Exhibit 99.2
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AGREEMENT AND PLAN OF MERGER
Among
THE BISYS GROUP, INC.,
BICHART ACQUISITION CORP.,
CHARTER SYSTEMS, INC.,
XXXXX X. XXXXX, XXXXX X. XXXXX, XXXXXX X. XXXXXXX,
TECHNOLOGY LEADERS II L.P., TECHNOLOGY LEADERS II OFFSHORE C.V., ONE LIBERTY
FUND III, L.P., GILDE INTERNATIONAL FUND, B.V.,
XXXX XXXXXX, XXXX XXXXX, XXXXX XXXXXX,
XXXXXXX XXXXX AND XXXX XXXXXX XXXXXXX, OR THEIR SUCCESSORS,
AS TRUSTEES FOR THE XXXXXX X. XXXXXXX CHILDREN'S TRUST and
XXXXXXXXX X. XXXXX, OR HIS SUCCESSOR, AS TRUSTEE OF THE COWIE CHILDREN'S
TRUST
Dated as of August 5, 1997
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TABLE OF CONTENTS
PAGE
----
ARTICLE I THE MERGER............................................... 2
SECTION 1.01 The Merger.................................. 2
SECTION 1.02 Effect Of the Merger........................ 3
SECTION 1.03 Consummation of the Merger.................. 3
SECTION 1.04 Charter; By-Laws; Directors
and Officers.............................. 3
SECTION 1.05 Further Assurances.......................... 4
ARTICLE II CONVERSION OF SECURITIES................................. 4
SECTION 2.01 Conversion of Securities
of the Company............................ 4
SECTION 2.02 Company Stock Options....................... 7
SECTION 2.03 Acquisition Common Stock.................... 8
SECTION 2.04 Exchange of Certificates; Surrender
of Warrant................................ 9
ARTICLE III REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND COWIE....................................11
SECTION 3.01 Authority Relative to Agreement.............11
SECTION 3.02 Shareholders' Title to Stock................11
SECTION 3.03 Organization, Standing
and Qualification.........................12
SECTION 3.04 Stock of the Company; Options...............12
SECTION 3.05 Subsidiaries................................13
SECTION 3.06 Articles of Organization
and By-Laws...............................13
SECTION 3.07 Execution and Performance of
Agreement; Validity and Binding
Nature....................................13
SECTION 3.08 Financial Statements........................14
SECTION 3.09 Intellectual Rights.........................14
SECTION 3.10 Software....................................15
SECTION 3.11 Contract Parties, Suppliers
and Consultants...........................16
SECTION 3.12 Employment, Deferred Compensation
or Similar Agreements;
Collective Bargaining Agreements;
Employee Benefit Plans....................17
SECTION 3.13 Inventory...................................18
SECTION 3.14 Real Estate.................................19
SECTION 3.15 Title to and Condition of
Personal Property.........................19
TABLE OF CONTENTS
(continued)
SECTION 3.16 Accounts Receivable.........................19
SECTION 3.17 Consignment and Return Items................19
SECTION 3.18 Taxes.......................................20
SECTION 3.19 Litigation..................................20
SECTION 3.20 Other Material Contracts
and Commitments...........................20
SECTION 3.21 Labor Relations.............................21
SECTION 3.22 Insurance...................................22
SECTION 3.23 Conduct of Business and Absence
of Changes................................22
SECTION 3.24 Compliance with Laws;
Governmental Authorizations...............22
SECTION 3.25 Officers, Directors and
Depositories..............................23
SECTION 3.26 Environmental Matters.......................23
SECTION 3.27 Third Party and Governmental
Consents..................................23
SECTION 3.28 Licenses and Permits........................24
SECTION 3.29 Absence of Undisclosed Liabilities..........24
SECTION 3.30 Marketable Securities and Other
Investments...............................24
SECTION 3.31 Loans to or from Officers,
Directors, Shareholders
or Employees..............................24
SECTION 3.32 Service Warranties; Contract
Losses....................................25
SECTION 3.33 Backlog.....................................25
SECTION 3.34 Representations and Warranties
True; No Misleading Statements............25
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF
THE SHAREHOLDERS.........................................25
SECTION 4.01 Authority and Capacity Relative
to Agreement..............................25
SECTION 4.02 Execution and Performance
of Agreement; Validity and
Binding Nature............................26
SECTION 4.03 Stock of the Company........................26
SECTION 4.04 Additional Representations and
Covenants of Shareholders.................27
SECTION 4.05 Representations and Warranties True;
No Misleading Statements..................30
ARTICLE V REPRESENTATIONS AND WARRANTIES OF PARENT.................30
SECTION 5.01 Organization and Qualification..............31
SECTION 5.02 Subsidiaries................................31
TABLE OF CONTENTS
(continued)
SECTION 5.03 Capitalization..............................31
SECTION 5.04 Authority Relative to Agreement.............32
SECTION 5.05 Non-Contravention...........................32
SECTION 5.06 Parent Public Information...................32
SECTION 5.07 Financial Statements........................32
SECTION 5.08 Absence of Certain Changes or
Events....................................33
SECTION 5.09 Governmental Consents.......................33
SECTION 5.10 Compliance with Law.........................34
SECTION 5.11 Litigation..................................34
SECTION 5.12 Tax-Free Reorganization.....................34
SECTION 5.13 Representations and Warranties True;
No Misleading Statements..................36
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF ACQUISITION............37
SECTION 6.01 Organization and Qualification..............37
SECTION 6.02 Capitalization..............................37
SECTION 6.03 Authority Relative to Agreement.............37
SECTION 6.04 Non-Contravention...........................38
SECTION 6.05 Governmental Consents.......................38
SECTION 6.06 Tax-Free Reorganization.....................38
SECTION 6.07 Other Matters...............................40
SECTION 6.08 Representations and Warranties True;
No Misleading Statements..................40
ARTICLE VII COVENANTS................................................40
SECTION 7.01 Conduct of the Company's Business...........40
SECTION 7.02 Certain Covenants of Parent.................43
SECTION 7.03 Access to Information.......................43
SECTION 7.04 Further Assurances..........................44
SECTION 7.05 Inquiries and Negotiations..................44
SECTION 7.06 Employment and Non-Competition
Agreements................................45
SECTION 7.07 Notification of Certain Matters.............45
SECTION 7.08 Indemnification.............................45
SECTION 7.09 Confidentiality.............................47
SECTION 7.10 Covenants of Shareholders...................48
SECTION 7.11 Transfer Restrictions After
the Effective Time........................49
SECTION 7.12 Registration Rights Agreements..............49
SECTION 7.13 Conversion of Preferred Stock ..............50
SECTION 7.14 Conversion of Stock Options.................50
SECTION 7.15 Repayment of Loans to Officers
and Directors.............................50
SECTION 7.16 Directors and Officers Liability
Insurance.................................50
TABLE OF CONTENTS
(continued)
SECTION 7.17 Berlack Release.............................50
ARTICLE VIII CONDITIONS TO THE MERGER.................................51
SECTION 8.01 Conditions to Each Party's
Obligation to Effect the Merger...........51
SECTION 8.02 Conditions to the Obligation
of the Company to Effect the
Merger....................................51
SECTION 8.03 Conditions to the Obligation of
Parent and Acquisition to
Effect the Merger.........................51
ARTICLE IX TERMINATION AND ABANDONMENT..............................54
SECTION 9.01 Termination and Abandonment.................54
SECTION 9.02 Effect of Termination.......................54
ARTICLE X MISCELLANEOUS............................................55
SECTION 10.01 Survival of Representations
and Warranties...........................55
SECTION 10.02 Expenses, Etc..............................55
SECTION 10.03 Publicity..................................56
SECTION 10.04 Execution in Counterparts..................56
SECTION 10.05 Notices....................................56
SECTION 10.06 Waivers....................................57
SECTION 10.07 Entire Agreement...........................57
SECTION 10.08 Applicable Law.............................58
SECTION 10.09 Binding Effect, Benefits...................58
SECTION 10.10 Assignability..............................58
SECTION 10.11 Amendments.................................58
INDEX TO SCHEDULES AND EXHIBITS
Schedule Description
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3.02(a) Shareholders Agreements
3.03 States and Jurisdictions in which
the Company does Business
3.04(a) Stock of the Company
3.04(b) Stock Options
3.05 Subsidiaries
3.06 Articles of Organization and By-Laws of
the Company
3.09 Intellectual Rights
3.10(a) Software
3.10(c) Copies of Owned Source Codes
3.11(a) Contract Parties
3.11(b) Major Suppliers
3.12(a) Employment Contracts and Deferred
Compensation Agreements
3.12(b) Employee Benefit Plans
3.12(c) Multi-Employer Plans
3.14(b) Real Estate Leases
3.15 Security Interest
3.16 Accounts Receivable
3.17 Consignment and Return Items
3.18 Tax Audits
3.19 Litigation
3.20 Material Contracts/Affiliates
3.22 Insurance
3.23 Changes Since June 30, 1997
3.25 Officers, Directors and Depositories
3.27 Consents
3.28 Approvals
3.30 Marketable Securities and Other
Investments
3.31 Related Party Loans
3.33 Backlog of Services
4.04(l) Shareholder Interests
8.03(d) Certain Employees
Exhibit ss. Ref. Description
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A Recitals Affiliate Agreement
B 4.04(e) Form of Accredited Investor
Certificate
C 7.12 Form of Registration Rights
Agreement
D 8.02(d) Form of Opinion of Parent's
Counsel to the Company and the
Shareholders
E 8.03(i) Form of Opinion of Company's
Counsel to Parent and Acquisition
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of August
5, 1997, among THE BISYS GROUP, INC., a Delaware corporation, with an address at
000 Xxxxx Xxxx, Xxxxxx Xxxxx, Xxx Xxxxxx 00000 ("Parent"), BICHART ACQUISITION
CORP., a Delaware corporation and a wholly-owned subsidiary of Parent, with an
address at 000 Xxxxx Xxxx, Xxxxxx Xxxxx, Xxx Xxxxxx 00000 ("Acquisition"),
CHARTER SYSTEMS, INC., a Massachusetts corporation, with an address at 0000
Xxxxxxxxxx Xxxxxx, Xxxx Xxxxxx, Xxxxxxxxxxxxx 00000 (the "Company"), XXXXX X.
XXXXX, with an address at 00 Xxxxx Xxxxxx, Xxxxxxx, Xxxxxxxxxxxxx 00000
("Cowie"), XXXXX X. XXXXX, with an address at 00 Xxxxx Xxxxxx, Xxxxxxx,
Xxxxxxxxxxxxx 00000, XXXXXX X. XXXXXXX, with an address at X.X. Xxx 000,
Xxxxxxxxx, Xxx Xxxxxxxxx 00000 ("Berlack"), TECHNOLOGY LEADERS II L.P., with an
address at Xxx Xxxx Xxxxxx Xxxxxx, Xxxxxx, Xxxxxxxxxxxxx 00000, TECHNOLOGY
LEADERS II OFFSHORE C.V., with an address at Xxx Xxxx Xxxxxx Xxxxxx, Xxxxxx,
Xxxxxxxxxxxxx 00000, ONE LIBERTY FUND III, L.P., with an address at Xxx Xxxxxxx
Xxxxxx, Xxxxxx, Xxxxxxxxxxxxx 00000, GILDE INTERNATIONAL FUND, B.V., with an
address at Xxx Xxxxxxx Xxxxxx, Xxxxxx, Xxxxxxxxxxxxx 00000, XXXX XXXXXX, with an
address at c/o TL Ventures, Xxx Xxxx Xxxxxx Xxxxxx, Xxxxxx, Xxxxxxxxxxxxx 00000,
XXXX XXXXX, with an address at 000 Xxxx Xxxxxx, Xxxxxx, Xxxxxxxxxxxx 00000,
XXXXX XXXXXX, with an address at c/x Xxxxxxx & Company, Inc., 000 Xxxxxxx
Xxxxxx, Xxxxxx, Xxxxxxxxxxxxx 00000, XXXXXXX XXXXX AND XXXX XXXXXX XXXXXXX, OR
THEIR SUCCESSORS, AS TRUSTEES FOR THE XXXXXX X. XXXXXXX CHILDREN'S TRUST (the
"Berlack Trust"), with an address at c/x Xxxxx & Xxxxx, 0 Xxxxx Xxxxxx, Xxxxxx,
Xxxxxxxxxxxxx 00000 and XXXXXXXXX X. XXXXX, OR HIS SUCCESSOR, AS TRUSTEE OF THE
COWIE CHILDREN'S TRUST (the "Cowie Trust"), with an address at 00 Xxxxx Xxxxxx,
Xxxxxxx, Xxxxxxxxxxxxx 00000 (together with Cowie and Berlack, the
"Shareholders"). The Company and Acquisition are hereinafter sometimes referred
to as the "Constituent Corporations" and the Company as the "Surviving
Corporation."
WHEREAS, the Company is engaged in the business of providing design,
consulting, implementation, project management and support services for the
multi-vendor networks of corporate and public agency clients;
WHEREAS, Parent, Acquisition and the Company desire that Acquisition
merge with and into the Company (the "Merger"), upon the terms and conditions
set forth herein and in accordance with the Massachusetts Business Corporation
Law (the "Massachusetts BCL") and the General Corporation Law of the State of
Delaware (the "Delaware GCL"), with the result that the Company shall continue
as
the surviving corporation and the separate existence of Acquisition (except as
it may be continued by operation of law) shall cease;
WHEREAS, Parent, Acquisition and the Company desire that upon the
Merger, at the Effective Time (as hereinafter defined), all outstanding shares
of the capital stock of the Company be converted into the right to receive fully
paid and nonassessable shares of Common Stock, $.02 par value, of Parent
("Parent Common Stock") and the outstanding shares of Acquisition be converted
into the right to receive fully paid and nonassessable shares of Common Stock,
$.01 par value, of the Surviving Corporation, as hereinafter provided;
WHEREAS, Parent, Acquisition and the Company desire that,
immediately after the Effective Time and solely as a result of the Merger,
Parent will own all the issued and outstanding shares of the capital stock of
the Surviving Corporation;
WHEREAS, for federal income tax purposes, it is intended that the
Merger qualify as a reorganization within the meaning of Section 368 of the
Internal Revenue Code of 1986, as amended (the "Code");
WHEREAS, for accounting purposes, it is intended that the Merger
shall be accounted for as a "pooling-of-interests";
WHEREAS, concurrently with the execution and delivery of this
Agreement, and as an inducement to Parent and Acquisition to enter into this
Agreement, certain persons, including members of the management of the Company,
have entered into an agreement with Parent, dated the date hereof, in the form
attached hereto as Exhibit A (the "Affiliate Agreement"); and
WHEREAS, the respective Boards of Directors of the Company, Parent
and Acquisition have approved the Merger;
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants, agreements and conditions contained herein, and in order
to set forth the terms and conditions of the Merger and the mode of carrying the
same into effect, the parties hereto hereby agree as follows:
ARTICLE I
ARTICLE I THE MERGER
SECTION 1.01 The Merger. Subject to the terms and conditions of this
Agreement, at the Effective Time, in accordance with this Agreement, the
Massachusetts BCL and the Delaware GCL, Acquisition shall be merged with and
into the Company, the separate
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existence of Acquisition (except as it may be continued by operation of law)
shall cease, and the Company shall continue as the surviving corporation under
the name Charter Systems, Inc. unless and until the Articles of Organization
(hereinafter defined) shall be further amended to change the name of the
Surviving Corporation.
SECTION 1.02 Effect Of the Merger. Upon the effectiveness of the
Merger, the Surviving Corporation shall succeed to and assume all the rights and
obligations of the Company and Acquisition in accordance with the Massachusetts
BCL and the Delaware GCL, and the Merger shall otherwise have the effects set
forth in Section 80 of the Massachusetts BCL.
SECTION 1.03 Consummation of the Merger. As soon as practicable
after the satisfaction or waiver of the conditions to the obligations of the
parties to effect the Merger set forth herein, provided that this Agreement has
not been terminated previously, the parties hereto will cause the Merger to be
consummated by filing (a) with the Secretary of State of the Commonwealth of
Massachusetts properly executed Articles of Merger in accordance with the
Massachusetts BCL and (b) with the Secretary of State of the State of Delaware a
properly executed Certificate of Merger in accordance with the Delaware GCL. The
Merger shall be effective upon filing of such certificates or on such later date
as may be specified therein (the time of such effectiveness being the "Effective
Time").
SECTION 1.04 Charter; By-Laws; Directors and Officers. Immediately
after the Effective Time, the Articles of Organization of the Company shall be
the Articles of Organization of the Surviving Corporation until thereafter
amended in accordance with the provisions thereof and as provided by the
Massachusetts BCL. As of the Effective Time, the By-Laws of the Surviving
Corporation shall be the By-Laws of the Company as in effect immediately prior
to the Effective Time, until thereafter amended in accordance with the
provisions thereof and the Articles of Organization of the Surviving Corporation
and as provided by the Massachusetts BCL. The initial directors and officers of
the Surviving Corporation shall be the directors and officers set forth below,
in each case until their respective successors are duly elected and qualified.
