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AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
ASPEC TECHNOLOGY, INC.,
ASPEC ACQUISITION CORPORATION,
VERILUX DESIGN TECHNOLOGY
AND CERTAIN SHAREHOLDERS OF
VERILUX DESIGN TECHNOLOGY
JULY 29, 1999
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TABLE OF CONTENTS
PAGE
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1. Certain Definitions ...................................................... 1
2. The Merger ............................................................... 3
2.1 Merger; Effective Time of the Merger ............................... 3
2.2 Closing ............................................................ 3
2.3 Effect of the Merger ............................................... 3
2.4 Tax-Free Reorganization ............................................ 4
2.5 Verilux Stock Options and Convertible Securities. .................. 4
3. Effect of Merger on the Capital Stock of Verilux; Exchange of
Certificates ............................................................. 4
3.1 Exchange of Stock .................................................. 4
3.2 Fractional Shares .................................................. 5
3.3 Exchange of Certificates ........................................... 5
3.4 Taking of Necessary Action; Further Action ......................... 6
4. Securities Act Compliance ................................................ 6
4.1 Securities Act Exemption ........................................... 6
4.2 Stock Restrictions ................................................. 6
5. Representations and Warranties of Verilux and the Majority Shareholders .. 7
5.1 Organization, Qualification, and Corporate Power ................... 7
5.2 Authorization ...................................................... 7
5.3 Capitalization ..................................................... 7
5.4 Noncontravention ................................................... 8
5.5 Broker's Fees ...................................................... 8
5.6 Financial Statements ............................................... 8
5.7 Subsidiaries ....................................................... 9
5.8 Title to Assets .................................................... 9
5.9 Events Subsequent to Most Recent Fiscal Period End ................. 9
5.10 Undisclosed Liabilities ............................................ 11
5.11 Legal Compliance ................................................... 12
5.12 Tax Matters ........................................................ 12
5.13 Properties ......................................................... 13
5.14 Intellectual Property .............................................. 14
5.15 Tangible Assets .................................................... 15
5.16 Inventory .......................................................... 15
5.17 Contracts .......................................................... 15
5.18 Notes and Accounts Receivable ...................................... 17
5.19 Power of Attorney .................................................. 17
5.20 Insurance .......................................................... 17
5.21 Litigation ......................................................... 17
5.22 Product Warranty ................................................... 17
5.23 Product Liability .................................................. 18
5.24 Employees .......................................................... 18
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5.25 Employee Benefits .................................................. 18
5.26 Guaranties ......................................................... 20
5.27 Environment, Health, and Safety .................................... 20
5.28 Certain Business Relationships With Verilux ....................... 21
5.29 No Adverse Developments ............................................ 22
5.30 Full Disclosure .................................................... 22
6. Representations and Warranties of Aspec .................................. 22
6.1 Organization, Qualification, and Corporate Power ................... 22
6.2 Authorization ...................................................... 22
6.3 Capitalization ..................................................... 23
6.4 Noncontravention ................................................... 23
6.5 Brokers' Fees ...................................................... 23
6.6 SEC Filings ........................................................ 23
6.7 Financial Statements ............................................... 24
6.8 Litigation ......................................................... 24
6.9 No Adverse Developments ............................................ 24
7. Pre-Closing Covenants .................................................... 24
7.1 General ............................................................ 24
7.2 Notices and Consents ............................................... 25
7.3 Conduct of Business ................................................ 25
7.4 Preservation of Business ........................................... 25
7.5 Access to Information .............................................. 25
7.6 Notice of Developments ............................................. 25
7.7 Exclusivity ........................................................ 26
8. Post-Closing Covenants ................................................... 27
8.1 General ............................................................ 27
8.2 Litigation Support ................................................. 27
8.3 Transition ......................................................... 27
8.4 Confidentiality .................................................... 27
8.5 Verilux Employees; Employee Stock Options .......................... 28
9. Conditions to Obligations to Close ....................................... 28
9.1 Conditions to Aspec's Obligation to Close .......................... 28
9.2 Conditions to Verilux's Obligation ................................ 29
10. Survival of Representations, Indemnification ............................. 30
10.1 Limited Survival of Representations and Warranties ................. 30
10.2 Indemnification by Aspec ........................................... 30
10.3 Indemnification by Majority Shareholders ........................... 31
10.4 Notice of Claims ................................................... 31
10.5 Third Party Claims ................................................. 32
10.6 Limitation of Claims ............................................... 32
11. Termination .............................................................. 32
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11.1 Termination of the Agreement ....................................... 32
11.2 Effect of Termination .............................................. 33
12. Miscellaneous ............................................................ 33
12.1 Publicity .......................................................... 33
12.2 No Third-Party Beneficiaries ....................................... 33
12.3 Entire Agreement ................................................... 34
12.4 Succession and Assignment .......................................... 34
12.5 Counterparts ....................................................... 34
12.6 Headings ........................................................... 34
12.7 Notices ............................................................ 34
12.8 Governing Law; Dispute Resolution .................................. 35
12.9 Amendments and Waivers ............................................. 36
12.10 Severability ....................................................... 36
12.11 Expenses ........................................................... 36
12.12 Construction ....................................................... 36
12.13 Incorporation of Exhibits and Schedules ............................ 37
EXHIBITS
Exhibit A Certificate of Merger
Exhibit B List of Verilux shareholders
Exhibit C Verilux Disclosure Schedule
Exhibit D Aspec Disclosure Schedule
Exhibit E Opinion of Counsel for Verilux and Majority Shareholders
Exhibit F Opinion of Counsel for Aspec
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AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (the "AGREEMENT") is entered
into as of July 29, 1999, by and among Aspec Technology, Inc., a Delaware
corporation ("ASPEC"), Aspec Acquisition Corporation, a California corporation
and a wholly-owned subsidiary of Aspec ("MERGER SUB"), Verilux Design
Technology, a California corporation ("VERILUX"), and Xxxxxx X. Xxx and
Soo-Young Oh (collectively, the "MAJORITY SHAREHOLDERS"). Aspec, Merger Sub,
Verilux and the Majority Shareholders are sometimes referred to herein
individually as a "PARTY" and collectively as the "PARTIES."
