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EXHIBIT 10.27
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and entered
into as of July 28, 2000, by and among Immersion Corporation, a Delaware
corporation ("Parent"), VT Acquisition, Inc., a California corporation and a
wholly owned subsidiary of Parent ("Merger Sub"), Virtual Technologies, Inc., a
California corporation (the "Company"), and Xxxxx X. Xxxxxx, as the
representative of the Company's shareholders (the "Shareholder Representative"),
with reference to the following facts:
A. The respective Boards of Directors of Parent, Merger Sub and the
Company have each determined that it is advisable for Parent to acquire the
Company upon the terms and subject to the conditions set forth in this
Agreement.
B. In furtherance of such combination, the Boards of Directors of
Parent, Merger Sub and the Company have each approved this Agreement and the
merger of Merger Sub with and into the Company (the "Merger") in accordance with
the applicable provisions of the California General Corporation Law (the "CGCL")
and upon the terms and subject to the conditions set forth in this Agreement.
C. For federal income tax purposes, it is intended that the Merger
qualify as a reorganization within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code"), and this Agreement is hereby
adopted as a plan of reorganization for purposes of Section 368 of the Code.
D. For financial accounting purposes, it is intended that the Merger be
accounted for as a purchase transaction.
ACCORDINGLY, in consideration of the foregoing and the following
representations, warranties, covenants and agreements, and intending to be
legally bound hereby, the parties agree as follows:
ARTICLE I
THE MERGER
1.1 THE MERGER. At the Effective Time (as defined in Section 1.3), and
subject to and upon the terms and conditions of this Agreement and the
applicable provisions of the CGCL, (i) Merger Sub will be merged with and into
the Company; (ii) the separate corporate existence of Merger Sub will cease; and
(iii) the Company will be the surviving corporation (the "Surviving
Corporation").
1.2 THE CLOSING. The closing of the Merger and the other transactions
contemplated by this Agreement (the "Closing") will take place at 10:00 a.m.,
local time, at the
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offices of Xxxxxx Xxxxxx White & XxXxxxxxx LLP, 000 Xxxxxxxxxx Xxxxxx, Xxxx
Xxxx, Xxxxxxxxxx, on a date to be specified by the parties (the "Closing Date"),
which date will be the date on which all the conditions set forth in Article VII
are satisfied or waived, unless another date, time or place is agreed to in
writing by the parties.
1.3 EFFECTIVE TIME. On the Closing Date, the parties will cause the
Merger to be consummated by filing an agreement of merger (the "Agreement of
Merger"), together with the required officers' certificates, with the California
Secretary of State, in the forms required by, and executed in accordance with,
the applicable provisions of the CGCL (the time of such filing being the
"Effective Time").
1.4 EFFECT OF THE MERGER. The effect of the Merger will be as provided
in this Agreement, the Agreement of Merger and the applicable provisions of the
CGCL. Without limiting the generality of the foregoing, and subject thereto, at
the Effective Time, all the property, rights, privileges, powers and franchises
of the Company and Merger Sub will vest in the Surviving Corporation, and all
debts, liabilities and duties of the Company and Merger Sub will become the
debts, liabilities and duties of the Surviving Corporation.
1.5 ARTICLES OF INCORPORATION; BYLAWS. At the Effective Time, the
Articles of Incorporation and Bylaws of Merger Sub, as in effect immediately
prior to the Effective Time, will be the Articles of Incorporation and Bylaws of
the Surviving Corporation (except that the corporate name will be changed to
Virtual Technologies, Inc.), until thereafter amended in accordance with the
CGCL and such Articles of Incorporation and Bylaws.
1.6 DIRECTORS AND OFFICERS. The directors and officers of Merger Sub
immediately prior to the Effective Time will be the initial directors and
officers of the Surviving Corporation, each to hold office in accordance with
the Articles of Incorporation and Bylaws of the Surviving Corporation and until
their respective successors are duly elected or appointed and qualified.
1.7 FURTHER ACTION AFTER THE EFFECTIVE TIME. If, at any time after the
Effective Time, any such further action is necessary or desirable to carry out
the purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of the Company and Merger Sub, the officers and directors of the
Company and Merger Sub immediately prior to the Effective Time are fully
authorized in the name of their respective corporations or otherwise to take,
and will take, all such lawful and necessary action.
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ARTICLE II
CONVERSION OF SHARES
2.1 EFFECT ON STOCK. At the Effective Time, by virtue of the Merger and
without any action on the part of the Company, Merger Sub or the holders of any
securities of the Company or Merger Sub, the following will occur:
(a) CONVERSION OF COMPANY STOCK. Each share of the Company's common
stock ("Company Common Stock") issued and outstanding immediately prior to the
Effective Time (other than any shares to be cancelled pursuant to Section
2.1(d)) will, subject to Sections 2.1(b), 2.1(c), 2.1(e) and 2.1(f), be
automatically converted into the right to receive (i) that percentage of a share
of the Parent's common stock, $0.001 par value per share ("Parent Common
Stock"), equal to the "Exchange Ratio" (as defined in Section 2.1(b)), and (ii)
the "Per Share Cash Amount" (as defined in Section 2.1(b)).
(b) DETERMINATION OF THE EXCHANGE RATIO AND PER SHARE CASH AMOUNT.
For purposes of this Agreement:
(i) The "Per Share Value" will be equal to the average of the
closing sale prices of a share of Parent Common Stock on the Nasdaq Stock Market
("Nasdaq") for the five trading days immediately preceding the Effective Time.
(ii) The "Total Value" will be equal to 400,000 multiplied by
the Per Share Value, reduced by the full amount of any Excess Fees and Expenses
(as defined in Section 7.2(p)).
(iii) The "Outstanding Company Shares" will be equal to the
total number of shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time (other than any shares to be cancelled
pursuant to Section 2.1(d)).
(iv) The "Stock Fraction" will be equal to a fraction, the
numerator of which is equal to the Outstanding Company Shares and the
denominator of which is equal to the sum of the Outstanding Company Shares and
that number of shares of Company Common Stock issuable on exercise of all
options to purchase shares of Company Common Stock that are outstanding
immediately prior to the Effective Time
(v) The "Merger Consideration" will be equal to the Total Value
multiplied by the Stock Fraction.
(vi) The "Merger Cash Amount" will be equal to the lesser of (i)
$1,500,000 multiplied by the Stock Fraction; or (ii) the Merger Consideration
multiplied by the applicable percentage below:
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(A) 15%, if the number of Outstanding Company Shares voting
in favor of the Merger is equal to or greater than 4,706,149;
(B) 14%, if the number of Outstanding Company Shares voting
in favor of the Merger is equal to or greater than 4,651,427, but less than
4,706,149;
(C) 13%, if the number of Outstanding Company Shares voting
in favor of the Merger is equal to or greater than 4,597,962, but less than
4,651,427;
(D) 12%, if the number of Outstanding Company Shares voting
in favor of the Merger is equal to or greater than 4,545,713, but less than
4,597,962;
(E) 11%, if the number of Outstanding Company Shares voting
in favor of the Merger is equal to or greater than 4,494,637, but less than
4,545,713;
(F) 10%, if the number of Outstanding Company Shares voting
in favor of the Merger is equal to or greater than 4,444,697, but less than
4,494,637;
(G) 9%, if the number of Outstanding Company Shares voting
in favor of the Merger is equal to or greater than 4,395,854, but less than
4,444,697;
(H) 8%, if the number of Outstanding Company Shares voting
in favor of the Merger is equal to or greater than 4,348,073, but less than
4,395,854;
(I) 7%, if the number of Outstanding Company Shares voting
in favor of the Merger is equal to or greater than 4,301,319, but less than
4,348,073;
(J) 6%, if the number of Outstanding Company Shares voting
in favor of the Merger is equal to or greater than 4,255,561, but less than
4,301,319;
(K) 5%, if the number of Outstanding Company Shares voting
in favor of the Merger is equal to or greater than 4,210,765, but less than
4,255,561;
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(L) 4%, if the number of Outstanding Company Shares voting
in favor of the Merger is equal to or greater than 4,166,903, but less than
4,210,765;
(M) 3%, if the number of Outstanding Company Shares voting
in favor of the Merger is equal to or greater than 4,123,945, but less than
4,166,903;
(N) 2%, if the number of Outstanding Company Shares voting
in favor of the Merger is equal to or greater than 4,081,864, but less than
4,123,945;
(O) 1%, if the number of Outstanding Company Shares voting
in favor of the Merger is equal to or greater than 4,040,663, but less than
4,081,864; or
(P) 0%, if none of immediately preceding clauses (A) through
(O) applies.
(vii) The "Per Share Cash Amount" will be equal to the Merger
Cash Amount divided by the Outstanding Company Shares.
(viii) The "Merger Shares" will be equal to the Merger
Consideration minus the Merger Cash Amount, divided by the Per Share Value.
(ix) The "Exchange Ratio" will be equal to the Merger Shares
divided by the Outstanding Company Shares.
(x) The Exchange Ratio will be adjusted to reflect the effect of
any stock split, reverse split, stock dividend (including any dividend or
distribution of securities convertible into Parent Common Stock),
reorganization, recapitalization or other like change with respect to Parent
Common Stock occurring after the date of this Agreement and prior to the
Effective Time.
(c) ESCROWED SHARES. An aggregate of 60,000 shares (the "Escrowed
Shares") of Parent Common Stock to be issued in the Merger will be held in
escrow by U.S. Trust Company, N. A. (the "Escrow Agent") under an Escrow
Agreement, in substantially the form attached as EXHIBIT A to this Agreement
(the "Escrow Agreement"). The Escrowed Shares will be contributed to the escrow
pro rata based on the number of shares of Parent Common Stock that each Company
shareholder would have been entitled to receive but for the creation of such
escrow. At the Effective Time, the Company's shareholders will be deemed to have
received and deposited with the Escrow Agent the Escrowed Shares, without any
act by the Company's shareholders. The adoption of this Agreement and the
approval of the Merger by the Company's shareholders will constitute the
approval of the Company shareholders' of the Escrow Agreement and
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of all the arrangements relating thereto, including the placement of the
Escrowed Shares in escrow, the appointment of Xxxxx X. Xxxxxx as the Shareholder
Representative in Article IX of this Agreement and any obligations of, or
payments due by, such shareholders under this Agreement or the Escrow Agreement
(including the payment of the Unanticipated Fees and Expenses (as defined in
Section 10.3)).
(d) CANCELLATION. Each share of Company Common Stock held by the
Company or owned by Parent, Merger Sub or any direct or indirect wholly owned
subsidiary of the Company or Parent, immediately prior to the Effective Time
will be automatically cancelled and retired and will cease to exist, without
payment of any consideration therefor.
(e) DISSENTING SHARES. Any holder of Company Common Stock with
respect to which dissenters' rights are granted by reason of the Merger under
the CGCL, who does not vote to approve the Merger and who otherwise complies
with Chapter 13 of the CGCL ("Dissenting Shares"), will not be entitled to
receive that number of shares of Parent Common Stock or that amount of cash
(including any cash in lieu of fractional shares) that such holder is entitled
to receive in the Merger, all in accordance with this Article II, and will be
entitled to receive only the payment provided for by Chapter 13 of the CGCL,
unless such holder fails to perfect, effectively withdraws or loses his or her
right to dissent from the Merger under the CGCL. If any such holder so fails to
perfect, effectively withdraws or loses his or her dissenters' rights under the
CGCL, his or her Dissenting Shares will thereupon be deemed to have been
converted, as of the Effective Time, into the right to receive that number of
shares of Parent Common Stock and that amount of cash that such holder is
entitled to receive in the Merger, less the shares being escrowed, plus any cash
in lieu of fractional shares, all in accordance with this Article II. Any
payments relating to Dissenting Shares will be made solely by the Surviving
Corporation, and no funds or other property will be provided by Merger Sub or
any of Parent's other direct or indirect subsidiaries.
(f) CASH IN LIEU OF FRACTIONAL SHARES. No fraction of a share of
Parent Common Stock will be issued by virtue of the Merger. Instead, each holder
of shares of Company Common Stock who would otherwise be entitled to a fraction
of a share of Parent Common Stock (after aggregating all fractional shares of
Parent Common Stock to be received by such holder) will receive from Parent an
amount of cash (rounded down to the nearest whole cent) equal to the product of
such fraction, multiplied by the Per Share Value, without interest thereon.
(g) CONVERSION OF MERGER SUB STOCK. Each share of common stock of
Merger Sub issued and outstanding immediately prior to the Effective Time will
be converted into and exchanged for one validly issued, fully paid and
nonassessable share of common stock of the Surviving Corporation.
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2.2 COMPANY STOCK OPTIONS. At the Effective Time, Parent will, to the
full extent permitted by applicable law, assume all outstanding options to
purchase shares of Company Common Stock (the "Company Stock Options") granted
under the Virtual Technologies, Inc. 1997 Stock Option Plan (the "Company Stock
Option Plan"). Each outstanding Company Stock Option, whether or not exercisable
at the Effective Time, will, to the full extent permitted by applicable law, be
assumed by Parent so that it will be exercisable upon the same terms and
conditions as under the Company Stock Option Plan and the applicable option
agreement issued thereunder; provided, however, that (i) such option will
thereafter be exercisable for (A) a number of shares of Parent Common Stock
(rounded down to the nearest whole share) equal to the number of shares of
Company Common Stock issuable under such Company Stock Option multiplied by the
Exchange Ratio and (B) an amount of cash equal to the Per Share Cash Amount
multiplied by the number of shares of Company Common Stock issuable under such
Company Stock Option, and (ii) the option exercise price per share will
thereafter be equal to the option exercise price per share under such Company
Stock Option divided by the Exchange Ratio.
2.3 EXCHANGE OF CERTIFICATES.
(a) EXCHANGE PROCEDURES. At the Closing, each holder of a
certificate or certificates which represented shares of Company Common Stock
immediately prior to the Effective Time, other than Dissenting Shares, will
surrender such certificate(s), accompanied by a properly completed letter(s) of
transmittal (which will be in such form as Parent may reasonably specify), and
such other customary documents as may be required pursuant to such letter(s) of
transmittal, to Parent (or an exchange agent selected by Parent in its sole
discretion). As soon as reasonably practicable (and in any event no later than
30 days) after the later of such surrender and the date on which the California
Secretary of State issues a certified copy of the filed Agreement of Merger,
such holder will be entitled to receive in exchange therefor a certificate
evidencing that number of shares of Parent Common Stock and that amount of cash
(without interest thereon) that such holder is entitled to receive in the
Merger, less the shares being escrowed, plus any cash in lieu of fractional
shares (without interest thereon), all in accordance with this Article II. Until
properly surrendered, each outstanding certificate that, prior to the Effective
Time, represented shares of Company Common Stock, other than Dissenting Shares,
will be deemed from and after the Effective Time, for all corporate purposes,
subject to Section 2.3(b), to evidence the right to receive that number of
shares of Parent Common Stock and that amount of cash (without interest thereon)
that such holder is entitled to receive in the Merger, less the shares being
escrowed, plus any cash in lieu of fractional shares (without interest thereon)
all in accordance with this Article II. Shares of Parent Common Stock issued in
the Merger will be issued as of and deemed to be outstanding as of the Effective
Time.
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(b) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No dividends
or other distributions declared or made with respect to the Parent Common Stock
with a record date after the Effective Time will be paid to the holders of any
unsurrendered Company certificates until such holders properly surrender such
Company certificates. Upon a holder's surrender of any such Company certificates
(along with properly completed letters of transmittal and such other customary
documents as may be required in accordance with Section 2.3(a)), there will be
paid to that holder, promptly (and in any event no later than 30 days) after
such surrender, the amount of dividends or other distributions, excluding
interest thereon, declared with a record date after the Effective Time and not
paid because of the failure to properly surrender the Company certificates for
exchange.
(c) NO LIABILITY. Neither Parent, Merger Sub nor the Company will be
liable to any holder of Company Common Stock immediately prior to the Merger for
any shares of Parent Common Stock or cash delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
(d) WITHHOLDING RIGHTS. Parent will be entitled to deduct and
withhold from the Merger Consideration otherwise payable pursuant to this
Agreement to any holder of Company Common Stock immediately prior to the Merger
such amounts as Parent is required to deduct and withhold with respect to such
Merger Consideration under the Code, or any provision of state, local or foreign
tax law. To the extent that amounts are so withheld by Parent, such withheld
amounts will be treated for all purposes as having been paid to the holder of
the shares in respect of which such deduction and withholding was made.
(e) LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any Company
certificates have been lost, stolen or destroyed, Parent will issue in exchange
for such lost, stolen or destroyed certificates, upon the making of an affidavit
of that fact by the holder thereof, such number of shares of Parent Common Stock
that such holder is entitled to receive in the Merger, less the shares being
escrowed, plus any cash in lieu of fractional shares all in accordance with this
Article II; provided, however, that Parent may, in its sole discretion and as a
condition precedent thereof, require the owner of such lost, stolen or destroyed
certificates to deliver a bond in such sum as Parent may reasonably direct as
indemnity against any claim that may be made against Parent with respect to the
certificates alleged to have been lost, stolen or destroyed.
2.4 STOCK TRANSFER BOOKS. At the Effective Time, the stock transfer
books of the Company will be closed, and there will be no further registration
of transfers of Company Common Stock thereafter on the records of the Company.