Directors
Xxxx X. Xxxxxx
Xxxxxx X. XxXxxxxx
3
Officers
Xxxx X. Xxxxxx Chairman and Chief Executive Officer
Xxxxx X. Xxxxx President
Xxxxxx X. XxXxxxxx Executive Vice President, Chief
Financial Officer and Treasurer
Xxxxxx X. Xxxxxxx Senior Vice President
Xxxx X. Rybarcyzk Senior Vice President
Xxxxx X. Dell Vice President, General Counsel and
Clerk
Xxxxxxxxx Xxxxxxx Assistant Clerk
SECTION 1.05 Further Assurances. If at any time after the Effective
Time the Surviving Corporation shall consider or be advised that any deeds,
bills of sale, assignments or assurances or any other acts or things are
necessary, desirable or proper (i) to vest, perfect or confirm, of record or
otherwise, in the Surviving Corporation, its right, title or interest in, to or
under any of the rights, privileges, powers, franchises, properties or assets of
either of the Constituent Corporations, or (ii) otherwise to carry out the
purposes of this Agreement, the Surviving Corporation and its proper officers
and directors or their designees shall be authorized to execute and deliver, in
the name and on behalf of either of the Constituent Corporations, all such
deeds, bills of sale, assignments and assurances and do, in the name and on
behalf of such Constituent Corporation, all such other acts and things
necessary, desirable or proper to vest, perfect or confirm its right, title or
interest in, to or under any of the rights, privileges, powers, franchises,
properties or assets of such Constituent Corporation and otherwise to carry out
the purposes of this Agreement.
ARTICLE II CONVERSION OF SECURITIES
CONVERSION OF SECURITIES
SECTION 2.01 Conversion of Securities of the Company. By virtue of
the Merger and without any action on the part of the (1) holders of the common
stock, $.01 par value, of the Company ("Company Common Stock"), (2) holders of
Series C Convertible Preferred Stock, $.01 par value, of the Company ("Series C
Stock") or (3) holders of Series E Convertible Preferred Stock, $.01 par value,
of the Company ("Series E Stock"), at the Effective Time all outstanding shares
of the Company Common Stock, Series C Stock and Series E Stock (subject to the
terms of Section 2.04(c) below) shall be converted into the right to receive
fully paid and nonassessable shares of Parent Common Stock on the following
basis:
(a) Net Merger Price. The aggregate consideration to be paid in
connection with the Merger shall be paid in the form
4
of Parent Common Stock valued, as set forth below, at Thirty-Three Million Four
Hundred and Fifty Thousand Dollars ($33,450,000) less the following amounts: (i)
the outstanding liquidation value, if any, as of the Effective Time, of any and
all shares of outstanding preferred stock of the Company, of whatever class or
series (the "Company Preferred Stock"), including, without limitation, the
Series C Stock and the Series E Stock; (ii) the aggregate amount of all
outstanding obligations of the Company for borrowed money as of the Effective
Time (the "Borrowings"); (iii) the amount in excess of $750,000 paid or payable
by the Company to the Company's financial advisors, brokers, consultants,
appraisers, employees, attorneys and accountants in connection with and/or as a
result of the Merger and the transactions related thereto or contemplated hereby
(collectively, the "Company Merger Expenses"); and (iv) the ascribed value (as
set forth in Section 2.02(d) below) of the outstanding Company Common Stock
Options (hereinafter defined) and Series C Stock Options (hereinafter defined)
granted to employees of the Company, which stock options shall be converted to
options to purchase Parent Common Stock pursuant to the terms hereof as of the
Effective Time (the "Net Merger Price"). The Net Merger Price shall be divided
by the average of the closing price per share of Parent Common Stock (the
"Average Price") as reported by the National Association of Securities Dealers
Inc. Automated Quotation System ("NASDAQ") each trading day during the period
commencing July 1, 1997 and ending the day which is two business days prior to
the Effective Time in order to determine, subject to Sections 2.01(b) and (c)
below, the number of shares of Parent Common Stock into which the outstanding
shares of Company Common Stock, Series C Stock and Series E Stock shall be
converted in the Merger (the "Aggregate Parent Common Stock Consideration").
(b) Exchange Value. Each share of Company Common Stock, Series C
Stock and Series E Stock issued and outstanding immediately prior to the
Effective Time (excluding such shares of Company Common Stock which are deemed
to result from the exercise or conversion of the Warrant (hereinafter defined)
pursuant to Section 2.01(c) below and excluding any such shares held in the
treasury of the Company, which shall be cancelled as provided in paragraph (d)
below) (all such shares collectively referred to herein as the "Exchange
Shares") shall be converted into the right to receive the number of shares of
Parent Common Stock (the "Exchange Value"), determined by dividing the Aggregate
Parent Common Stock Consideration by the sum of (a) the aggregate number of
Exchange Shares multiplied by the appropriate conversion factor as set forth
below, plus (b) 26,667:
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Conversion Factor
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Company Common Stock 1
Series C Stock 3
Series E Stock 2
If, prior to the Effective Time, Parent should split or combine the outstanding
shares of Parent Common Stock, or pay a stock dividend or other stock
distribution in Parent Common Stock, then the determination of the Exchange
Value shall be appropriately adjusted to reflect such split, combination,
dividend or other distribution.
(c) Warrant. The Company's outstanding Warrant to Purchase 26,667
shares of Company Common Stock dated May 7, 1997 issued to Silicon Valley Bank
(the "Warrant") shall not be assumed by Parent or Acquisition. In the event that
the Warrant is exercised in full for cash in accordance with its terms at least
two (2) business days prior to the Effective Time, the shares of Company Common
Stock received upon such exercise of the Warrant shall be converted into the
right to receive the number of shares of Parent Common Stock determined by
multiplying 26,667 by the Exchange Value. In the event that the Warrant is not
exercised in full for cash at least two (2) business days prior to the Effective
Time, all shares of Company Common Stock subject to the Warrant shall be deemed
to be converted, at the Effective Time, into the right to receive a number of
shares of Parent Common Stock, determined as follows:
(1) 26,667 shall first be multiplied by the Exchange Value;
(2) the product of the multiplication in subparagraph (1) shall then be
multiplied by the Average Price;
(3) the amount of $80,000 shall then be deducted from the product of the
multiplication in subparagraph (2); and
(4) the result of the subtraction in subparagraph (3) shall then be
divided by the Average Price, the quotient of which shall constitute the number
of shares of Parent Common Stock issuable to the holder of the Warrant.
(d) Treasury Stock. In the event of the conversion of any shares of
any series of Company Preferred Stock into Company Common Stock prior to the
Effective Time, the Company shall utilize all of the shares of its common stock
held in the treasury of the Company to effect any such conversions before
utilizing any authorized but unissued shares of its common stock. Any shares of
capital stock held in the treasury of the Company as of the Effective Time shall
be cancelled and retired as of the Effective Time and no capital stock of
Parent, cash or other consideration shall be paid or delivered in exchange
therefor.
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SECTION 2.02 Company Stock Options.
(a) Each stock option to purchase shares of Company Common Stock
outstanding immediately prior to the Effective Time (each, a "Company Common
Stock Option"), whether or not then exercisable or vested, shall, at and after
the Effective Time, remain outstanding and shall be converted, subject to the
terms of Section 2.02(d) below, into and become the right to purchase, subject
to the satisfaction of the vesting provisions and other terms of such Company
Common Stock Option, that number of shares of Parent Common Stock as shall equal
the number of shares of Company Common Stock subject to such Company Common
Stock Option immediately prior to such conversion multiplied by the Exchange
Value and rounded to the nearest whole share of Parent Common Stock. The
Surviving Corporation shall assume, as of the Effective Time, all obligations
and liabilities with respect to the Company Common Stock Options.
(b) Each stock option to purchase shares of Series C Stock
outstanding immediately prior to the Effective Time (each, a "Series C Stock
Option"), whether or not then exercisable or vested, shall, at the Effective
Time, be converted, subject to the terms of Section 2.02(d) below, into and
become the right to purchase, subject to the satisfaction of the vesting
provisions and other terms of such Series C Stock Option, the number of shares
of Parent Common Stock that shall equal the product of (x) the number of shares
of Company Common Stock into which the number of shares of Series C Stock
subject to such Series C Stock Option would have been convertible immediately
prior to such conversion using the conversion factor applicable to the
conversion of Series C Stock to Company Common Stock in effect immediately prior
to the Effective Time multiplied by (y) the Exchange Value and rounded to the
nearest whole share of Parent Common Stock.
(c) Notwithstanding anything herein or pursuant to the terms of the
Company Common Stock Options or Series C Stock Options to the contrary, the
exercise price applicable to each Company Common Stock Option and Series C Stock
Option shall, upon such conversion to an option to purchase Parent Common Stock
(each such converted option hereinafter referred to as a "Parent Stock Option"),
be adjusted as follows: (i) the option exercise price applicable to each Company
Common Stock Option shall, upon conversion to a Parent Stock Option, be adjusted
to an exercise price per share of Parent Common Stock calculated by dividing (x)
the aggregate exercise price for all shares of Company Common Stock subject to
such Company Common Stock Option immediately prior to such conversion by (y) the
number of shares of Parent Common Stock subject to such Parent Stock Option
immediately
7
after such conversion and rounded down to the nearest $.01 and (ii) the option
exercise price applicable to each Series C Stock Option shall, upon such
conversion to a Parent Stock Option, be adjusted to an exercise price per share
of Parent Common Stock calculated by dividing (x) the aggregate exercise price
for all shares of Series C Stock subject to such Series C Stock Option
immediately prior to such conversion by (y) the number of shares of Parent
Common Stock subject to such Parent Stock Option immediately after such
conversion and rounded down to the nearest $.01.
(d) The ascribed value of the Company Common Stock Options and
Series C Stock Options for the purposes of clause (iv) of Section 2.01(a) shall
be the product calculated by multiplying (A) Thirty-Three Million Four Hundred
and Fifty Thousand Dollars ($33,450,000), less the sum of the amounts determined
under clause (i), clause (ii) and clause (iii) of Section 2.01(a), by (B) a
fraction, the numerator of which is (X) the sum (the "Number of Option Shares")
of (i) the number of shares of Company Common Stock subject to Company Common
Stock Options outstanding immediately prior to the Effective Time, plus (ii) the
number of shares of Company Common Stock into which the number of shares of
Series C Stock subject to Series C Stock Options outstanding immediately prior
to the Effective Time would be convertible using the conversion factor in effect
immediately prior to the Effective Time, and the denominator of which is (y) the
sum of (i) the number of shares of Company Common Stock outstanding immediately
prior to the Effective Time, plus (ii) the number of shares of Company Common
Stock into which the Series C Stock outstanding immediately prior to the
Effective Time would be convertible using the conversion factor in effect
immediately prior to the Effective Time, plus (iii) the number of shares of
Company Common Stock into which the Series E Stock outstanding immediately prior
to the Effective Time would be convertible using the conversion factor in effect
immediately prior to the Effective Time, plus (iv) the Number of Option Shares,
plus (v) in the event the Warrant is not exercised in full for cash in
accordance with its terms at least two (2) business days prior to the Effective
Time, the 26,667 shares of Company Common Stock which would have been issuable
upon exercise of the Warrant.
(e) Parent shall take such action as is necessary so as to enable
holders of Company Common Stock Options and Series C Stock Options to receive
registered shares of Parent Common Stock upon exercise of any such Parent Stock
Options in accordance with their terms from and after the Effective Time.
SECTION 2.03 Acquisition Common Stock. At the Effective Time, each
share of Common Stock, $.01 par value, of
8
Acquisition issued and outstanding immediately prior to the Effective Time shall
be converted into the right to receive one (1) share of the common stock, $.01
par value, of the Surviving Corporation, which shall constitute all of the
issued and outstanding shares of the Surviving Corporation after the Effective
Time.
SECTION 2.04 Exchange of Certificates; Surrender of Warrant. (a)
Promptly after the Effective Time, each of the shareholders of the Company shall
deliver to Parent the certificate or certificates representing their shares of
Company Common Stock, Series C Stock and/or Series E Stock (each, a
"Certificate") in form sufficient for transfer and cancellation pursuant thereto
and, if the Warrant shall not have been exercised for cash, the holder of the
Warrant shall surrender same to Parent. As a condition to the issuance of Parent
Common Stock hereunder, each holder of shares of Company Common Stock, Series C
Stock or Series E Stock who is not a party to this Agreement, including, without
limitation the holder of the Warrant, shall submit the Certificate (or
Certificates) for such shares (or, in the case of the holder of the Warrant, the
Warrant) to Parent together with a letter of transmittal, in form and substance
satisfactory to Parent, containing such investment representations and
warranties and covenants, respectively, consistent with Section 4.04 (other than
Section 4.04(e)) and Section 7.11, respectively, of this Agreement, as shall be
required by Parent. The approval of the Merger by each such shareholder in
accordance with Section 8.03(j) and/or the surrender by such shareholder of
Certificate(s) of Company Common Stock or Company Preferred Stock for
cancellation and exchange shall be deemed an agreement by such shareholder to be
bound by the terms of Section 7.08 hereof. Upon surrender of a Certificate (or
Certificates) for cancellation to Parent in form sufficient for transfer and
cancellation pursuant hereto and delivery to Parent of such other documents as
may reasonably be required by Parent, the shareholder surrendering such
Certificate (or Certificates) (or, in the case of the Warrant, the holder
surrendering the Warrant), along with the letter of transmittal, if applicable,
shall be entitled to receive in exchange therefor (x) a certificate evidencing
that number of whole shares of Parent Common Stock which such holder has the
right to receive in respect of the shares of Company Common Stock, Series C
Stock and/or Series E Stock formerly evidenced by such Certificate (or
Certificates) or the Warrant (after taking into account all shares of Company
Common Stock, Series C Stock and/or Series E Stock then held of record by such
holder) and (y) a check representing the amount of cash in lieu of fractional
shares of Parent Common Stock, if any, and unpaid dividends or other
distributions, if any, to which such holder is entitled pursuant to the
provisions of this Section 2.04, after giving effect to any applicable
withholding tax, and the Certificate (or Certificates) so surrendered shall
forthwith be
9
cancelled. No interest will be paid or accrued on the cash in lieu of fractional
shares and unpaid dividends and distributions, if any, payable to the
shareholders.
(b) No dividends or other distributions declared after the Effective
Time with respect to Parent Common Stock shall be paid with respect to any
shares of Company Common Stock, Series C Stock and/or Series E Stock represented
by a Certificate until such Certificate is surrendered for exchange as provided
herein. After surrender of any such Certificate, there shall be paid to the
holder of the certificate representing whole shares of Parent Common Stock
issued in exchange therefor, without interest, (i) at the time of such
surrender, the amount of dividends or other distributions with a record date
after the Effective Time theretofore declared with respect to such whole shares
of Parent Common Stock and not paid, less the amount of any applicable
withholding taxes thereon, and (ii) at the appropriate payment date, the amount
of dividends or other distributions with a record date after the Effective Time
but prior to the date of such surrender and with a payment date subsequent to
the date of such surrender payable with respect to such whole shares of Parent
Common Stock, less the amount of any applicable withholding taxes thereon.
(c) No certificates or scrip representing fractional shares of
Parent Common Stock shall be issued upon the surrender for exchange of
Certificates, and such fractional share interests will not entitle the owner
thereof to vote or to any rights of a shareholder of Parent. Each holder of
shares of Company Common Stock, Series C Stock and/or Series E Stock who would
otherwise have been entitled to receive in the Merger a fraction of a share of
Parent Common Stock (after taking into account all certificates surrendered by
such holder) shall be entitled to receive, in lieu thereof, a check in an amount
(without interest) equal to such fractional part of a share of Parent Common
Stock multiplied by the Average Price.
(d) From and after the date of this Agreement, the stock transfer
books of the Company shall be closed except in respect of the exercise of the
Warrant and/or stock options to purchase 264,600 shares of Series C Stock
outstanding on the date hereof (the "Series C Stock Options"), the exercise of
Company Common Stock Options and conversion of Company Preferred Stock to
Company Common Stock, and there shall be no further registrations of transfers
of shares of Company Common Stock, Series C Stock or Series E Stock on the
records of the Company, except in respect of the exercise of the Warrant and/or
the Series C Stock Options and conversion of Company Preferred Stock to Company
Common Stock.
10
(e) In the event that any Certificate shall have been lost, stolen
or destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and, if required by
the Surviving Corporation, the posting of a bond in such reasonable amount as
the Surviving Corporation may direct, Parent shall issue in exchange for such
Certificate the shares of Parent Common Stock and, if any, cash in lieu of
fractional shares and unpaid dividends and distributions on shares of Parent
Common Stock deliverable in respect thereof as provided herein.
(f) Promptly after the Effective Time, the Surviving Corporation
shall issue to Parent a certificate representing One Hundred (100) shares of the
common stock of the Surviving Corporation, and Parent shall cause the
certificate representing the shares of the capital stock of Acquisition to be
cancelled.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND COWIE
Each of the Company and Cowie, jointly and severally, hereby
represents and warrants to Parent and Acquisition, knowing and intending that
each of Parent and Acquisition is relying hereon in entering into the
transactions contemplated hereby, as follows:
SECTION 3.01 Authority Relative to Agreement. The Company has all
requisite power and authority to enter into and to perform its obligations
hereunder. The execution and delivery of this Agreement by the Company and the
consummation by the Company of the transactions contemplated hereby have been
duly authorized by the Board of Directors of the Company, and no other corporate
proceedings on the part of the Company are necessary to authorize this Agreement
and the transactions contemplated hereby other than approval thereof by the
holders of Company Common Stock, Series C Stock and Series E Stock. The
valuation of Company Common Stock for the purposes of Section 2.01(c) has been
duly authorized by the Board of Directors of the Company pursuant to Section 1.4
of the Warrant.