RECITALS
A. Pursuant to a Certificate of Merger (together with any Articles
of Merger required by the CBCA) providing for the merger of Merger Sub with and
into Verilux pursuant to the California Business Corporation Act (the "CBCA")
and the Delaware General Corporation Law (the "DGCL"), the shares of Common
Stock of Verilux, no par value, issued and outstanding immediately prior to the
effective time of the Merger will be converted into an aggregate of 2,127,400
shares of Common Stock of Aspec and $872,600 cash, and Verilux will become a
wholly-owned subsidiary of Aspec.
B. The Parties desire to enter into this Agreement for the purpose
of setting forth certain representations, warranties and covenants made by each
to the other as an inducement to the execution and delivery of this Agreement,
and to serve as conditions precedent to the consummation of the merger of Merger
Sub with and into Verilux.
C. The respective Boards of Directors of Aspec and Verilux have
approved and adopted this Agreement, and the Agreement is intended to be a plan
of reorganization under the provisions of Section 368(a) of the Internal Revenue
Code of 1986, as amended.
NOW, THEREFORE, in consideration of these premises and of the mutual
agreements, representations, warranties and covenants herein contained, the
parties hereto do hereby agree as follows:
AGREEMENT
1. Certain Definitions. As used in this Agreement, the following
terms have the following meanings (terms defined in the singular to have a
correlative meaning when used in the plural and vice versa). Certain other terms
are defined in the text of this Agreement.
"AFFILIATE" of a Person means any other Person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with such Person.
"BUSINESS CONDITION" means the business, financial condition,
results of operations and assets of such corporate entity.
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"EMPLOYEE BENEFIT PLAN" means any (a) nonqualified deferred
compensation, retirement plan, severance plan or similar plan or arrangement;
(b) Employee Pension Benefit Plan; (c) Employee Welfare Benefit Plan; and (d)
any other nonqualified plan providing welfare benefits, including but not
limited to medical, dental, life insurance and disability benefits.
"EMPLOYEE PENSION BENEFIT PLAN" has the meaning set forth in
ERISA Sec. 3(2).
"EMPLOYEE WELFARE BENEFIT PLAN" has the meaning set forth in
ERISA Sec. 3(1).
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"GROSS NEGLIGENCE" consists of an intentional act, or the
failure to perform a duty, with reckless disregard for the consequences of such
act or failure.
"INTELLECTUAL PROPERTY" means (a) all inventions (whether
patentable or unpatentable and whether or not reduced to practice), all
improvements thereto, and all patents, patent applications, and patent
disclosures, together with all reissuances, continuations,
continuations-in-part, revisions, extensions, and reexaminations thereof, (b)
all trademarks, service marks, trade dress, logos, trade names, and corporate
names, together with all translations, adaptations, derivations, and
combinations thereof and including all goodwill associated therewith, (c) all
copyrightable works, all copyrights, and all applications, registrations, and
renewals in connection therewith, (d) all trade secrets and confidential
business information (including ideas, research and development, know-how,
formulas, compositions, drawings, specifications, customer and supplier lists,
pricing and cost information, financial information, and business and marketing
plans and proposals), (e) all computer software (including data and related
documentation), (f) all other proprietary rights, and (g) all copies and
tangible embodiments thereof (in whatever form or medium).
"LOSSES" shall mean any and all actions, suits, proceedings,
hearings, investigations, charges, complaints, claims, demands, injunctions,
judgments, orders, decrees, rulings, damages, dues, penalties, fines, costs,
reasonable amounts paid in settlement, liabilities, obligations, taxes, liens,
losses, expenses, and fees, including court costs and reasonable attorneys' fees
and expenses in connection with any action, suit or proceeding to the extent of
the amount of such actions, suits, proceedings, hearings, investigations,
charges, complaints, claims, demands, injunctions, judgments, orders, decrees,
rulings, damages, dues, penalties, fines, costs, reasonable amounts paid in
settlement, liabilities, obligations, taxes, liens, losses, expenses or fees.
"MATERIAL ADVERSE EFFECT" shall mean a material adverse effect
on the Business Condition of the corporate entity and its subsidiaries.
"MULTIEMPLOYER PLAN" has the meaning set forth in ERISA Sec.
3(37) and Code Sec. 414(f).
"VERILUX SHAREHOLDERS" shall mean the shareholders of record of
Verilux immediately prior to the Effective Time of the Merger.
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"ORDINARY COURSE OF BUSINESS" means the ordinary course of
business consistent with past custom and practice (including with respect to
quantity and frequency).
"PERSON" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization, or a governmental entity (or any department, agency, or political
subdivision thereof).
"SECURITY INTEREST" means any mortgage, pledge, lien,
encumbrance, charge, or other security interest, other than (a) mechanic's,
materialmen's, and similar liens, (b) liens for taxes not yet due and payable,
(c) purchase money liens and liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the Ordinary Course of Business and
not incurred in connection with the borrowing of money.
2. The Merger.
2.1 Merger; Effective Time of the Merger. Subject to the
terms and conditions of this Agreement, Merger Sub will be merged with and into
Verilux (the "MERGER") in accordance with the CBCA and the DGCL, and, as a
result, Verilux will become a wholly-owned subsidiary of Aspec. In accordance
with the provisions of this Agreement, a Certificate of Merger in the form
attached hereto as Exhibit A shall be filed with the Delaware Secretary of State
in accordance with the DGCL and such Certificate of Merger (or, to the extent
required by the CBCA, Articles of Merger in form and substance mutually
acceptable to counsel for Verilux and counsel for Aspec) shall be filed with the
California Secretary of State in accordance with the CBCA on the Closing Date
(as defined in Section 2.2) and each issued and outstanding share of Common
Stock, no par value, of Verilux ("VERILUX COMMON STOCK") shall be converted into
a fraction of a share of Common Stock, $0.001 par value, of Aspec ("ASPEC COMMON
STOCK") in the manner contemplated by Section 3. The Merger shall become
effective at the time of the filing of the Merger Agreement with the California
Secretary of State and the Delaware Secretary of State (the date of such filing
being hereinafter referred to as the "EFFECTIVE DATE OF THE MERGER" and the time
of such filing being hereinafter referred to as the "EFFECTIVE TIME OF THE
MERGER").
2.2 Closing. The closing of the Merger (the "CLOSING") will
take place as soon as practicable after satisfaction or waiver of the latest to
occur of the conditions set forth in Section 9 (the "CLOSING DATE"), at the
offices of Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx, Professional Corporation, 000 Xxxx
Xxxx Xxxx, Xxxx Xxxx, Xxxxxxxxxx 00000-0000, or such other place as determined
by the parties.