2.5 TAX AND ACCOUNTING CONSEQUENCES. For federal income tax purposes, it
is intended by the parties that the Merger qualify as a reorganization within
the meaning of Section 368(a) of the Code. The parties hereby adopt this
Agreement as a "plan of reor-
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ganization" within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the
United States Treasury Regulations (the "Treasury Regulations"). For accounting
purposes, it is intended by the parties that the Merger will be accounted for as
a purchase.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as the Company Disclosure Schedule, delivered by the Company and
acknowledged by Parent at least 24 hours prior to the execution of this
Agreement, specifically qualifies any of the following representations and
warranties (in which case the specified representation and warranty, but no
other representation or warranty, will be deemed made subject to such
qualification), the Company hereby represents and warrants to Parent and Merger
Sub that:
3.1 ORGANIZATION AND GOOD STANDING. The Company is duly organized,
validly existing and in good standing under the laws of the State of California,
with full power and authority to own, operate and lease its properties, and to
carry on its business as that business is being conducted. The Company has full
power and authority to perform all its obligations under the Contracts (as
defined in Section 3.16). The Company is duly qualified to do business and is in
good standing in each jurisdiction in which the nature of the business conducted
or to be conducted or the assets owned or leased or to be owned or leased by it
requires such qualification, except where the failure to so qualify would not
have a material adverse effect on the financial condition, results of
operations, operations or prospects of the Company. Part 3.1 of the Company
Disclosure Schedule lists each jurisdiction in which the Company is or has filed
to be qualified to conduct business and jurisdictions in which the Company pays
income, sales or other taxes.
3.2 SUBSIDIARIES; OWNERSHIP INTERESTS. The Company has no subsidiaries
(that is, corporations or other entities in which it has an equity interest or
over which it is in a position to exercise control, directly or indirectly) and
is not a party to any joint venture, partnership, trade association or other
similar association or arrangement. The Company has no right or obligation to
acquire any such equity interest or position or become such a party.
3.3 AUTHORIZATION. The Company has full right, power and authority to
execute and deliver this Agreement and the other agreements to be entered into
by the Company in connection with the consummation of this Agreement and to
consummate the transactions contemplated hereby and thereby. The execution and
delivery by the Company of this Agreement and such other agreements and the
consummation of the transactions contemplated hereby and thereby have been duly
and validly authorized by the Company's Board of Directors. Except for
shareholder approval of the Merger, no other corporate or other proceedings on
the part of the Company are necessary to authorize this Agreement and such other
agreements and the transactions contemplated hereby and thereby. This
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Agreement has been duly and validly executed and delivered by the Company and
constitutes a legal, valid and binding agreement of the Company, enforceable
against the Company in accordance with its terms, and, when executed and
delivered by the Company pursuant to the terms of this Agreement, each such
other agreement will be duly and validly executed and delivered by the Company
and will constitute a legal, valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms, except in each
case as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the rights of
creditors generally or by general equitable principles. Except as identified in
Part 3.3 of the Company Disclosure Schedule, no filing with, and no permit,
authorization, consent or approval of any public body or authority is necessary
for the consummation by the Company of the transactions contemplated by this
Agreement or any of such other agreements or to preserve the benefits and rights
that the Company has now or will have at the Closing.
3.4 CAPITALIZATION.
(a) The authorized capital stock of the Company consists of (i)
20,000,000 shares of common stock, of which 1,497,160 shares are issued and
outstanding and held of record by the persons and in the amounts listed in Part
3.4(a) of the Company Disclosure Schedule; and (ii) 10,000,000 shares of
preferred stock, of which 3,500,000 shares are issued and outstanding and held
of record by Xxxxx X. Xxxxxx. The parties acknowledge that, immediately prior to
the Effective Time, Xx. Xxxxxx will convert all of his shares of preferred stock
into common stock on a one-to-one basis. There are, and at the Closing there
will be, no other shares of capital stock of the Company outstanding, except for
shares of common stock issued on the conversion of all of the currently
outstanding shares of preferred stock or on the exercise of the currently
outstanding Company Stock Options, after the date of this Agreement. There is no
other class or type of shares of capital stock, equity interests or securities
of or in the Company authorized for issuance or outstanding. All of the
outstanding shares of capital stock of the Company are duly authorized and
validly issued, fully paid, nonassessable and free of preemptive rights.
(b) The Company has reserved an aggregate of 700,000 shares of
common stock for issuance upon the exercise of options, of which options
covering 368,000 shares of common stock (i.e., the Company Stock Options) have
been granted under the Company Stock Option Plan. Each outstanding Company Stock
Option has been duly authorized by the Company's Board of Directors; and the
Company Stock Option Plan has been duly approved and adopted by the Company's
Board of Directors and shareholders. True and complete copies of the Company
Stock Option Plan, and of the forms of all agreements and instruments relating
to or issued thereunder, have been provided to Parent. Such Company Stock Option
Plan, agreements, instruments and forms have not been amended, modified or
supplemented; and there are no agreements or
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commitments (whether written or oral) to amend, modify or supplement the Company
Stock Option Plan or any such agreements, instruments or forms. Part 3.4(b) of
the Company Disclosure Schedule contains a true and complete list, as to each
outstanding Company Stock Option, of the name of each holder of such Company
Stock Option, the number of shares subject to such Company Stock Option, the
exercise price per share of such Company Stock Option, the number of shares as
to which such Company Stock Option is now exercisable and the times when and
amounts as to which such Company Stock Option will become exercisable. Except as
set forth in Part 3.4(b) of the Company Disclosure Schedule, there are no
outstanding options, warrants, rights, agreements, convertible securities or
other commitments (contingent or otherwise) pursuant to which the Company is or
may become obligated to issue or sell any shares of capital stock, equity
interests or other securities.
(c) Except as described in Part 3.4(c) of the Company Disclosure
Schedule, none of the outstanding shares of Company Common Stock or Company
Preferred Stock or the Company Stock Options was issued or granted in violation
of the federal securities laws or the securities or blue sky laws of any other
applicable jurisdiction.
3.5 NO BREACH OR VIOLATION. None of the execution and delivery by the
Company of this Agreement or any of the other agreements to be entered into by
the Company in connection with the consummation of this Agreement, or the
consummation of the transactions contemplated hereby and thereby, will (i)
violate or conflict with any provision of the Company's Articles of
Incorporation or Bylaws; (ii) except as set forth in Part 3.5 of the Company
Disclosure Schedule, conflict with, or result in a violation or breach of, or
constitute a default under, require any notice under, or create any rights of
termination, cancellation or acceleration in any Person (as defined in Section
11.1(d)), require the consent or approval of any Person, or, in the absence of
the consent of any Person to the change of ownership and control of the Company
contemplated by this Agreement, result in the loss of any rights or benefits
either automatically or at the election of any Person or result in the creation
of any lien or encumbrance upon any of the Company's securities or assets
pursuant to the terms of any contract, indenture, mortgage, lease, agreement,
instrument, commitment or other arrangement to which the Company is a party or
by which it or any of its securities or assets is bound; (iii) violate any
judgment, order, permit, injunction, writ, decree or award of any court or any
regulatory or governmental authority against or binding upon the Company or any
of its securities or assets; or (iv) constitute a material violation by the
Company of, or either automatically or at the election of any Person result in
the material loss of any rights or benefits under, any statute, law, rule,
ordinance or regulation of any regulatory or governmental authority.
3.6 FINANCIAL STATEMENTS; ABSENCE OF LIABILITIES. The Company has
attached to Part 3.6 of the Company Disclosure Schedule complete and accurate
copies of the
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Company's compiled balance sheets as at December 31, 1997, 1998 and 1999, and
its internally prepared balance sheet as at June 30 2000 (collectively, the
"Balance Sheets"), and its related compiled statements of operations,
shareholders' equity and cash flows for the three years ended December 31, 1999,
and its related internally prepared statements of operations, shareholders'
equity and cash flows for the six months ended June 30, 2000 (collectively, the
"Company Financial Statements"). The Company Financial Statements (i) have been
prepared from the books and records of the Company substantially in accordance
with generally accepted accounting principles applied on a basis consistent with
prior periods except as set forth in Part 3.6 of the Company Disclosure
Schedule, and (ii) fairly present the consolidated results of operations, cash
flows and financial condition of the Company for and as of the dates and periods
indicated. Except as set forth in Part 3.6 of the Company Disclosure Schedule,
the Company has and at the Closing will have no liabilities or obligations,
whether contingent or absolute, direct or indirect, matured or unmatured,
asserted or unasserted, known or unknown, which are not shown or provided for on
the Balance Sheet or the notes thereto, except for those liabilities and
obligations which have arisen or will arise in the Ordinary Course of Business
(as defined in Section 11.1(c)) since June 30, 2000 (the "Balance Sheet Date")
and which are not individually or in the aggregate material in amount. There is
no basis for the assertion of any such liabilities or obligations. Except as set
forth in Part 3.6 of the Company Disclosure Schedule, the Company did not have
at the Balance Sheet Date and will not have at the Closing Date any indebtedness
for borrowed money to any bank, financial institution or other Person for any
money loaned or advanced, letters of credit issued, assets purchased or leased
under leases required by generally accepted accounting principles to be
capitalized, or any forbearance, whether or not represented by notes, credit
agreements or other instruments. Except as set forth in Part 3.6 of the Company
Disclosure Schedule, the Company has not booked any sales, and the revenues
shown on the Company Financial Statements do not include any sales, that are
subject to a right of return or were made on consignment.
3.7 ABSENCE OF CERTAIN CHANGES. Except as set forth in Part 3.7 of the
Company Disclosure Schedule, since the Balance Sheet Date, (i) there has not
been any change in the condition (financial or otherwise), net worth, assets,
liabilities, business, properties, prospects or results of operations of the
Company (other than changes made or incurred in the Ordinary Course of
Business); and (ii) the Company has not:
(a) Incurred any obligation or liability or entered into, and the
Company or its assets or securities have not become bound by, any agreement,
contract, lease or license or series of related agreements, contracts, leases or
licenses (except for this Agreement) other than in the Ordinary Course of
Business and involving obligations and liabilities not in excess of $10,000
individually or $50,000 in the aggregate, not including open purchase orders for
inventory placed in the Ordinary Course of Business;
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(b) Discharged or satisfied any lien or other encumbrance, paid any
liability or obligation whether fixed or contingent (except in the Ordinary
Course of Business or as required by the terms hereof) or accelerated,
terminated, modified or canceled any agreement, contract, lease or license;
(c) Mortgaged, pledged or subjected to any lien or other encumbrance
any of its assets;
(d) Sold, assigned, transferred, leased or otherwise disposed of or
agreed to dispose of any of its assets (except for sales of inventories in the
Ordinary Course of Business);
(e) Waived or released any material rights;
(f) Made any capital expenditure or improvement in excess of $10,000
individually, or $50,000 in the aggregate, or entered into any commitment
therefor;
(g) Suffered any damage, destruction or loss (whether or not covered
by insurance) adversely affecting its assets or business;
(h) Paid or agreed to pay any bonuses or make or agree to make any
increase in the rate of wages, salaries, compensation or other remuneration of
any of its directors, officers, employees consultants or agents;
(i) Paid or agreed to pay any pension, retirement allowance or other
employee benefit not required by any existing plan, agreement or arrangement to
any of its directors, officers or employees, whether past or present; or
(j) Declared or paid any dividends or made any distributions, either
in cash or in kind, repurchased any of its shares of capital stock, equity
interests or securities or made any other payment to or on behalf of any direct
or indirect owner of any shares of capital stock, equity interests or
securities.
3.8 TAX MATTERS.
(a) For purposes of this Agreement:
(i) "Tax" or, collectively, "Taxes" means (A) any federal,
foreign, state and local taxes, assessments, duties and other similar
governmental charges and impositions properly includable in charges, accruals or
reserves for "taxes" under generally accepted accounting principles, including
customs duties, taxes based upon or measured by gross receipts, income, profits,
sales, use and occupation, and value added, ad valorem, transfer, franchise,
withholding (whether as a withholding agent or direct obligee), payroll,
recapture, employment, excise and property taxes, together with all interest,
penalties and additions imposed with respect to such amounts; and (B) any
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liability for the payment of any amounts of the type described in clause (A) as
a result of being a member of an affiliated, consolidated, combined or unitary
group for any period;
(ii) "Return" means any federal, foreign, state and local
return, estimate, information statement or report relating to any and all Taxes,
including any amendments of any previously filed return filed or required to be
filed with a Tax Agency, as defined below; and
(iii) "Tax Agency" means the United States Internal Revenue
Service (the "IRS") or any other federal, foreign, state or local taxing
authority.
(b) The Company has filed all income Tax Returns required to be
filed by it in a timely manner and has paid all Taxes shown to be due on such
Tax Returns, and all such Tax Returns are accurate and correct in all respects.
No action or proceeding for the assessment or collection of any Taxes is pending
against the Company, and no notice of any claim for Taxes, whether pending or
Threatened, has been received; no deficiency, assessment or other claim for
Taxes has been asserted or made against the Company that has not been fully paid
or finally settled; and no issue has been raised by any Tax Agency in connection
with an audit or examination. No federal, state or foreign income Tax Returns of
the Company have been or are being audited or examined, and there are no
outstanding agreements or waivers extending the applicable statutory periods of
limitation for such Taxes for any period.
(c) All Taxes that the Company has been required to collect or to
withhold have been duly withheld or collected and, to the extent required, have
been paid to the proper taxing authority.
(d) The Company is not and has not ever been a party to any Tax
allocation or sharing agreement, and has granted no outstanding power of
attorney regarding Taxes.
(e) None of the assets of the Company constitutes tax-exempt bond
financed property or tax-exempt use property within the meaning of Section 168
of the Code. The Company is not a party to any "safe harbor lease" that is
subject to the provisions of Section 168(f)(8) of the Code as in effect prior to
the Tax Reform Act of 1986, or to any "long term contract" within the meaning of
Section 460 of the Code.
(f) The Company is not a "consenting corporation" within the meaning
of Section 341(f)(1) of the Code, or comparable provisions of any state
statutes, and none of the assets of the Company are subject to an election under
Section 341(f) of the Code or comparable provisions of any state statutes.
(g) The Company is not a party to any joint venture, partnership or
other arrangement that is treated as a partnership for federal income Tax
purposes.
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(h) There are no accounting method changes of the Company that could
give rise to an adjustment under Section 481 of the Code for periods after the
Closing Date.
(i) The Company has reasonable authority for the treatment of, or
has disclosed (in accordance with Section 6662(d)(2)(B)(ii) of the Code) on its
federal income Tax Returns, all positions taken therein that could give rise to
a substantial understatement of federal income Tax within the meaning of Section
6662(d) of the Code.
(j) The Company has not been a member of an affiliated group filing
a consolidated federal income Tax return and does not have any liability for the
Taxes of another person (i) under Section 1.1502-6 of the Treasury Regulations
(or any similar provision of state, local or foreign law), (ii) as a transferee
or successor, (iii) by contract or (iv) otherwise.
(k) The Company (i) has not agreed to and is not required to make
any adjustment pursuant to Section 481(a) of the Code and has no Knowledge (as
defined in Section 11.1) that the IRS has proposed in writing any such
adjustment or change in accounting method with respect to the Company; and (ii)
does not have any application pending with the IRS or any other Tax Agency
requesting permission for any change in accounting method.
(l) The Company has no income reportable for a period ending after
the Closing Date but attributable to a transaction (e.g., an installment sale)
occurring in a period ending on or prior to the Closing Date which resulted in a
deferred reporting of income from such transaction.
(m) Part 3.8 of the Company Disclosure Schedule contains a complete
and accurate list of all Tax Returns filed with respect to the Company and
indicates for which jurisdictions Tax Returns have been filed on the basis of a
consolidated or unitary group, the most recent Tax Return for each relevant
jurisdiction for which an audit has been completed or the statute of limitations
has lapsed, and all Tax Returns that currently are the subject of audit.
(n) The Company is not, and has not been at any time, a "United
States real property holding corporation" within the meaning of Section
897(c)(2) of the Code.
(o) The Company is not a party to any agreement or arrangement that
would result, separately or in the aggregate, in the payment of any "excess
parachute payments" within the meaning of Section 280G of the Code.
(p) There currently are no limitations on the utilization of the net
operating losses, built-in losses, capital losses, tax credits or other similar
items of the Company (collectively, the "Tax Losses") under (i) Section 382 of
the Code, (ii) Section
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383 of the Code, (iii) Section 384 of the Code, (iv) Section 269 of the Code,
(v) Sections 1.1502-15 and 1.1502-15A of the Treasury Regulations, (vi) Sections
1.1502-21 and 1.1502-21A of the Treasury Regulations, or (vii) Sections
1.1502-91 through 1.1502-99 of the Treasury Regulations; in each case as in
effect both prior to and following the Tax Reform Act of 1986, except as may be
applicable as a result of entering into this Agreement or the consummation of
the Merger. The amounts of the various categories of available Tax Losses for
each taxable year ending before the Closing Date are set forth in Part 3.8(p) of
the Company Disclosure Schedule.
(q) Immediately following the Merger, the Surviving Corporation will
hold at least 90% of the fair market value of the Company's net assets and at
least 70% of the fair market value of the Company's gross assets held
immediately prior to the Merger. For purposes of this representation, amounts
paid by the Surviving Corporation to dissenters, amounts paid by the Company or
the Surviving Corporation to shareholders who receive cash or other property,
amounts used by the Company or the Surviving Corporation to pay reorganization
expenses, and all redemptions and distributions (except for regular, normal
dividends) made by the Company will be included as assets of the Company
immediately prior to but not immediately following the Merger.