SECTION 3.02 Shareholders' Title to Stock. The shares of Company
Common Stock, Series C Stock and Series E Stock identified on Schedule 3.04(a)
represent, collectively, all of the issued and/or outstanding shares of capital
stock or other equity interests in the Company, other than the Warrant, the
Company Common Stock Options and the Series C Stock Options. Except as listed in
Schedule 3.02(a), neither the Company nor the Shareholders are parties to any
shareholders agreement, buy-sell agreement or similar agreement or arrangement.
11
SECTION 3.03 Organization, Standing and Qualification. The Company
is a corporation, duly organized, validly existing and in good standing under
the laws of the Commonwealth of Massachusetts and has the corporate power and
lawful authority to own and hold its properties and conduct its business as now
owned, held and conducted in its state of incorporation and the states in which
it has qualified to do business. The Company is qualified and in good standing
in all states (or other jurisdictions) in which such qualification is required
by reason of the nature or extent of business conducted by the Company therein,
except where the failure to be so qualified would not have Material Adverse
Effect (hereinafter defined). Such states (and jurisdictions) are specified in
Schedule 3.03 attached hereto. As used in this Agreement, the term "Material
Adverse Effect" shall mean, with respect to any party, a material adverse effect
on the assets, financial condition, operating results or business of such party
and its subsidiaries, taken as a whole.
SECTION 3.04 Stock of the Company; Options.
(a) The authorized capital stock of the Company consists in its
entirety of Twenty Million (20,000,000) shares of Company Common Stock and Two
Million Six Hundred Forty Four Thousand Three Hundred Sixty Seven (2,644,367)
shares of Preferred Stock, of which Nine Hundred Forty Seven Thousand Nine
Hundred Eighty-Seven (947,987) shares of Company Common Stock are validly issued
and outstanding, fully paid and nonassessable, and Seven Hundred Eighty Eight
Thousand Four Hundred (788,400) shares of Series C Stock and Nine Hundred Five
Thousand Nine Hundred Sixty Two (905,962) shares of Series E Stock are validly
issued and outstanding, fully paid and nonassessable. The number of shares of
Company Common Stock and Preferred Stock owned of record by each holder thereof
is set forth in Schedule 3.04(a) hereof. Each class and series of Preferred
Stock and the holders of record thereof are further identified on Schedule
3.04(a) hereto. Each share of Company Common Stock and Preferred Stock which has
been or shall have been redeemed or repurchased by the Company prior to the
Effective Time has been or shall have been validly repurchased or redeemed, and
each share of Preferred Stock which has been or shall have been converted to
Company Common Stock prior to the Effective Time has been or shall have been
validly converted. Except for (i) options granted pursuant to the Company's
Omnibus Stock Option (the "Omnibus Plan") to purchase an aggregate of 1,463,118
shares of Company Common Stock; (ii) options to purchase an aggregate of 264,600
shares of Series C Stock; (iii) the Warrant and (iv) the Company Preferred
Stock, the Company does not have any outstanding subscription, warrants,
convertible securities, obligations, options, or rights entitling others to
acquire shares of capital stock of the Company, or any outstanding securities,
options,
12
warrants, rights or other instruments convertible into shares of capital stock
of the Company. Except as disclosed in Schedule 3.04(a), none of the options
granted pursuant to the Omnibus Plan will accelerate their vesting date as a
result of the Merger.
(b) Schedule 3.04(b) accurately and completely sets forth and
identifies the respective record owners of all outstanding Company Common Stock
Options and Series C Stock Options outstanding on the date hereof and the
applicable exercise price and other material terms with respect thereto. True,
complete and correct copies of all agreements relating to said Common Stock
Options and Series C Stock Options have been delivered to Parent. Each of the
Company Common Stock Options which shall remain outstanding after the Effective
Time shall be converted to an option to acquire Parent Common Stock as
contemplated by Section 2.02 hereof. Each of the Series C Stock Options which
shall remain outstanding as of the Effective Time shall be converted into an
option to acquire Parent Common Stock as contemplated by Section 2.02 hereof.
The Company has given, or shall have given prior to the Effective Time, such
timely notices of the Merger as are required pursuant to the terms and
conditions of all agreements relating to or defining the rights of the holders
of the Company Common Stock Options, the Series C Stock Options and the Warrant.
(c) The applicable conversion factors in effect for the conversion
of Series C Stock and the Series E Stock, respectively, into Company Common
Stock are, and will be at the Effective Time, 3 and 2, respectively.
SECTION 3.05 Subsidiaries. There is no corporation, partnership,
joint venture, or other entity in which the Company has, directly or indirectly,
any investment or to which the Company has made an advance of cash other than as
listed on Schedule 3.05 attached hereto. The Company is not under any obligation
to acquire any securities from any person or entity.
SECTION 3.06 Articles of Organization and By-Laws. True and complete
copies of the Company's Restated Articles of Organization, as amended (the
"Articles of Organization") and By-Laws (together with any amendments thereto)
are attached hereto as Schedule 3.06.
SECTION 3.07 Execution and Performance of Agreement; Validity and
Binding Nature. The execution and delivery of this Agreement, and the
performance by the Company of the terms of this Agreement and the transactions
contemplated hereby, will not result in a breach of any of the terms of, or
constitute a violation of or default under, the Restated Articles of
Organization or By-Laws of the Company or any statute, contract, indenture or
other instrument by which the Company or any of its properties are bound, and,
13
except as provided in Section 3.27 hereof, no consent, approval, authorization
or order of any court or governmental authority is required in connection with
the execution and delivery of this Agreement by the Company and the performance
by the Company of the terms of this Agreement and the transactions contemplated
hereby. This Agreement has been duly executed and delivered by the Company. This
Agreement is, and the documents and agreements executed and delivered by the
Company pursuant to the terms hereof, when duly executed and delivered by all
parties whose execution and delivery thereof is required, will be, legal, valid,
and binding obligations of the Company, enforceable against the Company in
accordance with their respective terms, except to the extent that enforceability
may be limited by bankruptcy, receivership, moratorium, conservatorship,
reorganization or other laws of general application affecting the rights of
creditors generally or by general principles of equity.
SECTION 3.08 Financial Statements. The Company has delivered to
Parent the balance sheets of the Company as at June 30, 1997, 1996 and 1995,
respectively, and the related statements of operations, statements of changes in
stockholders' equity (deficit) and statements of cash flows and notes thereto
for the fiscal years then ended, in each case audited by Xxxxxx Xxxxxxxx LLP
(such audited balance sheet of the Company as at June 30, 1997 being hereinafter
referred to as the "Balance Sheet" and such balance sheets and related financial
statements and notes thereto for such three fiscal years being hereinafter
referred to collectively as the "Financial Statements"). Each of the Financial
Statements (a) has been prepared from the books and records of the Company, (b)
has been prepared in accordance with generally accepted accounting principles
("GAAP") applied on a consistent basis with prior periods covered thereby, and
(c) presents fairly in all material respects the financial position of the
Company as at its respective date and the results of the Company's operations,
changes in stockholders' equity (deficit) and cash flows for such period in all
respects. All prepaid expenses included therein as assets represent payments
theretofore made by the Company, the benefit and advantage of which may be
obtained and enjoyed by the business of the Company. The accounting books and
records of the Company have been kept, and will be kept to the Effective Time,
in reasonable detail and in accordance with the same accounting principles
heretofore used consistently applied and fairly and accurately reflect, and will
fairly and accurately reflect to the Effective Time, all of the transactions of
the Company, and are and will be complete and correct in all material respects.
SECTION 3.09 Intellectual Rights. Schedule 3.09 attached hereto
contains a complete and correct list and accurate description of all trademarks,
trademark and service xxxx applications, trade names, service marks, logos and
other
14
identifying symbols, names or marks, copyrights, patents, patent applications
and, to the extent material to the Company's business, inventions, processes,
designs, formulas, trade secrets, and other intellectual and/or proprietary
rights or interests (collectively, "Intellectual Rights") (i) owned by the
Company, free and clear of all licenses, liens, charges or encumbrances, except
as specified in such Schedule, or (ii) licensed to the Company under valid and
enforceable agreements, exclusive of the Software (hereinafter defined)
identified on Schedule 3.10 hereof. The Company owns, or possesses adequate
rights to use, all Intellectual Rights necessary for the conduct of its
business. To the knowledge of the Company and its directors and officers, there
are no infringements by any third parties upon any Intellectual Rights. There is
no conflict with or infringement by the Company of the rights of others with
respect to same.
SECTION 3.10 Software.
(a) Schedule 3.10 hereto contains a true, complete and accurate list
and summary description of (i) all computer software and related programs owned
by the Company, including all software, source codes and object codes and (ii)
all computer software and related programs licensed by the Company for use in
connection with the business of the Company other than off-the-shelf software
licensed to the Company which is not material to the operation of the Company's
business or the services provided by the Company (collectively, the "Software").
The Company either owns or has a valid license to use and sublicense all of the
Software, and upon consummation of the Merger the Surviving Corporation shall
have the right to use and authorize others to use all of the Software, free from
any claim, security interest or other lien or encumbrance whatsoever, except as
set forth on Schedule 3.10(a). The Company is the exclusive licensee of the
Software indicated on Schedule 3.10(a) as being exclusively licensed by the
Company. The Software constitutes the only computer software or programs
necessary for the operation of the Company's business as presently conducted
other than off-the-shelf software licensed to the Company which is not material
to the operation of the Company's business or the services provided by the
Company.
(b) The Company has provided to Parent true and complete copies of
all licenses, leases, contracts and other written instruments giving the Company
rights in any Software and/or source codes thereof which are not owned by the
Company (collectively, the "Software Contracts"), all of which Software
Contracts are legally valid and binding and enforceable in accordance with their
respective terms. Neither the Company, nor, to the knowledge of the Company or
any of the Company's directors or officers, any other party thereto, is in
violation
15
of any term or provision of any Software Contract. The use of the owned Software
by the Company does not, and upon consummation of the Merger the use of such
owned Software by the Surviving Corporation will not, infringe upon any rights
of any third parties. To the knowledge of the Company and the directors and
officers of the Company, the use of any source codes related to Software which
is not owned by the Company, and the exercise of the rights of the Company in
and to such source codes, as provided in any of the Software Contracts, does
not, and upon consummation of the Merger the use of any such source codes and
exercise of such rights by the Surviving Corporation pursuant to the terms of
the Software Contracts will not infringe upon the rights of any third parties.
(c) All source codes relating to the Software which is owned by the
Company (the "Owned Source Codes") are in the possession of the Company and
constitute trade secret information of the Company, and, except as set forth on
Schedule 3.10(c), no third party has any copy of any of the Owned Source Codes
or any right, title, interest or license, conditional or otherwise, with respect
to any of the Owned Source Codes under any circumstances whatsoever. Upon
consummation of the Merger, the Surviving Corporation shall own and have
possession of, and shall have the right to use, the Owned Source Codes, free
from any claim, security interest or other lien or encumbrance whatsoever.
(d) The Company owns in respect of all Software owned by the Company
and has possession of, and the Surviving Corporation will own in respect of all
Software owned by the Company and have possession of immediately after the
Effective Time, complete and adequate documentation in all material respects,
including without limitation, documentation of source codes, object codes and
engineering change notices, reflecting the current versions of all Software
listed on Schedule 3.10(a) so as to enable the Surviving Corporation to conduct
fully after the Effective Time the business conducted by the Company prior to
Effective Time in the same manner as theretofore conducted.
SECTION 3.11 Contract Parties, Suppliers and Consultants.
(a) Schedule 3.11(a) contains the names and business addresses of
the customers of the Company with which the Company presently has contracts or
arrangements to provide services (collectively, the "Contract Parties").
Schedule 3.20 identifies the respective contracts or arrangements the Company
has entered into with respect to the Contract Parties which will remain to be
performed, in whole or in part, after the Effective Time. True and complete
copies of those contracts or arrangements which are in writing have been
heretofore made available to Parent, and
16
summary descriptions of those contracts or arrangements which are oral have been
heretofore made available to Parent. Except as described in Schedule 3.11(a), no
Contract Party listed in Schedule 3.11(a) has expressed to the Company or to any
director or officer of the Company its intention to cancel or otherwise
terminate its relationship with the Company, and, to the best knowledge of the
Company and each director and officer of the Company, all of such contracts and
arrangements will continue in full force and effect after the Effective Time and
a continuing relationship with each such Contract Party is not in jeopardy.
(b) Schedule 3.11(b) contains the names and business addresses
of all of the suppliers and consultants from whom the Company purchased, during
the twelve (12) month period ending June 30, 1997, goods and/or services, the
aggregate cost of which exceeded Twenty Five Thousand Dollars ($25,000) or which
suppliers or consultants are in any event material to the continued operation of
the Company's business in the ordinary course (collectively, the "Major
Suppliers"). Except as disclosed on Schedule 3.11(b), the Company has no other
suppliers or consultants which are material to the business of the Company as
presently conducted. Except as described in Schedule 3.11(b), no Major Supplier
listed in Schedule 3.11(b) has expressed to the Company or to any director or
officer of the Company its intention to cancel or otherwise terminate its
relationship with the Company, and, to the knowledge of the Company and each
director and officer of the Company, a continuing relationship with each such
supplier is not in jeopardy.
SECTION 3.12 Employment, Deferred Compensation or Similar
Agreements; Collective Bargaining Agreements; Employee Benefit Plans.
(a) Except as disclosed in Schedule 3.12(a), the Company is not a
party to any agreement or employment contract or deferred compensation or
similar arrangement with any of its employees or former employees. There are no
collective bargaining agreements covering any employees of the Company. The
business of the Company is not affected by any present strike or other labor
disturbance involving the Company's employees nor, to the best knowledge of the
Company or any Shareholder, is any union attempting to represent, as collective
bargaining agent, any person employed by the Company.
(b) Except as disclosed in Schedule 3.12(b), the Company does not
sponsor or maintain and is not otherwise a party to or liable under any plan,
program, fund or arrangement (whether or not qualified for Federal income tax
purposes), whether benefiting a single individual or multiple individuals, and
whether funded or not, that is an "employee pension benefit plan," or an
17
"employee welfare benefit plan," as such terms are defined in the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), or any incentive
or other benefit arrangement for its employees, their dependents and
beneficiaries.
(c) Except as disclosed in Schedule 3.12(c) hereto, the Company has
not and does not contribute to any multi-employer plan (as defined in Section
3(37) of ERISA), has not incurred any liability under Section 4201 of ERISA for
any complete or partial withdrawal from any multi-employer plan and has not
assumed any such liability by any prior owner of any of its assets or
properties.
(d) Each employee pension benefit plan maintained by the Company and
listed on Schedule 3.12(b) complies in all material respects with the
requirements of ERISA. No "reportable event" within the meaning of Section 403
of ERISA has occurred with respect to any such plan and Seller has not engaged
in any "prohibited transaction" within the meaning of Section 406(a) or (b) of
ERISA or of Section 4975(c) of the Code, with respect to any such plan; and no
such plan has been terminated in accordance with the procedures set forth in
Section 4041 or 4042 of ERISA.
(e) No liability has been incurred by the Company for any tax
imposed by Section 4975 of the Code with respect to any plan described in
Schedule 3.12(b). The Company has, and shall have, for all periods ending on or
prior to the Effective Time, administered each employee pension benefit plan and
each employee welfare benefit plan described in Schedule 3.12(b) in all material
respects in compliance with the reporting, disclosure and all other requirements
applicable thereto under ERISA, the Code or any other applicable law.
SECTION 3.13 Inventory. The value shown for inventory on the Balance
Sheet fairly presents the Company's inventory as of the date of the Balance
Sheet in accordance with GAAP at the lower of cost or market value thereof based
on the first in, first out method of inventory valuation and all inventory
acquired since that date has been reflected on the Company's books pursuant to
such method, subject to adjustments in accordance with the Company's practices
with respect thereto (but in any event pursuant to GAAP) consistently applied.
The inventory of the Company is in good and merchantable condition exclusive of
reserves shown on the Balance Sheet for obsolete items as determined in
accordance with GAAP. No write-downs of the Company's inventory have occurred
since June 30, 1997. The Company does not currently use, nor has it within the
past five (5) years used, the last in, first out method of inventory valuation.
18
SECTION 3.14 Real Estate.
(a) The Company owns no real estate and has no ownership interest,
directly or indirectly, in any real estate.
(b) Schedule 3.14(b) contains a true and correct list and summary
description of all leases, subleases or other agreements under which the Company
is lessee or subtenant or lessor or sublessor of real estate.
(c) All such leased real estate (and improvements thereon) is in
good operating condition and repair and, to the knowledge of the Company and
each director and officer of the Company, conforms in all material respects with
all applicable building, zoning, planning, environmental and other regulations,
ordinances or laws, and the Company has the right to use all real estate
necessary to the conduct of its business as currently conducted.