2.3 Effect of the Merger. At the Effective Time of the
Merger, (i) the separate existence of Merger Sub shall cease and Merger Sub
shall be merged with and into Verilux (Merger Sub and Verilux are sometimes
referred to herein as the "CONSTITUENT CORPORATIONS" and Verilux after the
Merger is sometimes referred to herein as the "SURVIVING CORPORATION"), (ii) the
Articles of Incorporation of Merger Sub shall be the Certificate of
Incorporation of the Surviving Corporation, (iii) the Bylaws of Merger Sub shall
be the Bylaws of the Surviving Corporation, (iv) the directors of Merger Sub
shall be the directors of the Surviving Corporation and (v) the
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Merger shall, from and after the Effective Time of the Merger, have all the
effects provided by applicable law.
2.4 Tax-Free Reorganization. The Merger is intended to
qualify as a tax free reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "CODE").
2.5 Verilux Stock Options and Convertible Securities. On or
prior to the Effective Time of the Merger, all outstanding options, warrants and
convertible securities of Verilux shall terminate unless otherwise exercised
prior to such time. All current outstanding options, warrants and convertible
securities of Verilux are listed in the Verilux Disclosure schedule.
3. Effect of Merger on the Capital Stock of Verilux; Exchange of
Certificates
3.1 Exchange of Stock and Cash Consideration. As of the
Effective Time of the Merger, each share of Verilux Common Stock that is issued
and outstanding immediately prior to the Effective Time of the Merger as
provided for in Section 3.2 below), shall, by virtue of the Merger and without
any action on the part of Verilux Shareholders, be converted into (i) shares of
Aspec Common Stock, and (ii) cash payment determined by dividing 3,000,000 by
the aggregate number of shares of Verilux Common Stock (the "EXCHANGE RATIO")
issued and outstanding immediately prior to the Effective Time of the Merger
(including any shares issued upon the exercise of outstanding Verilux options or
Verilux convertible securities and any Dissenting Shares). Attached as Exhibit B
is a Verilux shareholder list showing the shares of Aspec Common Stock and cash
to be exchanged for the shares of Verilux Common Stock held by each Verilux
Shareholder.
3.2 Fractional Shares. No fractional shares of Aspec Common
Stock shall be issued in the Merger. In lieu thereof, each holder of shares of
Verilux Common Stock who would otherwise be entitled to receive a fraction of a
share of Aspec Common Stock shall receive from Aspec an amount of cash (rounded
to the nearest whole cent) equal to the product of the fraction of a share of
Aspec Common Stock to which such holder would otherwise be entitled, multiplied
by $1.00. For the purpose of determining fractional shares, all shares of Aspec
Common Stock to be issued to any Verilux shareholder shall be aggregated.
3.3 Exchange of Certificates.
(a) Exchange Agent. Prior to the Closing Date, Aspec
shall appoint itself or ChaseMellon Shareholder Services, L.L.C. to act as the
exchange agent (the "EXCHANGE AGENT") in the Merger.
(b) Aspec to Provide Aspec Common Stock. Promptly
after the Effective Date of the Merger, Aspec shall make available for exchange
in accordance with this Section 3, through such reasonable procedures as Aspec
may adopt, the shares of Aspec Common Stock issuable pursuant to Section 3.1 in
exchange for outstanding shares of Verilux Common Stock.
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(c) Exchange Procedures. Within ten (10) days after
the Effective Date of the Merger, the Exchange Agent shall mail to each holder
of record of a certificate or certificates which immediately prior to the
Effective Date of the Merger represented outstanding shares of Verilux Common
Stock (the "CERTIFICATES") whose shares are being converted into shares of Aspec
Common Stock pursuant to Section 3.1 hereof (i) a letter of transmittal (which
shall specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the Exchange
Agent and which shall be in such form and have such other provisions as Aspec
may reasonably specify, including appropriate investment representations to be
made by each such shareholder) (the "LETTER OF TRANSMITTAL") and (ii)
instructions for use in effecting the surrender of the Certificates in exchange
for shares of Aspec Common Stock. Upon surrender of a Certificate for
cancellation to the Exchange Agent or to such other agent or agents as may be
appointed by Aspec, together with such letter of transmittal, duly executed, the
holder of such Certificate shall be entitled to receive in exchange therefor the
number of shares of Aspec Common Stock to which the holder of Verilux Common
Stock is entitled pursuant to Section 3.1 hereof. The Certificate so surrendered
shall forthwith be canceled. No interest will accrue or be paid to the holder of
any outstanding Verilux Common Stock. From and after the Effective Date of the
Merger, until surrendered as contemplated by this Section 3.4, each Certificate
shall be deemed for all corporate purposes to evidence the number of shares of
Aspec Common Stock into which the shares of Verilux Common Stock represented by
such Certificate have been converted. Notwithstanding the foregoing procedures,
Aspec shall use its reasonable efforts to provide the form of Letter of
Transmittal to Verilux as soon as practical after the date hereof, and Verilux
shall provide such Letter of Transmittal to each Verilux shareholder. The
parties agree that in the event Aspec makes such Letter of Transmittal available
to Verilux, any Exchange Agent shall not be obligated to mail such Letter of
Transmittal to the Verilux shareholders.
(d) No Further Ownership Rights in Capital Stock of
Verilux. The shares of Aspec Common Stock delivered upon the surrender for
exchange of shares of Verilux Common Stock in accordance with the terms hereof
shall be deemed to have been delivered in full satisfaction of all rights
pertaining to such Verilux Common Stock. There shall be no further registration
of transfers on the stock transfer books of the Surviving Corporation of Verilux
Common Stock which were outstanding immediately prior to the Effective Date of
the Merger. If, after the Effective Date of the Merger, Certificates are
presented to the Surviving Corporation for any reason, they shall be canceled
and exchanged as provided in this Section 3.3, provided that the presenting
holder is listed on Verilux's shareholder list as a holder of Verilux Common
Stock.
3.4 Taking of Necessary Action; Further Action. Aspec,
Merger Sub, Verilux and the Majority Shareholders shall take all such actions as
may be necessary or appropriate in order to effect the Merger as promptly as
possible. If, at any time after the Effective Date of the Merger, any further
action is necessary or desirable to carry out the purposes of this Agreement and
to vest the Surviving Corporation with full right, title and possession to all
assets, property, rights, privileges, powers and franchises of Verilux, the
officers and directors of the Surviving Corporation are fully authorized in the
name of the corporation or otherwise to take, and shall take, all such action.
