with
Sections 5.9(a), 5.9(b) and 5.9(d), including, without limitation, all
registration, qualification and filing fees, printing expenses, escrow fees,
fees and disbursements of counsel for Buyer, blue sky fees and expenses and the
expense of any special audits incident to or required by any such registration
and the reasonable fees and expenses of one counsel for all of the selling
Holders up to a maximum of $25,000. For purposes of this Section 5.9(c),
"Selling Expenses" shall mean all selling discounts, commissions and stock
----------------
transfer or other Taxes applicable to the Registrable Securities and all fees
and disbursements of counsel for any Holder.
(d) Registration Procedures. In the case of any registration
-----------------------
effected by Buyer pursuant to this Section 5.9, Buyer will keep each Holder
advised in writing as to the initiation of each registration and as to the
completion thereof. Buyer will:
(1) Promptly prepare and file with the SEC such amendments and
supplements to the Registration Statement and the prospectus used in connection
with the Registration Statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by the Registration Statement;
(2) Furnish such number of prospectuses (including preliminary
prospectuses) and other documents incident thereto, including any amendment of
or supplement to the prospectus, as a Holder from time to time may reasonably
request;
(3) Subject to Sections 5.9(h) and (i) hereof, notify each
Holder of Registrable Securities covered by the Registration Statement at any
time when a prospectus
-29-
relating thereto is required to be delivered under the Securities Act of the
happening of any event as a result of which the prospectus included in the
Registration Statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances then existing, and, subject to Sections 5.9(h) and (i) hereof, at
the request of any such Holder, prepare and furnish to such Holder a reasonable
number of copies of a supplement to or an amendment of such prospectus as may be
necessary so that, as thereafter delivered to the purchasers of such shares,
such prospectus shall not include an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing;
(4) Cause all such Registrable Securities registered pursuant to
the Registration Statement to be listed on each securities exchange or quotation
system on which similar securities issued by Buyer are then listed or quoted,
and in connection therewith, file with the Nasdaq National Market an application
for listing of additional shares with respect to the Registrable Securities;
(5) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant to the Registration Statement and a CUSIP number
for all such Registrable Securities, in each case not later than the effective
date of the Registration Statement;
(6) Use its reasonable best efforts to register or qualify the
Registrable Securities covered by the Registration Statement under such other
securities or blue sky laws of such jurisdiction within the United States and
Puerto Rico as shall be reasonably appropriate for the distribution of the
Registrable Securities covered by the Registration Statement; provided, however,
-------- -------
that Buyer shall not be required in connection therewith or as a condition
thereto to qualify to do business in or file a general consent to service of
process in any jurisdiction wherein it would not but for the requirements of
this paragraph be obligated to do so; and
(7) Otherwise use its reasonable best efforts to comply with all
applicable rules and regulations of the SEC, and make available to its security
holders, as soon as reasonably practicable, an earnings statement covering a
period of at least twelve months, but not more than eighteen months, beginning
with the first month after the effective date of the Registration Statement,
which earnings statement shall satisfy the provisions of Section 11(a) of the
Securities Act.
(e) Information by Holder. Each Holder of Registrable Securities
---------------------
shall furnish to Buyer such information regarding such Holder and the
distribution proposed by such Holder as Buyer may reasonably request in
connection with any registration, qualification or compliance referred to in
this Section 5.9, but only to the extent that such information is required in
order for Buyer to comply with its obligations under all applicable securities
and other laws and to ensure that the Registration Statement relating to such
Registrable Securities conforms to the applicable requirements of the Securities
Act and the rules and regulations thereunder. Each Holder covenants that it
will promptly notify Buyer of any changes in the information set forth in the
Registration Statement or otherwise provided by such Holder to Buyer regarding
such Holder or such Holder's plan of distribution as a result of which the
Registration Statement or any
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prospectus relating to the Registrable Securities contains or would contain an
untrue statement of a material fact regarding such Holder or its intended method
of distribution of such Registrable Securities or omits to state any material
fact regarding such Holder or its intended method of distribution of such
Registrable Securities required to be stated therein or necessary to make the
statements therein, not misleading.
(f) Indemnification and Contribution.