SECTION 3.15 Title to and Condition of Personal Property. The
Company has merchantable title to all personal property reflected in the Balance
Sheet or acquired subsequent to the date of the Balance Sheet (other than
inventory disposed of since that date in the ordinary course of business), free
and clear of all liens or encumbrances except for the security interest of
Silicon Valley Bank described in Schedule 3.15 and encumbrances which,
individually and in the aggregate, are immaterial to the conduct of the
Company's business. All of the personal property owned by the Company and
material to the conduct of its business is in good operating condition and
repair. The Company owns or has the right to use all such personal property
necessary to the conduct of its business as currently conducted.
SECTION 3.16 Accounts Receivable. The accounts receivable of the
Company reflected in the Balance Sheet or acquired by the Company subsequent to
the date of the Balance Sheet (a) are true, bona fide accounts receivable of the
Company, created in the ordinary course of business; (b) have been collected or,
except as disclosed in Schedule 3.16, are fully collectible in amounts not less
than the aggregate amount thereof, net of reserves established therefor on the
books of the Company and reflected in the Balance Sheet; (c) except as disclosed
in Schedule 3.16, are not subject to any offsets, credits or counterclaims; and
(d) have not at any time been placed for collection with any attorney,
collection agency or similar individual or firm.
SECTION 3.17 Consignment and Return Items. Except as reflected on
the Balance Sheet or incurred since the date of the Balance Sheet in the
ordinary course of business and consistent with past practices and disclosed in
Schedule 3.17, the Company has
19
no obligation (other than warranty obligations) to accept a return for credit of
any products shipped to customers or distributors or others prior to the date
hereof or to be shipped prior to the Effective Time.
SECTION 3.18 Taxes. The Company has properly completed and filed all
federal, state, county, municipal and other tax returns, reports and
declarations which are required to be filed by it and has paid all taxes,
penalties and interest which have become (or may hereafter become) due pursuant
thereto or which became (or may hereafter become) due pursuant to assessments.
The Company has not received any notice of deficiency or assessment of
additional taxes, and no tax audits are in process. The last year for which the
federal or state income taxes or other taxes of the Company have been examined
is set forth accurately and completely on Schedule 3.18 hereto. The Company has
not granted any waiver of any statute of limitation with respect to, or any
extension of a period for the assessment of, any federal, state, county,
municipal or other tax. The accruals and reserves for taxes reflected in the
Balance Sheet are adequate to cover all taxes (including interest and penalties,
if any, thereon) due and payable or accrued in accordance with generally
accepted accounting principles as a result of the operations of the Company for
all periods prior to the date of the Balance Sheet. The Company has not filed an
election under Section 1362(a) of the Code to be taxed as an S Corporation.
SECTION 3.19 Litigation. Except as disclosed in Schedule 3.19, there
is no litigation, investigation or proceeding pending or, to the knowledge of
the Company and each director and officer of the Company, threatened, involving
the Company or any of its properties. There are no outstanding orders, writs,
injunctions or decrees of any court, governmental agency or arbitration tribunal
materially affecting or materially limiting the conduct of the business of the
Company.
SECTION 3.20 Other Material Contracts and Commitments. Schedule 3.20
lists all contracts or commitments to which the Company is a party, which
contracts and commitments are material to the business of the Company and are
not disclosed in another Schedule hereto. Except as disclosed in Schedule 3.20
or in another Schedule hereto, the Company is not a party to and none of its
properties are bound by any of the following types of contracts or commitments,
written or oral: (i) mortgages, indentures, security agreements and other
agreements and instruments relating to the borrowing of money or extension of
credit or imposition of an encumbrance on any of the assets of the Company, (ii)
agreements with any labor union or other collective bargaining unit, (iii) bonus
or compensation agreements (including nonqualified deferred compensation) which
have not been incurred in the ordinary course
20
of business of the Company consistent with past practices, (iv) profit-sharing,
stock option, pension, or retirement agreements, shareholder or similar
agreements or arrangements, trusts, or funds for the benefit of employees, (v)
sales agency, manufacturer's representative, distributorship or supply
agreements, (vi) other contracts and commitments which in any case involve
payments or receipts of more than $25,000, (vii) contracts for the purchase,
sale or lease of real or personal property, either as lessor or lessee, which
contracts have not been fully performed as of the date hereof, (viii) any
contract with any officer, director or with any employee of the Company (other
than agreements relating to current wage or salary payments terminable by the
Company on notice of thirty (30) days or less), (ix) any contract or promissory
note or other instrument with any Affiliate (as hereinafter defined) of the
Company, or (x) any guarantee or obligation to provide funds or assume the debt
of any person or entity. The Company has delivered to Parent complete and
correct copies of all written contracts and commitments, together with all
amendments thereto, and accurate descriptions of all oral agreements, described
in Schedule 3.20 or any other Schedule hereto. The Company is not in default
with respect to any such contract, and no other party to any such contract is in
default with respect thereto. Except as disclosed in Schedule 3.20, each such
contract will continue in full force and effect after the Effective Time without
any right on the part of any party thereto to terminate the same as a result of
the occurrence of the Merger. For purposes of this Agreement, "Affiliate" of the
Company means (i) any corporation, partnership, trust or other entity in control
of, controlled by or under common control with the Company; and (ii) any
officer, director, trustee, general partner of any corporation, partnership,
trust or other entity in control of, controlled by or under common control with
the Company. Schedule 3.20 discloses all Affiliates of the Company other than
persons unrelated to the Company which may be deemed to be under common control
with the Company solely by reason of equity interests in such persons being held
by shareholders of the Company which are business entities currently in
existence.
SECTION 3.21 Labor Relations. Except as disclosed in Schedule 3.19,
the Company, in the conduct of its affairs, has substantially complied with all
applicable laws (including, without limitation, labor and tax laws), and
regulations relating to the hiring and employment of employees and independent
contractors, including, without limitation, those related to discrimination,
wages, hours, collective bargaining, employee pension and welfare benefit plans,
and the payment of (and withholding for) income, Social Security and other
taxes, and the Company is not liable for any penalties or damages for failure to
comply with any of the foregoing. There are no unfair labor practice claims or
charges pending or threatened involving the Company.
21
SECTION 3.22 Insurance. Schedule 3.22 hereto contains a list and
description (including the name of the insurer, coverage and expiration date) of
all insurance policies maintained by the Company. Schedule 3.22 further lists
all claims presently pending or threatened which are covered by such policies.
The Company has not received notice of cancellation or non-renewal of any of
such policies.
SECTION 3.23 Conduct of Business and Absence of Changes. Except as
disclosed in Schedule 3.23, since June 30, 1997, the Company has conducted its
business in the regular and ordinary course and has not (i) undergone any
material adverse change in its condition (financial or otherwise), assets,
liabilities, business, or operations, (ii) declared, set aside, made or paid any
cash or stock dividend or distribution or purchased, issued or sold any shares
of its capital stock, (iii) incurred any indebtedness for borrowed money or
issued or sold any debt securities, except for borrowings in the ordinary course
of business under the Company's existing revolving credit agreement with Silicon
Valley Bank, (iv) instituted any increase in the compensation payable or to
become payable to any officers or employees or any changes in personnel policies
or employees benefits, except for regularly scheduled increases, effective July
1, 1997, in employee salaries in the ordinary course of business, the aggregate
of which will in no event represent (a) an increase in excess of eight (8%)
percent of the compensation expense shown on the statement of operations for the
fiscal year ending June 30, 1997 included in the Financial Statements, as
adjusted for employee terminations between June 30, 1997 and the date such
increases are actually granted and/or (b) increases in compensation in excess of
those provided for in the Company's business plan for the fiscal year ending
June 30, 1998, or (v) made any payment to any Shareholder except for payments
described in a Schedule hereto and regular salary and ordinary and necessary
business expenses.
SECTION 3.24 Compliance with Laws; Governmental Authorizations. The
Company is in compliance, in all material respects, with all statutes, laws,
ordinances, rules, regulations, judgments, orders, decrees, governmental permits
and other governmental authorizations or approvals applicable to it or any of
its properties, and all governmental authorizations or approvals necessary in
any material respect for the conduct of the business of the Company have been
duly and lawfully obtained and are in full force and effect, and there are no
proceedings pending or, to the knowledge of the Company and each of its
directors and officers, threatened which may result in the revocation,
cancellation or suspension, or any materially adverse modification, of any
thereof. The Company has not received notice of any alleged violation of any
applicable statute, law, ordinance, rule, regulation, judgment, order, decree,
governmental permit or other governmental
22
authorization or approval necessary in any material respect for the conduct of
the business of the Company.
SECTION 3.25 Officers, Directors and Depositories. Schedule 3.25
hereto contains the names of all the officers and directors of the Company and
the names of all depositories of its funds and the names of the officers and
other persons empowered to sign instruments withdrawing funds from said
depositories.
SECTION 3.26 Environmental Matters.
(a) The business and operations of the Company comply with all
Federal, state and local laws, rules, regulations and directives pertaining to
the environment. No governmental agency has asserted any claim or threatened to
assert any claim against the Company in respect of its business, any assets
owned or leased by it, real properties leased by it, or the condition, use or
operation thereof by the Company, arising out of any Federal, state or local
law, rule, regulation or directive pertaining to the environment.
(b) To the knowledge of the Company and each of the directors and
officers of the Company, there are nowhere on any real property leased, used or
otherwise under the control of the Company any deposits, dumps, or tanks of
toxic or other poisonous, dangerous or noxious waste, fluids, solvents,
chemicals or effluents, all of which chemicals, fuels and fluids are properly
and safely stored, identified, labelled and maintained in accordance with
applicable industrial standards and all governmental or other laws or
regulations relating thereto. The Company does not discharge and has not
discharged from any real property leased, used or otherwise under its control,
whether by effluent, emission or other means, any noxious, toxic, hazardous or
deleterious matter or gases. All discharges of waste material and other
substances from the Company's operating facilities are in compliance with
applicable law and covered by valid permits and licenses, where required.
SECTION 3.27 Third Party and Governmental Consents. Except as
disclosed in Schedule 3.27 hereto, and except for the filing of a Certificate of
Merger with the Secretary of State of Delaware in accordance with the Delaware
GCL and the filing of Articles of Merger with the Secretary of the Commonwealth
of Massachusetts in accordance with the Massachusetts BCL, no consent,
authorization, approval, order, license, certificate or permit of or from, or
registration, declaration or filing with, any governmental authority or any
court or other tribunal or any other person, firm or entity, nor under any
contract, indenture, mortgage, lease, license or other agreement or instrument
to which the Company is a party or by which the Company or any of its assets
23
or properties is subject or bound, is required by or with respect to the Company
in connection with the execution, delivery or performance of this Agreement or
of any other agreement, document or instrument to be executed and delivered by
the Company pursuant hereto or in connection herewith or the consummation of the
transactions contemplated hereby.
SECTION 3.28 Licenses and Permits. The Company has obtained all
governmental consents, approvals, waivers and permits and all consents,
approvals or waivers of third parties required in connection with the ownership
of the assets of the Company and the operation of the Company's business as
presently and heretofore conducted (herein collectively referred to as the
"Approvals"). The Approvals are listed on Schedule 3.28 attached hereto. No
other Approvals are required to conduct or operate the Company's business as
presently conducted.
SECTION 3.29 Absence of Undisclosed Liabilities. Except as and to
the extent disclosed or accrued on the Financial Statements submitted to Parent
pursuant to the terms hereof, there exist no liabilities or obligations of any
nature whatsoever (whether absolute, contingent or otherwise, matured or
unmatured, or known or unknown) in respect of the Company's business or assets
of the type customarily reflected in financial statements prepared in accordance
with GAAP, except for liabilities or obligations incurred in the ordinary course
of business after the date of the Balance Sheet.
SECTION 3.30 Marketable Securities and Other Investments. Schedule
3.30 lists all of the marketable securities and other investments included in
the Balance Sheet (the "Company Investments"), all of which are owned by the
Company free and clear of all liens, encumbrances or claims, except as disclosed
in Schedule 3.30. The value ascribed to each of the Company Investments is in
accordance with GAAP, and the Financial Statements are in conformity with the
requirements of Financial Accounting Standards Board Statement No. 115. All of
the Company Investments are readily marketable except as described in Schedule
3.30. Since the date of the Balance Sheet, there has been no material decline in
the aggregate market value of the Company Investments.
SECTION 3.31 Loans to or from Officers, Directors, Shareholders or
Employees. Except as set forth in Schedule 3.31, the Company does not have
outstanding any loans, advances or other indebtedness incurred by any director,
officer, Shareholder or employee of the Company or any member of their
respective families, and there are no loans or advances made to the Company by
or indebtedness incurred by the Company to any, director, officer, Shareholder
or employee of the Company or any member of
24
their respective families ("Related Party Loans"). True and complete copies of
all promissory notes or other agreements or documents evidencing the Related
Party Loans have been heretofore delivered to Parent.
SECTION 3.32 Service Warranties; Contract Losses. Adequate provision
in accordance with GAAP has been made in the Financial Statements for claims
under warranties provided for in all contracts with Contract Parties. The
Financial Statements adequately reflect the known and anticipated losses, if
any, for any outstanding and uncompleted contracts with Contract Parties, and
there are no such known or anticipated losses that are not so reflected in the
Financial Statements.
SECTION 3.33 Backlog. Schedule 3.33 discloses the backlog of
services to be provided by the Company pursuant to each contract with a Contract
Party, the reasonably anticipated value of such services and the date by which
performance by the Company of each such contract is anticipated to be completed.
SECTION 3.34 Representations and Warranties True; No Misleading
Statements. All of the representations and warranties set forth in this Article
III shall be true and correct as of the Effective Time as if made at that time.
The representations and warranties made herein and in any Schedule, list or
other document specifically referred to herein and delivered by the Company or
the Shareholders pursuant hereto, and all information provided by the Company
for inclusion in the Merger Information (hereinafter defined), taken as a whole,
do not contain any untrue statements of a material fact or omit to state a
material fact necessary in order to make the statements herein or therein, in
light of the circumstances under which they were made, not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF THE SHAREHOLDERS
Each Shareholder hereby represents and warrants to Parent and
Acquisition, as to itself, severally and not jointly, as follows, knowing and
intending that each of Parent and Acquisition is relying hereon in entering into
the transactions contemplated hereby:
SECTION 4.01 Authority and Capacity Relative to Agreement. Such
Shareholder has all requisite power, authority and legal capacity to enter into
and perform each of its obligations hereunder.
25
SECTION 4.02 Execution and Performance of Agreement; Validity and
Binding Nature. The execution and delivery of this Agreement, and the
performance by such Shareholder of the terms of this Agreement and the
transactions contemplated hereby, will not result in a material breach of any of
the terms of, or constitute a violation or default under, any statute or
contract, indenture or other instrument by which such Shareholder or any of its
respective properties are bound, and no consent, approval, authorization or
order of any court or governmental authority is required in connection with the
execution and delivery of this Agreement by such Shareholder and the performance
by such Shareholder of the terms of this Agreement and the transactions
contemplated hereby. This Agreement has been duly executed and delivered by such
Shareholder and, together with the other documents and agreements to be executed
by all parties whose execution and delivery thereof is required, constitutes the
legal, valid and binding obligations of such Shareholder, enforceable against
such Shareholder in accordance with their respective terms, except to the extent
that enforceability may be limited by bankruptcy, receivership, moratorium,
conservatorship, reorganization or other laws of general application affecting
the rights of creditors generally or by general principles of equity. Such
Shareholder has the legal right and authority to vote the shares of Company
Common Stock and/or Preferred Stock held of record by it in favor of the
execution, delivery and performance of this Agreement and the consummation of
the Merger in accordance with the provisions hereof.
SECTION 4.03 Stock of the Company. The number of shares of Company
Common Stock, shares of Preferred Stock, Company Common Stock Options and Series
C Stock Options, as applicable, beneficially owned by such Shareholder is as
identified on Schedule 3.04(a) and Schedule 3.04(b), respectively, opposite the
respective Shareholder's name. The shares of Company Common Stock, shares of
Preferred Stock, Company Common Stock Options and Series C Stock Options, as
applicable, beneficially owned by such Shareholder are owned free and clear of
all liens, claims, options, encumbrances or restrictions whatsoever. Such
Shareholder has the full legal right and power and all authorizations and
approvals required by law or otherwise to sell, transfer and deliver such shares
as contemplated hereunder and to make the representations, warranties and
agreements set forth in this Agreement. Except with respect to the shares of the
Company Common Stock, shares of Preferred Stock, Company Common Stock Options
and Series C Stock Options, as applicable, identified on Schedule 3.04(a) and
Schedule 3.04(b), respectively, opposite the respective Shareholder's name, such
Shareholder has no outstanding claim against the Company or any right whatsoever
with respect to any shares of the capital stock of the Company, including
without
26
limitation any other option, warrant or other right to acquire shares of the
capital stock of the Company or any securities, options or other instruments
convertible or exchangeable into shares of capital stock of the Company. Except
as set forth in Schedule 3.02(a), no Shareholder is a party to any shareholders
agreement, buy-sell agreement or similar agreement or arrangement with respect
to the Company Common Stock or other equity interest in the Company.
SECTION 4.04 Additional Representations and Covenants of
Shareholders.
(a) Each Shareholder understands that the shares of Parent Common
Stock which are the subject of this Agreement are intended to be exempt from
registration under the Securities Act of 1933, as amended (the "Securities Act")
by virtue of Section 4(2) based, in part, upon the representations, warranties
and agreements of such Shareholder contained in this Agreement.