4. Securities Act Compliance.
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4.1 Securities Act Exemption. The issuance of the Aspec
Common Stock in the Merger shall not be registered under the Securities Act of
1933, as amended (the "SECURITIES ACT"), in reliance upon Section 4(2) and/or
Regulation D of the Securities Act.
4.2 Stock Restrictions. The certificates representing the
shares of Aspec Common Stock issued pursuant to this Agreement shall bear a
restrictive legend (and stop transfer orders shall be placed against the
transfer thereof with Aspec's transfer agent), stating substantially as follows:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH
SHARES MAY NOT BE SOLD, OFFERED FOR SALE, TRANSFERRED,
ASSIGNED OR OTHERWISE DISPOSED OF EXCEPT (I) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO, (II) IN
COMPLIANCE WITH RULE 144 OR (III) PURSUANT TO AN OPINION OF
COUNSEL FOR ASPEC THAT SUCH REGISTRATION IS NOT REQUIRED UNDER
THE SECURITIES ACT OF 1933."
5. Representations and Warranties of Verilux and the Majority
Shareholders. Verilux and, to their respective knowledge, each of the Majority
Shareholders severally and not jointly represents and warrants to Aspec and
Merger Sub that the statements contained in this Section 5 are correct and
complete as of the date of this Agreement and will be correct and complete as of
the Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this Section 5), except as
set forth in the disclosure schedule delivered by Verilux to Aspec on the date
hereof (and initialed by Aspec), a copy of which is attached hereto as Exhibit C
(referred to herein as the "VERILUX DISCLOSURE SCHEDULE"). The Verilux
Disclosure Schedule will be arranged in paragraphs corresponding to the lettered
and numbered paragraphs contained in this Section 5.
5.1 Organization, Qualification, and Corporate Power.
Verilux is a corporation duly organized, validly existing, and in good standing
under the laws of the State of California. Verilux is duly authorized to conduct
business and is in good standing under the laws of each other jurisdiction where
such qualification is required. There is no state, other than California, in
which Verilux owns any property or in which it has any employees, offices or
operations. Verilux has full corporate power and authority, and has all
necessary and material licenses and permits, to carry on the businesses in which
it is engaged and to own and use the properties owned and used by it. Section 5
of the Verilux Disclosure Schedule lists the directors and officers of Verilux.
The operations now being conducted by Verilux have not been conducted under any
other name during the past five (5) years.
5.2 Authorization. Verilux has full power and authority to
execute and deliver this Agreement and the Merger Agreement, and, subject to
receipt of the requisite approval of its
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shareholders, to consummate the transactions contemplated hereunder and to
perform its obligations hereunder and no other proceedings on the part of
Verilux are necessary to authorize the execution, delivery and performance of
this Agreement and the Merger Agreement. This Agreement and the Merger Agreement
and the transactions contemplated thereby have been approved by the Verilux's
Board of Directors and Shareholders. This Agreement and the Merger Agreement
constitute the valid and legally binding obligations of Verilux, enforceable
against Verilux in accordance with their respective terms and conditions.
Verilux need not give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental agency in
order to consummate the transactions contemplated by this Agreement.
5.3 Capitalization.
(a) Capital Stock. As of the date of this Agreement,
the entire authorized capital stock of Verilux consists of 5,000,000 shares of
Common Stock, 4,252,916 of which are issued and outstanding. In addition no
stock options are currently outstanding and all options have been exercised or
terminated. All of the issued and outstanding shares of capital stock have been
duly authorized, are validly issued, fully paid, and non-assessable, and are
held of record by the respective shareholders as set forth in Section 5.3(a) of
the Verilux Disclosure Schedule. All of the outstanding shares of capital stock
have been offered, issued and sold by Verilux in compliance with applicable
Federal and state securities laws. As of the Closing Date, the entire authorized
capital stock of Verilux shall consist of 5,000,000 shares of Common Stock,
4,252,916 of which shall be issued and outstanding. As of the Closing Date, all
of the then issued and outstanding shares of capital stock shall have been duly
authorized, shall be validly issued, fully paid, and non-assessable, and shall
be held of record by the respective shareholders as set forth in Section 5.3(a)
of the Verilux Disclosure Schedule. As of the Closing Date, all of the then
outstanding shares of capital stock shall have been offered, issued and sold by
Verilux in compliance with applicable Federal and state securities laws.
(b) No Other Rights or Agreements. As of the date of
this Agreement, Section 5.3(b) of the Verilux Disclosure Schedule lists all of
the holders of options, warrants, purchase rights, subscription rights,
conversion rights, convertible debentures or other securities, exchange rights
and other rights that could require Verilux to issue, sell or otherwise cause to
become outstanding any of its capital stock (the "STOCK RIGHTS"), and the number
of shares of Verilux Common Stock subject to such Stock Rights. Except as set
forth in Section 5.3(b) of the Verilux Disclosure Schedule, there are no other
outstanding or authorized Stock Rights. Except as set forth in Section 5.3(b) of
the Verilux Disclosure Schedule, there are no outstanding or authorized stock
appreciation, phantom stock, profit participation, or similar rights with
respect to Verilux. Other than as contemplated by Section 7.9 hereof, there are
no voting trusts, proxies, or other agreements or understandings with respect to
the voting of the capital stock of Verilux. All of the Verilux Stock Rights will
be fully exercised or canceled prior to the Effective Time of the Merger. As of
the Effective Time of the Merger, there will be (i) no outstanding or authorized
Stock Rights, (ii) no outstanding or authorized stock appreciation, phantom
stock, profit participation, or similar rights with respect to Verilux and (iii)
no voting trusts, proxies, or other agreements or understandings with respect to
the voting of the capital stock of Verilux (other than as contemplated by
Section 7.9 hereof).
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5.4 Noncontravention. Neither the execution and the delivery
of this Agreement by Verilux nor the consummation by Verilux of the transactions
contemplated hereby, will (A) violate any constitution, statute, regulation,
rule, injunction, judgment, order, decree, ruling, charge, or other restriction
of any government, governmental agency, or court to which Verilux is subject or
any provision of its Articles of Incorporation or bylaws, or (B) (i) conflict
with, (ii) result in a breach of, (iii) constitute a default under, (iv) result
in the acceleration of, (v) create in any party the right to accelerate,
terminate, modify, or cancel, or (vi) except as set forth in Section 5.4 of the
Verilux Disclosure Schedule, require any notice under, any agreement, contract,
lease, license, instrument, franchise permit or other arrangement to which
Verilux is a party or by which it is bound or to which any of its assets is
subject (or result in the imposition of any Security Interest upon any of its
assets).