--------------------------------
(1) Buyer agrees to indemnify and hold harmless each Holder from
and against any losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) to which such Holder may become subject (under
the Securities Act or otherwise) insofar as such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) arise out of, or are
based upon, any untrue statement, alleged untrue statement, omission or alleged
omission of a material fact in the Registration Statement, any prospectus
included in the Registration Statement, or any amendment or supplement to the
Registration Statement or any such prospectus, or any violation or alleged
violation by Buyer of the Securities Act, the Exchange Act, any state law, rule
or regulation promulgated thereunder, and Buyer will, as incurred, reimburse
such Holder for any legal or other expenses reasonably incurred in
investigating, defending or preparing to defend any such action, proceeding or
claim; provided, however, that the indemnity contained in this Section 5.9(f)(1)
shall not apply to amounts paid in settlement of any such loss, claim, damage,
liability, or action if such settlement is effected without the consent of Buyer
(which consent shall not be unreasonably withheld), nor shall Buyer shall not be
liable in any such case to the extent that such loss, claim, damage or liability
arises out of, or is based upon (A) an untrue statement or alleged untrue
statement made in such Registration Statement in reliance upon and in conformity
with written information furnished to Buyer by such Holder in an instrument
executed by such Holder and specifically stated to be for use in the preparation
of the Registration Statement, (B) the failure of such Holder to comply with any
of the covenants and agreements contained in Sections 5.9(h) or 5.9(j) hereof,
or (C) any untrue statement in any prospectus that is corrected in any
subsequent prospectus that was delivered to the Holder prior to the pertinent
sale or sales by the Holder.
(2) Each Holder, severally and not jointly, agrees to indemnify
and hold harmless Buyer from and against any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) to which Buyer may
become subject (under the Securities Act or otherwise) insofar as such losses,
claims, damages or liabilities (or actions or proceedings in respect thereof)
arise out of, or are based upon (A) an untrue statement, alleged untrue
statement, omission or alleged omission of a material fact in the Registration
Statement, any prospectus included in the Registration Statement, or any
amendment or supplement to the Registration Statement or any such prospectus in
reliance upon and in conformity with written information furnished to Buyer by
such Holder in an instrument executed by such Holder and specifically stated to
be for use in preparation of the Registration Statement, or any violation or
alleged violation by Holder of the Securities Act, the Exchange Act, any state
law, rule or regulation promulgated thereunder, provided, however, the indemnity
contained in this Section 5.9(f)(2) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability, or action if such
settlement is effected without the consent of Holder (which consent shall not be
unreasonably withheld), and provided that no Holder shall be liable in any such
case for any
-31-
untrue statement included in any Prospectus which statement has been corrected
in a writing delivered to Buyer at least two business days before the sale from
which such loss arose, (B) the failure of such Holder to comply with any of the
covenants and agreements contained in Sections 5.9(h) or 5.9(j) hereof, or (C)
any untrue statement in any Prospectus that is corrected in any subsequent
Prospectus that was delivered to the Holder prior to the pertinent sale or sales
by the Holder; and each Holder, severally and not jointly, will, as incurred,
reimburse Buyer for any legal or other expenses reasonably incurred in
investigating, defending or preparing to defend any such action, proceeding or
claim. In no event shall the amount payable by any Holder to Buyer pursuant to
this Section 5.9(f) by reason of a sale of Buyer Common Stock by such Holder
exceed the amount of the net proceeds to such Holder from the sale of Buyer
Common Stock from which such liability arose.
(3) Promptly after receipt by any indemnified person under
subsections (1) or (2) above of a notice of a claim or the beginning of any
action in respect of which indemnity is to be sought against an indemnifying
person pursuant to this Section 5.9(f), such indemnified person shall notify the
indemnifying person in writing of such claim or of the commencement of such
action (provided, however, that no failure to provide such notice shall relieve
any indemnifying person of any liability hereunder except to the extent that
such indemnifying person is prejudiced thereby), and, subject to the provisions
hereinafter stated, in case any such action shall be brought against an
indemnified person and the indemnifying person shall have been notified thereof,
the indemnifying person shall be entitled to participate therein, and, to the
extent that it shall wish, to assume the defense thereof, with counsel
reasonably satisfactory to the indemnified person. After notice from the
indemnifying person to such indemnified person of the indemnifying person's
election to assume the defense thereof, the indemnifying person shall not be
liable to such indemnified person for any legal expenses subsequently incurred
by such indemnified person in connection with the defense thereof; provided,
however, that, if the indemnifying person shall propose that the same counsel
represent it and the indemnified person, and if counsel for the indemnified
person shall reasonably have concluded that there is an actual conflict of
interest posed by the representation proposed by the indemnifying person, the
indemnified person shall be entitled to retain its own counsel reasonably
satisfactory to the indemnifying person at the expense of such indemnifying
person; provided, however that if more than one indemnified person makes a claim
against an indemnifying person based on substantially similar facts, the
indemnifying person shall not be responsible for the fees of more than one
counsel for all indemnified persons whose claims are based on substantially
similar facts.