(b) Neither the Securities and Exchange Commission (the "SEC") nor
any state securities commission has approved the Parent Common Stock or passed
upon or endorsed the merits of an investment therein or confirmed the accuracy
or adequacy of any information provided by Parent to the Shareholders or the
accuracy or adequacy of any of the representations, warranties and agreements of
Parent contained herein.
(c) Except as contemplated pursuant to Section 7.12 hereof, such
Shareholder is acquiring Parent Common Stock solely for its own account for
investment and not with a view to resale or distribution thereof, in whole or in
part. Such Shareholder has no agreement or arrangement, formal or informal,
written or oral, with any person to sell or transfer or otherwise dispose of all
or any part of the Parent Common Stock, and has no present plans to enter into
any such agreement or arrangement.
(d) Such Shareholder did not become aware of the offer and sale of
Parent Common Stock through or as a result of any form of general solicitation
or general advertising including, without limitation, any article, notice,
advertisement or other communication published in any newspaper, magazine or
other media in connection with the offer and sale of Parent Common Stock
contemplated hereby and is not purchasing Parent Common Stock through or as a
result of any seminar or meeting to which such Shareholder was invited.
(e) Such Shareholder (other than the Berlack Trust and the Cowie
Trust) meets the requirements of at least one of the categories of an
"accredited investor", as defined in Rule 501(a) promulgated under the
Securities Act and as set forth in the form
27
of Accredited Investor Certification attached hereto as Exhibit B. In connection
with the closing of the transactions contemplated by this Agreement, such
Shareholder (other than the Berlack Trust and the Cowie Trust) shall certify to
Parent, in the form of the certification set forth in Exhibit B, as to which
category (or categories) of accredited investor is applicable to such
Shareholder.
(f) Such Shareholder, or such Shareholder together with its
purchaser representative, if any, has such knowledge and experience in
financial, tax, and business matters in general, and investments in securities
in particular, so as to enable such Shareholder to evaluate the merits and risks
of an investment in Parent Common Stock and to make an informed investment
decision with respect thereto.
(g) Such Shareholder recognizes that it must bear the substantial
economic risks of the investment in Parent Common Stock indefinitely, because
none of the Parent Common Stock may be sold, transferred, hypothecated or
otherwise disposed of unless such Parent Common Stock is registered under the
Securities Act and applicable state securities laws or an exemption from such
registration is available. Legends shall be placed on the certificates
representing Parent Common Stock issuable stating that the shares represented
thereby have not been registered under the Securities Act or applicable state
securities laws, and appropriate notations thereof will be made in Parent's
stock books.
(h) Such Shareholder has adequate means of providing for its current
financial needs and foreseeable contingencies and has no need for liquidity of
its investment in Parent Common Stock for an indefinite period of time. Such
Shareholder's overall commitment to investments which are not readily marketable
is not excessive in view of its net worth and financial circumstances and the
purchase of the Parent Common Stock will not cause such commitment to become
excessive.
(i) Such Shareholder is not relying on Parent or any of its
employees or agents with respect to the legal, tax, economic and related
considerations of an investment in Parent Common Stock, other than as expressly
contained in the representations and warranties of Parent contained in Article V
hereof. There has been delivered to each Shareholder copies of this Agreement,
Parent's Annual Report on Form 10-K for the Fiscal Year Ended June 30, 1996,
Parent's 1996 Annual Report to Stockholders, Parent Quarterly Reports on Form
10-Q for the Quarters ended September 30, 1996, December 31, 1996 and March 31,
1997, Parent's Proxy Statement for its Annual Meeting held on November 14, 1996,
Parent's press release dated July 17, 1997, the Financial Statements and a
summary description of the Company's
28
business (collectively, the "Merger Information"). Each Shareholder has read and
fully understands the Merger Information.
(j) Such Shareholder (i) has had the opportunity to obtain all
information requested by it for the purpose of verifying the Merger Information
or for any other purpose related hereto and (ii) has had the opportunity to meet
with representatives of Parent and to have them answer any questions and provide
such additional information regarding the terms and conditions of the
transactions contemplated hereby, the information with respect to Parent
included in the Merger Information and the business and prospects of Parent
deemed relevant by such Shareholder, all of which questions have been answered
and all of which requested information has been provided to the full
satisfaction of such Shareholder. Such Shareholder is aware that an investment
in Parent Common Stock is speculative and involves significant risks, including,
among other things, the risk of the loss of such Shareholder's entire investment
in Parent Common Stock.
(k) In evaluating the suitability of an investment in Parent, and in
deciding to enter into this Agreement, such Shareholder has not relied upon any
representation or other information (whether oral or written) other than as set
forth in the representations and warranties of Parent contained in Article V of
this Agreement and in the Merger Information. No oral or written representations
have been made, or oral or written information furnished, to such Shareholder or
such Shareholder together with its purchaser representative, if any, in
connection with the offer and sale of Parent Common Stock that are in any way
inconsistent with the representations and warranties of Parent contained herein
or any of the information contained in the Merger Information.
(l) Except as described in Schedule 4.04(l) hereto, such Shareholder
has no beneficial interest, directly or indirectly, in any person, firm,
corporation, partnership or other entity which is or within the past two years
has been a supplier of any goods or services to the Company, including, without
limitation, any Major Supplier, or from which the Company has received fees,
including, without limitation, any Contract Party, other than as the beneficial
owner of 1% or less of the voting securities of a publicly held corporation. The
nature and amount of any such beneficial interest is disclosed in Schedule
4.04(l).
(m) Such Shareholder is familiar with the business, historical
financial performance and prospects of the Company, including the risks
associated therewith. None of the information provided by such Shareholder for
insertion in the Merger
29
Information contains any untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances in which they were made,
not misleading.
(n) Such Shareholder has no plan or intention to sell, exchange, or
otherwise dispose of a number of shares of Parent Common Stock received in the
Merger that would reduce such Shareholder's ownership of Parent Common Stock to
a number of shares having a value, as of the date of the Merger, of less than
fifty (50%) percent of the value of all of the formerly outstanding Company
Common Stock and Company Preferred Stock held by such Shareholder as of the same
date. For purposes of this representation, shares of Company Common Stock and
Company Preferred Stock exchanged for cash or other property, surrendered by a
dissenter or exchanged for cash in lieu of fractional shares of Parent Common
Stock will be treated as outstanding Company Common Stock and/or Company
Preferred Stock on the date of the Merger. Moreover, shares of Parent Common
Stock held by a Shareholder and otherwise sold, redeemed, or disposed of prior
or subsequent to the Merger will be considered in making this representation.
(o) Such Shareholder, if an individual person, is not required to
obtain any spousal consent in connection with the transactions contemplated
hereby.
(p) Such Shareholder hereby represents that it will pay its own
expenses, if any, incurred in connection with the Merger and will not pay
expenses, if any, incurred by the Company, Parent, or Acquisition in connection
with the Merger.
SECTION 4.05 Representations and Warranties True; No Misleading
Statements. All of the representations and warranties set forth in this Article
IV shall be true and correct as of the Effective Time as if made at that time.
The representations and warranties made in this Article IV or other document
specifically referred to in this Article IV and delivered by such Shareholder
pursuant hereto do not contain any untrue statements of a material fact or omit
to state a material fact necessary in order to make the statements herein or
therein, in light of the circumstances under which they were made, not
misleading.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT
Parent represents and warrants to the Company and each Shareholder
as follows:
30
SECTION 5.01 Organization and Qualification. Parent is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has all requisite corporate power and authority to own or
lease and operate its properties and assets and to carry on its business as it
is now being conducted. Parent is duly qualified as a foreign corporation to do
business, and is in good standing, in each jurisdiction in which the character
of its properties owned or leased or the nature of its activities makes such
qualification necessary, except where the failure to be so qualified would not
have a Material Adverse Effect on Parent.
SECTION 5.02 Subsidiaries. Each subsidiary of Parent is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation and has all requisite corporate power and
authority to own or lease and operate its properties and to carry on its
business as it is now being conducted. Each such subsidiary is duly qualified as
a foreign corporation to do business, and is in good standing, in each
jurisdiction in which the character of its properties owned or leased or the
nature of its activities makes such qualification necessary, except where the
failure to be so qualified would not have a Material Adverse Effect on Parent.
All the outstanding shares of capital stock of Parent's subsidiaries are validly
issued, fully paid and nonassessable and are owned by Parent or by a
wholly-owned subsidiary of Parent.
SECTION 5.03 Capitalization. The authorized capital stock of Parent
consists of 80,000,000 shares of Parent Common Stock, and, as of June 30, 1997,
25,235,288 shares of Parent Common Stock were issued and outstanding, all of
which were validly issued and are fully paid and nonassessable. Except as
contemplated hereby and except for options and stock purchase rights outstanding
under Parent's employee stock purchase and stock option plans, and rights
outstanding under the Rights Agreement dated May 7, 1997 between Parent and Bank
of New York, as rights agent, no subscription, warrant, option, convertible
security, stock appreciation or other right (contingent or other) to purchase or
acquire any shares of any class of capital stock of Parent is authorized or
outstanding and there is not any agreement of Parent to issue any shares,
warrants, options or other such rights or to distribute to holders of any class
of its capital stock any evidences of indebtedness or assets. Parent does not
have any obligation (contingent or other) to purchase, redeem or otherwise
acquire any shares of its capital stock or any interest therein or to pay any
dividend or make any other distribution in respect thereof. At the Effective
Time, Parent will have sufficient authorized but unissued shares of Parent
Common Stock available for issuance in accordance with Article II hereof.
31
SECTION 5.04 Authority Relative to Agreement. Parent has all
requisite corporate power and authority to enter into this Agreement and to
perform its obligations hereunder. The execution and delivery of this Agreement
by Parent and the consummation by Parent of the transactions contemplated hereby
have been duly authorized by the Board of Directors of Parent, and no other
corporate proceedings on the part of Parent are necessary to authorize this
Agreement and the transactions contemplated hereby. This Agreement has been duly
executed and delivered by Parent and constitutes the legal, valid and binding
obligation of Parent, enforceable against Parent in accordance with its terms,
except to the extent that enforceability may be limited by bankruptcy,
receivership, moratorium, conservatorship, reorganization or other laws of
general application affecting the rights of creditors generally or by general
principles of equity.
SECTION 5.05 Non-Contravention. The execution and delivery of this
Agreement by Parent and the consummation by Parent of the transactions
contemplated hereby will not (i) conflict with any provision of the Certificate
of Incorporation or By-Laws of Parent or any of its subsidiaries or (ii) result
(with the giving of notice or the lapse of time or both) in any violation of or
default or loss of a benefit under, or permit the acceleration of any obligation
under, any mortgage, indenture, lease, agreement or other instrument, permit,
concession, grant, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Parent or any of its subsidiaries or
any of their respective properties, other than any such violation, default, loss
or acceleration that would not materially adversely affect the ability of Parent
to consummate the transactions contemplated hereby or to conduct the business of
the Company and its subsidiaries after the Effective Time.
SECTION 5.06 Parent Public Information. Parent has provided to each
Shareholder, or will provide each Shareholder prior to the shareholders' meeting
referred to in Section 7.01(j) hereof, a copy of that portion of the Merger
Information consisting of a summary of the Merger, a summary of risk factors
associated with an investment in Parent Common Stock and the public reports of
Parent referred to in Section 4.04(i) (the "Parent Public Information"). The
Parent Public Information does not, and will not, as of the Effective Time,
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
SECTION 5.07 Financial Statements. The consolidated financial
statements of Parent included in the Parent Public Information (a) have been
prepared from the books and records of
32
Parent and its consolidated subsidiaries and (b) have been prepared in
accordance with GAAP consistently applied and consistent with prior periods,
subject, in the case of unaudited interim consolidated financial statements, to
year-end adjustments (which consist of normal recurring accruals) and the
absence of certain footnote disclosures. The consolidated financial statements
of Parent included in the Parent Public Information fairly present in all
material respects the financial position of Parent and its subsidiaries as of
their respective dates, and the related consolidated statements of operations,
shareholders' equity and cash flows included in the Parent Public Information
fairly present in all material respects the results of operations of Parent and
its subsidiaries for the respective periods then ended, subject, in the case of
unaudited interim financial statements, to year-end adjustments (which consist
of normal recurring accruals) and the absence of certain footnote disclosures.
SECTION 5.08 Absence of Certain Changes or Events. Except as
contemplated hereby and except for the issuance of Parent Common Stock pursuant
to employee benefit plans of Parent described in Section 5.03 above, since March
31, 1997, Parent has not (i) issued any Parent Common Stock or securities or
obligations convertible into or exchangeable for Parent Common Stock, (ii)
incurred any material liabilities (absolute or contingent), except in the
ordinary course of business or (iii) suffered any Material Adverse Effect on
Parent and its consolidated subsidiaries taken as a whole.
SECTION 5.09 Governmental Consents. No consent, approval, order or
authorization of, or registration, declaration or filing with, any Federal,
state, local or foreign governmental or regulatory authority is required to be
made or obtained by Parent in connection with the execution and delivery of this
Agreement by Parent or the consummation by Parent of the transactions
contemplated hereby, except for (i) filings pursuant to the Securities Act and
the Securities Exchange Act of 1934, as amended (the "Exchange Act") and the
rules and regulations promulgated by the SEC thereunder, if applicable, (ii)
filings with state securities agencies under state securities or blue sky laws,
if applicable,(iii) the filing with Nasdaq of an application for the listing on
the Nasdaq National Market of shares of Parent Common Stock to be issued in
connection with the Merger, (iv) the filing of a Certificate of Merger with the
Secretary of State of Delaware in accordance with the Delaware GCL, (v) the
filing of Articles of Merger with the Secretary of State of the Commonwealth of
Massachusetts in accordance with the Massachusetts BCL, (vi) any licenses,
permits, franchises or other governmental authorizations pertaining to the
business of the Company and its subsidiaries that are required as a result of
the consummation of the transactions contemplated hereby and (vii) such
consents, approvals, orders or
33
authorizations which if not obtained, or registrations, declarations or filings
which if not made, would not materially adversely affect the ability of Parent
to consummate the transactions contemplated hereby or to conduct the business of
the Company and its subsidiaries, if any, after the Effective Time.
SECTION 5.10 Compliance with Law. Neither Parent nor any of its
subsidiaries is in default under any order of any court, governmental authority
or arbitration board or tribunal. Neither Parent nor any such subsidiary has
received notice of any alleged violation of any applicable laws, ordinances and
governmental rules and regulations to which Parent or any such subsidiary is
subject, including, without limitation, federal securities and banking laws.
Neither Parent nor any subsidiary has failed to obtain any licenses, permits,
franchises or other governmental authorizations necessary to the ownership of
its properties or to the conduct of its business, except where the failure to
obtain such licenses, permits, franchises or other governmental authorizations
would not have a Material Adverse Effect on Parent.
SECTION 5.11 Litigation. There is no litigation, investigation or
proceeding pending or, to the knowledge of Parent, threatened, involving Parent,
any subsidiary of Parent, including, without limitation, Acquisition, or any of
their respective properties, other than litigation disclosed in the Parent
Public Information, which, if decided adversely to Parent, would result in a
Material Adverse Effect. There are no outstanding orders, writs, injunctions or
decrees of any court, governmental agency or arbitration tribunal materially
affecting or materially limiting the conduct of the business of Parent and its
subsidiaries taken as a whole.
SECTION 5.12 Tax-Free Reorganization.
(a) It is Parent's intention that the fair market value of the
Parent Common Stock and other consideration received by each Company shareholder
will be approximately equal to the fair market value of the Company Common Stock
and Company Preferred Stock surrendered in the Merger.
(b) The aggregate amount of cash distributed to shareholders of the
Company in exchange for their shares of Company Common Stock and Company
Preferred Stock (including amounts of cash distributed in lieu of fractional
shares of Parent Common Stock) will not exceed 20 percent of the sum of (i) the
fair market value of the Parent Common Stock issued in exchange for Company
Common Stock and Company Preferred Stock and (ii) the amount of such cash.
(c) To the knowledge of Parent, there is no plan or intention by the
shareholders of the Company who own five percent or more of the Company Common
Stock and Company Preferred Stock
34
to sell, exchange, or otherwise dispose of a number of shares of Parent Common
Stock received in the Merger that would reduce the Company shareholders'
ownership of Parent Common Stock to a number of shares having a value, as of the
date of the Merger, of less than fifty (50%) percent of the value of all of the
formerly outstanding Company Common Stock and Company Preferred Stock as of the
same date. For purposes of making this representation and warranty, shares of
Company Common Stock and Company Preferred Stock exchanged for cash or other
property, surrendered by dissenters or exchanged for cash in lieu of fractional
shares of Parent Common Stock will be treated as outstanding Company Common
Stock and Company Preferred Stock on the date of the Merger. For purposes of
making this representation and warranty, shares of Parent Common Stock held by
Company shareholders and otherwise sold, redeemed, or disposed of prior or
subsequent to the Merger are considered.
(d) Prior to the Effective Time, Parent will be in control of
Acquisition within the meaning of Section 368(c) of the Code.
(e) Parent has no present plan or intention to cause the Surviving
Corporation to issue additional shares of its capital stock that would result in
Parent losing control of the Surviving Corporation within the meaning of Section
368(c) of the Code.
(f) Parent has no present plan or intention to reacquire any Parent
Common Stock issued in the Merger other than such shares as may be received by
Parent pursuant to the satisfaction of indemnification obligations under Section
7.08 hereof.