5.5 Broker's Fees. Neither Verilux nor any of the Majority
Shareholders has any liability or obligation to pay any fees or commissions to
any broker, finder or agent with respect to the transactions contemplated by
this Agreement.
5.6 Financial Statements. Section 5.6 of the Verilux
Disclosure Schedule contains the following financial statements (collectively
the "FINANCIAL STATEMENTS"): (i) unaudited balance sheets and statements of
income and cash flows as of and for the fiscal year ended December 31, 1998 (the
"MOST RECENT FISCAL YEAR END") for Verilux; and (ii) an unaudited balance sheet
and statements of income and cash flows (the "MOST RECENT FINANCIAL STATEMENTS")
as of and for the fiscal period ended March 31, 1999 and June 30, 1999 (the
"MOST RECENT FISCAL PERIOD ENDS") for Verilux. The Financial Statements
(including the notes thereto) have been prepared in accordance with generally
accepted accounting principles ("GAAP") applied on a consistent basis throughout
the periods covered thereby and present fairly the financial condition of
Verilux as of such dates and the results of operations of Verilux for such
periods; provided, however, that the Most Recent Financial Statements lack
footnotes and certain other presentation items and are subject to normal year
end adjustments. Except as set forth in Section 5.6 of the Verilux Disclosure
Schedule, the books of account of Verilux reflect as of the dates shown thereon
all items of income and expenses, and all assets, liabilities and accruals of
Verilux required to be reflected therein, in accordance with generally accepted
accounting principles consistently applied.
5.7 Subsidiaries. Verilux has no subsidiaries and has not
been a subsidiary of another company.
5.8 Title to Assets. Verilux has good and marketable title
to, or a valid leasehold interest in, the properties and assets (including,
without limitation, all Intellectual Property) used by it, located on its
premises, or shown on the balance sheet contained within the Most Recent
Financial Statements (the "MOST RECENT BALANCE SHEET") or acquired after the
date thereof, free and clear of all Security Interests, except for properties
and assets disposed of in the Ordinary Course of Business since the date of the
Most Recent Balance Sheet and except as set forth in Section 5.8 of the Verilux
Disclosure Schedule. No Person other than Verilux will own at the time of the
Closing any assets or properties currently utilized in or necessary to the
operations or business of Verilux or situated on any of the premises of Verilux.
There are no existing contracts, agreements, commitments or
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13
arrangements with any Person to acquire any of the assets or properties of
Verilux (or any interest therein) except for this Agreement.
5.9 Events Subsequent to Most Recent Fiscal Period End.
Since the Most Recent Fiscal Period End, there has not been any material adverse
change in the Business Condition of Verilux. Without limiting the generality of
the foregoing, since that date:
(a) Verilux has not sold, leased, transferred, or
assigned any assets or properties, tangible or intangible, outside the Ordinary
Course of Business;
(b) except for those agreements, contracts, leases
and commitments identified in Section 5.17 of the Verilux Disclosure Schedule,
Verilux has not entered into, assumed or become bound under or obligated by any
agreement, contract, lease or commitment (collectively a "VERILUX AGREEMENT") or
extended or modified the terms of any Verilux Agreement which (i) involves the
payment of greater than $10,000 per annum or which extends for more than one (1)
year, (ii) involves any payment or obligation to any Affiliate of Verilux other
than in the Ordinary Course of Business, (iii) involves the sale of any material
assets, (iv) involves any OEM relationship, or (v) involves any license of
Verilux's technology;
(c) to the knowledge of Verilux, no party (including
Verilux) has accelerated, terminated, made modifications to, or canceled any
agreement, contract, lease, or license to which Verilux is a party or by which
it is bound and Verilux has not modified, canceled or waived or settled any
debts or claims held by it, outside the Ordinary Course of Business, or waived
or settled any rights or claims of a substantial value, whether or not in the
Ordinary Course of Business;
(d) none of the assets of Verilux, tangible or
intangible, has become subject to any Security Interest, except as set forth on
Section 5.8 of the Verilux Disclosure Schedule;
(e) Verilux has not made any capital expenditures
except in the Ordinary Course of Business and not exceeding $10,000 in the
aggregate of all such capital expenditures;
(f) Verilux has not made any capital investment in,
or any loan to, any other Person;
(g) Verilux has not created, incurred, assumed,
prepaid or guaranteed any indebtedness for borrowed money and capitalized lease
obligations, or extended or modified any existing indebtedness, except as
provided in Section 9.1(i) hereof;
(h) Verilux has not granted any license or
sublicense of any rights under or with respect to any Intellectual Property;
(i) there has been no change made or authorized in
the Articles of Incorporation or bylaws of Verilux;
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14
(j) Verilux has not issued, sold, or otherwise
disposed of any of its capital stock, or granted any options, warrants, or other
rights to purchase or obtain (except upon the conversion, exchange or exercise
of any such securities which are described on Section 5.3 of the Verilux
Disclosure Schedule) any of its capital stock;
(k) Verilux has not declared, set aside, or paid any
dividend or made any distribution with respect to its capital stock (whether in
cash or in kind) or redeemed, purchased, or otherwise acquired any of its
capital stock (other than with respect to any Dissenting Shares (as defined
herein));
(l) Verilux has not experienced any damage,
destruction, or loss (whether or not covered by insurance) to its property in
excess of $10,000 in the aggregate of all such damage, destruction and losses;
(m) Verilux has not suffered any repeated, recurring
or prolonged shortage, cessation or interruption of inventory shipments,
supplies or utility services;
(n) Verilux has not made any loan to, or entered
into any other transaction with, or paid any bonuses in excess of an aggregate
of $10,000 to, any of its Affiliates, directors, officers, or employees or their
Affiliates, and, in any event, any such transaction was on fair and reasonable
terms no less favorable to Verilux than would be obtained in a comparable arm's
length transaction with a Person which is not such a director, officer or
employee or Affiliate thereof;
(o) Verilux has not entered into any employment
contract or collective bargaining agreement, written or oral, or modified the
terms of any existing such contract or agreement;
(p) Verilux has not granted any increase in the base
compensation of any of its directors or officers, or, except in the Ordinary
Course of Business, any of its employees;
(q) Verilux has not adopted, amended, modified, or
terminated any bonus, profit-sharing, incentive, severance, or other plan,
contract, or commitment for the benefit of any of its directors, officers, or
employees (or taken any such action with respect to any other Employee Benefit
Plan);
(r) Verilux has not made any other change in
employment terms for any of its directors or officers, and Verilux has not made
any other change in employment terms for any other employees outside the
Ordinary Course of Business;
(s) Verilux has not suffered any material adverse
change or any threat of any material adverse change in its relations with, or
any loss or threat of loss of, any of its major customers, distributors or
dealers;
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15
(t) Verilux has not suffered any material adverse
change or any threat of any material adverse change in its relations with, or
any loss or threat of loss of, any of it major suppliers;
(u) Verilux has not received notice or had knowledge
of any actual or threatened labor trouble or strike, or any other occurrence,
event or condition of a similar character;
(v) Verilux has not changed any of the accounting
principles followed by it or the method of applying such principles, except as
described on Schedule 5.6 of the Verilux Disclosure Schedule;
(w) Verilux has not made a change in any of its
banking or safe deposit arrangements;
(x) Verilux has not entered into any transaction
other than in the Ordinary Course of Business; and
(y) Verilux has not committed to any of the
foregoing.