(4) If the indemnification provided for in this Section 5.9(f) is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (1) or (2) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to therein,
then each indemnifying party shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (or actions in respect thereof), in such proportion as is
appropriate to reflect the relative fault of each such party, as well as any
other relevant equitable considerations, provided, however, that any
contribution by a Holder shall not exceed the net proceeds to such Holder for
the sale of Buyer Common Stock from which such liability arose, except in the
case of willful fraud by such Holder. The relative fault shall be determined by
reference to, among other things, whether the
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untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by Buyer on
the one hand or a Holder on the other and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. Buyer and the Holders agree that it would not be just and
equitable if contribution pursuant to this Section 5.9(f) were determined by any
method of allocation which does not take account of the equitable considerations
referred to above in this Section 5.9(f)(4). The amount paid or payable by an
indemnified party as a result of the losses, claims, damages, or liabilities (or
actions in respect thereof) referred to above in this Section 5.9(f)(4) shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action,
proceeding or claim. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
(5) The obligations of the Buyer and the Holders under this
Section 5.9(f) shall be in addition to any liability which Buyer and the
respective Holders may otherwise have and shall extend, upon the same terms and
conditions, to each director and officer of Buyer or any Holder, and to each
person, if any, who controls Buyer or any Holder within the meaning of the
Securities Act or the Exchange Act.
(g) Restrictive Legend. Each certificate representing Merger Shares
------------------
shall bear substantially the following legends (in addition to any legends
required under applicable securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT PURPOSES ONLY AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933. THE SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF
SUCH REGISTRATION OR AN EXEMPTION THEREFROM.
ADDITIONALLY, THE TRANSFER OF THE SHARES REPRESENTED BY THIS CERTIFICATE IS
SUBJECT TO CERTAIN RESTRICTIONS SPECIFIED IN THE AGREEMENT AND PLAN OF
REORGANIZATION AMONG THE ISSUER AND XXXXXX.XXX, INC., AMONG OTHERS (THE
"AGREEMENT"), WHICH INCLUDES AN OBLIGATION TO NOTIFY THE ISSUER PRIOR TO
ANY SALE OR OTHER TRANSACTION, AND NO TRANSFER OF SHARES SHALL BE VALID OR
EFFECTIVE ABSENT COMPLIANCE WITH SUCH RESTRICTIONS. ALL SUBSEQUENT HOLDERS
OF THIS CERTIFICATE WILL HAVE AGREED TO BE BOUND BY CERTAIN OF THE TERMS OF
THE AGREEMENT, INCLUDING SECTION 5.9 OF THE AGREEMENT. COPIES OF THE
AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE
REGISTERED HOLDER OF THIS CERTIFICATE TO THE SECRETARY OF THE ISSUER.
The legend contained in this Section 5.9(g) shall be removed from a certificate
in connection with any sale in compliance with the terms of this Agreement and
pursuant to the Resale S-1 Registration Statement, or pursuant to Rule 144 (if
accompanied by any legal opinion reasonably
-33-
required by the Buyer), but shall not be removed in any other circumstance
without Buyer's prior written consent (which consent shall not be unreasonably
withheld or delayed and shall be granted if such legend is no longer
appropriate).
(h) Transfer of Shares After Registration.
-------------------------------------
(1) Restriction. No Holder may make any sale of any Merger Shares
-----------
except (A) in accordance with the Resale S-1 Registration Statement, in which
case Holder must comply with the requirement of delivering a current prospectus,
(B) in accordance with Rule 144, or (C) pursuant to an exemption from the
registration requirements of the Securities Act, if accompanied by an opinion of
counsel that registration is not necessary, which opinion and counsel shall be
reasonably satisfactory to Buyer.