3.9 INVENTORIES; PRODUCTS; ACCOUNTS; ETC.
(a) INVENTORIES. Except for the defective, damaged, slow moving or
obsolete items and items of below-standard quality that are itemized and
described in Part 3.9 of the Company Disclosure Schedule, all inventories of the
Company (including raw materials and supplies, manufactured and purchased parts,
goods in process and finished goods) reflected on such Balance Sheet consist of
items that are of a quality and quantity fit, usable and salable in the Ordinary
Course of Business. All such inventories have been priced on an average costing
basis. Items of inventory now on hand that were purchased after the Balance
Sheet Date were purchased in the Ordinary Course of Business at a cost not
exceeding market prices prevailing at the time of purchase and no material
amount of such items are defective, damaged, slow moving, obsolete or of
below-standard quality. All items of inventory reflected on the Balance Sheet as
at the Balance Sheet Date or acquired after the Balance Sheet Date, except those
that have been sold in the Ordinary Course of Business, are owned by the
Company. The quantities of each item of inventory are not excessive, but are
reasonable in the present circumstances of the Company.
(b) PRODUCTS. Except as set forth in Part 3.9 of the Company
Disclosure Schedule, all products designed, developed, manufactured, produced,
marketed, serviced, sold or delivered by or on behalf of the Company have been
in conformity with all federal, state and local laws, rules and regulations, all
contractual commitments, and all express and implied warranties, applicable to
such products. Except as set forth in Part 3.9 of the Company Disclosure
Schedule, no liability (whether accrued, contingent or otherwise) exists for the
replacement of any such products or for other losses, damages or
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obligations in connection with the design, development, manufacture, production,
marketing, service, sale or delivery of such products. No such products are
subject to any guaranty or warranty other than the Company's standard terms and
conditions of sale (true and complete copies of which have been provided to
Parent).
(c) ACCOUNTS RECEIVABLE. Part 3.9 of the Company Disclosure Schedule
contains a complete and accurate list of the Company's accounts receivable as at
the Balance Sheet Date, together with an accurate aging thereof. Said accounts
receivable and all accounts receivable which have arisen since the Balance Sheet
Date (i) are valid and enforceable claims for the sales and services which give
rise to such accounts, and (ii) to the Knowledge of the Company are subject to
no defenses or offsets and are fully collectible in the Ordinary Course of
Business without resort to legal proceedings.
(d) ACCOUNTS PAYABLE, PREPAID ITEMS AND ACCRUED LIABILITIES. The
Balance Sheet presents fairly the prepaid items, accounts payable and accrued
liabilities of the Company as of and at the Balance Sheet Date. All prepaid
items, accounts payable and accrued liabilities incurred after the Balance Sheet
Date were incurred in the Ordinary Course of Business and are usual and normal
in amount, both individually and in the aggregate.
3.10 LEASED FACILITIES.
(a) Part 3.10 of the Company Disclosure Schedule includes a list of
real property used or otherwise occupied by the Company (including a description
of such property, its ownership and location). The Company owns no real
property. Except as set forth on Part 3.10 of the Company Disclosure Schedule,
all real property used or occupied by the Company is, to the Knowledge of the
Company, leased or rented to the Company free and clear of all mortgages,
security interests, pledges, charges, liens, encumbrances, liabilities, claims,
debts, obligations, restrictions on transfer or other defects in title of any
kind or nature. All leases with respect to such real property pursuant to which
the Company uses or occupies real property are in full force and effect and are
enforceable against the Company and, to the Knowledge of the Company, against
the other parties thereto, in each case in accordance with their terms, subject
to bankruptcy, insolvency, reorganization, moratorium, or other laws of general
application affecting the rights and remedies of creditors, and general
principles of equity. Neither the Company nor, to the Knowledge of the Company,
any other party thereto is in breach or default under any material provision of
any such lease. No event has occurred which with notice or the lapse of time, or
both, could constitute a breach or default by the Company or, to the Knowledge
of the Company, any other party thereto under any material provision of any such
lease or could accelerate any obligation or create any lien or encumbrance under
any such lease. The Company has not assigned any interest in any such lease or
sublet, or granted other rights of occupancy in, any portion of the premises
covered by any such lease. No claim has been asserted or, to the Knowledge of
the Company, exists that is
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adverse to the Company's right to the continued possession of the premises under
any such lease.
(b) To the Knowledge of the Company, the real property used or
occupied by the Company is in good operating condition and repair, normal wear
and tear excepted. The real property used or occupied by the Company is
sufficient for the continued conduct of the Company's business and operations by
the Surviving Corporation after the Closing, in substantially the same manner as
conducted now and at the Closing.
3.11 TANGIBLE PERSONAL PROPERTY.
(a) Except as set forth on Part 3.11 of the Company Disclosure
Schedule, all tangible personal property used by the Company is owned or leased
by the Company free and clear of all liens, claims, charges, pledges, security
interests, encumbrances, liabilities, debts, obligations, restrictions on
transfer or other defects in title of any kind or nature. All leases pursuant to
which the Company holds any item of tangible personal property are in full force
and effect and are enforceable in accordance with their terms, subject to
bankruptcy, insolvency, reorganization, moratorium, or other laws of general
application affecting the rights and remedies of creditors, and general
principles of equity. Neither the Company nor, to the Knowledge of the Company,
any other party thereto is in breach or default under any such leases. No event
has occurred which with notice or the lapse of time, or both, could constitute a
breach or default by the Company or, to the Knowledge of the Company, any other
party thereto under any such leases or could accelerate any obligation or create
any lien or encumbrance under any such leases. The Company has not assigned any
interest in any such leases. No claim has been asserted or, to the Knowledge of
the Company, exists that is adverse to the Company's right to the continue
possession of the leased property under any such leases.
(b) Except as set forth on Part 3.11 of the Company Disclosure
Schedule, all items of tangible personal property owned or leased by the Company
are in good operating condition and repair, normal wear and tear excepted, and
are sufficient for the continued conduct of the Company's business and
operations by the Surviving Corporation after the Closing, in substantially the
same manner as conducted now and at the Closing.
3.12 INSURANCE.
(a) Part 3.12 of the Company Disclosure Schedule includes a list of
life, fire, casualty, liability and all other insurance policies maintained by
the Company with respect to any assets or business of the Company (collectively,
the "Insurance Policies"). All such Insurance Policies:
(i) Are in full force and effect;
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(ii) Are, to the Knowledge of the Company, issued by an insurer
that is financially sound and reputable;
(iii) Taken together, provide insurance coverage for the assets
and the operations of the Company for all risks to which the Company is normally
exposed consistent with industry standards;
(iv) Are sufficient for compliance with all applicable laws,
statutes, ordinance, rules and regulations to which the Company is subject and
with the Contracts; and
(v) Do not provide for any retrospective premium adjustment or
other experienced-based liability on the part of the Company.
(b) Part 3.12 of the Company Disclosure Schedule includes a list and
a brief description of all claims made by the Company for coverage under any
Insurance Policy. The Company has not received (i) any refusal of coverage or
any notice that a defense will be afforded with reservation of rights; or (ii)
any notice of cancellation or any other indication that any Insurance Policy is
no longer in full force or effect or will not be renewed or that the issuer of
any Insurance Policy is not willing or able to perform its obligations
thereunder.
(c) All premiums due have been paid and all of the other respective
obligations of the Company have been performed under each Insurance Policy that
provides coverage to the Company or any of its directors or officers.
(d) The Company has given notice to the insurer of all material
claims that may be insured thereby.
3.13 INTELLECTUAL PROPERTY.
(a) Part 3.13(a)(i) of the Company Disclosure Schedule sets forth an
accurate and complete list of all patents, applications for patents, patent
licenses, registered trademarks and registered service marks, trademark and
service xxxx applications, trade names, copyrights, logos, corporate names and
identifying marks and styles, and all known improvements relating thereto, owned
or used by the Company in the operation of its business. Except for
off-of-the-shelf software, Part 3.13(a)(ii) of the Company Disclosure Schedule
contains a true and complete list of all computer software and related
documentation and programs (in whatever form or medium and however stored) used
by the Company in the operation of its business. True and complete copies of all
such patents, applications for patents, patent licenses, registered trademarks
and registered service marks, trademark and service xxxx applications, trade
names, copyrights, logos, corporate names and identifying marks and styles, and
all known improvements relating thereto have been provided to Parent.
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(b) The Company owns or has the right to use all intellectual
property used to operate its business (such intellectual property and the rights
thereto are collectively referred to in this Agreement as the "Company IP
Rights"). Except as set forth in Part 3.13(b) of the Company Disclosure
Schedule, no royalties or other payments are payable to any Person with respect
to commercialization of any products presently sold or under development by the
Company. The Company has taken all steps necessary or desirable to maintain and
fully protect in the United States all of the Company IP Rights listed in Parts
3.13(a)(i) and 3.13(a)(ii) of the Company Disclosure Schedule. The Company has
taken all reasonable steps to maintain and fully protect all trade secrets and
confidential or proprietary information owned or used by the Company in the
operation of its business. The Company has no Knowledge of any actual, pending
or Threatened misuse, infringement, misappropriation or other violation of any
Company IP Rights by any other Person. Except as set forth on Part 3.13(b) of
the Company Disclosure Schedule, the Company has not entered into any agreement,
commitment or arrangement (whether written or oral) to license or otherwise
permit the use or exploitation of any Company IP Rights by any other Person
(including that which would prevent, restrict or otherwise inhibit Parent's
freedom to use and exploit any Company IP Rights).
(c) The execution, delivery and performance of this Agreement and
the consummation of the transactions contemplated hereby will not constitute a
breach of any instrument or agreement governing any Company IP Rights and will
not (i) cause the modification of any terms of any licenses or agreements
relating to any Company IP Rights (including the modification of the effective
rate of any royalties or other payments provided for in any such license or
agreement), (ii) cause the forfeiture or termination of any Company IP Rights,
(iii) give rise to a right of forfeiture or termination of any Company IP Rights
or (iv) materially impair the right of the Company, the Surviving Corporation or
Parent to use, sell or license any Company IP Rights or portion thereof.
(d) Except as set forth in Part 3.13(d) of the Company Disclosure
Schedule, none of the manufacture, marketing, license, sale or intended use of
any past or current product or technology licensed or sold or under development
by the Company (i) violates any license or agreement between the Company and any
other Person or (ii) infringes any patents, trademarks, service marks, trade
names, copyrights, logos, corporate names or identifying marks and styles of any
other Person, or otherwise violates or infringes upon any intellectual property,
trade secret or other confidential or proprietary information of any other
Person. There is no pending or, to the Knowledge of the Company, Threatened
claim or litigation contesting the validity, ownership or right to use, sell,
license or dispose of any Company IP Rights, nor has the Company received any
notice asserting that any Company IP Rights or the proposed use, sale, license
or disposition thereof conflicts or will conflict with the rights of any Person.
(e) The Company has provided to Parent a true and complete copy of
its standard form of employee confidentiality and assignment of inventions
agreement and,
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except as set forth in Part 3.13(e) of the Company Disclosure Schedule, has
taken commercially reasonably necessary steps to ensure that all current and
former employees have executed such an agreement. Except as set forth in Part
3.13(e) of the Company Disclosure Schedule, all such current and former
employees and all current and former consultants or third parties with access to
proprietary information of the Company, have executed appropriate
confidentiality and assignment of inventions agreements which adequately protect
the Company IP Rights.
(f) Except as set forth in Part 3.13(f) of the Company Disclosure
Schedule, the Company is not aware and has no reason to believe that any of its
employees or consultants or third parties with access to proprietary information
of the Company, is obligated under any contract, covenant or other agreement or
commitment of any nature, or subject to any judgment, decree or order of any
court or administrative agency, that would interfere with the use of such
employee's, consultant's or third party's best efforts to promote the interests
of the Company or that would conflict with the Company's business as presently
conducted or proposed to be conducted. Except as set forth in Part 3.13(f) of
the Company Disclosure Schedule, the Company has not entered into any agreement
to indemnify any other Person, including any of such employees, consultants or
third parties, against any charge of infringement, misappropriation or misuse of
any intellectual property, other than indemnification provisions contained in
purchase orders or reseller or customer agreements arising in the Ordinary
Course of Business. Except as set forth in Part 3.13(f) of the Company
Disclosure Schedule, all such current and former employees, consultants and
other third parties have signed valid and enforceable written assignments to the
Company of any and all rights or claims in any intellectual property that any
such employees, consultants or third parties have or may have by reason of any
contribution, participation or other role in the development, conception,
creation, reduction to practice or authorship of any invention, innovation,
development or work of authorship or any other intellectual property that is
used in the business of the Company, and the Company possesses original signed
copies of all such written assignments in its files.
(g) Except as set forth on Part 3.13(g) of the Company Disclosure
Schedule, the Company completed, or caused to be completed, prior to December
31, 1999 all reprogramming required to permit the proper functioning, in and
following the year 2000, of the Company's (i) computer systems and (ii)
equipment containing embedded microchips (including systems and equipment
supplied by others) and the testing of all such systems and equipment as so
reprogrammed.
3.14 WEB SITE DOMAINS. The Company owns or has valid licenses to use all
of the content (including, without limitation, the domain names) and software
relating to the World Wide Web domains set forth on Part 3.14 of the Company
Disclosure Schedule.
3.15 LITIGATION. Except as set forth and briefly described in Part 3.15
of the Company Disclosure Schedule, there is no suit, action or legal,
administrative, arbitration
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or other proceeding pending, filed or initiated by, against or specifically
affecting the Company or any of its assets or securities. To the Knowledge of
the Company, there is no claim, suit, action or legal, administrative,
arbitration or other proceeding or investigation Threatened by, against or
specifically affecting the Company, the Company's assets or securities or, with
respect to matters arising out of the Company's business, pending or Threatened
by, against or affecting any of the officers, directors or stockholders of the
Company. To the Knowledge of the Company, there is no event or circumstance that
could form the basis of any such claim, suit, action or legal, administrative,
arbitration or other proceeding or investigation.
3.16 CONTRACTS.
(a) Part 3.16 of the Company Disclosure Schedule contains a complete
list of, and the Company has furnished Parent with true and complete copies of,
all of the contracts, agreements, leases and other commitments, whether written
or oral (the "Contracts"), to which the Company is a party, which are related to
its business, or by which any of its respective assets, properties, or
securities is bound. The Contracts comprise all:
(i) Contracts with employees, agents, consultants and advisors;
(ii) Contracts with suppliers or manufacturers of products sold
by the Company whether or not in the Ordinary Course of Business in excess of
$15,000;
(iii) Contracts with providers of services in excess of $15,000;
(iv) Bonus, deferred or incentive compensation, group insurance
or other employee benefit plans;
(v) Collective bargaining agreements;
(vi) Leases and subleases as lessor, sublessor, lessee or
sublessee of real or personal property;
(vii) Contracts for advertising or public relations in excess of
$10,000;
(viii) Conditional sales contracts, security agreements, pledge
agreements, trust receipts or any other agreements or arrangements whereby any
of the Company's properties is subject to a lien, encumbrance, charge or other
restriction;
(ix) Mortgages, indentures, notes or other instruments for or
relating to any borrowing of money, the extension of credit, other than payables
and receivables in accordance with normal trade terms, or the deferred purchase
of property;
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(x) Guarantees of any obligations for the borrowing of money or
otherwise, or any other agreements of guarantee or indemnification (other than
endorsements made for collection in the Ordinary Course of Business);
(xi) Agreements or arrangements for the purchase or sale of any
assets other than in the Ordinary Course of Business;
(xii) Continuing contracts for future purchase of materials,
supplies or equipment for amounts in excess of $10,000;
(xiii) Agreements, contracts or commitments relating to the
acquisition or disposition of capital stock, ownership interests or material
assets of any business enterprise, other than inventory sold or acquired in the
Ordinary Course of Business;
(xiv) Agreements, contracts, or commitments with any officer,
director or shareholder of the Company;
(xv) Contracts restricting the Company's right to conduct
business in any areas or in any way limiting the Company's right to compete; and
(xvi) Other contracts not made in the Ordinary Course of
Business and involving obligations of any party in excess of $10,000.
(b) Each of the Contracts is in full force and effect and
enforceable against the Company and, to the Knowledge of the Company, against
the other parties thereto, in each case in accordance with its terms, subject to
bankruptcy, insolvency, reorganization, moratorium, or other laws of general
application affecting the rights and remedies of creditors, and general
principles of equity. Neither the Company nor, to the Knowledge of the Company,
any other party thereto, is in breach or default under any material provision of
any Contract and, to the Knowledge of the Company, no event has occurred which
with notice or the lapse of time, or both, could constitute a breach or default
under any material provision of any Contract or would accelerate any obligation
or create any lien or encumbrance under any Contract. The Company has not
assigned any of its interest in any Contract. No claim has been asserted that is
adverse to the Company's rights under any Contract. The Company has received no
formal notice, written or oral, that the Company or any other party thereto is
in breach or default under any material provision of any Contract. To the
Knowledge of the Company, no person (i) has Threatened to claim any such breach
or default or (ii) has Threatened to terminate or not renew any Contract.
3.17 COMPLIANCE WITH LAWS. The Company has duly complied in all respects
with all applicable laws, statutes, ordinances, rules and regulations of all
applicable authorities relating to the operation of its business and the
ownership, possession, use, maintenance and operation of its properties and
assets (including those relating to busi
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ness conduct, anti-competitive practices, public health and safety, occupational
health and safety, natural resources and the environment). The Company is not in
violation or breach of, or in default under, any term or provision of its
Articles of Incorporation or Bylaws, or of any order, judgment, writ, injunction
or decree of any court or any governmental or regulatory authority or of any
license or permit, or of any Contract, commitment or other agreement or
arrangement, or subject to any restriction of any kind or character that is
uncommon in connection with the business, form of business organization or
jurisdiction of organization of the Company, which in any such case might
materially and adversely affect the business, prospects or any of the assets of
the Company. There are no laws, statutes, ordinances, rules or regulations
requiring any work, repairs, construction or capital expenditures with respect
to any of the assets of the Company, nor has the Company received any notice of
any such requirement.