5.10 Undisclosed Liabilities. Verilux has no material
liability (whether known or unknown, whether asserted or unasserted, whether
absolute or contingent, whether accrued or unaccrued, whether liquidated or
unliquidated, and whether due or to become due, including any liability for
taxes) of a character which, under GAAP, should be accrued, shown or disclosed
on a balance sheet of Verilux, except for (i) liabilities set forth on the Most
Recent Balance Sheet and (ii) liabilities which have arisen after the Most
Recent Fiscal Period End in the Ordinary Course of Business.
5.11 Legal Compliance. Verilux has complied in all material
respects with all applicable laws (including rules, regulations, codes, plans,
injunctions, judgments, orders, decrees, rulings, and charges thereunder) of
federal, state, local, and foreign governments (and all agencies thereof). To
the knowledge of Verilux, no action, suit, proceeding, hearing, investigation,
charge, complaint, claim, demand, notice or inquiry has been filed or commenced
by or against, or received by, any governmental body alleging any failure to so
comply. Verilux has all licenses, permits, approvals, registrations,
qualifications, certificates and other governmental authorizations that are
necessary for the operations of Verilux as they are presently conducted, except
for any such licenses, permits, approvals, registrations, qualifications,
certificates and other governmental authorizations which, if not obtained, would
not individually or in the aggregate be likely to result Material Adverse Effect
on Verilux.
5.12 Tax Matters.
(a) For purposes of this Agreement, "TAXES" means
all federal, state, municipal, local or foreign income, gross receipts, windfall
profits, severance, property, production, sales, use, value added, license,
excise, franchise, employment, withholding, capital stock, levies, imposts,
duties, transfer and registration fees or similar taxes or charges imposed on
the income,
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16
payroll, properties or operations of Verilux, together with any interest,
additions or penalties, deficiencies or assessments with respect thereto and any
interest in respect of such additions or penalties.
(b) Verilux has filed all reports and returns with
respect to any Taxes ("TAX RETURNS") that it was required to file. All such Tax
Returns were correct and complete in all material respects, and no such Tax
Returns are currently the subject of audit. All Taxes owed by Verilux (whether
or not shown on any Tax Return) were paid in full when due or are being
contested in good faith and are supported by adequate reserves on the Most
Recent Financial Statements, except any state Taxes (other than California
related Taxes) which are not individually or in the aggregate material to
Verilux. Verilux has provided adequate reserves on its Financial Statements for
the payment of any taxes accrued but not yet due and payable. Verilux is not
currently the beneficiary of any extension of time within which to file any Tax
Return, and Verilux has not waived any statute of limitations in respect of
Taxes or agreed to any extension of time with respect to any Tax assessment or
deficiency.
(c) There is no dispute or claim concerning any Tax
liability of Verilux either (A) claimed or raised by any authority in writing or
(B) based upon personal contact with any agent of such authority. There are no
tax liens of any kind upon any property or assets of Verilux, except for
inchoate liens for taxes not yet due and payable.
(d) Verilux has not filed a consent under Sec.
341(f) of the Internal Revenue Code of 1986, as amended (the "CODE") concerning
collapsible corporations. Verilux has not made any payments, is not obligated to
make any payments, and is not a party to any agreement that under any
circumstances could obligate it to make any payments as a result of the
consummation of the Merger that will not be deductible under Code Sec. 280G.
Verilux has not been a United States real property holding corporation within
the meaning of Code Sec. 897(c)(2) during the applicable period specified in
Code Sec. 897(c)(1)(A)(ii). Verilux is not a party to any tax allocation or
sharing agreement. Verilux (A) has not been a member of any affiliated group
within the meaning of Code Sec. 1504 or any similar group defined under a
similar provision of state, local, or foreign law (an "AFFILIATED GROUP") filing
a consolidated federal Income Tax Return and (B) has no any liability for the
taxes of any Person under Treas. Reg. Section 1.1502-6 (or any similar provision
of state, local, or foreign law), as a transferee or successor, by contract, or
otherwise.
(e) The unpaid Taxes of Verilux (A) did not, as of
the Most Recent Fiscal Period End, exceed by any amount the reserve for Tax
liability (other than any reserve for deferred taxes established to reflect
timing differences between book and tax income) set forth on the face of the
Most Recent Balance Sheet (rather than in any notes thereto) and (B) will not
exceed that reserve as adjusted for operations and transactions through the
Closing Date in accordance with the past custom and practice of Verilux in
filing its Tax Returns.
5.13 Properties.
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17
(a) Verilux does not currently own and has never
previously owned any real property.
(b) Section 5.13 of the Verilux Disclosure Schedule
lists and describes briefly all real property leased or subleased to Verilux.