(2) Notice to Buyer of Proposed Sale and Right of Buyer to
------------------------------------------------------
Suspend Use of Registration Statement. If, at any time during the period after
-------------------------------------
the Resale S-1 Registration Statement has been declared effective and on or
before the date that the Company withdraws the Resale S-1 Registration Statement
in accordance herewith, any Holder shall propose to sell any Registrable
Securities pursuant to the Resale S-1 Registration Statement, it shall submit
written notice to the Buyer (a "Notice of Sale") by facsimile transmission of
--------------
such intention which shall include the name of the Holder, the number of shares
of Registrable Securities that such holder intends to sell and the Holder's
telephone and facsimile numbers. (If the Notice of Sale is actually received on
a day other than a business day, it will be deemed received on the next business
day; the date on which the Notice of Sale is received is referred to as the
"Notice Date;" the time on which the Notice of Sale is received is referred to
-----------
as the "Notice Time".) Upon receiving a Notice of Sale from a Holder, the Buyer
-----------
will notify the Holder as soon as reasonably practicable (but in no event later
than the same time as the Notice Time on the next business day following the
Notice Date) whether (i) the Buyer believes that the prospectus contained in the
Registration Statement, as then amended or supplemented, is available for
immediate use, whereupon the Buyer shall so notify the Holder(s) and the
Holder(s) will have a period of five (5) trading days following such
notification in which to sell its Registrable Securities or (ii) the Buyer
believes that it is necessary or appropriate to file a supplement or file a
post-effective amendment to the registration statement or the prospectus or any
document incorporated therein by reference or file any other report or document
so that, as thereafter delivered to the purchasers of the Registrable
Securities, the prospectus will not contain an untrue statement of a material
fact or omit to state any material fact necessary to make the statements therein
not misleading (a "Prospectus Update"). If the Buyer notifies the Holder(s) that
-----------------
it believes it may be necessary or appropriate to effectuate a Prospectus Update
and the Buyer is not exercising any right it may have under Section 5.9(i) to
postpone the Prospectus Update, the Buyer will thereupon use all reasonable
efforts to effectuate such Prospectus Update as soon as reasonably possible, and
not later than three (3) business days after the Notice of Sale is received by
the Buyer, except that the Buyer will have up to an additional two (2) business
days to effectuate such Prospectus Update if, because of the particular
circumstances involved, the Buyer could not effectuate the Prospectus Update
earlier, despite all reasonable diligence. As soon as the Prospectus Update has
been effectuated, the Buyer will notify each Holder who has submitted a Notice
of Sale that
-34-
the prospectus is available for use, whereupon each such Holder will have a
period of five (5) trading days in which to sell its Registrable Securities.
(i) The Buyer will be entitled to postpone, for the minimum period
provided below, the filing of any Prospectus Update otherwise required to be
prepared and filed by it pursuant hereto if, at the time it receives a Notice of
Sale, the Buyer determines in its reasonable judgment, after consultation with
counsel, that (i) the Buyer would be required to prepare and file any financial
statements (other than those it customarily prepares or before it customarily
files such financial statements), (ii) the Buyer would be required to file an
amendment to the registration statement to describe facts or events which
individually or in the aggregate represent a fundamental change in the
information contained in the registration statement within the meaning of Item
512 of Regulation S-K promulgated under the Securities Act, or (iii) the filing
would require the premature announcement of any financing, acquisition,
corporate reorganization, contract or other material corporate transaction or
development involving the Buyer such as the Buyer reasonably determines would be
materially detrimental to the interests of the Buyer and its shareholders. The
postponement will be for the minimum period reasonably required for the Buyer to
prepare and file the necessary documents, in the case of a postponement pursuant
to (i) or (ii) above, or the minimum period reasonably required to avoid such
premature disclosure, in the case of (iii) above, and which period will not be
in excess of thirty (30) calendar days unless, because of the unusual nature of
the particular circumstances, it is necessary that the period extend beyond
thirty (30) calendar days. The Buyer will promptly give each Holder who has
submitted a Notice of Sale notice of any postponement exercised pursuant to this
Section 5.9(i). As soon as the Prospectus Update has been effectuated following
a postponement effected pursuant to this Section 5.9(i), the Buyer will notify
each Holder who has submitted a Notice of Sale that the prospectus is available
for use, whereupon each such Holder will have a period of five (5) trading days
in which to sell its Registrable Securities.
(j) The Holder(s) may not sell shares of Registrable Securities
under this Section 5.9 without first (i) complying with the Notice of Sale
requirements of Section 5.9(h)(2) and (ii) allowing the Buyer to prepare
Prospectus Updates (including any permitted postponements thereof) as set forth
in Sections 5.9(h)(2) and 5.9(i). A Holder will submit a Notice of Sale only if
in good faith it actually intends to sell the Registrable Securities within such
five (5) trading day period and with the understanding that a Notice of Sale is
to be made only on the occasion that the sale of Registrable Securities is
actually contemplated and not on a continual basis. A Holder will notify the
Buyer by facsimile transmission promptly after it has completed or otherwise
ceased sales following submission of a Notice of Sale. The Holder(s) will
provide to the Buyer all information in the Holder(s)' possession or control,
and will take all actions, as may be required in order to permit the Buyer to
comply with all applicable requirements of the Securities Act and any applicable
state securities laws.
(k) Notwithstanding anything herein to the contrary, Buyer shall
keep a registration statement effective and available pursuant to this Section
5.9 for a minimum of thirty (30) days (after taking into account any periods of
delay permitted under Sections 5.9(h) and (i) above), shall permit the Holders
to sell the Merger Shares covered by such registration statement for a minimum
of thirty (30) days, and under no circumstances shall the Buyer be required to
-35-
keep a registration statement effective and available pursuant to this Section
5.9 for greater than thirty (30) days (after taking into account any periods of
delay permitted under Sections 5.9(h) and (i) above).