(g) Parent has no present plan or intention to liquidate the
Surviving Corporation; to merge the Surviving Corporation with or into another
corporation other than a corporation controlled by Parent; to sell or otherwise
dispose of the capital stock of the Surviving Corporation, except for transfers
of stock to corporations controlled by Parent; or to cause the Surviving
Corporation to sell or otherwise dispose of any of its assets or of any of the
assets acquired from Acquisition, except for dispositions made in the ordinary
course of business or transfers of assets to a corporation controlled by the
Surviving Corporation.
(h) Following the Merger, Parent will cause the Surviving
Corporation to continue the Company's historic business or to use a significant
portion of its historic business assets in a business.
(i) Parent will pay its own expenses, if any, incurred in connection
with the Merger. Parent will not pay expenses, if any, incurred by the Company's
shareholders, or Acquisition in connection with the Merger. If Parent pays or
assumes any
35
expenses which the Company incurred in connection with the Merger, Parent will
pay or assume only those expenses that are solely and directly related to the
Merger, as contemplated by this Agreement.
(j) There is no intercorporate indebtedness existing between Parent
and the Company or between Acquisition and the Company that was issued, acquired
or is intended to be settled at a discount.
(k) In the Merger, shares of Company Common Stock and Company
Preferred Stock representing control of the Company as defined in Section 368(c)
of the Code, will be exchanged solely for voting stock of Parent.
(l) Immediately prior to the Effective Time, Parent will not own,
nor will it have owned during the past five years, any shares of the stock of
the Company.
(m) Parent is not an investment company as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code.
(n) The payment of cash in lieu of fractional shares of Parent
Common Stock is solely for the purpose of avoiding the expense and inconvenience
to Parent of issuing fractional shares and does not represent separately
bargained-for consideration. The total cash consideration that will be paid in
the Merger to the Company's shareholders instead of issuing fractional shares of
Parent Common Stock will not exceed one percent of the total consideration that
will be issued in the Merger to the Company's shareholders in exchange for their
shares of Company Common Stock and Company Preferred Stock. The fractional share
interests of each shareholder of the Company in the Merger will be aggregated,
and no Company shareholder will receive cash in exchange for fractional shares
in an amount equal to or greater than the value of one full share of Parent
Common Stock.
(o) None of the compensation paid to any shareholder-employee of the
Surviving Corporation after the Effective Time will be separate consideration
for, or allocable to, any of their shares of Company Common Stock or Company
Preferred Stock. None of the shares of Parent Common Stock received by any
shareholder-employee of the Company will be separate consideration for, or
allocable to, any employment agreement. The compensation paid to any
shareholder-employee of the Surviving Corporation after the Effective Time will
be solely for services actually rendered and will have been bargained for at
arm's length.
SECTION 5.13 Representations and Warranties True; No Misleading
Statements. All of the representations and warranties set forth in this Article
V shall be true and correct as of the Effective Time as if made at that time.
The representations and warranties made herein and in any Schedule, list or
other document
36
specifically referred to herein and delivered by the Parent pursuant hereto, and
all information provided by the Parent for inclusion in the Merger Information,
taken as a whole, do not contain any untrue statements of a material fact or
omit to state a material fact necessary in order to make the statements herein
or therein, in light of the circumstances under which they were made, not
misleading.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF ACQUISITION
Acquisition represents and warrants to the Company and each
Shareholder as follows:
SECTION 6.01 Organization and Qualification. Acquisition is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite corporate power and authority to
own or lease and operate its properties and assets and to carry on its business
as it is now being conducted. Acquisition is duly qualified as a foreign
corporation to do business, and is in good standing, in each jurisdiction in
which the character of its properties owned or leased or the nature of its
activities makes such qualification necessary, except where the failure to be so
qualified would not have a Material Adverse Effect on the financial condition,
operating results or business of Acquisition.
SECTION 6.02 Capitalization. The authorized capital stock of
Acquisition consists of 3,000 shares of common stock, $.01 par value. As of the
date hereof, 100 shares of such common stock are validly issued and outstanding,
fully paid and nonassessable and are owned of record and beneficially by Parent,
and no shares of such common stock are held in the treasury of Acquisition.
Acquisition has no commitments to issue or sell any shares of such common stock
or any securities or obligations convertible into or exchangeable for, or giving
any person any right to subscribe for or acquire from Acquisition, any shares of
such common stock, and no securities or obligations evidencing any such rights
are outstanding.
SECTION 6.03 Authority Relative to Agreement. Acquisition has all
requisite corporate power and authority to enter into this Agreement and to
perform its obligations hereunder. The execution and delivery of this Agreement
by Acquisition and the consummation by Acquisition of the transactions
contemplated hereby have been duly authorized by the Board of Directors of
Acquisition and by Parent as its sole stockholder, and no other corporate
proceedings on the part of Acquisition are necessary to authorize this Agreement
and the transactions contemplated hereby. This
37
Agreement has been duly executed and delivered by Acquisition and constitutes
the legal, valid and binding obligation of Acquisition, enforceable against
Acquisition in accordance with its terms except to the extent that
enforceability may be limited by bankruptcy, receivership, moratorium,
conservatorship, reorganization or other laws of general application affecting
the rights of creditors generally or by principals of equity.
SECTION 6.04 Non-Contravention. The execution and delivery of this
Agreement by Acquisition and the consummation by Acquisition of the transactions
contemplated hereby will not (i) conflict with any provision of the Certificate
of Incorporation or By-Laws of Acquisition or (ii) result (with the giving of
notice or the lapse of time or both) in any violation of or default or loss of a
benefit under, or permit the acceleration of any obligation under, any mortgage,
indenture, lease, agreement, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Acquisition or its properties, other
than any such violation, default, loss or acceleration that would not adversely
affect the ability of Acquisition to consummate the transactions contemplated
hereby.
SECTION 6.05 Governmental Consents. No consent, approval, order or
authorization of, or registration, declaration or filing with, any Federal,
state, local or foreign governmental or regulatory authority is required to be
made or obtained by Acquisition in connection with the execution and delivery of
this Agreement by Acquisition or the consummation by Acquisition of the
transactions contemplated hereby, except for (i) the filing of a Certificate of
Merger with the Secretary of State of the State of Delaware in accordance with
the Delaware GCL and the filing of Articles of Merger with the Secretary of
State of the Commonwealth of Massachusetts in accordance with the Massachusetts
BCL, (ii) any licenses, permits, franchises or other governmental authorizations
pertaining to the business of Acquisition that are required as a result of the
consummation of the transactions contemplated hereby and (iii) such consents,
approvals, orders or authorizations which if not obtained, or registrations,
declarations or filings which if not made, would not adversely affect the
ability of Acquisition to consummate the transactions contemplated hereby.
SECTION 6.06 Tax-Free Reorganization.
(a) It is Acquisition's intention that the fair market value of the
Parent Common Stock and other consideration received by each Company shareholder
will be approximately equal to the fair market value of the Company Common Stock
and Company Preferred Stock surrendered in the Merger.
38
(b) To the knowledge of Acquisition, there is no plan or intention
by the shareholders of the Company who own five percent (5%) or more of the
Company Common Stock and Company Preferred Stock to sell, exchange, or otherwise
dispose of a number of shares of Parent Common Stock received in the Merger that
would reduce the Company shareholders' ownership of Parent Common Stock to a
number of shares having a value, as of the date of the Merger, of less than
fifty percent (50%) of the value of all of the formerly outstanding Company
Common Stock and Company Preferred Stock as of the same date. For purposes of
making this representation and warranty, shares of Company Common Stock and
Company Preferred Stock exchanged for cash or other property, surrendered by
dissenters or exchanged for cash in lieu of fractional shares of Parent Common
Stock will be treated as outstanding Company Common Stock and Company Preferred
Stock on the date of the Merger. For purposes of making this representation and
warranty, shares of Parent Common Stock held by Company shareholders and
otherwise sold, redeemed, or disposed of prior or subsequent to the Merger are
considered.
(c) Pursuant to the Merger, Acquisition will transfer to the Company
at least ninety percent (90%) of the fair market value of its net assets and at
least seventy percent (70%) of the fair market value of its gross assets held
immediately prior to the Merger. For purposes of this representation, amounts
paid by Acquisition to dissenters, amounts used by Acquisition to pay
reorganization expenses, and amounts paid by Acquisition to shareholders who
receive cash or other property in lieu of fractional shares of Parent Common
Stock will be included as assets held by Acquisition immediately prior to the
Merger.
(d) Prior to the Effective Time, Parent will be in control of
Acquisition within the meaning of Section 368(c) of the Code.
(e) The liabilities of Acquisition assumed by the Company and the
liabilities to which the transferred assets of Acquisition are subject were
incurred by Acquisition in the ordinary course of its business.
(f) Acquisition will pay its own expenses, if any, incurred in
connection with the Merger. Acquisition will not pay expenses, if any, incurred
by Parent, the Company, or the Company's shareholders in connection with the
Merger.
(g) There is no intercorporate indebtedness existing between
Acquisition and the Company that was issued, acquired or will be settled at a
discount.
39
(h) Acquisition is not an investment company as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code.
SECTION 6.07 Other Matters. Acquisition has been formed for the sole
purpose of effecting the Merger and, except as contemplated by this Agreement,
Acquisition has not conducted any business activities and does not have any
material liabilities or obligations.
SECTION 6.08 Representations and Warranties True; No Misleading
Statements. All of the representations and warranties set forth in this Article
VI shall be true and correct as of the Effective Time as if made at that time.
The representations and warranties made herein and in any Schedule, list or
other document specifically referred to herein and delivered by Acquisition
pursuant hereto, and all information provided by Acquisition for inclusion in
the Merger Information, taken as a whole, do not contain any untrue statements
of a material fact or omit to state a material fact necessary in order to make
the statements herein or therein, in light of the circumstances under which they
were made, not misleading.
ARTICLE VII
COVENANTS
SECTION 7.01 Conduct of the Company's Business. The Company and each
Shareholder covenants and agrees that, prior to the Effective Time, unless
Parent shall otherwise consent in writing or as otherwise expressly contemplated
by this Agreement:
(a) the business of the Company shall be conducted only in, and the
Company shall not take any action except in, the ordinary course of
business and consistent with past practice; and
(b) The Company shall not, directly or indirectly, do any of the
following:
(i) sell, pledge, dispose of or encumber (or permit any of its
subsidiaries to sell, pledge, dispose of or encumber) any assets of the
Company or any of its subsidiaries, except inventory and immaterial assets
in the ordinary course of business and except the granting of licenses
with respect to the Inframax(R) product in the ordinary course of
business; (ii) amend or propose to amend its Restated Articles of
Organization or By-Laws; (iii) split, combine or reclassify any
outstanding shares of its capital stock, or declare, set aside or pay any
dividend payable in cash, stock, property or otherwise with respect to
such shares; (iv) redeem, purchase,
40
acquire or offer to acquire (or permit any of its subsidiaries to redeem,
purchase, acquire or offer to acquire) any shares of its capital stock of
any class; or (v) enter into any contract, agreement, commitment or
arrangement with respect to any of the matters set forth in this paragraph
(b);
(c) The Company shall not (i) issue, sell, pledge or dispose of, or
agree to issue, sell, pledge or dispose of, any additional shares of, or
securities convertible or exchangeable for, or any options, warrants or
rights of any kind to acquire any shares of, its capital stock of any
class or other property or assets, except in respect of the exercise of
Company Common Stock Options, Series C Stock Options and/or the Warrant in
accordance with their respective terms; (ii) acquire (by merger,
consolidation or acquisition of stock or assets) any corporation,
partnership or other business organization or division thereof (except an
existing wholly-owned subsidiary); (iii) incur any indebtedness for
borrowed money or issue any debt securities except for borrowings in the
ordinary course of business under the Company's revolving credit agreement
with Silicon Valley Bank; (iv) enter into or modify any contract, lease,
agreement or commitment, except in the ordinary course of business and
consistent with past practice; (v) terminate, modify, assign, waive,
release or relinquish any contract rights or amend any rights or claims
not in the ordinary course of business or (vi) settle or compromise any
claim, action, suit or proceeding pending or threatened against the
Company, or, if the Company may be liable or obligated to provide
indemnification, against the Company's directors or officers, before any
court, governmental agency or arbitrator; provided that nothing herein
shall require any action that might impair or otherwise affect the
obligation of any insurance carrier under any insurance policy maintained
by the Company;
(d) The Company shall not grant any increase in the salary or other
compensation of its employees, except pursuant to the terms of employment
agreements in effect on the date hereof and listed on a Schedule hereto,
or grant any bonus to any employee or enter into any employment agreement
or make any loan to or enter into any material transaction of any other
nature with any employee of the Company or any subsidiary;
(e) The Company shall not take any action to institute any new
severance or termination pay practices with respect to any directors,
officers or employees of the Company or its subsidiaries or to increase
the benefits payable under its severance or termination pay practices;
41
(f) The Company shall not adopt or amend, in any respect, except as
contemplated hereby or as may be required by applicable law or regulation,
any collective bargaining, bonus, profit sharing, compensation, stock
option, restricted stock, pension, retirement, deferred compensation,
employment or other employee benefit plan, agreement, trust, fund, plan or
arrangement for the benefit or welfare of any directors, officers or
employees;
(g) The Company shall not intentionally take any action which might
in any manner prevent the business combination to be effected by the
Merger from being accounted for as a pooling-of-interests by Parent for
the purposes of its consolidated financial statements under GAAP and
applicable SEC rules and regulations;
(h) The Company shall use reasonable good faith, to the extent not
prohibited by the foregoing provisions of this Section 7.01, to maintain
its relationships with its distributors, suppliers and customers, and if
and as requested by Parent or Acquisition, (i) the Company shall use
reasonable good faith efforts to make reasonable arrangements for
representatives of Parent or Acquisition to meet, together with
representatives of the Company, with customers and suppliers of the
Company requested by Parent in order to ensure that the Company's
relationships with such customers and suppliers will remain in force under
substantially the same terms following the Effective Time as are in effect
on the date hereof, and (ii) the Company shall schedule, and the
management of the Company shall participate in, meetings of
representatives of Parent or Acquisition with employees of the Company or
any of its subsidiaries;
(i) The Company and the other parties thereto shall terminate,
effective as of the Effective Time, each of the agreements disclosed in
Schedule 3.02(a) to which they are parties, except as otherwise set forth
in such Schedule 3.02(a);
(j) The Company shall hold a shareholders' meeting for the purpose
of authorizing and approving the consummation of the Merger in accordance
with the provisions hereof no later than August 27, 1997;
(k) The Company shall use good faith efforts, dedicating all
resources required, to complete the Merger so that the Effective Time
shall occur not later than August 29, 1997; and
42
(l) The Company shall use reasonable efforts to obtain, prior to the
Effective Time, a written undertaking of Silicon Valley Bank to be bound
by the provisions of Section 7.11 hereof.
SECTION 7.02 Certain Covenants of Parent.
(a) Parent covenants and agrees that, prior to the Effective Time,
unless the Company shall otherwise consent in writing or as otherwise
expressly contemplated by this Agreement, Parent shall not amend its
Certificate of Incorporation or By-Laws in a manner that could reasonably
be expected to be materially adverse to the Shareholders. Parent shall use
good faith efforts, dedicating all resources required, to complete the
Merger so that the Effective Time shall occur not later than August 29,
1997.
(b) Parent covenants and agrees that, after the Effective Time,
Parent shall reserve and make available to certain employees of the
Surviving Corporation a pool of options exercisable for an aggregate of
120,000 shares of Parent Common Stock, not including options granted to
Cowie pursuant to the Employment Agreement (hereinafter defined), all in
accordance with the terms and provisions of Parent's 1995 Stock Option
Plan and/or Parent's 1996 Stock Option Plan.
(c) Parent covenants and agrees that, prior to the Effective Time,
Parent shall not intentionally take any action so as to impact Parent's
ability to account for the business combination to be effected by the
Merger as a pooling-of-interests for purposes of its consolidated
financial statements under GAAP and applicable SEC rules and regulations.
SECTION 7.03 Access to Information. (a) The Company shall, and shall
cause its officers, directors, employees, representatives and agents to, afford,
from the date hereof to the Effective Time, the officers, employees,
accountants, attorneys and other representatives and agents of Parent reasonable
and complete access, upon reasonable notice, during regular business hours to
its premises and its officers, employees, agents, properties, books, records and
workpapers, and shall furnish Parent all financial, operating and other
information and data as Parent, through its officers, accountants, attorneys and
other employees or agents, may reasonably request.
(b) Parent shall, and shall cause its officers, directors,
employees, representatives and agents to, afford, from the date hereof to the
Effective Time, the officers, employees, representatives and agents of the
Company reasonable access during
43
regular business hours to its officers, employees, agents, properties, books,
records and workpapers, and shall furnish the Company all financial, operating
and other information and data as the Company, through its officers, employees
or agents, may reasonably request.
(c) No investigation pursuant to this Section 7.03 shall affect, add
to or subtract from any representations or warranties of the parties hereto or
the conditions to the obligations of the parties hereto to effect the Merger.