Verilux has delivered to Aspec correct and complete copies of the leases and
subleases listed in Section 5.13 of the Verilux Disclosure Schedule (as amended
to date). With respect to each lease and sublease listed in Section 5.13 of the
Verilux Disclosure Schedule to the knowledge of Verilux:
(i) the lease or sublease is legal, valid,
binding, enforceable, and in full force and effect in all respects;
(ii) no party to the lease or sublease is in
breach or default, and no event has occurred which, with notice or lapse of
time, would constitute a breach or default or permit termination, modification,
or acceleration thereunder;
(iii) no party to the lease or sublease has
repudiated any provision thereof;
(iv) there are no disputes, oral agreements,
or forbearance programs in effect as to the lease or sublease:
(v) Verilux has not assigned, transferred,
conveyed, mortgaged, deeded in trust, or encumbered any interest in the
leasehold or subleasehold; and
(vi) all facilities leased or subleased
thereunder have received all approvals of governmental authorities (including
licenses and permits) required in connection with the operation thereof, and
have been operated and maintained in accordance with applicable laws, rules, and
regulations in all material respects.
5.14 Intellectual Property.
(a) To the knowledge of Verilux, Verilux has not
interfered with, infringed upon, misappropriated or violated any Intellectual
Property rights of third parties. Verilux has not received since its inception
any charge, complaint, claim, demand, or notice alleging any such interference,
infringement, misappropriation, or violation (including any claim that Verilux
must license or refrain from using any Intellectual Property rights of any third
party), except as disclosed in Section 5.14 of the Verilux Disclosure Schedule.
To the knowledge of Verilux, no third party has interfered with, infringed upon,
misappropriated, or violated any Intellectual Property rights of Verilux. Each
employee of Verilux has signed an invention assignment and/or confidentiality
agreement with Verilux that provides that any Intellectual Property developed by
such employee while employed by Verilux is the sole property of Verilux.
(b) Section 5.14(b) of the Verilux Disclosure
Schedule identifies (i) all Intellectual Property owned by Verilux and (ii) each
patent or registration which has been issued to
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18
Verilux or any Affiliate of Verilux with respect to any of the Intellectual
Property used in Verilux's business, (iii) each pending patent application or
application for registration which Verilux or any Affiliate of Verilux has made
with respect to any of the Intellectual Property used in Verilux's business, and
(iv) each material license, agreement, or other permission which Verilux or any
Affiliate of Verilux has granted to any third party with respect to any of the
Intellectual Property used in Verilux's business (together with any exceptions).
Verilux has delivered to Aspec correct and complete copies of all such patents,
registrations, applications, licenses, agreements, and permissions (as amended
to date). Section 5.14(b) of the Verilux Disclosure Schedule also identifies (i)
each trade name or unregistered trademark used by Verilux or any Affiliate of
Verilux which is material to the business of Verilux and (ii) each unregistered
copyright or trade secret owned by Verilux or any Affiliate of Verilux with
respect to Intellectual Property which is material to the business of Verilux.
With respect to each item of Intellectual Property required to be identified in
Section 5.14(b) of the Verilux Disclosure Schedule, to the knowledge of Verilux:
(i) Verilux possesses all right, title, and
interest in and to the item, free and clear of any Security Interest (except as
disclosed in Section 5.8 of the Verilux Disclosure Schedule), license or other
restriction;
(ii) the item is legal and valid and in full
force and effect and is not subject to any outstanding injunction, judgment,
order, decree, ruling, or charge;
(iii) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is pending or, to the
knowledge of Verilux, threatened which challenges the legality, validity,
enforceability, use or ownership of the item; and
(iv) Verilux has never agreed to indemnify
any Person for or against any interference, infringement, misappropriation, or
other conflict with respect to the item, except pursuant to the contracts set
forth in Section 5.17 of the Verilux Disclosure Schedule.
(c) Section 5.14(c) of the Verilux Disclosure
Schedule identifies each material item of Intellectual Property that any third
party owns and that Verilux uses pursuant to license, sublicense, agreement, or
permission. Verilux has delivered to Aspec correct and complete copies of all
such licenses, sublicenses, agreements, and permissions (as amended to date).
With respect to each item of Intellectual Property required to be identified in
Section 5.14(c) of the Verilux Disclosure Schedule, to the knowledge of Verilux:
(i) the license, sublicense, agreement or
permission covering the item is legal, valid, binding, enforceable, and in full
force and effect in all material respects;
(ii) no party to the license, sublicense,
agreement, or permission is in breach or default, and, to the knowledge of
Verilux, no event has occurred which with notice or lapse of time would
constitute a breach or default or permit termination, modification or
acceleration thereunder;
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(iii) no party to the license, sublicense,
agreement, or permission has repudiated any provision thereof; and
(iv) Verilux has not granted any sublicense
or similar right with respect to the license, sublicense, agreement, or
permission.
5.15 Tangible Assets. The buildings, machinery, equipment,
and other tangible assets that Verilux owns and leases are free from material
defects (patent and latent) and are in good operating condition and repair
(subject to normal wear and tear) and are usable in the Ordinary Course of
Business.
5.16 Inventory. In all material respects, all of the
inventory of Verilux and any supplies, manufactured and processed parts, work in
process or finished goods, is usable, merchantable and fit for the purpose for
which it was procured or manufactured, and none of such inventory is
slow-moving, obsolete, damaged, or defective, subject to adjustments for
operations and transactions through the Closing Date in accordance with the past
custom and practice of Verilux.
5.17 Contracts. Section 5.17 of the Verilux Disclosure
Schedule lists the following contracts, agreements, commitments and other
arrangements to which Verilux is a party or by which Verilux or any of its
assets is bound:
(a) any agreement (or group of related agreements)
for the lease of personal property to or from any Person or license of any
software or Intellectual Property which involves the payment by or to Verilux of
more than $10,000 per year;
(b) any agreement (or group of related agreements)
for the purchase or sale of raw materials, commodities, supplies, products, or
other personal property, or for the furnishing or receipt of services, the
performance of which will extend over a period of more than one year or involve
consideration in excess of $10,000;
(c) any agreement for the purchase of supplies,
components, products or services from single source suppliers, custom
manufacturers or subcontractors which involves the payment by Verilux of more
than $10,000 per year;
(d) any agreement concerning a partnership or joint
venture;
(e) any agreement (or group of related agreements)
under which it has created, incurred, assumed, or guaranteed any indebtedness
for borrowed money or any capitalized lease obligation in excess of $10,000 or
under which a Security Interest has been imposed on any of its assets, tangible
or intangible;
(f) any agreement concerning noncompetition or
restraint of trade or any agreement on currently active projects which involves
confidentiality;
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(g) any agreement with any Verilux shareholder or
any of such shareholder's Affiliates (other than Verilux) or with any Affiliate
of Verilux;
(h) any profit sharing, stock option, stock
purchase, stock appreciation, deferred compensation, severance, or other plan or
arrangement for the benefit of its current or former directors, officers or
employees;
(i) any collective bargaining agreement;
(j) any agreement for the employment of any
individual on a full-time, part-time, consulting, or other basis;
(k) any agreement under which it has advanced or
loaned any amount to any of its directors, officers, and employees;
(l) any agreement pursuant to which Verilux is
obligated to provide services, maintenance, support or training which involves
payments to Verilux of more than $50,000 per year;
(m) any standard form agreement used by Verilux,
including, but not limited to, any purchase order, statement of standard terms
and conditions of sale, or employment offer letter; and
(n) any other agreement (or group of related
agreements) the performance of which involves consideration in excess of $10,000
or which is expected to continue for more than six (6) months from the date
hereof.