(l) Rule 144 Reporting. With a view to making available the benefits
------------------
of certain rules and regulations of the SEC which may at any time permit the
sale of the Registrable Securities to the public without registration, Buyer
agrees to use its reasonable best efforts to:
(1) Make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act, at all times
after the Merger;
(2) File with the SEC in a timely manner all reports and other
documents required of Buyer under the Securities Act and the Exchange Act; and
(3) So long as a Holder owns any Registrable Securities, to
furnish to that Holder forthwith upon request a written statement by Buyer as to
its compliance with the reporting requirements of said Rule 144, and of the
Securities Act and the Exchange Act, a copy of the most recent annual or
quarterly report of Buyer, and such other reports and documents of Buyer as such
Holder may reasonably request in availing itself of any rule or regulation of
the SEC allowing such Holder to sell any such Registrable Securities without
registration.
5.10 Confidentiality and Invention Assignment Agreements. Company
---------------------------------------------------
Shareholders will use their reasonable best efforts to ensure that all of the
Company's current independent contractors sign Buyer's standard form of
Confidentiality and Invention Assignment Agreement as soon as practicable
following the Closing Date.
5.11 TWP Shares. On the Closing, Buyer shall issue TWP 20,483 shares
----------
of Common Stock (the "TWP Shares") in partial payment of Company's obligations
to TWP pursuant to a letter agreement dated July 1, 1999 and amended October 23,
1999, as attached hereto as Exhibit B. TWP shall be considered a "Holder" for
---------
purposes of Section 5.9 hereof and shall be subject to the rights and
obligations of Section 5.9.
ARTICLE VI
CONDITIONS TO THE MERGER
------------------------
6.1 Conditions to Obligations of Each Party to Effect the Merger. The
------------------------------------------------------------
respective obligations of each party to this Agreement to consummate and effect
this Agreement and the transactions contemplated hereby shall be subject to the
satisfaction at or prior to the Effective Time of each of the following
conditions, any of which may be waived, in writing, by agreement of all the
parties hereto:
(a) No Injunctions or Restraints; Illegality. No temporary restraining
----------------------------
order, preliminary or permanent injunction or other order or prohibition issued
by any Governmental Entity preventing the consummation of the Merger shall be in
effect. In the event an injunction
-36-
or other order shall have been issued, each party agrees to use its reasonable
diligent efforts to have such injunction or other order lifted.
(b) Governmental Approval. Buyer and Company and their respective
---------------------
subsidiaries shall have timely obtained from each Governmental Entity all
approvals, waivers and consents necessary for consummation of or in connection
with the Merger and the several transactions contemplated hereby, including such
approvals, waivers and consents as may be required under the Securities Act
under state blue sky laws and California Law.
6.2 Additional Conditions to Obligations of Company. The obligations of
-----------------------------------------------
Company to consummate and effect this Agreement and the transactions
contemplated hereby shall be subject to the satisfaction at or prior to the
Effective Time of each of the following conditions, any of which may be waived,
in writing, by Company:
(a) Representations, Warranties and Covenants. (i) The
-----------------------------------------
representations and warranties of Buyer in this Agreement shall be true and
correct in all material respects (except for such representations and warranties
that are qualified by their terms by a reference to materiality which
representations and warranties as so qualified shall be true in all respects) on
and as of the Effective Time as though such representations and warranties were
made on and as of such time and (ii) Buyer shall have performed and complied in
all material respects with all covenants, obligations and conditions of this
Agreement required to be performed and complied with by them as of the Effective
Time, and Company shall have received a certificate signed on behalf of Buyer by
the Chief Executive Officer or the President and the Chief Financial Officer to
such effect.
(b) Legal Opinion. Company shall have received a legal opinion from
-------------
Buyer's legal counsel in a form typically given in transactions of this kind and
as reasonably agreed between Buyer's counsel and Company's counsel.
(c) No Material Adverse Changes. There shall not have occurred any
---------------------------
material adverse change in the condition (financial or otherwise), properties,
assets (including intangible assets), liabilities, business, operations, results
of operations or prospects of Buyer and its subsidiaries, taken as a whole.
(d) Third Party Consents. Company shall have been furnished with
--------------------
evidence reasonably satisfactory to it of the consent or approval of those
persons and entities whose consent or approval shall be required in order for
Buyer to consummate the Merger.
(e) Employment and Non-Competition Agreements. The Buyer shall have
-----------------------------------------
executed the Employment and Non-Competition Agreement substantially in the form
attached as Exhibit 6.2(e) (the "Employment and Non-Competition Agreement") with
-------------- ----------------------------------------
Xxxx Xxxxxx.
(f) Escrow Agreement. The Buyer and Escrow Agent shall have
executed the Escrow Agreement substantially in the form attached Exhibit 6.2(f).