SECTION 7.04 Further Assurances. Subject to the terms and conditions
herein provided, each of the parties hereto agrees to use all reasonable efforts
to take, or cause to be taken, all actions and to do, or cause to be done, all
things necessary, proper or advisable to consummate and make effective as
promptly as practicable the transactions contemplated by this Agreement,
including, without limitation, using all reasonable efforts to obtain all
necessary waivers, consents and approvals and to effect all necessary
registrations and filings; provided that the foregoing shall not require Parent
or the Company to agree to make, or to permit Parent or the Company to make, any
divestiture of a significant asset in order to obtain any waiver, consent or
approval.
SECTION 7.05 Inquiries and Negotiations. (a) Neither the Company nor
any of its affiliates, shareholders, directors, officers, employees,
representatives or agents shall, from July 1, through the Effective Time
directly or indirectly, (i) solicit or initiate any discussions, submissions of
proposals or offers or negotiations with, or (ii) participate in any
negotiations or discussions with, or provide any information or data of any
nature whatsoever to, or otherwise cooperate in any other way with, or assist or
participate in, facilitate or encourage any effort or attempt by, any person,
other than Parent and its affiliates, representatives and agents, concerning any
merger, consolidation, sale of substantial assets, sale of shares of capital
stock (other than pursuant to the exercise of Company Common Stock Options,
Series C Stock Options or the Warrant) or other securities, recapitalization,
debt restructuring or similar transaction involving the Company or any
subsidiary, or any division of the Company or any subsidiary. The Company shall
immediately notify Parent if any proposal, offer, inquiry or other contact is
received by, any information is requested from, or any discussions or
negotiations are sought to be initiated or continued with, the Company in
respect of any such transaction, and shall, in any such notice to Parent,
indicate the identity of the offeror and the terms and conditions of any
proposals or offers or the nature of any inquiries or contacts, and thereafter,
without engaging in any conduct prohibited hereby, shall keep Parent informed of
the status
44
and terms of any such proposals or offers. The Company shall not release any
third party from, or waive any provision of, any confidentiality or standstill
agreement to which the Company is a party.
SECTION 7.06 Employment and Non-Competition Agreements.
Contemporaneously herewith, the Company shall terminate, effective immediately
prior to the Effective Time, (a) the Company's employment agreement with Cowie
and (b) employment of Xxxx X. Xxxxxxxx under his employment agreement with the
Company. Contemporaneously herewith, Cowie shall enter into, effective as of the
Effective Time, an employment agreement with Parent and/or the Surviving
Corporation (the "Employment Agreement") and a non-competition and
confidentiality agreement for the benefit of Parent and the Surviving
Corporation (the "Non-Competition Agreement").
SECTION 7.07 Notification of Certain Matters. The Company shall give
prompt notice to Parent and Acquisition, and Parent and Acquisition shall give
prompt notice to the Company, of (i) the occurrence, or failure to occur, of any
event that such party believes would be likely to cause any of its
representations or warranties contained in this Agreement to be untrue or
inaccurate in any material respect at any time from the date hereof to the
Effective Time and (ii) any material failure of the Company, Parent or
Acquisition, as the case may be, or any officer, director, employee or agent
thereof, to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder; provided, however, that failure to
give such notice shall not constitute a waiver of any defense that may be
validly asserted.
SECTION 7.08 Indemnification. Solely for purposes of this Section
7.08, the term "Shareholders" shall be deemed to mean, in addition to the
Shareholders identified in the Preamble of this Agreement, all other holders of
Company Common Stock or Company Preferred Stock as of the Effective Time who are
not parties to this Agreement.
(a) Indemnifiable Breaches. Each Shareholder shall be severally
liable to, and shall severally indemnify, protect, defend and hold harmless
Parent and its successors and the Surviving Corporation and its successors,
pursuant to the terms of this Section 7.08, against any and all claims, damages,
liabilities and expenses (including reasonable attorneys' fees) sustained by
Parent or the Surviving Corporation, in excess of insurance proceeds actually
received by Parent or the Surviving Corporation, resulting from or in connection
with the breach of any representation, warranty, covenant or other agreement
made by the Company or any Shareholder in or pursuant to this Agreement or any
other agreement or instrument executed and delivered by or on behalf of the
Company and/or such Shareholder pursuant hereto or in connection herewith (such
breaches or failures being hereinafter referred to
45
individually as an "Indemnifiable Breach" and collectively as "Indemnifiable
Breaches"); provided, however, that no Shareholder shall be required to pay
Parent and/or the Surviving Corporation, as the case may be, pursuant to this
Section 7.08, (i) subject to clause (iii) below, with respect to any one or
group of related Indemnifiable Breaches, an amount in excess of such
Shareholder's Percentage Share (as hereinafter defined) of damages in connection
with such Indemnifiable Breach or group of related Indemnifiable Breaches; (ii)
subject to clause (iii) below, with respect to all Indemnifiable Breaches, an
amount in excess of such Shareholder's Percentage Share of the aggregate amount
of all damages resulting from all Indemnifiable Breaches; and (iii) in any
event, in the aggregate, an amount in excess of fifty (50%) percent of the
dollar value equivalent of Parent Common Stock, valued at the Average Price,
received by such Shareholder upon consummation of the Merger pursuant to the
terms hereof. For purposes of this Agreement, each "Shareholder's Percentage
Share" shall mean the percentage determined by dividing (x) the number of shares
of Parent Common Stock issuable to such Shareholder in the Merger by (y) the
total number of shares of Parent Common Stock issuable to all Shareholders in
the Merger. The indemnification obligations of the Shareholders under this
Section 7.08 shall apply to claims, damages, liabilities and expenses sustained
by Parent and/or the Surviving Corporation in respect of Indemnifiable Breaches
if and when the aggregate amount of such claims, damages, liabilities and
expenses in respect of such Indemnifiable Breaches, including insurance proceeds
actually received by Parent or the Surviving Corporation in connection
therewith, exceeds One Hundred Fifty Thousand Dollars ($150,000) (the "Basket")
and in the event the aggregate amount of the claims, damages, liabilities and
expenses sustained by Parent and/or the Surviving Corporation in respect of
Indemnifiable Breaches exceeds the Basket, the indemnification obligations of
the Shareholders under this Section 7.08 shall apply to all claims, damages,
liabilities and expenses actually sustained by Parent and/or the Surviving
Corporation in respect of Indemnifiable Breaches. For purposes of this Section
7.08, Indemnifiable Breaches shall be deemed to be a group of related
Indemnifiable Breaches if (i) they pertain to obligations of the Company or any
Shareholder to a single party or group of affiliated parties or obligations of a
single party or group of affiliated parties to the Company or any Shareholder,
(ii) they pertain to the same or similar transactions or (iii) they involve the
same or similar legal or factual issues.
(b) Satisfaction of Claims. Subject to the terms of the second
sentence of Section 7.08(d) below, any Shareholder shall be permitted to satisfy
such Shareholder's obligation(s) under this Section 7.08(b) in cash or by
delivering to Parent or the Surviving Corporation, as the case may be, shares of
Parent Common Stock in an amount equal to such Shareholder's liability based on
a per share value equal to the Average Price.
(c) Indemnification by Parent. Parent and Acquisition
46
shall be jointly and severally liable to, and shall jointly and severally
indemnify, protect, defend and hold harmless each Shareholder and its respective
successors against any and all claims, damages, liabilities and expenses
(including reasonable attorneys' fees) sustained by any Shareholder, resulting
from or in connection with the breach of any representation, warranty, covenant
or other agreement made by Parent or Acquisition in or pursuant to this
Agreement or any other agreement or instrument executed and delivered by or on
behalf of Parent and/or Acquisition pursuant hereto or in connection herewith.
(d) Other Remedies. Notwithstanding anything herein to the contrary,
any party hereto shall be entitled to (i) seek specific enforcement of the terms
and provisions of this Agreement in the event of a breach thereof and (ii) xxx
for damages in the event of a wrongful termination of this Agreement in
violation of Article IX hereof or the failure to consummate the transactions
contemplated hereby through no fault of such party. In the event Parent and/or
the Surviving Corporation becomes entitled to any sums under the terms hereof,
Parent and/or the Surviving Corporation shall have the right but not the
obligation to set off such liabilities of the Shareholders against any existing
or future liabilities of Parent or the Surviving Corporation to the Shareholders
or any of them individually other than against amounts owed by the Surviving
Corporation to any such Shareholders as compensation for employment or
otherwise. The terms of this Section 7.08 are intended to benefit the parties
hereto and any and all claims for indemnification hereunder must be made during
the period commencing on the date hereof and continuing until the earlier to
occur of (i) one (1) year after the Effective Time or (ii) the publication of
the independent audit report on the consolidated financial statements of Parent
for the fiscal year ending June 30, 1998.
SECTION 7.09 Confidentiality. Except as otherwise provided in that
certain Confidentiality Agreement dated December 10, 1996 between the Company
and the Parent with regard to information about the Company (the
"Confidentiality Agreement"), Parent and Acquisition, on the one hand, and the
Company and the Shareholders, on the other, shall hold, and shall use their
respective best efforts to cause their respective officers, directors,
employees, consultants, advisors and agents to hold, in confidence, unless
compelled to disclose by judicial or administrative process or by other
requirements of law, all confidential documents and information concerning the
other parties furnished to such party in connection with the transactions
contemplated by this Agreement, except to the extent that such information can
be shown to have been (i) previously known on a nonconfidential basis by the
receiving party; (ii) in the public domain through no fault of the receiving
party; (iii) later lawfully acquired by such party from sources other than the
other
47
parties; or (iv) independently developed by such party without the use of such
information; provided that each party may disclose such information to its
affiliates and its affiliates' officers, directors, employees, consultants,
advisors and agents, lenders and other investors in connection with the
transactions contemplated by this Agreement so long as such persons are informed
by such party of the confidential nature of such information and are directed by
such party to treat such information confidentially. If the transactions
contemplated by this Agreement are abandoned, such confidentiality shall be
maintained and each party shall, and shall use its best efforts to cause its
respective officers, directors, employees, consultants, advisors and agents to,
destroy or deliver to the other party(s), upon request, all documents and other
materials, and all copies thereof, obtained by such party or on its behalf from
the other party(s) in connection with this Agreement that are subject to such
confidentiality. The terms of this Section 7.09 shall survive indefinitely.
SECTION 7.10 Covenants of Shareholders. (a) Each Shareholder hereby
agrees not to:
(i) sell, transfer, pledge, encumber, assign or otherwise dispose
of, or enter into any contract, option or other arrangement or
understanding with respect to the sale, transfer, pledge, encumbrance,
assignment or other disposition of, any shares of Company Common Stock
owned by such Shareholder, other than as provided herein;
(ii) grant any proxies or enter into a voting agreement or other
arrangement with respect to any shares of Company Common Stock owned by
such Shareholder, other than as provided herein; or
(iii) deposit any shares of Company Common Stock owned by such
Shareholder into a voting trust.
(b) Each Shareholder hereby agrees not to take any action that would
make any representation or warranty herein of such Shareholder untrue or
incorrect in any material respect or that would have the effect of preventing or
disabling such Shareholder from performing its obligations under this Agreement.
(c) Each Shareholder hereby waives any and all dissenter's rights
with respect to Company Common Stock granted pursuant to Sections 86-98 of the
Massachusetts BCL.
(d) Each Shareholder hereby agrees to surrender the Certificates
owned by such Shareholder in exchange for certificates representing shares of
Parent Common Stock and cash, if applicable, within five (5) business days after
the Effective Time.
48
(e) Each Shareholder agrees to vote the shares of Company Common
Stock and/or Company Preferred Stock held by such Shareholder in favor of the
execution, delivery and performance of this Agreement and the consummation of
the Merger in accordance with the provisions hereof, and each Shareholder
holding Series E Stock further agrees to vote its shares of Series E Stock,
voting as a separate series, for the approval of the receipt of Parent Common
Stock in the Merger instead of electing to treat the Merger as a liquidation.
(f) Each Shareholder hereby agrees not to intentionally take any
action which might in any manner prevent the business combination to be effected
by the Merger from being accounted for as a pooling-of-interests by Parent for
the purposes of its consolidated financial statements under GAAP and applicable
SEC rules and regulations.
SECTION 7.11 Transfer Restrictions After the Effective Time. Each
Shareholder hereby agrees that, from and after the Effective Time:
(a) Lock-Up. Such Shareholder shall not sell or otherwise reduce its
risk relative to any shares of Parent Common Stock received by it in the
Merger (within the meaning of Financial Reporting Policy, Section 201.01),
except as permitted by Staff Accounting Bulletin No. 76 issued by the SEC,
until Parent has published financial results covering a fiscal quarter
that includes results (including combined sales and net income) for a
period of at least 30 days of post-Merger operations. Parent agrees to use
its good faith efforts to issue such financial results as soon as
practicable.
(b) Securities Act Compliance. Such Shareholder shall not offer,
sell, or otherwise dispose of the shares of Parent Common Stock received
by such Shareholder in connection with the Merger other than (i) pursuant
to an effective registration statement under the Securities Act, or (ii)
otherwise pursuant to an exemption from the registration requirements of
the Securities Act.
SECTION 7.12 Registration Rights Agreements. Parent and each shareholder
of the Company who receives Parent Common Stock in connection with the Merger
shall be entitled to certain registration rights, as provided in the
registration rights agreement in the form of Exhibit C hereto (the "Registration
Rights Agreement"), provided such shareholder executes and delivers to Parent a
Registration Rights Agreement and delivers
49
such further information as shall be required by Parent in connection with any
registration statement provided for therein.
SECTION 7.13 Conversion of Preferred Stock. Schedule 3.04(a) hereto
completely and accurately sets forth any and all shares of Preferred Stock
outstanding as of the date hereof and the respective owners of same. The Company
covenants and agrees to use its reasonable efforts to cause holders of Series C
Stock and holders of Series E Stock to convert their respective shares into
Common Stock prior to the Effective Time such that as of the Effective Time,
there shall be outstanding no shares of Company Preferred Stock whatsoever.
SECTION 7.14 Conversion of Stock Options. Each of the Company and
Cowie shall use their respective reasonable efforts to cause each holder of
Company Common Stock Options who is an employee of the Company on and after the
date hereof to refrain from exercising any such options prior to the Effective
Time.
SECTION 7.15 Repayment of Loans to Officers and Directors. Any loan
of the Company to any officer or director of the Company which is outstanding as
of the Effective Time shall be repaid to the Surviving Corporation on or before
the first to occur of (a) the maturity date pursuant to the terms of such loan
or (b) upon the first sale or other disposition by such officer or director of
Parent Common Stock received in the Merger or received pursuant to the exercise
of a Parent Stock Option.
SECTION 7.16 Directors and Officers Liability Insurance. From the
date hereof through the date immediately preceding the date on which the
Effective Time occurs, Parent shall use reasonable efforts to arrange for the
purchase, for the benefit of the directors and officers of the Company,
directors and officers liability insurance in customary form and in reasonable
amounts, at a cost not to exceed $25,000 in the aggregate ("D&O Insurance"),
which D&O Insurance shall be effective commencing on the Effective Time and
shall cover acts of the directors and officers of the Company prior to the
Effective Time. The cost of said insurance shall be included in the Company
Merger Expenses for the purpose of Section 2.01(a) hereof but only to the extent
the Company Merger Expenses, in the aggregate, do not exceed $750,000. Any
excess shall be deducted from the aggregate consideration to be paid in the
Merger pursuant to Section 2.01(a).
SECTION 7.17 Berlack Release. Berlack hereby releases the Company,
Parent and the Surviving Corporation from any and all claims, damages,
liabilities and expenses (including reasonable attorneys' fees) resulting from
or incurred in connection with the conversion, redemption or repurchase of any
security of the Company prior to the Effective Time.
50
ARTICLE VIII
CONDITIONS TO THE MERGER
SECTION 8.01 Conditions to Each Party's Obligation to Effect the
Merger. The respective obligations of each party to effect the Merger shall be
subject to the fulfillment at the Effective Time of the following condition:
(a) no preliminary or permanent injunction or other order, decree or
ruling issued by any court of competent jurisdiction nor any statute,
rule, regulation or order entered, promulgated or enacted by any
governmental, regulatory or administrative agency or authority shall be in
effect that would prevent the consummation of the Merger as contemplated
hereby.
SECTION 8.02 Conditions to the Obligation of the Company to Effect
the Merger. The obligation of the Company to effect the Merger shall be subject
to the fulfillment at or prior to the Effective Time of the following additional
conditions:
(a) Parent and Acquistion shall have performed and complied in all
material respects with all obligations and agreements required to be
performed and complied with by it under this Agreement at or prior to the
Effective Time;
(b) the representations and warranties of Parent and Acquisition
contained in this Agreement shall be true and correct in all material
respects at and as of the Effective Time as if made at and as of such
date, except as otherwise contemplated or permitted by this Agreement;
(c) the Company shall have received a certificate signed by the
Chief Executive Officer of Parent, dated as of the Effective Time, to the
effect that the conditions set forth in paragraphs (a) and (b) above have
been satisfied;
(d) the Merger shall have been duly approved by holders of (i)
Company Common Stock and (ii) Company Preferred Stock; and
(e) the Company shall have received the opinion of Xxxxxxx & Xxxxxx,
P.C., counsel to Parent and Acquisition, substantially in the form of
Exhibit D attached hereto.