3.18 ENVIRONMENTAL MATTERS. During any period in which the Company has
operated, leased, rented or occupied any real property (the "Real Property")
and, to the Knowledge of the Company, during any period prior to the period in
which the Company has operated, leased, rented or occupied the Real Property,
there has been no storage, use, manufacture, generation, disposal, treatment or
release of any Hazardous Materials (as defined below) on, under or about the
Real Property or transport of Hazardous Materials to or from the Real Property.
For the purposes of this Section 3.18, the term "Hazardous Materials" means (i)
petroleum or petroleum products (including crude oil or any fraction thereof,
natural gas, natural gas liquids, liquefied natural gas, or synthetic gas usable
for fuel, or any mixture thereof), polychlorinated biphenyls (PCBs), asbestos or
asbestos containing materials, urea formaldehyde foam insulation, and radon gas;
(ii) any substance defined as or included in the definition of "hazardous
substance," "hazardous waste," "hazardous material," "extremely hazardous
waste," "restricted hazardous waste," "waste," "special waste," "toxic
substance," "toxic pollutant," "contaminant" or "pollutant," or words of similar
import, under any applicable Environmental Law (as defined below); (iii)
infectious materials and other regulated medical wastes; (iv) any substance
which is toxic, explosive, corrosive, flammable, radioactive, carcinogenic,
mutagenic or otherwise hazardous and is regulated by any governmental agency;
and (v) any other substance, material or waste the presence of which requires
investigation or remediation under any Environmental Law. Provided, however,
that, for purposes of this Section 3.18, the term "Hazardous Materials" does not
mean or include, to the extent used and disposed of properly and required for
everyday uses or normal housekeeping or maintenance, (A) fuel oil and natural
gas for heating, (B) lubricating, cleaning, coolant and other compounds
customarily used in building maintenance, (C) material routinely used in the
day-to-day operations of an office (such as copier toner), (D) consumer products
used as such, (E) material reasonably necessary and customarily used in
construction and repair of an office project, and (F) fertilizers, pesticides
and herbicides commonly used for routine office landscaping. For the purposes of
this Section 3.18, the term "Environmental Law" means any foreign, federal,
state or local statute, law, rule, regulation, ordinance, treaty, code, policy
or rule of common law now in effect, and any judicial
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or administrative interpretation thereof, including any judicial or
administrative order, consent decree or judgment, relating to the environment,
natural resources, health, safety or Hazardous Materials, including the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended; the Resource Conservation and Recovery Act, as amended; the Hazardous
Materials Transportation Act, as amended; the Clean Water Act, as amended; the
Toxic Substances Control Act, as amended; the Clean Air Act, as amended; the
Safe Drinking Water Act, as amended; the Atomic Energy Act, as amended; the
Federal Insecticide, Fungicide and Rodenticide Act, as amended; and the
Occupational Safety and Health Act, as amended. To Knowledge of the Company, the
use of the Real Property has been and is in compliance with all Environmental
Laws. Without limiting the generality of the foregoing, the Company has not, and
to the Knowledge of the Company no third party has, with respect to the Real
Property:
(a) Received any notice from the Environmental Protection Agency,
the Occupational Safety and Health Administration, or any other federal, state
or local governmental or regulatory agency or regional office with
responsibility for health, environmental protection, waste disposal, toxic
materials, underground tanks, water quality, sanitation, public works or
industrial hygiene of any violation or potential violation of any Environmental
Law; or
(b) Been the subject of an enforcement, cleanup, removal, closure,
quarantine or other governmental or regulatory action instituted, completed or,
to the Knowledge of the Company, Threatened, with respect to any Hazardous
Materials; or
(c) Received or, to the Knowledge of the Company, been Threatened
with a claim by a third party relating to damage, contribution, cost recovery
compensation, loss or injury resulting from any Hazardous Materials; or
(d) Imposed or had imposed on the Real Property, at any time for any
period of time, a condition to or restriction on the use, ownership, occupancy
or transferability of the Real Property or any part thereof, including a closure
or limitation of access, due to the use, manufacture, storage, disposal or
transport of Hazardous Materials on, under, about or across the Real Property;
or
(e) Conducted, or learned of the conduct by a third person or
governmental body of, any environmental audit or other investigation into the
presence or condition of Hazardous Materials at a site to which the Company sent
waste of any kind for disposal or on, under, about, neighboring or affecting the
Real Property, which audit or investigation concluded, directly or indirectly,
that there existed actual or potential liability or obligation under any
Environmental Law to remove, repair, clean-up, detoxify, quarantine, or
otherwise remedy a condition involving Hazardous Materials on the Real Property;
or
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(f) Received any information regarding any of the properties
bordering or surrounding the Real Property, or any of the properties containing
water or other materials used in connection with the Company's business, that
any of the events described in items (a) through (e) has occurred with respect
to those properties; or
(g) To the Knowledge of the Company, failed to timely file any
reports required to be filed by it under applicable Environmental Laws with
respect to the Company or its business or, to the Knowledge of the Company,
failed to timely generate or maintain all data, documentation and records
required to be generated or maintained by it under any applicable Environmental
Laws with respect thereto.
3.19 LICENSES AND PERMITS. Part 3.19 of the Company Disclosure Schedule
includes a list of all licenses, notices, permits, orders, concurrences,
approvals and authorizations of all governmental, regulatory and public
authorities issued to or held by the Company and relating to its business as
conducted and as proposed to be conducted (collectively, the "Permits"). The
Permits comprise all licenses, notices, permits, orders, approvals, concurrences
and other authorizations of all governmental and regulatory authorities which
are necessary or advisable for the conduct of the Company's business as
presently conducted and as proposed to be conducted. All such Permits are
presently in full force and effect, the Company is in compliance with the
requirements thereof, and no limitation, suspension or cancellation of any of
them is Threatened to the Knowledge of the Company. To the Knowledge of the
Company, there is no fact or circumstance relating to any Permit which could
significantly prevent, limit or restrict the continued conduct by the Surviving
Corporation after the Closing, in substantially the same manner as conducted now
and at the Closing, of the business now conducted by the Company.
3.20 EMPLOYEES, AGENTS AND CONSULTANTS.
(a) Part 3.20 of the Company Disclosure Schedule includes a list of,
and the Company has provided Parent with true and complete copies of, all
employment and consulting agreements, executive compensation plans, bonus plans,
incentive compensation plans, deferred compensation agreements or arrangements,
employee pension plans or other post-retirement benefit plans, employee profit
sharing plans, and group life insurance, hospitalization insurance, severance
payment policies or other plans or arrangements providing benefits for the
employees of the Company, under which or as a result of which the Company has or
will have any current or future obligations (whether payment or otherwise) or
rights, or it or any of its assets, properties or securities may be bound, and a
list of the names and current annual compensation rates of all present
directors, officers, employees, agents and consultants of the Company, including
bonuses, incentive compensation and deferred compensation. The Company has paid
in full to all past and present employees, agents and consultants all wages,
salaries, commissions, bonuses and other direct compensation for all services
performed by them, except for such payments as are not yet due. The Company is
in compliance with all laws, statutes, ordinances, rules and regulations
respecting employment and employment practices, terms and condi
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tions of employment, wages and hours and taxes (including withholding taxes)
relating to employment and to personal services provided to the Company. No
employee, agent or consultant of the Company is in material violation of any
employment agreement, consulting agreement, proprietary information
nondisclosure agreement or any other contract or agreement with the Company or,
to the Knowledge of the Company, such agreement or contract with previous
employer or other Person. The Surviving Corporation will not incur any liability
to any employee for any severance payment, change of control payment or wrongful
termination in connection with or as a result of the transactions contemplated
by this Agreement. Except as set forth in Part 3.20 of the Company Disclosure
Schedule, the Company has no Knowledge or information to the effect that any of
its employees, independent contractors, consultants or agents intends to
terminate his or her relationship with the Company. There are no agreements,
commitments or other obligations of the Company, whether oral or written, which
would prevent or obstruct the dismissal of any the Company's employees,
independent contractors, agents or consultants. Except as set forth in Part 3.20
of the Company Disclosure Schedule, all of the Company's past and present
employees, independent contractors, agents and consultants have been or are
employed or served or serve at the will of the Company and may be terminated
without liability for severance or termination pay or other damages, either
compensatory or punitive.
(b) The Company is not a party to any collective bargaining
agreements, and is not aware of any intention of the Company's employees to seek
union representation. The Company has never experienced any labor strike or
material labor disputes, slowdown or stoppage, nor, to the Knowledge of the
Company, is any Threatened. Relations between the Company and its employees,
independent contractors, agents and consultants are good. No union action or
unfair labor practice claim has ever been filed nor, to the Knowledge of the
Company, is any Threatened against the Company.
3.21 BENEFIT PLANS.
(a) Part 3.21 of the Company Disclosure Schedule contains a true and
complete list of each stock option, stock purchase, stock ownership, stock
appreciation right, phantom stock, life, health, accident or other insurance,
bonus, deferred or incentive compensation, severance or separation,
profit-sharing, retirement, leave of absence, layoff, vacation, day or dependent
care, legal services, cafeteria, disability or other benefit plan, practice,
policy or arrangement of any kind, written or oral, provided for the Company's
employees (each, an "Employee Plan" and, collectively, the "Employee Plans").
For purposes of this Section 3.21, the term "Employee Plan" also includes but is
not limited to all present (including those terminated or transferred within the
past two years) plans involving the Company providing any benefits to any
current or former employee of the Company which are subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA").
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(b) Neither the Company nor any other person or entity which
together with the Company would be considered a single employer under Section
4001(b)(1) of ERISA is or has been a party to or has any employees who are or
were covered by any defined benefit plan as defined in Section 3(35) of ERISA or
any multiemployer plan as defined in Section 3(37) of ERISA.
(c) Each Employee Plan is now, and has always been, established,
maintained and operated in all material respects in accordance with all
applicable laws (including but not limited to ERISA and the Code, and
regulations thereunder) and in accordance with the plan documents. All
communications with respect to any Employee Plan by any person acting or
purporting to act on behalf of the Company (including the members of any plan
committee, all plan fiduciaries, plan administrators, the Company and the
Company's employees) accurately reflect, and have always accurately reflected,
in all material respects the documents and operations of any Employee Plan.
There is no unfunded liability for vested or nonvested benefits under any
Employee Plan. All material reports, forms and other documents required to be
filed with any governmental entity with respect to any Employee Plan have been
timely filed and are accurate. There is no pending or, to the Knowledge of the
Company, Threatened litigation or arbitration concerning or involving any
Employee Plan by any person with respect to such Employee Plan.
(d) No complaints, investigations or audits by any governmental
entity have been filed or commenced or, to the Knowledge of the Company, have
been Threatened with respect to any Employee Plan.
3.22 ACQUISITIONS. Part 3.22 of the Disclosure Schedule includes a list
of all stock purchase, merger, asset purchase and other similar agreements
pursuant to which the Company purchased or acquired the shares or other
ownership interests in, merged, consolidated or otherwise effected a business
combination with, or purchased or acquired the business and assets of any Person
(collectively, the "Acquisition Agreements"). No party to any of the Acquisition
Agreements has asserted any claims against any other party in connection with
any of the transactions completed pursuant to the Acquisition Agreements,
including any claims for breach or inaccuracy of any representations, warranties
or covenants or for indemnification, reimbursement or set-off. To the Knowledge
of the Company, there is no event or circumstance that could form the basis for
any such claim. The Company has, or at the Closing Date will have, all of the
rights granted to the Company or any shareholders of the Company to assert any
such claims for indemnification, reimbursement or set-off.
3.23 CERTAIN PAYMENTS. Since December 31, 1995, and except for meals and
entertainment that are standard, customary or generally accepted within the
Ordinary Course of Business and have been accounted for on the Company Financial
Statements, none of the Company or any predecessor, director, officer, agent, or
employee of the Company, or any predecessor or any other person associated with
or acting for or on
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behalf of the Company or any predecessor, has directly or indirectly (i) made
any contribution, gift, bribe, rebate, payoff, influence payment, kickback, or
other payment to any person, private or public, regardless of form, whether in
money, property, or services (A) to obtain favorable treatment in securing
business, (B) to pay for favorable treatment for business secured, (C) to obtain
special concessions or for special concessions already obtained, for or in
respect of the Company or any predecessor, or any affiliate of the Company or
any predecessor, or (D) in violation of any law; or (ii) established or
maintained any fund or asset that has not been recorded in the books and records
of the Company.
3.24 CONFLICTS OF INTEREST.
(a) Except as set forth in Part 3.24 of the Company Disclosure
Schedule, no director, officer, employee or shareholder of the Company, entity
controlled by any director, officer, employee or shareholder of the Company, or
relative of any director, officer, employee or shareholder of the Company:
(i) Owns, directly or indirectly, any interest in excess of
three percent in, or is an employee or representative of or consultant to, any
corporation, firm, association or other business entity or organization which
is, or is engaged in business as, a supplier of products or services to the
Company, a competitor of the Company or to whom the Company sells or provides
goods or services;
(ii) Owns, directly or indirectly, in whole or in part any
tangible or intangible property which the Company is using or the use of which
is necessary for the conduct of its business; or
(iii) Has any cause of action or other claim whatsoever against,
or owes any amount to, the Company.
(b) Part 3.24 of the Company Disclosure Schedule contains a complete
and accurate description of all past and present transactions, agreements,
contracts, loans, guarantees and other commitments by the Company with or for
the benefit of any director, officer, employee or shareholder of the Company,
entity controlled by any director, officer, employee or shareholder of the
Company, or relative of any director, officer, employee or shareholder of the
Company. All such transactions, agreements, contracts, loans, guarantees and
other commitments were made in the Ordinary Course of Business and contained
only such terms as would have been agreed to by unaffiliated parties in an arms'
length transaction.
3.25 BOOKS AND RECORDS. The books and records of the Company, including
the accounting records, minute books, stock books and stock ledgers, are
complete and correct and accurately reflect in all material respects the conduct
of the business and
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affairs of the Company. The Company has provided Parent with true and complete
copies of all those minute books and stock books.
3.26 NO BROKERS OR FINDERS FEES. None of the Company, its shareholders
or any officer or director of the Company has incurred any obligation or
liability for any investment banker fees, brokerage fees, commissions, finders'
fees or other similar payments in connection with any of the transactions
contemplated by this Agreement.
3.27 SUPPLIERS AND CUSTOMERS. No single supplier who accounted for more
than five percent of the Company's purchases, or customer who accounted for more
than five percent of the Company's sales, during its most recent complete fiscal
year, or the fiscal year to date, nor any supplier who is a material source of
supply of any goods essential to the Company, has (i) canceled or otherwise
terminated, or made any threat to cancel or otherwise terminate, its
relationship with the Company, or (ii) materially decreased its sale of services
or supplies to the Company or its purchase of products therefrom or made any
threat with respect thereto. The Company has no reason to believe that after the
Effective Time any of its customers or suppliers will refuse to deal with the
Surviving Corporation, or will deal with the Surviving Corporation on a smaller
scale than with the Company currently. Part 3.27 of the Company Disclosure
Schedules contains a true and complete list of the Company's known customers and
suppliers who have purchased in excess of $2,000 in goods or services or who
have supplied in excess of $2,000 in goods or services within the 12 months
preceding the date of this Agreement.
3.28 BANK AND FINANCIAL ACCOUNTS. Part 3.28 of the Company Disclosure
Schedules contains is a true and complete list of all names and locations of all
banks and other financial institutions at which the Company maintains accounts,
the account number of each such account, and the names of all persons authorized
to make withdrawals therefrom.
3.29 POWERS OF ATTORNEY. There is no Person holding a power of attorney
on behalf of the Company.
3.30 OFFICERS AND DIRECTORS. The Company's officers and directors are as
set forth on Part 3.30 of the Company Disclosure Schedules.
3.31 FULL DISCLOSURE. No representation or warranty of the Company in
this Agreement and no statement in the Company Disclosure Schedule omits to
state a material fact necessary to make any of the statements herein or therein,
in light of the circumstances in which they were made, not misleading. No notice
given pursuant to Section 6.6 will contain any untrue statement or omit to state
a material fact necessary to make the statements therein or in this Agreement,
in light of the circumstances in which they were made, not misleading. To the
Knowledge of the Company, there is no fact that has specific application to the
Company, its business or any of its assets or securities (other than general
economic or industry conditions) and that materially adversely affects
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or, as far as the Company may reasonably foresee, materially threatens, the
assets, business, prospects, financial condition or results of operations of the
Company that has not been set forth in this Agreement or the Company Disclosure
Schedule.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Except as the Parent Disclosure Schedule, delivered by Parent and Merger
Sub and acknowledged by the Company at least 24 hours prior to the execution of
this Agreement, specifically qualifies any of the following representations and
warranties (in which case the specified representation and warranty, but no
other representation or warranty, will be deemed made subject to such
qualification), Parent and Merger Sub hereby jointly and severally represent and
warrant to the Company that:
4.1 ORGANIZATION AND GOOD STANDING. Each of Parent and its subsidiaries,
including Merger Sub, is duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation, with full power and
authority to own, operate and lease its properties, to carry on its business as
that business is being conducted. Each of Parent and its subsidiaries, including
Merger Sub is duly qualified to do business and is in good standing in each
jurisdiction in which the nature of the business conducted or to be conducted or
the assets owned or leased or to be owned or leased by it requires such
qualification, except where the failure to so qualify would not have a material
adverse effect on the financial condition, results of operations, operations or
prospects of Parent and its subsidiaries, including Merger Sub, taken as a
whole.