--------------
6.3 Additional Conditions to the Obligations of Buyer. The obligations
-------------------------------------------------
of Buyer to consummate and effect this Agreement and the transactions
contemplated hereby shall be subject
-37-
to the satisfaction at or prior to the Effective Time of each of the following
conditions, any of which may be waived, in writing, by Buyer:
(a) Representations, Warranties and Covenants. (i) The
-----------------------------------------
representations and warranties of Company and the Company Shareholders in this
Agreement shall be true and correct in all material respects (except for such
representations and warranties that are qualified by their terms by a reference
to materiality which representations and warranties as so qualified shall be
true in all respects) on and as of the Effective Time as though such
representations and warranties were made on and as of such time and (ii) Company
shall have performed and complied in all material respects with all covenants,
obligations and conditions of this Agreement required to be performed and
complied with by it as of the Effective Time, and Buyer shall have received a
certificate signed on behalf of Company by the Chief Executive Officer or the
President and Chief Financial Officer to such effect.
(b) Legal Opinion. Buyer shall have received a legal opinion from
-------------
Company's legal counsel, in a form typically given in transactions of this kind
and as reasonably agreed between Buyer's counsel and Company's counsel.
(c) No Material Adverse Changes. There shall not have occurred any
---------------------------
material adverse change in the condition (financial or otherwise), properties,
assets (including intangible assets), liabilities, business, operations, results
of operations or prospects of Company other than the good faith use of cash
reasonably consistent with the past practices of the Company.
(d) FIRPTA Certificate. Company shall have provided Buyer with the
------------------
FIRPTA Notification Letter.
(e) Third Party Consents. Buyer shall have been furnished with
--------------------
evidence reasonably satisfactory to it of the consent or approval of those
persons and entities whose consent or approval shall be required in order for
Company to consummate the Merger or ensure the continuation of all contracts of
Company.
(f) Resignation of Directors. The directors of the Company in office
------------------------
immediately prior to the Effective Time shall have resigned as directors of the
Surviving Corporation effective as of the Effective Time.
(g) Employment and Non-Competition Agreement. Xxxx Xxxxxx shall have
----------------------------------------
executed the Employment and Non-Competition Agreement.
(h) Confidentiality Agreements. The Company Shareholders and the
--------------------------
independent contractors of Company listed on Exhibit 6.3(h) shall have entered
into Confidential Information and Invention Assignment Agreements in the Buyer's
standard form, to be effective upon the Closing.
(i) Dissenting Shareholders. No Company Shareholders shall have
-----------------------
elected to, or continue to have contingent rights to, exercise dissenter's
rights under California Law as to such shares.
-38-
(j) Escrow Agreement. The Escrow Agent and Shareholders' Agent shall
----------------
have executed and delivered to Buyer the Escrow Agreement.
(k) IPO Lockup Agreement. Each of the Company Shareholders and TWP
--------------------
shall have executed Buyer's underwriters' standard form of 180 day lockup
agreement in connection with Buyer's proposed initial public offering in the
form attached as Exhibit 6.3(k).
--------------
(l) Certificates. Each of the Company Shareholders shall have
------------
executed and delivered to the Buyer the Certificates representing all of the
shares of Company Common Stock outstanding, together with duly executed stock
powers transferring such Certificates to Buyer.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
---------------------------------
7.1 Termination. 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 Company, this Agreement may be terminated:
(a) by mutual consent of Buyer and Company;
(b) by Company or Buyer, by giving written notice to the other
party, if the other party is in material breach of any representation, warranty,
or covenant of such other party contained in this Agreement, which breach shall
not have been cured, if subject to cure, within 15 calendar days following
receipt by the breaching party of written notice of such breach by the other
party;
(c) by Buyer, by giving written notice to the Company, if the
Closing shall not have occurred on or before November 1, 1999 by reason of the
failure of any condition precedent under Section 6.1 or 6.3 (unless the failure
results primarily from a breach by Buyer of any representation, warranty, or
covenant of Buyer contained in this Agreement or Buyer's failure to fulfill a
condition precedent to closing or other default);
(d) by Company, by giving written notice to Buyer, if the Closing
shall not have occurred on or before November 1, 1999 by reason of the failure
of any condition precedent under Section 6.1 or 6.2 (unless the failure results
primarily from a breach by the Company of any representation, warranty, or
covenant of Company contained in this Agreement or the Company's failure to
fulfill a condition precedent to closing or other default);
7.2 Effect of Termination. In the event of termination of this Agreement
---------------------
as provided in Section 7.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of Buyer or Company or their
respective officers, directors, shareholders or affiliates, except to the extent
that such termination results from the material breach by a party hereto of any
of its representations, warranties or covenants set forth in this Agreement;
provided
-39-
that, the provisions of Section 5.2 (Confidentiality) and this Section
7.2 shall remain in full force and effect and survive any termination of this
Agreement.