SECTION 8.03 Conditions to the Obligation of Parent and Acquisition
to Effect the Merger. The obligation of Parent and
51
Acquisition to effect the Merger shall be subject to the fulfillment at or prior
to the Effective Time of the following additional conditions:
(a) The Company shall have performed and complied in all material
respects with all obligations and agreements required to be performed and
complied with by it under this Agreement at or prior to the Effective
Time;
(b) The representations and warranties of the Company and the
Shareholders contained in this Agreement shall be true and correct in all
material respects at and as of the Effective Time as if made at and as of
such date, except as otherwise contemplated or permitted by this
Agreement;
(c) Parent shall have received a certificate signed by the Chairman
and Chief Executive Officer of the Company, dated as of the Effective
Time, (i) to the effect that the conditions set forth in paragraphs (a)
and (b) above have been satisfied and (ii) certifying with respect to the
amount of Borrowings as of the Effective Time;
(d) Parent shall have received reasonable assurance that all
relationships with Contract Parties and Major Suppliers shall remain in
force after the Effective Time upon substantially the same terms in effect
prior to the Merger, except where any failure to receive such assurance
would not have a Material Adverse Effect on the Company or the Surviving
Corporation, and that the employees identified on Schedule 8.03(d) shall
continue their employment with the Surviving Corporation after the
Effective Time, as set forth in Schedule 8.03(d).
(e) The Company's employment of Xxxx X. Xxxxxxxx shall have been
terminated, any and all existing employment agreements between the Company
and other senior management employees of the Company (other than Xxxx
Xxxxxxx) with a term extending beyond June 30, 1998 shall have been
terminated, and Parent and/or the Surviving Corporation and Cowie shall
have executed and delivered the Employment Agreement and the
Noncompetition Agreement;
(f) Each Shareholder who is an accredited investor shall have
executed and delivered an Accredited Investor Certification in the form of
Exhibit E attached hereto;
(g) Parent shall have determined, in its reasonable opinion, that
the business combination to be effected by the Merger may be accounted for
as a pooling-of-interests by Parent for purposes of its consolidated
financial statements
52
under GAAP and applicable SEC rules and regulations, provided that Parent
shall not deem or assert the survival of claims for indemnification
pursuant to Section 7.08(d) hereof or the survival of any covenant or
agreement of the parties pursuant to Section 10.01 hereof as an impediment
to the accounting for the business combination to be effected by the
Merger as such pooling-of-interests ;
(h) Parent and Acquisition shall have received the opinion of Xxxxx,
Xxxx & Eliot, LLP, counsel to the Company, substantially in the form of
Exhibit F attached hereto;
(i) Parent shall have determined, in its good faith judgment, that
the business of the Company shall have been operated, from June 30, 1997
through the Effective Time, in the normal and ordinary course including,
without limitation that no dividends shall have been declared and/or
issued by the Company and no stock options or bonuses granted, declared or
issued for the officers or employees of the Company and that the Company,
Cowie and other management employees shall have used their reasonable good
faith efforts to preserve the goodwill of the business of the Company and
to maintain and keep the assets intact and that no additional liabilities
have been incurred, other than in the normal course of business;
(j) The Merger shall have been approved by holders of shares
representing, immediately prior the Effective Time, at least (1)
ninety-four (94%) percent of the outstanding Company Common Stock; (2)
100% of the outstanding Series C Stock; and (3) 100% of the outstanding
Series E Stock;
(k) Parent shall have received a pay-off letter from Silicon Valley
Bank, in customary form, stating the amount of all outstanding
indebtedness of the Company to Silicon Valley Bank, including accrued
interest to the Effective Time, and acknowledging that any and all amounts
outstanding under any and all loans to the Company may be pre-paid and
satisfied in full by Parent without any prepayment penalty or premium, and
that upon such prepayment Silicon Valley Bank will release its security
interest and return all loan documents marked "cancelled";
(l) The Company shall have received from Xxxxxx Xxxxxxxx LLP,
independent accountants of the Company, a letter dated on the date of the
Effective Time, in form and substance satisfactory to Parent, to the
effect that the Company qualifies as an entity that may be a party to a
business combination for which the pooling-of-interests method of
accounting would be available for the purposes of consolidated
53
financial statements under GAAP and applicable SEC rules and regulations;
(m) Parent shall have received duly executed resignation letters
from all of the officers and directors of the Company; and
(n) The Affiliate Agreement shall be in full force and effect as of
the Effective Time.
ARTICLE IX
TERMINATION AND ABANDONMENT
SECTION 9.01 Termination and Abandonment. This Agreement may be
terminated and the Merger may be abandoned at any time prior to the Effective
Time:
(a) by mutual action of the Boards of Directors of Parent and
the Company;
(b) by the Company, if all of the conditions set forth in
Section 8.03 shall have been complied with and performed and one or
more of the conditions set forth in Sections 8.01 and 8.02 shall not
have been complied with or performed in any material respect and
such noncompliance or nonperformance shall not have been cured or
eliminated (or by its nature cannot be cured or eliminated) by
Parent and Acquisition on or before September 30, 1997 (the "Drop
Dead Date"), subject to the Company's right to extend the Drop Dead
Date for up to two successive thirty (30) day periods; or
(c) by Parent or Acquisition, if all of the conditions set
forth in Section 8.02 shall have been complied with and performed
and one or more of the conditions set forth in Sections 8.01 and
8.03 shall not have been complied with or performed in any material
respect and such noncompliance or nonperformance shall not have been
cured or eliminated (or by its nature cannot be cured or eliminated)
by the Company on or before the Drop Dead Date, subject to Parent's
and Acquisition's right to extend the Drop Dead Date for up to two
successive thirty (30) day periods.
SECTION 9.02 Effect of Termination. Except as provided in Section
7.09 with respect to confidential information and except as provided in Section
10.02 hereof with respect to expenses, in the event of the termination of this
Agreement and the abandonment of the Merger pursuant to Section 9.01, this
Agreement
54
shall thereafter become void and have no effect, and no party hereto shall have
any liability to any other party hereto or its shareholders or directors or
officers in respect thereof, except that nothing herein shall relieve any party
from liability for any willful breach hereof.
ARTICLE X
MISCELLANEOUS
SECTION 10.01 Survival of Representations and Warranties. The
representations and warranties of Shareholders in this Agreement and in any
instrument delivered pursuant hereto shall survive the Effective Time until the
earlier to occur of (i) one (1) year after the Effective Time or (ii) the
publication of the independent audit report on the consolidated financial
statements of Parent for the fiscal year ending June 30, 1998, provided that
this Section 10.01 shall not limit any other covenant or agreement of the
parties that by its terms contemplates performances beyond such period.
SECTION 10.02 Expenses, Etc. (a) Whether or not the transactions
contemplated by this Agreement are consummated, neither the Company and the
Shareholders, on the one hand, and Parent and Acquisition, on the other hand,
shall have any obligation to pay any of the fees and expenses of the other
incident to the negotiation, preparation and execution of this Agreement,
including, without limitation, the fees and expenses of counsel, accountants,
investment bankers and other experts, except as otherwise provided in Section
2.01(a) with regard to Company Merger Expenses in excess of $750,000 in the
event the Merger is consummated, provided that if this Agreement shall have been
terminated as a result of the willful and material misrepresentations by a party
or the willful and material breach by a party of any of its covenants and
agreements contained herein, such party shall pay the costs and expenses
incurred by the other parties in connection with this Agreement.
(b) Except for the advisors fee to Xxxxxxx & Company, Inc. pursuant
to an engagement letter with the Company dated May 23, 1997 and the advisors fee
to Xxxxx, Xxxxxxxx & Xxxx, Inc. pursuant to an engagement letter with Parent
dated May 30, 1997, no person or entity is entitled to receive from the Company
or Parent any investment banking, brokerage or finder's fee or fees for
financial consulting or advisory services in connection with this Agreement or
the transactions contemplated hereby. The Company, on the one hand, and Parent
and Acquisition, on the other hand, shall indemnify the other and hold it
harmless from and against any claims for finders' fees or brokerage commissions
in relation to or in connection with such transactions as a result of any
agreement
55
or understanding between such indemnifying party and any third party.
SECTION 10.03 Publicity. The Company and Parent agree that they will
not issue any press release or make any other public announcement concerning
this Agreement or the transactions contemplated hereby without the prior written
consent of the other party, except that the Company or Parent may make such
public disclosure that it believes in good faith to be required by law (in which
event such party shall consult with the other prior to making such disclosure).
SECTION 10.04 Execution in Counterparts. For the convenience of the
parties, this Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
SECTION 10.05 Notices. All notices that are required or may be given
pursuant to the terms of this Agreement shall be in writing and shall be
sufficient if given in writing and delivered by hand or national overnight
courier service, transmitted by telecopy or mailed by registered or certified
mail, postage prepaid, as follows:
If to Parent and/or Acquisition, to:
The BISYS Group, Inc.
Overlook at Great Notch
000 Xxxxx Xxxx
Xxxxxx Xxxxx, Xxx Xxxxxx 00000
Attention: Chairman and Chief Executive Officer
with a copy to:
The BISYS Group, Inc.
Overlook at Great Notch
000 Xxxxx Xxxx
Xxxxxx Xxxxx, Xxx Xxxxxx 00000
Attention: General Counsel
If to the Company or the Shareholders, to:
Charter Systems, Inc.
0000 Xxxxxxxxxx Xxxxxx
Xxxx Xxxxxx, Xxxxxxxxxxxxx 00000
Attention: Xxxxx X. Xxxxx, Chairman
with a copy to:
56
Xxxxx, Xxxx & Xxxxx LLP
Xxx Xxxx Xxxxxx Xxxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
Attention: Xxxxx Xxxxxxxxx, Esq.
or such other address or addresses as any party hereto shall have designated by
notice in writing to the other parties hereto.
SECTION 10.06 Waivers. The Company, on the one hand, and Parent and
Acquisition, on the other hand, may, by written notice to the other, (i) extend
the time for the performance of any of the obligations or other actions of the
other under this Agreement; (ii) waive any inaccuracies in the representations
or warranties of the other contained in this Agreement or in any document
delivered pursuant to this Agreement; (iii) waive compliance with any of the
conditions of the other contained in this Agreement; or (iv) waive performance
of any of the obligations of the other under this Agreement. Except as provided
in the preceding sentence, no action taken pursuant to this Agreement,
including, without limitation, any investigation by or on behalf of any party,
shall be deemed to constitute a waiver by the party taking such action of
compliance with any representations, warranties, covenants or agreements
contained in this Agreement. The waiver by any party hereto of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach.
SECTION 10.07 Entire Agreement. This Agreement, its Schedules, the
documents executed at the Effective Time in connection herewith, including
without limitation the documents included as Exhibits hereto, and the
Confidentiality Agreement constitute the entire agreement among the parties
hereto with respect to the subject matter hereof and supersede all prior
agreements and understandings, oral and written, among the parties hereto with
respect to the subject matter hereof. No representation, warranty, promise,
inducement or statement of intention has been made by any party that is not
embodied in this Agreement or such other documents, and none of the parties
shall be bound by, or be liable for, any alleged representation, warranty,
promise, inducement or statement of intention not embodied herein or therein.
SECTION 10.08 Applicable Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of Delaware, without
regard to principles of conflict of laws.
SECTION 10.09 Binding Effect, Benefits. This Agreement shall inure
to the benefit of and be binding upon the parties hereto and their respective
legal representatives and
57
permitted successors and assigns. Notwithstanding anything contained in this
Agreement to the contrary, nothing in this Agreement, expressed or implied, is
intended to confer on any person other than the parties hereto or their
respective permitted successors and assigns, any rights, remedies, obligations
or liabilities under or by reason of this Agreement.
SECTION 10.10 Assignability. Neither this Agreement nor any of the
parties' rights hereunder shall be assignable by any party hereto without the
prior written consent of the other parties hereto.
SECTION 10.11 Amendments. This Agreement may be modified, amended or
supplemented at any time by action of the respective Boards of Directors of the
Company, Parent and Acquisition, and the Shareholders. Without limiting the
generality of the foregoing, this Agreement may only be amended, varied or
supplemented by an instrument in writing, signed by all of the parties hereto.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement and Plan of Merger as of the day and year first above written.
THE BISYS GROUP, INC.
By: /s/ Xxxx X. Xxxxxx
-----------------------------
Xxxx X. Xxxxxx
Chairman and Chief Executive
Officer
BICHART ACQUISITION CORP.
By: /s/ Xxxx X. Xxxxxx
-----------------------------
Xxxx X. Xxxxxx
Chairman and Chief Executive
Officer
[Signatures continue on next page]
58
[Signatures continued from prior page]
CHARTER SYSTEMS, INC.
(SEAL)
By: /s/ Xxxx X. Xxxxxxxx
-----------------------------
Xxxx X. Xxxxxxxx
President and Treasurer
SHAREHOLDERS
/s/ Xxxxx X. Xxxxx
-----------------------------
Xxxxx X. Xxxxx
/s/ Xxxxx X. Xxxxx
-----------------------------
Xxxxx X. Xxxxx
/s/ Xxxxxx X. Xxxxxxx, by Xxxxx
X. Xxxxxx, Attorney-in-Fact
-----------------------------
Xxxxxx X. Xxxxxxx
TECHNOLOGY LEADERS II L.P.
By: /s/ Xxxx X. Xxxxxx
-----------------------------
Name: Xxxx X. Xxxxxx
Title: Special Limited
Partner
TECHNOLOGY LEADERS II OFFSHORE
C.V.
By: /s/ Xxxx X. Xxxxxx
-----------------------------
Name: Xxxx X. Xxxxxx
Title: Special Limited
Partner
[Signatures continue on next page]
59
[Signatures continued from prior page]
ONE LIBERTY FUND III, L.P.
By: /s/ Xxxxxxx X. Xxxxx
-----------------------------
Name: Xxxxxxx X. Xxxxx
Title: General Partner
GILDE INTERNATIONAL FUND, B.V.
By: /s/ Xxxxxxx X. Xxxxx
-----------------------------
Name: Xxxxxxx X. Xxxxx
Title: Attorney-in-Fact
/s/ Xxxx Xxxxxx
-----------------------------
Xxxx Xxxxxx
/s/ Xxxx Xxxxx
-----------------------------
Xxxx Xxxxx
/s/ Xxxxx Xxxxxx
-----------------------------
Xxxxx Xxxxxx
XXXXXXX XXXXX and XXXX XXXXXX
XXXXXXX, or their successors,
as TRUSTEES for the XXXXXX X.
XXXXXXX CHILDREN'S TRUST
By: /s/ Xxxx X. Xxxxxxx
-----------------------------
Xxxx X. Xxxxxxx, Trustee
By: /s/ Xxxxxxx Xxxxx
-----------------------------
Xxxxxxx Xxxxx, Trustee
XXXXXXXXX X. XXXXX, or his
successor, as TRUSTEE of the
COWIE CHILDREN'S TRUST
By: /s/ Xxxxxxxxx X. Xxxxx
-----------------------------
Xxxxxxxxx X. Xxxxx, Trustee
60
INDEX TO DEFINED TERMS
Term ss. Reference
---- -------------
"Acquisition" Recitals
"Affiliate" 3.20
"Affiliate Agreement" Recitals
"Agreement" Recitals
"Aggregate Parent Common Stock 2.01(a)
Consideration"
"Approvals" 3.28
"Articles of Organization" 3.06
"Average Price" 2.01(a)
"Balance Sheet" 3.08
"Basket" 7.08(a)
"Berlack Trust" Preamble
"Borrowings" 2.01(a)
"Certificate" 2.03
"Code" Recitals
"Company" Recitals
"Company Common Stock" 2.01
"Company Common Stock Option" 2.02(a)
"Company Investments" 3.30
"Company Merger Expenses" 2.01(a)
"Company Preferred Stock" 2.01(a)
"Confidentiality Agreement" 7.09
"Constituent Corporations" Recitals
"Contract Parties" 3.11(a)
"Cowie" Preamble
"Cowie Trust" Preamble
"Delaware GCL" Recitals
"Drop Dead Date" 9.01(b)
"Effective Time" 1.03
"Employment Agreement" 7.06
"ERISA" 3.12(b)
"Exchange Act" 5.09
"Exchange Value" 2.01(b)
"Financial Statements" 3.08
"GAAP" 3.08
"Indemnifiable Breach" 7.08(a)
"Intellectual Rights" 3.09
"Major Suppliers" 3.11(b)
"Massachusetts BCL" Recitals
"Material Adverse Effect" 3.03
"Merger" Recitals
"Merger Information" 4.04(i)
"NASDAQ" 2.01(a)
"Net Merger Price" 2.01(a)
"Non-Competition Agreement" 7.06
"Number of Option Shares" 2.02(c)
"Omnibus Plan" 3.04(a)
"Owned Source Codes" 3.10(c)
"Parent" Recitals
"Parent Common Stock" Recitals
"Parent Note" 7.16
"Parent Public Information" 5.06(b)
INDEX TO DEFINED TERMS (continued)
Term ss. Reference
---- -------------
"Parent Stock Options" 2.02(c)
"Registration Rights Agreement" 7.12
"Related Party Loans" 3.31
"SEC" 4.04(b)
"Securities Act" 4.04(a)
"Series C Stock Options" 2.01(a)
"Series C Stock" 2.01
"Series E Stock 2.01
"Shareholders" Recitals
"Shareholder's Percentage Share" 7.08(a)
"Software" 3.10(a)
"Software Contracts" 3.10(b)
"Surviving Corporation" Recitals
"Warrant" 2.01(c)