4.2 AUTHORIZATION. Each of Parent and Merger Sub has full right, power
and authority to execute and deliver this Agreement and the other agreements to
be entered into by Parent or Merger Sub, as the case may be, in connection with
the consummation of this Agreement and to consummate the transactions
contemplated hereby and thereby. The execution and delivery by Parent and Merger
Sub of this Agreement and such other agreements and the consummation of the
transactions contemplated hereby and thereby have been duly and validly
authorized by Parent's and Merger Sub's Board of Directors (and, in the case of
Merger Sub, Merger Sub's shareholder). No other corporate or other proceedings
on the part of Parent or Merger Sub are necessary to authorize this Agreement
and such other agreements and the transactions contemplated hereby and thereby.
This Agreement has been duly and validly executed and delivered by Parent and
Merger Sub and constitutes a legal, valid and binding agreement of Parent and
Merger Sub, enforceable against each of them in accordance with its terms, and,
when executed and delivered by Parent or Merger Sub, as the case may be,
pursuant to the terms of this Agreement, each such other agreement will be duly
and validly executed and delivered by Parent or Merger Sub, as the case may be,
and will constitute a legal, valid and binding agreement of Parent or Merger
Sub, as the case may be, enforceable against Parent or Merger Sub, as the case
may be, in accordance with its terms, except in each
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case as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the rights of
creditors generally or by general equitable principles.
4.3 CAPITALIZATION. The authorized capital stock of Parent consists of
(i) 100,000,000 shares of common stock, $0.001 par value per share, of which
16,601,420 shares were issued and outstanding as of June 30, 2000; and (ii)
5,000,000 shares preferred stock, $0.001 par value per share, of which no shares
are issued and outstanding. The authorized capital stock of Merger Sub consists
of 10,000 shares of common stock, of which 1,000 shares of common stock are
issued and outstanding and are held of record by Parent. All of the shares of
Parent Common Stock to be issued in the Merger will be duly authorized and
validly issued, fully paid and nonassessable and free of preemptive rights.
4.4 NO BREACH OR VIOLATION. None of the execution and delivery by Parent
or Merger Sub of this Agreement or any of the other agreements to be entered
into by Parent or Merger Sub, as the case may be, in connection with the
consummation of this Agreement, or the consummation of the transactions
contemplated hereby and thereby, will (i) violate or conflict with any provision
of Parent's Certificate of Incorporation or Bylaws or Merger Sub's Articles of
Incorporation or Bylaws; (ii) conflict with, or result in a violation or breach
of, or constitute a default under, require any notice under, or create any
rights of termination, cancellation or acceleration in any person or entity,
require the consent or approval of any Person, or result in the creation of any
lien or encumbrance upon any of Parent's or Merger Sub's securities or assets
pursuant to the terms of any contract, indenture, mortgage, lease, agreement,
instrument, commitment or other arrangement to which Parent or Merger Sub is a
party or by which they or any of their securities or assets is bound; or (iii)
violate any judgment, order, permit, injunction, writ, decree or award of any
court or any regulatory or governmental authority against or binding upon Parent
or Merger Sub or any of their securities or assets.
4.5 NO BROKERS OR FINDERS FEES. None of Parent, Merger Sub, Parent's
stockholders or any officer or director of Parent or Merger Sub has incurred any
obligation or liability for any investment banker fees, brokerage fees,
commissions, finders' fees or other similar payments in connection with any of
the transactions contemplated by this Agreement.
4.6 SEC FILINGS. Parent has filed with the Securities and Exchange
Commission (the "SEC") all forms, reports, registration statements and documents
required to be filed by it with the SEC (all such forms, reports, registration
statements and documents filed after November 12, 1999 being collectively
referred to in this Agreement as the "Parent SEC Reports"). As of their
respective dates, the Parent SEC Reports (i) complied as to form in all material
respects with the applicable requirements of the Securities Act of 1933, as
amended (the "Securities Act"), the Securities Exchange Act of 1934, as amended
(the "Exchange Act") and the rules and regulations thereunder; and (ii) did not
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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 made therein,
in the light of the circumstances under which they were made, not misleading.
The representation and warranty in clause (ii) of the preceding sentence does
not apply to any misstatement or omission in any Parent SEC Report filed prior
to the date of this Agreement that was superseded by a subsequent Parent SEC
Report filed prior to the date of this Agreement that specifically corrected
such misstatements or omission in the applicable Parent SEC Report.
4.7 OWNERSHIP OF ASSETS. Following the Merger, the Surviving Corporation
will hold at least 90% of the fair market value of Merger Sub's net assets and
at least 70% of the fair market value of Merger Sub's gross assets held
immediately prior to the Merger. Following the Merger, to the knowledge of
Parent, the Surviving Corporation will hold at least 90% of the fair market
value of the Company's net assets and at least 70% of the fair market value of
the Company's gross assets held immediately prior to the Merger; provided,
however, that this sentence will not be effective unless at least 95% of the
Outstanding Company Shares vote in favor of the Merger. For purposes of this
representation, amounts paid by the Surviving Corporation to dissenters, amounts
paid by the Company, Merger Sub or the Surviving Corporation to shareholders who
receive cash or other property, amounts used by the Company, Merger Sub or the
Surviving Corporation to pay reorganization expenses, and all redemptions and
distributions (except for regular, normal dividends) made by the Company will be
included as assets of the Company or Merger Sub, respectively, immediately prior
to the Merger.
4.8 ACQUISITION OF OWNERSHIP. Neither Parent nor any person related to
Parent within the meaning of Section 1.368-1(e)(3) of the Treasury Regulations
has any plan or intention to re-acquire, after the Merger, any shares of the
Parent Common Stock to be issued by it in the Merger. Neither Parent nor any
person related to Parent within the meaning of Section 1.368-1(e)(3) of the
Treasury Regulations has any plan or intention to cause the Surviving
Corporation to issue, after the Merger, additional shares of stock (or rights to
acquire stock) that would result in Parent losing "control" of the Surviving
Corporation within the meaning of Section 368(c) of the Code.
4.9 MERGER SUB SHARES. Before the Merger, Parent will own directly 100%
of the outstanding shares of capital stock of Merger Sub. No shares of capital
stock of Merger Sub have been or will be used as consideration or issued to
shareholders of the Company in the Merger.
4.10 INTERCORPORATE INDEBTEDNESS. There is no intercorporate
indebtedness existing between Parent and the Company or between Merger Sub and
the Company that was issued, acquired or will be settled at a discount.
4.11 POST-ACQUISITION ACTIVITIES. Parent intends that, following the
Merger, the Surviving Corporation will continue the Company's historic business
or use a significant
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portion of the Company's historic business assets in a business. If the
Surviving Corporation pays any compensation to any shareholders of the Company
that is in addition to the compensation agreed to by the Company in this
Agreement, (i) none of such additional compensation to be received by any
shareholders of the Company will be separate consideration for, or allocable to,
any of their shares of Company Common Stock; and (ii) such additional
compensation to be paid to any shareholders of the Company will be for services
actually rendered. Except for transfers or successive transfers of stock or
assets described in Section 1.368-2(k)(2) of the Treasury Regulations, Parent
has no plan or intention (A) to liquidate the Surviving Corporation, (B) to
merge the Surviving Corporation with or into another corporation, (C) to sell,
distribute or otherwise dispose of the capital stock of the Surviving
Corporation acquired in the Merger, or (D) except for dispositions made in the
ordinary course of business, to cause the Surviving Corporation to sell or
otherwise dispose of any of its assets or any of the assets acquired from Merger
Sub.
4.12 NO PRIOR ACTIVITIES. Merger Sub was incorporated for the sole
purpose of consummating the transactions contemplated by this Agreement. Except
for obligations incurred in connection with its incorporation or organization or
the negotiation and consummation of this Agreement and the transactions
contemplated hereby, Merger Sub has neither incurred any obligation or liability
nor engaged in any business or activity of any type or kind whatsoever or
entered into any agreement or arrangement with any person.
4.13 NO INVESTMENT COMPANY. Neither Parent nor Merger Sub is an
investment company as defined in Section 368(a)(2)(F)(iii) and (iv) of the Code.
ARTICLE V
CONDUCT OF BUSINESS PENDING THE MERGER
5.1 CONDUCT OF BUSINESS BY THE COMPANY PENDING THE MERGER. The Company
covenants and agrees that, during the period from the date of this Agreement and
continuing until the earlier of the termination of this Agreement or the
Effective Time, unless Parent otherwise agrees in writing (which agreement will
not be unreasonably withheld), the Company will conduct its business only in,
and will not take any action except in, the Ordinary Course of Business, other
than actions taken by the Company as contemplated by this Agreement; and the
Company will use all reasonable commercial efforts to preserve substantially
intact the business organization of the Company, to keep available the services
of the present officers, employees and consultants of the Company and to
preserve the present relationships of the Company with customers, suppliers and
other persons with which the Company has significant business relations. By way
of amplification and not limitation, except as contemplated by this Agreement,
the Company may not, during the period from the date of this Agreement and
continuing until the earlier of the termination of this Agreement or the
Effective Time, directly or indirectly do, or
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propose to do, any of the following without the prior written consent of Parent
(which consent will not be unreasonably withheld):
(a) Amend or otherwise change the Article of Incorporation or Bylaws
of the Company;
(b) Issue, sell, pledge, dispose of or encumber, or authorize the
issuance, sale, pledge, disposition or encumbrance of, any shares of capital
stock of any class, or any options, warrants, convertible securities or other
rights of any kind to acquire any shares of capital stock, or any other
ownership interest (including any phantom interest) in the Company or any of its
affiliates (except for the issuance of shares of Company Common Stock issuable
on conversion of the shares of the Company's preferred stock, or pursuant to the
Company Stock Options, which are outstanding on the date hereof);
(c) Sell, pledge, dispose of or encumber any assets of the Company
(except for (i) sales of inventories in the Ordinary Course of Business, (ii)
dispositions of obsolete or worthless assets, and (iii) sales of immaterial
assets not in excess of $15,000 in the aggregate);
(d) (i) Declare, set aside, make or pay any dividend or other
distribution (whether in cash, stock or property or any combination thereof) in
respect of any of its capital stock, (ii) split, combine or reclassify any of
its capital stock or issue or authorize or propose the issuance of any other
securities in respect of, in lieu of or in substitution for shares of its
capital stock, or (iii) amend the terms or change the period of exercisability
of, purchase, repurchase, redeem or otherwise acquire any of its securities,
shares of Company Common Stock or Company Preferred Stock or any option or
right, directly or indirectly, to acquire shares of Company Common Stock or
Company Preferred Stock (including any shares held by Xxxx Xxxxxxxx that the
Company may have a right to repurchase or buy back under its restricted stock
purchase agreements with him);
(e) (i) Acquire (by merger, consolidation, acquisition of stock or
assets or otherwise) any corporation, partnership or other business organization
or division thereof (including the creation of any subsidiary); (ii) incur any
indebtedness for borrowed money (other than draws up to a total aggregate amount
of $150,000 on its existing line of credit from Xxxxx Fargo Bank) or issue any
debt securities or assume, guarantee or endorse or otherwise as an accommodation
become responsible for the obligations of any person or, except in the Ordinary
Course of Business, make any loans or advances; (iii) enter into or amend any
material Contract; or (iv) authorize any capital expenditures or purchase of
fixed assets which are, in the aggregate, in excess of $15,000;
(f) Increase the compensation payable or to become payable to its
officers, employees, consultants or agents, or grant any severance or
termination pay to, or enter into any employment or severance agreement with any
director, officer or other employee of the Company, or establish, adopt, enter
into or amend any collective bar
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gaining, bonus, profit sharing, thrift, compensation, stock option, restricted
stock, pension, retirement, deferred compensation, employment, termination,
severance or other plan, agreement, trust, fund, policy or arrangement for the
benefit of any current or former directors, officers or employees, except, in
each case, as may be required by law;
(g) Take any action to change accounting policies or procedures
(including procedures with respect to revenue recognition, payments of accounts
payable and collection of accounts receivable);
(h) Make any material tax election inconsistent with past practice
or settle or compromise any material federal, state, local or foreign tax
liability or agree to an extension of a statute of limitations;
(i) Pay, discharge or satisfy any claims, liabilities or obligations
(whether absolute, accrued, asserted or unasserted, contingent or otherwise),
other than the payment, discharge or satisfaction in the Ordinary Course of
Business or of the Estimated Fees and Expenses (as defined in Section 7.2(p));
(j) Have operating expenses, net of direct labor and capitalized
software costs, in excess of $170,000 for the month of July or $130,000 per
month for each month thereafter through the Effective Time, provided that such
direct labor and capitalized software costs do not exceed $120,000 per month,
and excluding costs related to the transactions contemplated by this Agreement;
(k) Make any loans or advances to officers, directors, employees,
consultants, shareholders or agents of the Company, or any member of the
families of any of them, except for advances to employees for reasonable
business expenses in the Ordinary Course of Business;
(l) Cancel or materially amend any insurance policy except in
exchange for a new policy with at least the same coverage;
(m) Fail to comply in all respects with all applicable laws, rules
and regulations;
(n) Enter into any transaction or series of transactions which would
in any significant respect change the character of the Company's business; or
(o) Take, or agree in writing or otherwise to take, any of the
actions described in subsections (a) through (n) of this Section 5.1, or any
action which would make any of the representations or warranties of the Company
contained in this Agreement untrue or incorrect or prevent the Company from
performing or cause the Company not to perform its covenants hereunder.
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5.2 NO SOLICITATION. The Company will not, directly or indirectly, nor
will it authorize or permit any of its directors, officers, shareholders,
employees or agents or any investment banker, financial advisor, accountant,
attorney or other representative, directly or indirectly, to (i) solicit,
initiate, encourage or induce the making, submission or announcement of any
offer or proposal (other than the transactions contemplated by this Agreement)
contemplating or otherwise relating to any Acquisition Transaction (as defined
below) (an "Acquisition Proposal"), or take any action that could reasonably be
expected to lead to an Acquisition Proposal; (ii) furnish any non-public or
confidential information regarding the Company or its shareholders to any person
or entity (other than Parent or Merger Sub or their representatives) in
connection with, or in response to, an Acquisition Proposal; (iii) engage in
discussions or negotiations with any person or entity (other than Parent or
Merger Sub or their representatives) with respect to any Acquisition Proposal;
(iv) approve, endorse or recommend any Acquisition Proposal; or (v) enter into
any letter of intent or similar document or any agreement or commitment
contemplating or otherwise relating to any Acquisition Transaction. The Company
further agrees that (i) it has caused to be terminated all solicitations,
submissions, announcements, discussions, offers, proposals or other actions
constituting, or that might reasonably be expected to lead to, or be deemed to
be, an Acquisition Proposal (other than the transaction contemplated by this
Agreement); and (ii) after the date of this Agreement, it will immediately
notify Parent of, and cause to be terminated, any and all solicitations,
submissions, announcements, discussions, offers, proposals or other actions
constituting, or that might reasonably be expected to lead to, or be deemed to
be, an Acquisition Proposal. Such notification obligation will include
disclosure of the identity of the person or entity making the Acquisition
Proposal, the terms and conditions of such Acquisition Proposal and any material
financing terms. The term "Acquisition Transaction" means any transaction or
series of transactions (other than those contemplated by this Agreement)
involving: (i) any merger, consolidation, share exchange, business combination,
issuance of securities, acquisition of securities, tender offer, exchange offer
or other similar transaction in which (A) the Company is a constituent
corporation, (B) a person, entity or "group" (as defined in the Exchange Act and
the rules promulgated thereunder) of persons or entities, directly or indirectly
acquires the Company or more than 50% of the Company's business or, directly or
indirectly, acquires beneficial or record ownership of securities representing
more than 50% of the outstanding securities of any class of the Company's voting
securities or (C) in which the Company issues securities representing more than
50% of the outstanding securities of any class of the Company's voting
securities; or (ii) any sale, lease, exchange, transfer, encumbrance, license or
disposition of more than 50% of the Company's assets, net of liabilities,
carried at book value.
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ARTICLE VI
ADDITIONAL COVENANTS AND AGREEMENTS
6.1 HSR ACT. If applicable, the Company and Parent will promptly file
notifications under and in accordance with the Xxxx-Xxxxx-Xxxxxx Antitrust
Improvements Act of 1976, as amended (the "HSR Act") and any applicable
antitrust or similar acts in connection with the Merger and the transactions
contemplated hereby and respond as promptly as practicable to any inquiries
received from the Federal Trade Commission (the "FTC"), the Antitrust Division
of the Department of Justice (the "DOJ"), and any other applicable agencies or
authorities for additional information or documentation and respond as promptly
as practicable to all inquiries and requests received from any State Attorney
General or other governmental authority in connection with antitrust matters. If
the HSR Act requires the filing of such notifications, Parent, as the acquiring
person in the Merger, will be responsible for the payment of its $45,000 filing
fee.