7.3 Amendment; Waiver. The boards of directors of the parties hereto
-----------------
may cause this Agreement to be amended at any time by execution of an instrument
in writing signed on behalf of each of the parties hereto. At any time prior to
the Effective Time any party hereto may, to the extent legally allowed, (i)
extend the time for the performance of any of the obligations or other acts of
the other parties hereto, (ii) waive any inaccuracies in the representations and
warranties made to such party contained herein or in any document delivered
pursuant hereto and (iii) waive compliance with any of the agreements or
conditions for the benefit of such party contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in an instrument in writing signed on behalf of such party.
ARTICLE VIII
INDEMNIFICATION
---------------
8.1 Survival of Representations, Warranties and Covenants.
-----------------------------------------------------
Notwithstanding any investigation conducted before or after the Closing Date,
Buyer and the Company will be entitled to rely upon the other party's
representations, warranties and covenants set forth in this Agreement. The
obligations of the Buyer and the Company with respect to its representations,
warranties, agreements and covenants will survive the Closing and continue in
full force and effect for a period of six (6) months after the Closing, provided
that if a written notice is given in accordance with the Escrow Agreement before
the expiration of such six (6) month period, then (notwithstanding the
expiration of such time period) the representation, warranty or covenant
applicable to such claim shall survive until, but only for the purpose of, the
resolution of such claim.
8.2 Indemnity by Company Shareholders. From and after the Closing Date,
---------------------------------
and subject to the other provisions of this Article 8, each Company Shareholder
shall jointly and severally indemnify and hold harmless Buyer and Surviving
Corporation (an "Indemnified Person") against, and reimburse Buyer and/or
------------------
Surviving Corporation for, any liability, damage, loss, obligation, demand,
judgment, fine, penalty, cost or expense, including reasonable attorneys' fees
and expenses, and the costs of investigation incurred in defending against or
settling such liability, damage, loss, cost or expense or claim therefor and any
amounts paid in settlement thereof (collectively "Damages") imposed on or
-------
reasonably incurred by Buyer as a result of: (i) any breach of any
representation or warranty or failure to perform any covenant on the part of
Company or a Company Shareholder under this Agreement or (ii) resulting from any
claim by a Company Shareholder or former Company shareholder based upon an
ownership right or alleged ownership right of any shares of stock of the
Company, the form of consideration payable in the Merger or any actions of the
board of directors of the Company in connection with the transactions
contemplated by this Agreement.
8.3 Method of Asserting Claims. All claims for indemnification by an
--------------------------
Indemnified Person pursuant to this Article VIII shall be made in accordance
with the provisions of the Escrow Agreement.
-40-
8.4 Limitations. Notwithstanding anything to the contrary herein,
-----------
(a) the aggregate liability of the Company Shareholders for Damages
under this Article VIII shall be limited to the Escrow Shares (or a portion
thereof, as set forth in the Escrow Agreement). Except with respect to claims
based on fraud, in the event the Merger occurs, the rights of an Indemnified
Person under this Article VIII shall be limited exclusively to the right to
receive the Escrow Shares (or a portion thereof, as set forth in the Escrow
Agreement) and such indemnification shall be the exclusive remedy of the
Indemnified Persons with respect to claims resulting from or relating to any
misrepresentation, breach of warranty or failure to perform any covenant or
agreement of the Company or the Company Shareholders contained in this
Agreement. No Company Shareholder shall have any right of contribution against
the Company with respect to any breach by the Company of any of its
representations, warranties, covenants or agreements.
(b) Subject to Section 12(a) of the Escrow Agreement, the Company
Shareholders shall have no obligation to indemnify the Indemnified Person
pursuant to Section 8.2 hereof unless and until all Damages thereunder shall
exceed $25,000 in the aggregate, at which point the Company Shareholders shall
be responsible for all Damages (including the first $25,000 of such Damages)
imposed on or incurred by the Indemnified Person. As used in this Agreement,
"Damages" shall be determined after giving effect to the receipt by the
Indemnified Person of any insurance proceeds relating to such Damages.