6.2 SPECIAL SHAREHOLDERS' MEETING. The Company will call and hold a
special meeting of the Company's shareholders as promptly as practicable and in
accordance with applicable laws for the purpose of voting upon the approval of
the Merger. The Company will use all reasonable efforts to solicit from its
shareholders proxies in favor of adoption of this Agreement and approval of the
transactions contemplated hereby (including the Merger) and will take all other
action reasonably necessary or advisable to secure the vote or consent of
shareholders to obtain such approvals. The notice of special meeting or any
proxy materials to be given to shareholders in connection with the meeting will
be reasonably acceptable to Parent and will include the recommendation of the
Board of Directors of the Company in favor of the Merger,
6.3 ACCESS TO INFORMATION; CONFIDENTIALITY. Upon reasonable notice and
subject to restrictions contained in confidentiality agreements to which the
Company is subject (from which the Company will use reasonable efforts to be
released), the Company will afford to Parent and each of Parent's officers,
directors, employees, agents, accountants, counsel and other representatives,
reasonable access, during the period prior to the Effective Time, to all the
Company's properties, books, contracts, commitments and records and, during such
period, the Company will furnish promptly to Parent all information concerning
the Company's business, properties and personnel as Parent may reasonably
request, and the Company will make available to Parent the appropriate
individuals (including attorneys, accountants and other professionals) for
discussion of the Company's business, properties and personnel as Parent may
reasonably request. Parent will keep such information confidential in accordance
with the terms of the Mutual Confidentiality Agreement, dated as of January 17,
2000 (the "Confidentiality Agreement") between Parent and the Company. To the
extent that any material provided includes material that is subject to the
attorney-client privilege, work product doctrine or any other applicable
privilege concerning pending or Threatened legal proceedings or governmental
investigations, the parties understand and agree that they have a common
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ality of interest with respect to such matters and it is their desire, intention
and mutual understanding that the sharing of such material is not intended to,
and will not, waive or diminish in any way the confidentiality of such material
or its continued protection under the attorney-client privilege, work product
doctrine or other applicable privilege. All such material that is entitled to
protection under such attorney-client privilege, work product doctrine or other
applicable privilege will remain entitled to such protection under such
privilege, this Agreement and the joint defense doctrine.
6.4 CONSENTS; APPROVALS. The Company and Parent will each use their
reasonable commercial efforts to obtain all consents, waivers, approvals,
authorizations or orders, and the Company and Parent will make all filings
required in connection with the authorization, execution and delivery of this
Agreement by the Company and Parent and the consummation by them of the
transactions contemplated hereby, in each case as promptly as practicable. The
Company and Parent will furnish promptly all information required to be included
in any application or other filing to be made pursuant to this Section 6.4 in
connection with the transactions contemplated by this Agreement.
6.5 PERSONAL GUARANTEES. Parent will use commercially reasonable efforts
to cause the personal guarantees listed in Part 6.5 of the Company Disclosure
Schedule (the "Personal Guarantees") to be released promptly after the Effective
Time. After the Effective Time, and until such time as the Personal Guarantees
are released, Parent will indemnify, defend and hold harmless the guarantors
under the Personal Guarantees for any and all claims, losses, damages (including
incidental and consequential damages), expenses (including court costs and
attorneys' fees), obligations and liabilities that arise or result from such
Personal Guarantees or the Company's failure to timely make payment-in-full of
the obligations guaranteed, unless such claims, losses, damages (including
incidental and consequential damages), expenses (including court costs and
attorneys' fees), obligations and liabilities result from any action or inaction
by such guarantors.
6.6 NOTIFICATION OF CERTAIN MATTERS. The Company will give prompt notice
to Parent, and Parent will give prompt notice to the Company, of (i) the
occurrence or nonoccurrence of any event the occurrence or nonoccurrence of
which would be likely to cause any representation or warranty contained in this
Agreement to become materially untrue or inaccurate, or (ii) any failure of the
Company, Parent or Merger Sub, as the case may be, materially to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
it hereunder; provided, however, that the delivery of any notice pursuant to
this Section will not limit or otherwise affect the remedies available hereunder
to the party receiving such notice; and provided further that failure to give
such notice will not be treated as a breach of covenant for the purposes of
Sections 7.2(b) or 7.3(b) unless the failure to give such notice results in
material prejudice to the other party.
6.7 FURTHER ACTION. Upon the terms and subject to the conditions of this
Agreement, each of the parties will use all reasonable commercial efforts to
take, or cause
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to be taken, all actions and to do, or cause to be done, all other things
necessary, proper or advisable to consummate and make effective as promptly as
practicable the transactions contemplated by this Agreement, to obtain in a
timely manner all necessary waivers, consents and approvals and to effect all
necessary filings, and otherwise to satisfy or cause to be satisfied all
conditions precedent to its obligations under this Agreement. The foregoing
covenants do not include any obligation by Parent to agree to divest, abandon,
license or take similar action with respect to any assets (tangible or
intangible) of Parent or the Company.
6.8 PUBLIC ANNOUNCEMENTS. Parent and the Company will consult with each
other before issuing any press release with respect to this Agreement and the
transactions contemplated hereby (including the Merger) and will not issue any
such press release or make any such public statement without the prior consent
of the other party, which will not be unreasonably withheld; provided, however,
that Parent may, without the prior consent of the Company, issue such press
release or make such public statement as may upon the advice of counsel be
required by law or the rules and regulations of Nasdaq, in which case Parent
will use all reasonable efforts to consult with the Company prior thereto. The
Company acknowledges and agrees that it and its directors, officers,
shareholders, employees, agents and representatives are aware of the
restrictions imposed by the federal securities laws and other applicable laws on
a person possessing material non-public information about a public company and
that the Company and its directors, officers, shareholders, employees, agents
and representatives will comply with such laws.
6.9 CONVEYANCE TAXES. Parent and the Company will cooperate in the
preparation, execution and filing of all returns, questionnaires, applications,
or other documents regarding any real property transfer or gains, sales, use,
transfer, value added, stock transfer and stamp taxes, any transfer, recording,
registration and other fees, and any similar taxes which become payable in
connection with the transactions contemplated hereby that are required or
permitted to be filed at or before the Effective Time.
6.10 CERTAIN EMPLOYEE BENEFIT MATTERS. Immediately after the Effective
Time, and separate and apart from the Merger:
(a) The Company's employees will be eligible to participate in
Parent's Employee Stock Purchase Plan and receive such other benefits as are
generally offered to all of Parent's full-time employees on a non-discriminatory
basis.
(b) Parent will cause the Surviving Corporation to increase the base
salaries of certain of the Company's employees to the levels shown on Schedule
6.10 to this Agreement.
(c) Parent will adopt a nonqualified stock option plan authorizing
the issuance of 400,000 shares of Parent Common Stock, and containing such other
terms as are customary and consistent with Parent's existing stock option plans
(except as in-
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dicated below), for the purpose of providing incentive to the Company's
employees. Only the Company's employees immediately prior to the Effective Time
(and any employee hired by the Surviving Corporation on or after the Effective
Time to replace Xxxx Xxxxxxxx) will be eligible to participate in such plan.
Such employees will be granted the options shown on Schedule 6.10 to this
Agreement immediately following the Effective Time (or, in the case of an
employee hired on or after the Effective Time to replace Xxxx Xxxxxxxx, on the
date of the commencement of his or her employment). For the options covering
300,000 of such 400,000 shares, during the term of employment, 25% of each such
option would become exercisable on the first anniversary of the grant date of
such option and the remainder of each such option would become exercisable in
equal monthly increments (1/48th of the whole each month) in the three-year
period thereafter (such that such option would be fully exercisable on the
fourth anniversary of the grant date of such option). For the options covering
the remaining 100,000 shares, during the term of employment, each such
additional option would become exercisable four years and one day from the grant
date of such option, subject to acceleration as follows: (i) one-half of each
such additional option would become exercisable if the Surviving Corporation
achieves targeted revenues of $1.2 million in the last four months of fiscal
2000 (and, if the Surviving Corporation achieves 85% of such target, then
one-quarter of each such option would become exercisable, with linear
incremental increases up to 100% of such target, such that if the target was met
or exceeded one-half of such option would become exercisable), (ii) one-quarter
of each additional option would become exercisable if the Surviving Corporation
achieves targeted revenues of $1.7 million in the first half of fiscal 2001
(and, if the Surviving Corporation achieves 85% of such target, then one-eighth
of each such option would become exercisable, with linear incremental increases
up to 100% of such target, such that if the target was met or exceeded
one-quarter of such option would become exercisable), (iii) the remaining
one-quarter of each additional option would become exercisable if the Surviving
Corporation achieves targeted revenues of $2.3 million in the second half of
fiscal 2001 (and, if the Surviving Corporation achieves 85% of such target, then
one-eighth of each such option would become exercisable, with linear incremental
increases up to 100% of such target, such that if the target was met or exceeded
one-quarter of such option would become exercisable), and (iv) no acceleration
would occur if revenues in any applicable period are less than 85% of their
applicable target (with revenue figures are subject to appropriate verification
by Parent). Notwithstanding anything to the contrary in the foregoing, (A) each
option would become fully exercisable in the event that an employee is
terminated without cause; (B) each option would have a ten-year term (subject to
early termination in the event of termination of employment, disability and
death); and (C) the exercise price of an option would be equal to the closing
price of a share of Parent Common Stock on Nasdaq on the date of grant.
6.11 NO REPURCHASE OR BUY BACK. The Surviving Corporation will not
exercise any rights that it may have under its restricted stock purchase
agreements with Xxxx Xxxxxxxx to repurchase or buy back any shares held by him.
Notwithstanding anything
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in the foregoing sentence to contrary, however, this Section 6.11 will not
effect in any way whatsoever the Parent's rights to any Escrowed Shares
attributable to Xxxx Xxxxxxxx under this Agreement, the Escrow Agreement or the
Indemnification and Joinder Agreement.
ARTICLE VII
CONDITIONS
7.1 CONDITIONS TO OBLIGATION OF EACH PARTY TO CONSUMMATE THIS AGREEMENT.
The respective obligations of each party to consummate this Agreement (including
the completion of the Merger) are subject to the satisfaction (or written
waiver) at or prior to the Effective Time of the following conditions:
(a) SHAREHOLDER APPROVAL. This Agreement and the transactions
contemplated hereby (including the Merger) will have been approved by the
requisite vote of the shareholders of the Company.
(b) HSR ACT. The waiting period applicable to the consummation of
the Merger under the HSR Act, if applicable, will have expired or been
terminated.
(c) ESCROW AGREEMENT. The Escrow Agreement will have been executed
and delivered by the parties thereto.
(d) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of this Agreement and the transactions contemplated
hereby (including the Merger) will be in effect, nor will any proceeding brought
by any administrative agency or commission or other governmental authority or
instrumentality, domestic or foreign, seeking any of the foregoing be pending;
and there will not be any action taken, or any statute, rule, regulation or
order enacted, entered, enforced or deemed applicable to this Agreement, which
makes the consummation of this Agreement illegal.
(e) GOVERNMENTAL ACTIONS. There will not have been instituted,
pending or Threatened any action or proceeding (or any investigation or other
inquiry that could result in such an action or proceeding) by any governmental
authority or administrative agency before any governmental authority,
administrative agency or court of competent jurisdiction, nor will there be in
effect any judgment, decree or order of any governmental authority,
administrative agency or court of competent jurisdiction, in either case,
seeking to prohibit or limit Parent from exercising all material rights and
privileges pertaining to its ownership of the Surviving Corporation or the
ownership or operation by Parent or any of its subsidiaries of all or a material
portion of the business or assets of Parent or any of its subsidiaries, or
seeking to compel Parent or any of its subsidiaries to dispose of or
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hold separate all or any material portion of the business or assets of Parent or
any of its subsidiaries (including the Surviving Corporation), as a result of
the Merger or the other transactions contemplated by this Agreement.
(f) SECURITIES LAW COMPLIANCE. Parent will be entitled to issue the
Parent Shares in connection with this Agreement pursuant to the exemption to the
registration requirements of the Securities Act promulgated under the Securities
Act, and will have received all permits and other authorizations necessary under
any applicable blue sky or state securities laws.
7.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF PARENT AND MERGER SUB. The
obligations of Parent and Merger Sub to consummate this Agreement (including the
completion of the Merger) are also subject to the satisfaction (or written
waiver) at or prior to the Effective Time of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES; OFFICERS' CERTIFICATE. The
representations and warranties of the Company contained in this Agreement will
be true and complete in all respects at and as of the Effective Time as if made
at and as of such time. Parent and Merger Sub will have received a certificate
to such effect signed by the President and the Chief Financial Officer of the
Company.
(b) AGREEMENTS AND COVENANTS; OFFICERS' CERTIFICATE. The Company
will have performed or complied in all respects with all agreements and
covenants required by this Agreement to be performed or complied with by it at
or prior to the Effective Time; and Parent and Merger Sub will have received a
certificate to such effect signed by the President and the Chief Financial
Officer of the Company.
(c) CONSENTS OBTAINED. All consents, waivers, approvals,
authorizations or orders required to be obtained, and all filings required to be
made, by the Company for the due authorization, execution and delivery of this
Agreement and the consummation by it of the transactions contemplated hereby
will have been obtained and made by the Company. The Company will have obtained
the consent of The Board of Trustees of The Xxxxxx Xxxxxxxx Junior University
with respect to the past assignment from Virtual Technologies, a California sole
proprietorship, to the Company of that certain Agreement (License) having an
effective date September 1, 1993.
(d) NO MATERIAL ADVERSE CHANGE. There will have been no material
adverse change, either individually or in the aggregate, in the condition
(financial or otherwise), net worth, assets, liabilities, business, properties,
prospects or results of operations of the Company.
(e) [INTENTIONALLY LEFT BLANK.]
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(f) EMPLOYEE INVENTIONS AND PROPRIETARY RIGHTS ASSIGNMENT
AGREEMENTS. Each of the employees and consultants of the Company will have
executed and delivered to Parent the Employee Inventions and Proprietary Rights
Assignment Agreement, in the form attached as EXHIBIT B to this Agreement.
(g) INDEMNIFICATION AND JOINDER AGREEMENT; SPOUSAL CONSENTS.
Concurrently with the execution and delivery of this Agreement, Xxxxx X. Xxxxxx
and Xxxx Xxxxxxxx (such individuals sometimes being collectively referred to as
the "Principal Shareholders") will have executed and delivered to Parent the
Indemnification and Joinder Agreement, in the form attached as EXHIBIT C to this
Agreement (the "Indemnification and Joinder Agreement"), and each spouse of the
Principal Shareholders that are married will have executed and delivered to
Parent a Spousal Consent, in the form attached as ANNEX C to the Indemnification
and Joinder Agreement.
(h) NONCOMPETITION AGREEMENTS. Each of the Principal Shareholders
will have executed and delivered to Parent the Noncompetition Agreement, in the
form attached as EXHIBIT D to this Agreement.
(i) [INTENTIONALLY LEFT BLANK.]
(j) OPINION OF COUNSEL. The Company will have furnished Parent and
Merger Sub with the opinion of Xxxxxxx & Xxxxxx, counsel to the Company, dated
the Closing Date, as to the matters set forth in Schedule 7.2(j) to this
Agreement.
(k) DUE DILIGENCE REVIEW. By no later than fourteen days after the
date of this Agreement, Parent and its representatives and advisors will have
completed their due diligence review of the Company, including legal and
accounting due diligence (which may include (i) a review of corporate and
financial records, contracts, intellectual property, including patent
applications, correspondence with and office action taken by the United States
Patent and Trademark Office, and records related to permits and other regulatory
approvals, and (ii) discussions with accountants and other professional
advisors, employees, customers and suppliers) to the complete satisfaction of
Parent and its representatives and advisors.
(l) VOTING AGREEMENTS. Concurrently with the execution and delivery
of this Agreement, the Company will have furnished to Parent executed Voting
Agreements of each of the Principal Shareholders, each in the form attached as
EXHIBIT E to this Agreement.
(m) RESIGNATIONS OF DIRECTORS AND OFFICERS. Prior to the Effective
Time, the Company will have furnished to Parent at no cost the resignations of
all directors and officers of the Company, such resignations to be effective as
of the Effective Time.
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(n) LIMITED NUMBER OF DISSENTING SHARES. Holders of no more than one
percent of the outstanding shares of Company Common Stock and Company Preferred
Stock will be eligible to exercise dissenters' rights under the CGCL.
(o) CONVERSION OF ALL SHARES OF PREFERRED STOCK. Holders of all
outstanding shares of the Company's preferred stock will have converted their
shares into shares of Company Common Stock.
(p) NOTICE REGARDING CERTAIN FEES AND EXPENSES OF THE COMPANY. At
least two business days prior to the Closing, Parent will have received from the
Company an itemized list of all legal and other fees and expenses that the
Company estimates it has incurred or will incur in connection with this
Agreement and the transactions contemplated hereby, describing in reasonable
detail all items shown on such list (collectively, the "Estimated Fees and
Expenses"), along with the Company's estimate of the Excess Fees and Expenses
(as defined below), each certified as to accuracy and completeness by the
President and Chief Financial Officer of the Company, for the review and
approval of Parent (which approval will not be unreasonably withheld or
delayed). For purposes of this Agreement, "Excess Fees and Expenses" will be
equal to the excess, if any, agreed to by Parent by written notice to the
Company prior to the Closing, of the Estimated Fees and Expenses over the sum of
$100,000 and the amount of Estimated Fees and Expenses that are paid by the
Company's shareholders (with evidence of satisfaction of same in form reasonably
satisfactory to Parent) at least two business days prior to the Closing. In no
event, however, will Excess Fees and Expenses include any payments anticipated
to be made to dissenters who properly exercise dissenters' rights with respect
to their Dissenting Shares under Chapter 13 of the CGCL.
(q) APPROVAL OF DOCUMENTATION. The form and substance of all
opinions, certificates and other documents to be furnished by the Company and
its counsel in connection with this Agreement will be satisfactory in all
reasonable respects to Parent and its counsel.
7.3 ADDITIONAL CONDITIONS TO OBLIGATION OF THE COMPANY. The obligation
of the Company to consummate this Agreement (including the effectuation of the
Merger) is also subject to the satisfaction (or written waiver) at or prior to
the Effective Time of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES; OFFICERS' CERTIFICATE. The
representations and warranties of Parent and Merger Sub contained in this
Agreement will be true and complete in all respects on and as of the Effective
Time. The Company will have received a certificate to such effect signed by the
President and the Chief Financial Officer of Parent.
(b) AGREEMENTS AND COVENANTS; OFFICERS' CERTIFICATE. Parent and
Merger Sub will have performed or complied in all respects with all agreements
and
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covenants required by this Agreement to be performed or complied with by them on
or prior to the Effective Time. The Company will have received a certificate to
such effect signed by the President and the Chief Financial Officer of Parent.
(c) REGISTRATION RIGHTS AGREEMENT. Parent will have executed and
delivered to the Company's shareholders the Registration Rights Agreement, in
the form attached as EXHIBIT F to this Agreement (the "Registration Rights
Agreement").
(d) OPINION OF COUNSEL. Parent will have furnished the Company with
the opinion of Xxxxxx Xxxxxx White & XxXxxxxxx LLP, counsel to Parent and Merger
Sub, dated the Closing Date, as to the matters set forth in Schedule 7.3(d) to
this Agreement.
(e) APPROVAL OF DOCUMENTATION. The form and substance of all
opinions, certificates and other documents to be furnished by Parent and its
counsel in connection with this Agreement will be satisfactory in all reasonable
respects to the Company and its counsel.
ARTICLE VIII
SURVIVAL AND INDEMNIFICATION
8.1 SURVIVAL.
(a) The representations, warranties, covenants and agreements of the
parties contained in or made pursuant to this Agreement (including the Schedules
and Exhibits incorporated into this Agreement) will survive the consummation of
the transactions contemplated by this Agreement (subject, in the case of such
representation and warranties of the Company, to the time limits set forth in
the following sentence), and will in no way be affected by any investigation of
the subject matter thereof made by or on behalf of any Parent Indemnitees (as
defined in Section 8.2). Claims by Parent Indemnitees with respect to (i) all of
the representations and warranties of the Company, other than all of the
representations and warranties contained in Section 3.4 of this Agreement and
all of the representation and warranties as to taxes and tax matters (including
all of the representations and warranties contained in Section 3.8 of this
Agreement), may be made at any time on or prior to the second anniversary of the
Closing Date; (ii) all of the representations and warranties of the Company
contained in Section 3.4 of this Agreement may be made at any time, without
limitation; and (iii) all of the representations and warranties of the Company
as to taxes and tax matters (including all the representations and warranties
contained in Section 3.8 of this Agreement) may be made at any time prior to 60
days after the expiration of the statute of limitation that applies or would
apply to the subject matter of any claim by a third person for which
indemnification is sought. The waiver of any condition to the consummation of
this Agreement by Parent or Merger Sub will not affect the Parent Indemnitees'
rights to indemnification,
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payment of Losses or other remedies based on such representations, warranties,
covenants and agreements; provided, however, that (A) if the Company is unable
to deliver the certificate required under Section 7.2(a), without any scheduled
exceptions to the Company's representations and warranties contained in this
Agreement, and the Company instead delivers a certificate with certain
exceptions scheduled and Parent accepts such certificate (and schedule) and
waives the condition set forth in Section 7.2(a), then the Company's
representations and warranties contained in this Agreement will be modified as
shown on the schedule to the certificate so accepted by Parent, and (B) if the
Company is unable to deliver the certificate required under Section 7.2(b),
without any scheduled exceptions to the Company's covenants and agreements
contained in this Agreement, and the Company instead delivers a certificate with
certain exceptions scheduled and Parent accepts such certificate (and schedule)
and waives the condition set forth in Section 7.2(b), then the Company's
covenants and agreements contained in this Agreement will be modified as shown
on the schedule to the certificate so accepted by Parent. Nothing in this
Section 8.1 will affect the obligations and indemnities of the parties with
respect to the covenants and agreements that are contained in this Agreement
(including the Schedules and Exhibits that are incorporated into this Agreement)
that are permitted or required to be performed, in whole or in part, after the
Closing Date.
(b) Each of the parties hereto agrees that, except for the
representations and warranties contained in this Agreement (including the
Schedules and Exhibits incorporated into this Agreement), none of Parent, Merger
Sub or the Company has made any representations or warranties and, except for
the representations and warranties contained in this Agreement (including the
Schedules and Exhibits incorporated into this Agreement). Each of Parent, Merger
Sub and the Company acknowledges that no representations or warranties have been
made by, and it has not relied upon any representations or warranties made by,
any of the parties hereto or any of their respective officers, directors,
employees, agents, accountants, counsel or other representative (collectively,
"Representatives") with respect to this Agreement (including the Schedules and
Exhibits incorporated into this Agreement) and the transactions contemplated
hereby (and thereby), and the documents and instruments referred to herein (and
therein), notwithstanding the delivery or disclosure to such party or its
Representatives of any other documentation or other information with respect to
any one or more of the foregoing. The inclusion of any entry on the Company
Disclosure Schedule will not in and of itself constitute an admission by, or
agreement of, the Company that such matter is material to the Company.
8.2 INDEMNIFICATION. Parent, Merger Sub, the Company, the Surviving
Corporation and their affiliates, officers, directors, shareholders, agents,
representatives, advisors, successors and assigns (collectively, "Parent
Indemnitees") will be indemnified for and held harmless against and in respect
of any and all claims, losses, damages (including incidental and consequential
damages), expenses (including court costs, the costs of any investigation,
expert witnesses and preparation, and attorneys' fees), obligations and
liabilities, whether or not involving third party claims (collectively,
"Losses"),
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which, directly or indirectly, arise or result from or are incident or related
to (i) the inaccuracy of any representation or breach of any warranty of the
Company under this Agreement or the other agreements to be entered into by the
Company in connection with this Agreement; or (ii) any default or failure of the
Company's commitments or obligations under this Agreement or such other
agreements; or (iii) any act or omission of the Company which otherwise
constitutes a breach of this Agreement or such other agreements; or (iv) any
failure by the Company to comply with the federal securities laws or the
securities or blue sky laws of any other applicable jurisdiction prior to the
Closing Date; or (v) any indemnification agreement between the Company and any
of its directors. The Escrowed Shares will be available to Parent Indemnitees
during the term of the Escrow Agreement for the recovery of Losses from the
Company's shareholders. The Principal Shareholders will also reimburse Parent
Indemnitees under the Indemnification and Joinder Agreement on demand for any
payment made or Losses suffered by Parent Indemnitees at any time after the date
of this Agreement until such time as no Claims (as defined in Section 8.3) may
be timely made by any Parent Indemnitee under Section 8.1 and all Claims timely
made under Section 8.1 are either settled by the parties or resolved by a final
non-appealable order of a court of competent jurisdiction and all amounts due
Parent Indemnitees under this Agreement are paid in full. At Parent Indemnitees'
option, Parent Indemnitees may proceed against either or both (A) the Escrowed
Shares or (B) one or more of the Principal Shareholders under the
Indemnification and Joinder Agreement; provided that any payment in respect of
any Losses will first be satisfied by the Escrowed Shares (provided further that
such shares are then still in escrow). Consummation of the Merger will not be
deemed or construed to be a waiver of any right or remedy of Parent Indemnitees,
nor will this Section or any other provision of this Agreement be deemed or
construed to be a waiver of any ground of defense by the Company's shareholders.
Any amounts, excluding any award of interest, to which a Parent Indemnitee may
be entitled under this Article VIII will bear interest at an annual rate of the
lesser of 12% or the maximum legal rate permitted under applicable law from the
later of the Closing Date and the date on which the Losses giving rise to such
Parent Indemnitees' indemnification rights are determined to have been incurred
through the date on which such amounts are paid. For purposes of this Article
VIII, any Losses suffered or sustained by the Company or the Surviving
Corporation or to which the Company or the Surviving Corporation may be subject
will be deemed to be suffered or sustained by Parent Indemnitees. The Company's
shareholders will not be entitled to contribution from, or recovery against, the
Surviving Corporation with respect to any liability of the Company's
shareholders for Losses under this Agreement, the Indemnification and Joinder
Agreement or the Escrow Agreement.
8.3 RIGHT TO DEFEND; CERTAIN OTHER PROCEDURES.
(a) The Parent Indemnitees will promptly notify the Shareholder
Representative, on behalf of all indemnifying parties (collectively, the
"Shareholder Indemnitors"), of the existence of any claim, demand, cause of
action or other matter
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(collectively, a "Claim") involving Losses, or potential Losses, for which the
Parent Indemnitees may be entitled to indemnification and give the Shareholder
Representative 30 days (or such shorter period as required by the exigencies of
such Claim) in which to elect to defend the same at the Shareholder Indemnitors'
own expense and with counsel of the Shareholder Representative's selection (who
will be approved by the Parent Indemnitees, which approval will not be
unreasonably withheld); provided, however, that the Parent Indemnitees will at
all times also have the right to fully participate in the defense at their own
expense. If, within such 30-day (or shorter) period, the Shareholder
Representative, on behalf of the Shareholder Indemnitors, fails to defend such
Claim, or if, at any time after assuming defense of such Claim, the Shareholder
Representative, on behalf of the Shareholder Indemnitors, fails to continue to
defend it vigorously and in good faith, then the Parent Indemnitees have the
right, but not the obligation, to undertake the defense of, and to compromise or
settle (exercising reasonable business judgment) such Claim on behalf, for the
account, and at the risk and expense of the Shareholder Indemnitors.
Notwithstanding the foregoing, if such Claim might have an adverse effect on the
ongoing business or assets of the Surviving Corporation or the relationship of
the Surviving Corporation with its customers, suppliers, employees, agents or
others having business dealings with it or may exceed the then amount of the
Escrow Fund (as defined in the Escrow Agreement), Parent Indemnitees have first
right to defend the same on the basis set forth in the preceding sentence.
Except as provided in the preceding two sentences, the Parent Indemnitees will
not compromise or settle the claim, demand, cause of action or other matter
without the written consent of the Shareholder Representative, such consent not
to be unreasonably withheld or delayed. If such Claim is one that cannot by its
nature effectively be defended solely by the Shareholder Indemnitors, Parent
Indemnitees will make available all information and assistance that the
Shareholder Representative reasonably requests, provided that any associated
expenses are paid in advance by the Shareholder Indemnitors. The Parent
Indemnitees will use all commercially reasonable efforts to notify the
Shareholder Representative, on behalf of all Shareholder Indemnitors, within 30
days of the date that Parent's senior management receives actual notice of a
Claim; provided, however, that the failure to give timely notice required by
this Section 8.3(a) will not relieve the Shareholder Indemnitors of their
obligations under this Agreement, unless such failure resulted in actual,
material and irreparable detriment to the Shareholder Indemnitors with respect
to the Claim (and then such relief will only apply to that portion of the Claim
that was actually, materially and irreparably lost).
(b) Notwithstanding anything in Section 8.3(a) to the contrary, if
Parent Indemnitees have any Claim involving Losses, or potential Losses, for
which the Parent Indemnitees may be entitled to indemnification that does not
involve liability or potential liability to any third party, the Shareholder
Representative has 30 days, after having been given written notice from Parent
Indemnitees describing the existence and general nature of such Claim to dispute
such. If the Shareholder Representative does not send written notice to Parent
Indemnitees within such 30-day period that disputes such Claim, the
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amount of such Claim will be conclusively deemed a liability of the Shareholder
Indemnitors.
(c) Nothing in this Agreement will prevent a Parent Indemnitee from
making a claim under this Agreement, the Indemnification and Joinder Agreement
or the Escrow Agreement for any potential or contingent Claim, provided that it
notifies the Shareholder Representative, setting forth the general basis for any
such potential or contingent Claim and the estimated amount thereof to the
extent then feasible, and provided further that, if a potential or contingent
Claim involves potential liability to a third party, such Parent Indemnitee has
reasonable grounds to believe that such Claim will be made.
(d) In the event that the Shareholder Representative objects to any
Claim made by a Parent Indemnitee, the Shareholder Representative and Parent
Indemnitee will attempt, in good faith, to agree on the rights of the
Shareholder Indemnitors and Parent Indemnitee with respect to each such Claim.
If the Shareholder Representative and Parent Indemnitee do so agree, and such
agreement includes the release of some or all of the Escrowed Shares to Parent
Indemnitee, then the Shareholder Representative and Parent Indemnitee will each
sign joint written instructions to the Escrow Agent so instructing the Escrow
Agent, and the Escrow Agent will be entitled to rely on such written
instructions and distribute such Escrowed Shares in accordance with the terms of
such instructions. If such agreement includes any payment to be made by any
Shareholder Indemnitor to Parent Indemnitee in excess of the Escrowed Shares
attributable to such Shareholder Indemnitor, such Shareholder Indemnitor will
immediately reimburse Parent Indemnitee for the full amount of the agreed upon
payment. If no agreement can be reached after good faith negotiation, or in any
event at any time fourteen days after the Shareholder Representative notifies
the Parent Indemnitee of the dispute, either Parent Indemnitee or the
Shareholder Representative may commence litigation or take other action with
respect to such Claim.
(e) Parent Indemnitees' rights to indemnification under this
Agreement are subject to common law principles of mitigation. However, no Parent
Indemnitees will be required to exhaust any remedy against any other person or
source (for example, under an insurance policy) as a condition to pursuing or
obtaining any indemnification under this Agreement. Parent Indemnitees will, at
the Shareholder Representative's written request, take all commercially
reasonable steps to mitigate Losses after becoming aware of any event that would
reasonably be expected to give rise to Losses for which indemnification may be
sought hereunder; provided that any such steps for which Parent Indemnitees
incur any documented out-of-pocket costs will be at the Principal Shareholders'
expense and funded by them on a current basis. If Parent Indemnitees receive any
payment under any insurance policy to cover any Losses, then after the date of
the receipt of such payment, Losses under this Agreement will not include those
Losses covered by and equal to such payment; provided, however, that Losses
under this Agree-
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ment will still include the amount of any applicable deductible under such
insurance policy and any Losses incurred in seeking such insurance payment.
8.4 LIMITATIONS ON AMOUNT OF INDEMNIFICATION. Notwithstanding anything
in Section 8.2 to the contrary, the rights of Parent Indemnitees to be
indemnified and held harmless under Section 8.2 will be limited as follows:
(a) Subject to Section 8.4(d), Parent Indemnitees will have no right
to recover for any Losses until the total aggregate dollar amount of all Losses
exceeds the sum of $50,000, in which event the Parent Indemnitees will have the
right to recover all such Losses (including the first $50,000 of such Losses).
(b) Subject to Section 8.4(d), the total indemnification obligation
under Section 8.2 of each Principal Shareholder will not exceed 50% of that
portion of the Merger Consideration paid or payable to that Principal
Shareholder (including the Escrowed Shares attributable to that Principal
Shareholder) plus the value of the Company Stock Options held by that Principal
Shareholder and assumed by Parent.
(c) Subject to Section 8.4(d), the total indemnification obligation
under Section 8.2 of the Company's shareholders other than the Principal
Shareholders will not exceed the Escrowed Shares attributable to the Company's
shareholders other than the Principal Shareholders.
(d) The limitations of Sections 8.4(a), 8.4(b) and 8.4(c) will not
apply to any Losses or indemnification obligations that arise or result from or
are incident or related to any actionable fraud or deceit on the part of the
Company or any of its shareholders.
(e) Except as otherwise set forth in this Section 8.4, the
provisions of this Agreement, the Indemnification and Joinder Agreement and the
Escrow Agreement will not restrict or impair in any respect the rights or
remedies otherwise available to Parent Indemnitees against the Company's
shareholders at law or in equity, which rights and remedies will be cumulative
and in addition to any other available remedies.
ARTICLE IX
THE SHAREHOLDER REPRESENTATIVE
9.1 APPOINTMENT OF THE SHAREHOLDER REPRESENTATIVE.
(a) The adoption of this Agreement and the approval of the Merger by
the Company's shareholders will constitute the approval of the Company's
shareholders of the designation and irrevocable appointment of Xxxxx X. Xxxxxx
as the agent and representative (i.e., the Shareholder Representative) of all
the Company's shareholders, for purposes of this Agreement, the Indemnification
and Joinder Agreement and the
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Escrow Agreement, and through whom all actions on behalf of the Company's
shareholders relating to this Agreement, the Indemnification and Joinder
Agreement and the Escrow Agreement (including those actions as are required,
authorized or contemplated by the foregoing Article VIII with respect to
indemnification and the escrow) will be made or directed, and that the
Shareholder Representative will be the only person authorized to take any action
so required on behalf of the Company's shareholders. The Company's shareholders
will be bound by any and all actions taken on their behalf by the Shareholder
Representative.
(b) By signing this Agreement, Xxxxx X. Xxxxxx hereby accepts and
acknowledges his appointment as the Shareholder Representative and agrees to
perform the duties required of the Shareholder Representative under this
Agreement, the Indemnification and Joinder Agreement and the Escrow Agreement.
9.2 REPLACEMENT OF SHAREHOLDER REPRESENTATIVE. The appointment of the
Shareholder Representative is irrevocable by the Company's shareholders, except
that a successor to the Shareholder Representative may be appointed by a written
instrument signed by a majority in percentage interest of the Company's
shareholders. Upon such appointment of any such successor, such successor will
immediately give written notice of his or her appointment to Parent and the
Escrow Agent (along with a certified copy of the written instrument showing such
successor's appointment) and thereafter (i) such successor will be deemed to be
the Shareholder Representative for purposes of this Agreement, the
Indemnification and Joinder Agreement and the Escrow Agreement; and (ii) all of
the terms, provisions and obligations of this Agreement, the Indemnification and
Joinder Agreement and the Escrow Agreement will automatically (without any
action on the part of such successor or further notice to any party) be binding
upon and inure to the benefit of such successor. The choice of a successor
Shareholder Representative appointed in any manner permitted above is final and
binding upon all of the Company's shareholders.