ARTICLE IX
GENERAL PROVISIONS
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9.1 Notices. All notices and other communications hereunder shall be in
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writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via facsimile (with confirmation of receipt) to the parties
at the following address (or at such other address for a party as shall be
specified by like notice):
(a) if to Buyer, to:
XxxxxxXxxxxxx.xxx
0000 Xxxxxxxxxx Xxxxxx, Xxxxx 000
Xxxxxxxxxx, XX 00000
Attn: Chief Executive Officer
Facsimile No.:
Telephone No.: 000-000-0000
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with a copy to:
Venture Law Group
0000 Xxxx Xxxx Xxxx
Xxxxx Xxxx, XX 00000
Attention: Xxxx X. Xxxxxxxx
Facsimile No.: (000) 000-0000
Telephone No.: (000) 000-0000
(b) if to Company, to:
XxXxxx.xxx
with a copy to:
Xxxxxxx X. Xxxxxxx
Xxxxxx, Xxxxxxxxxx & Xxxxxxxxx
000 Xxxxxxx Xxxxxx
Xxx Xxxxxxxxx, XX 00000-0000
(000) 000-0000 (voice)
(000) 000-0000 (fax)
(c) Each such notice or other communication shall be in writing and
shall be effective (i) if given by facsimile, when such facsimile is transmitted
to the facsimile number specified in Section 9.1 (with confirmation of
transmission); or (ii) if given by any other means, when delivered at the
address specified in Section 9.1. Any party by notice given in accordance with
this Section 9.1 to the other party may designate another address (or facsimile
number) or person for receipt of notices hereunder. Notices by a party may be
given by counsel to such party.
9.2 Interpretation. The table of contents and headings contained in
--------------
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement. In this Agreement, any
reference to a party's "knowledge" or "to the best of its knowledge" means such
party's actual knowledge after due and diligent inquiry of officers, directors
and other employees of such party reasonably believed to have knowledge of such
matters. In particular, and not by way of limitation of the foregoing, the term
the "Company's knowledge" or words to such effect shall mean the actual
knowledge of each of the Company Shareholders after due and diligent inquiry.
9.3 Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
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9.4 Entire Agreement; Nonassignability; Parties in Interest. This
-------------------------------------------------------
Agreement and the documents and instruments and other agreements specifically
referred to herein or delivered pursuant hereto, including the Exhibits, the
Schedules, including the Company Disclosure Schedule and the Buyer Disclosure
Schedule (a) constitute the entire agreement among the parties with respect to
the subject matter hereof and supersede all prior agreements and understandings,
both written and oral, among the parties with respect to the subject matter
hereof, except for the Confidentiality Agreement, which shall continue in full
force and effect, and shall survive any termination of this Agreement or the
Closing, in accordance with its terms; and (b) shall not be assigned by
operation of law or otherwise except as otherwise specifically provided.
9.5 Severability. In the event that any provision of this Agreement, or
------------
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to
replace such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
9.6 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of California. Each of the parties hereto
irrevocably consents to the exclusive jurisdiction of any court located in
Alameda County in the State of California, in connection with any matter based
upon or arising out of this Agreement or the matters contemplated herein, agrees
that process may be served upon them in any manner authorized by the laws of the
State of California for such persons and waives and covenants not to assert or
plead any objection which they might otherwise have to such jurisdiction and
such process.
9.7 Rules of Construction. The parties hereto agree that they have been
---------------------
represented by counsel during the negotiation, preparation and execution of this
Agreement and, therefore, waive the application of any law, regulation, holding
or rule of construction providing that ambiguities in an agreement or other
document will be construed against the party drafting such agreement or
document.
9.8 Resolution of Conflicts; Arbitration. Any dispute arising out of or
------------------------------------
related to this agreement, which cannot be resolved by negotiation, shall be
settled by binding arbitration conducted by a single arbitrator, selected by
mutual agreement of the Company Shareholders and Buyer, conducted in Alameda
County, California in accordance with the rules then in effect of the American
Arbitration Association. Judgment upon any award rendered by the arbitrator may
be entered in any court having jurisdiction. The non-prevailing party to an
arbitration shall pay its own expenses, the fees of each arbitrator, the
administrative fee of the American Arbitration Association, and the expenses,
including without limitation, attorneys' fees and costs, reasonably incurred by
the other party to the arbitration.
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IN WITNESS WHEREOF, Buyer, the Company Shareholders and the Company have
caused this Agreement to be executed and delivered by their respective officers
thereunto duly authorized, all as of the date first written above.
XXXXXXXXXXXXX.XXX
By: /s/ C. Xxxx Xxxxx
---------------------------------------------
Name: C. Xxxx Xxxxx
----------------
Title: Senior Vice President and Chief
-------------------------------------
Financial Officer
-------------------------------------
XXXXXX.XXX, INC.
By: /s/ Xxxx X. Xxxxxx
---------------------------------------------
Name: Xxxx X. Xxxxxx
---------------------------------------
Title: Chief Executive Officer
--------------------------------------
COMPANY SHAREHOLDER
/s/ Xxxx X. Xxxxxx and Xxxxx Xxxxxx
--------------------------------------------------
Xxxx X. Xxxxxx and Xxxxx Xxxxxx, jointly
/s/ Xxxxx X. Xxxxxxxxx
--------------------------------------------------
Xxxxx X. Xxxxxxxxx
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