9.3 COMMUNICATIONS; NOTICES. Parent and the Escrow Agent are entitled to
rely upon any communication or writings given or executed by the Shareholder
Representative as binding all of the Company's shareholders and their
successors, assigns, heirs, legal representatives, affiliates and spouses, and
Parent and the Escrow Agent will not be bound or put on notice by any
communications from any Company shareholder or other person (other than the
Shareholder Representative acting as such). All notices to be sent to the
Company's shareholders or the Principal Shareholder pursuant to this Agreement,
the Indemnification and Joinder Agreement or the Escrow Agreement will be
addressed to the Shareholder Representative. Any notice so sent will be deemed
notice to all of the Company's shareholders or the Principal Shareholders, as
the case may be. The adoption of this Agreement and the approval of the Merger
by the Company's shareholders will constitute the authorization of the Company's
shareholders to the Share-
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holder Representative accepting notice on behalf of the Company's shareholders
pursuant to this Section 9.3 and Section 9.4.
9.4 AGENT FOR SERVICE OF PROCESS. The Shareholder Representative is
hereby irrevocably appointed as the lawful agent of the Company's shareholder
and their successors, assigns, heirs, legal representatives, affiliates and
spouses to receive and forward on their behalf service of all necessary
processes in any action, suit, or proceeding arising under or in any way
relating to this Agreement, the Indemnification and Joinder Agreement, the
Escrow Agreement or any related document, any of the transactions contemplated
hereby or thereby or any of the subject matter hereof and that may be brought
against any of the Company's shareholder or any of their successors, assigns,
heirs, legal representatives, affiliates or spouses in any court. Such service
of process or notice received by the Shareholder Representative will have the
same force and effect as if served upon the Company's shareholders or their
respective successors, assigns, heirs, legal representative, affiliates or
spouses.
9.5 POWER OF ATTORNEY. The adoption of this Agreement and the approval
of the Merger by the Company's shareholders will constitute the approval of the
Company's shareholders of the appointment of the Shareholder Representative as
the true and lawful attorney-in-fact of the Company's shareholders and their
successors, assigns, heirs, legal representatives, affiliates or spouses, with
full power in such shareholders' (or successors', assigns', heirs', legal
representatives', affiliates' or spouses') names and on such shareholders' (or
the successors', assigns', heirs', legal representatives', affiliates' or
spouses') behalf to act according to the terms of this Agreement, the
Indemnification and Joinder Agreement and the Escrow Agreement in the absolute
discretion of the Shareholder Representative, and in general to do all things
and to perform all acts, including executing and delivering the Escrow Agreement
and all other agreements, certificates, receipts, instructions and other
instruments contemplated by or deemed advisable in connection with this
Agreement, the Indemnification and Joinder Agreement or the Escrow Agreement.
This power of attorney and all authority hereby conferred is granted subject to
the interest of the other shareholders of the Company and in consideration of
the mutual covenants and agreements made herein, and is irrevocable and will not
be terminated by any act of any Company shareholder or by operation of law,
whether by death or any other event.
9.6 LIMITATION ON THE SHAREHOLDER REPRESENTATIVE'S LIABILITY, ETC. The
Shareholder Representative will not be liable to the other shareholders of the
Company for any action taken, suffered or omitted by the Shareholder
Representative in good faith and reasonably believed by the Shareholder
Representative to be authorized or within the discretion of the rights or powers
conferred upon the Shareholder Representative by this Agreement, the
Indemnification and Joinder Agreement or the Escrow Agreement, except to the
extent of the Shareholder Representative's own gross negligence, recklessness or
willful misconduct. The Shareholder Representative may consult with competent
and
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responsible legal counsel selected by him, and he will not be liable for any
action taken or omitted by him in good faith in accordance with the advice of
such counsel. The adoption of this Agreement and the approval of the Merger by
the Company's shareholders will constitute the agreement of the Company's
shareholders (and such shareholders' successors, assigns, heirs, legal
representatives, affiliates or spouses) to severally and not jointly indemnify,
defend and hold the Shareholder Representative harmless as to any and all
liability incurred and amounts paid by the Shareholder Representative to the
Escrow Agent under clause (ii) of Section 6(a) of the Escrow Agreement as a
result of any action taken by a shareholder of the Company against the Escrow
Agent.
ARTICLE X
TERMINATION
10.1 TERMINATION. This Agreement may be terminated at any time prior to
the Effective Time, notwithstanding approval thereof by the shareholders of the
Company or Merger Sub:
(a) By mutual written consent of the parties; or
(b) By either Parent or the Company, if the Merger is not
consummated by September 30, 2000 (or such later date as may have been agreed to
in writing by the parties) (provided that the right to terminate this Agreement
under this Section 10.1(b) will not be available to any party whose failure to
fulfill any obligation under this Agreement has been the cause of or resulted in
the failure of the Merger to occur on or before such date); or
(c) By Parent or the Company, (i) if any representation or warranty
of the Company or Parent, respectively, set forth in this Agreement is untrue
when made, or (ii) upon a breach of any covenant or agreement on the part of the
Company or Parent, respectively, set forth in this Agreement, such that the
conditions set forth in Section 7.2(a) or 7.2(b), or Section 7.3(a) or 7.3(b),
as the case may be, would not be satisfied (either (i) or (ii) above being a
"Terminating Breach"), provided, that, if such Terminating Breach is curable
prior to September 30, 2000 (or such later date as may have been agreed to in
writing by the parties) by the Company or Parent, as the case may be, through
the exercise of its reasonable commercial efforts and for so long as the Company
or Parent, as the case may be, continues to exercise such reasonable commercial
efforts, neither Parent nor the Company, respectively, may terminate this
Agreement under this Section 10.1(c).
10.2 EFFECT OF TERMINATION. In the event of the termination of this
Agreement pursuant to Section 10.1, this Agreement will forthwith become void
and there will be no liability on the part of any party hereto or any of its
affiliates, directors, officers or stockholders except (i) as set forth in
Sections 3.26, 4.5, 5.2, 6.3, 6.6 and 6.8 and Articles VIII,
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IX, X and XI; and (ii) nothing herein will relieve any party from liability for
any breach hereof.
10.3 FEES AND EXPENSES. Parent, the Company and the Company's
shareholders will each bear their own legal and other fees and expenses incurred
in connection with this Agreement and the transactions contemplated hereby,
whether or not the Merger is consummated; provided, however, that (i) the Excess
Fees and Expenses will reduce the number of shares of Parent Common Stock to be
issued in the Merger as described in Section 2.1(b); and (ii) the Company's
shareholders will be responsible after the Closing for the excess, if any, of
the total legal and other fees and expenses incurred by the Company in
connection with this Agreement and the transactions contemplated hereby over the
Estimated Fees and Expenses (such excess being the "Unanticipated Fees and
Expenses"). In no event, however, will Unanticipated Fees and Expenses include
any payments made to dissenters who properly exercise dissenters' rights with
respect to their Dissenting Shares under Chapter 13 of the CGCL.
ARTICLE XI
MISCELLANEOUS
11.1 CERTAIN DEFINITIONS. For purposes of this Agreement:
(a) "Affiliates" means a person that directly or indirectly, through
one or more intermediaries, controls, is controlled by, or is under common
control with, the first mentioned person; including, without limitation, any
partnership or joint venture in which the first mentioned person (either alone,
or through or together with any other subsidiary) has, directly or indirectly,
an interest of 5% or more.
(b) "Knowledge" of the Company and similar terms evidencing
awareness on the part of the Company means the actual knowledge of any officer
or director of the Company or what such officer or director should have known
after conducting a reasonable investigation of the Company's employees,
officers, directors, agents, consultants and advisors and the Company's files
and other internal records.
(c) "Ordinary Course of Business" means an action taken in the
course of business, if but only if, (i) the action is consistent with the past
practices and is taken in the ordinary course of the normal day-to-day
operations; and (ii) the action is not required to be authorized by the Board of
Directors and (iii) the action is similar in nature and magnitude to actions
customarily taken, without any authorization by the Board of Directors, in the
ordinary course of the normal day-to-day operations of corporations that are in
the same line of business as the Company.
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(d) "Person" means an individual, corporation, partnership,
association, trust, unincorporated organization, other entity or group (as
defined in Section 13(d)(3) of the Exchange Act).
(e) "Threatened," means, with respect to a claim, proceeding,
dispute, action or other matter, that (i) a demand or statement has been made
orally or in writing, (ii) a notice has been given orally or in writing, or
(iii) an event or circumstance has occurred or failed to occur, or any other
events or circumstances exist, that would lead a prudent person to conclude that
such claim, proceeding, dispute, action or other matter is likely to be
asserted, commenced, taken or otherwise pursued in the future.
11.2 AMENDMENT. This Agreement may be amended by the parties by action
taken by or on behalf of their respective Boards of Directors at any time prior
to the Effective Time; provided, however, that, after approval of the Merger by
the shareholders of the Company, no amendment may be made which by law requires
further approval by such shareholders without such further approval. This
Agreement may not be amended except by an instrument in writing signed by the
parties.
11.3 HEADINGS. The Section and subsection headings contained in this
Agreement are for reference purposes only and will not affect in any way the
meaning or interpretation of this Agreement.
11.4 SEVERABILITY. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other terms and provisions of this Agreement will nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner adverse to
any party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties will negotiate in good faith
to modify this Agreement so as to effect the original intent of the parties as
closely as possible in an acceptable manner to the end that the transactions
contemplated hereby are fulfilled to the fullest extent possible.
11.5 GOVERNING LAW. This Agreement will be governed by, and construed in
accordance with, the internal laws of the State of California applicable to
contracts executed and fully performed within the State of California, without
regard to any principles of conflicts or choice of laws.
11.6 INTERPRETATION; RULES OF CONSTRUCTION. This Agreement has been
negotiated by the parties and is to be interpreted according to its fair meaning
and not strictly for or against any party. The parties waive any rule of law or
judicial precedent that provides that contractual ambiguities are to be
construed against the party who drafted the contractual provision in question.
All references in this Agreement to "parties" refer to the parties to this
Agreement unless expressly indicated otherwise. References in this Agreement to
Sections or subsections are to Sections and subsections
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of this Agreement unless expressly indicated otherwise. At each place in this
Agreement where the context so requires, the masculine, feminine or neuter
gender includes the others and the singular or plural number includes the other.
"Including" means "including without limitation" and "or" is used in the
inclusive sense of "and/or."
11.7 NOTICES. Any notices, consents, waivers or other communications
required or permitted under this Agreement will be given in writing and will be
deemed to have been duly given when delivered personally, or if delivered in
another manner, the earlier of when it is actually received by the party to whom
it is directed, or when the following period expires (whether or not it is
actually received): (i) if transmitted by telecopier, 24 hours following
transmission to the party's telecopier number set forth below, with the party's
name and address clearly shown on the first page and confirmation of
transmission produced by the transmitting party's equipment, (ii) if deposited
in the mail, postage prepaid, and addressed to the party to receive it as set
forth below, 72 hours following such deposit, or (iii) if accepted by Federal
Express, or similar delivery service in general usage, for delivery to the
address of the party to receive it as set forth below, 24 hours following the
delivery time promised by the delivery service; provided that, if any such
transmission, mailing or express delivery is made on a day immediately preceding
a Saturday, Sunday or national holiday, then the subject transmission, mailing
or express delivery, as the case may be, will be deemed to be made at the
beginning of the next succeeding day that is not a Saturday, Sunday or national
holiday:
If to the Company:
Virtual Technologies, Inc.
0000 Xxxx Xxxxxxxxx
Xxxx Xxxx, Xxxxxxxxxx 00000
Attention: Xxxxx X. Xxxxxx, Chief Executive Officer
Telecopier no.: (000) 000-0000
With a copy to:
Xxxxx X. Xxxxxxx, Esq.
Xxxxxxx & Xxxxxx
00 Xxxxx Xxxxxx Xxxxxx
Xxx Xxxx, Xxxxxxxxxx 00000
Telecopier no.: (000) 000-0000
If to Parent or Merger Sub:
Immersion Corporation
000 Xxx Xxxx
Xxx Xxxx, Xxxxxxxxxx 00000
Attention: Xxxxx Xxxxxxxxx, Chief Executive Officer
Telecopier no.: (000) 000-0000
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With a copy to:
Xxxxx X. X'Xxxx, Esq.
Xxxxxx Xxxxxx White & XxXxxxxxx LLP
000 Xxxxxxxxxx Xxxxxx
Xxxx Xxxx, Xxxxxxxxxx 00000
Telecopier no.: (000) 000-0000
or to such other address or telecopier number as the party to whom notice is to
be given has furnished to the other party in the manner provided above, provided
that notice of such change has actually been received by the party to whom it is
directed.
11.8 ENTIRE AGREEMENT. This Agreement, and the Schedules and Exhibits
hereto, which are each hereby incorporated into this Agreement by this reference
and are made a part hereof, together with all other agreements and documents
executed and delivered concurrently herewith or therewith, constitute the entire
understanding and agreement between the parties with regard to the subject
matter hereof, and supersede all prior agreements, understandings, negotiations,
representations and discussions, whether written or oral, pertaining to that
subject matter, other than the Confidentiality Agreement which will continue in
full force and effect.
11.9 WAIVER. Any party may extend the time for the performance of any of
the obligations or other acts of any other party or waive compliance with any of
the agreements of any other party. No waiver of any breach or default hereunder
will be considered valid unless in writing and signed by the party giving such
waiver, and no such waiver will be deemed a waiver of any subsequent breach or
default of the same or similar nature.
11.10 PARTIES IN INTEREST. Except for the Parent Indemnitees, who are
third party beneficiaries of this Agreement, nothing in this Agreement,
expressed or implied, is intended to confer upon any person or entity other than
the parties any rights or remedies under or by reason of this Agreement.
11.11 SUCCESSORS AND ASSIGNS. This Agreement inures to the benefit of
and is binding upon the successors and assigns of the parties. Notwithstanding
the foregoing, neither this Agreement nor any rights or obligations hereunder
may be assigned, pledged, hypothecated or otherwise transferred by the Company
or the Shareholder Representative without the prior written consent of Parent,
which consent may be withheld in the sole discretion of Parent.
11.12 ENFORCEMENT. The Company acknowledges that, in view of the
uniqueness of the subject matter of this Agreement, Parent may not have an
adequate remedy at law for money damages if this Agreement is not performed in
accordance with its terms.
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Accordingly, the Company agrees that, in addition to any other right or remedy
to which Parent may be entitled, at law or in equity, it will be entitled to
enforce this Agreement by a decree of specific performance against the Company
and to temporary, preliminary and permanent injunctive relief to prevent
breaches or Threatened breaches of this Agreement, without posting any bond or
other undertaking.
11.13 ATTORNEYS' FEES. The prevailing party will be entitled to recover
all costs and expenses, including reasonable attorneys' fees, expert witness
fees, court costs and all other costs and expenses incurred in any action or
proceeding arising out of this Agreement or as to any matters related to but not
covered by this Agreement. "Prevailing party" for purposes of this Section 11.13
includes a party who agrees to dismiss an action or proceeding upon the other's
payment of the sums allegedly due or for performance of the covenants,
undertakings or agreements allegedly breached, or who obtains substantially the
relief it sought.
11.14 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument. The exchange of copies of
this Agreement and of signature pages by telecopier transmission will constitute
effective execution and delivery of this Agreement as to the parties and may be
used in lieu of the original for all purposes. Signatures of the parties
transmitted by telecopier will be deemed to be their original signatures for any
purpose whatsoever.
11.15 CONSENT TO JURISDICTION. Each of the parties hereto (i) consents
to submit himself, herself or itself to the personal jurisdiction of the United
States District Court for the Northern District of California or the courts of
the State of California located in the County of Santa Xxxxx with respect to any
and all disputes arising out of (A) this Agreement and the other agreements to
be entered into in connection with this Agreement, including the validity
construction and interpretation hereof and thereof and the rights and remedies
of the parties hereunder and thereunder; (B) any of the transactions
contemplated by this Agreement and such other agreements; and (C) any matters
related to but not covered hereby or thereby, in each case to the extent such
court would have subject matter jurisdiction with respect to such dispute; (ii)
agrees that he, she or it will not attempt to deny or defeat such personal
jurisdiction or venue by motion or other request for leave from any such court;
and (iii) agrees that nothing herein will affect the right to effect service of
process in any manner permitted by law.
11.16 HOLIDAYS. If any date on which action is to be taken under this
Agreement occurs, or if any period during which action is to be taken under this
Agreement ends, on a Saturday, Sunday or national holiday, the date or period
will be extended to the next succeeding day which is not a Saturday, Sunday or
national holiday.
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IN WITNESS WHEREOF, the parties have caused this Agreement and Plan of
Merger to be executed as of the date first written above by their respective
officers thereunto duly authorized.
Immersion Corporation
By: /s/ Xxxxx Xxxxxxxxx
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Its President and Chief Executive Officer
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VT Acquisition, Inc.
By: /s/ Xxxxx Xxxxxxxxx
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Its President and Chief Executive Officer
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Virtual Technologies, Inc.
By: /s/ Xxxxx Xxxxxx
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Its President
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/s/ Xxxxx Xxxxxx
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Xxxxx X. Xxxxxx,
as Shareholder Representative
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