Verilux has delivered to Aspec a correct and complete copy of each written
agreement listed in Section 5.17 of the Verilux Disclosure Schedule (as amended
to date) and a written summary setting forth the terms and conditions of each
oral agreement referred to in Section 5.17 of the Verilux Disclosure Schedule.
With respect to each such agreement: (A) the agreement is legal, valid, binding,
enforceable, and in full force and effect in all respects against Verilux and,
to the knowledge of Verilux, the other parties thereto; (B) Verilux is not and,
to the knowledge of Verilux, no other party is in breach or default, and no
event has occurred, which with notice or lapse of time would constitute a breach
or default, or permit termination, modification, or acceleration, under the
agreement; (C) Verilux has not and, to the knowledge of Verilux, no other party
has repudiated any provision of the agreement; and (D) Verilux does not have any
reason to believe that the service called for thereunder cannot be supplied in
accordance with its terms and without resulting in a loss to any of Verilux.
5.18 Notes and Accounts Receivable. All notes and accounts
receivable of Verilux, all of which are reflected properly on the books and
records of Verilux in all material respects, are, to the knowledge of Verilux,
(i) valid receivables subject to no setoffs, defenses or counterclaims, and are
current and collectible, and (ii) will be collected in accordance with their
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terms at their recorded amounts, subject only to adjustments for operations and
transactions through the Closing Date in accordance with the past custom and
practice of Verilux.
5.19 Power of Attorney. There are no outstanding powers of
attorney executed on behalf of Verilux.
5.20 Insurance. Verilux has delivered to Aspec copies of each
insurance policy (including policies providing property, casualty, liability,
and workers' compensation coverage and bond and surety arrangements) with
respect to which Verilux is a party, a named insured, or otherwise the
beneficiary of coverage. With respect to each such insurance policy: (A) the
policy is legal, valid, binding, enforceable, and in full force and effect (and
there has been no notice of cancellation or nonrenewal of the policy received)
with respect to Verilux and, to the knowledge of Verilux, the other parties
thereto; (B) neither Verilux nor, to the knowledge of Verilux, any other party
to the policy is in breach or default (including with respect to the payment of
premiums or the giving of notices), and no event has occurred which, with notice
or the lapse of time, would constitute such a breach or default, or permit
termination, modification, or acceleration, under the policy; (C) neither
Verilux nor, to the knowledge of Verilux, any other party to the policy has
repudiated any provision thereof; and (D) there has been no failure by Verilux
to give any notice or present any claim under the policy in due and timely
fashion. Section 5.20 of the Verilux Disclosure Schedule describes any
self-insurance arrangements presently maintained by Verilux.
5.21 Litigation. Section 5.21 of the Verilux Disclosure
Schedule sets forth each instance in which Verilux (or any of its assets) (i) is
subject to any outstanding injunction, judgment, order, decree, ruling, or
charge or (ii) is a party or, to the knowledge of Verilux, is threatened to be
made a party, to any action, suit, proceeding, hearing, arbitration, or
investigation of, in, or before any court or quasi-judicial or administrative
agency of any federal, state, local, or foreign jurisdiction or before any
arbitrator. To the knowledge of Verilux, there are no facts or circumstances
which would form the basis of any claim against Verilux.
5.22 Product Warranty. All of the services performed and
products licensed, manufactured, sold, leased, and delivered by Verilux have
conformed in all material respects with all applicable contractual commitments
and all express and implied warranties, and, to the knowledge of Verilux,
Verilux has no liability (whether asserted or unasserted, whether absolute or
contingent, whether accrued or unaccrued, whether liquidated or unliquidated,
and whether due or to become due) for replacement or repair thereof or other
damages in connection therewith, other than in the Ordinary Course of Business
in an aggregate amount not exceeding $10,000. Section 5.17(o) of the Verilux
Disclosure Schedule includes copies of the standard terms and conditions of
license for Verilux (containing applicable guaranty, warranty, and indemnity
provisions).
5.23 Product Liability. To the knowledge of Verilux, Verilux
has no material liability (whether asserted or unasserted, whether absolute or
contingent, whether accrued or unaccrued, whether liquidated or unliquidated,
and whether due or to become due) arising out of any injury to individuals or
property as a result of the ownership, possession, or use of any product
licensed, manufactured, sold, leased, or delivered by Verilux.
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22
5.24 Employees. No executive, key employee, or significant
group of employees has advised any executive officer of Verilux that he, she or
they plan to terminate employment with Verilux during the next six (6) months.
Verilux is not a party to or bound by any collective bargaining agreement, nor
has it experienced any strike or grievance, claim of unfair labor practices, or
other collective bargaining dispute. To the knowledge of Verilux, Verilux has
not committed any unfair labor practice. To the knowledge of Verilux, there is
no organizational effort presently being made or threatened by or on behalf of
any labor union with respect to employees of Verilux.
5.25 Employee Benefits.
(a) Section 5.25(a) of the Verilux Disclosure
Schedule lists each Employee Benefit Plan that Verilux maintains or to which
Verilux contributes or is obligated to contribute.
(i) Each such Employee Benefit Plan (and
each related trust, or fund established by Verilux) complies in form and in
operation in all material respects with their terms, the applicable requirements
of ERISA, the Code, and other applicable laws.
(ii) All required reports and descriptions
(including Form 5500 Annual Reports, Summary Annual Reports, PBGC-1's, and
Summary Plan Descriptions) have been filed or distributed appropriately with
respect to each such Employee Benefit Plan. The requirements of Code Sec. 4980B
have been met in all material respects with respect to each such Employee
Benefit Plan which is an Employee Welfare Benefit Plan. No event has occurred
and no condition exists with respect to any Employee Benefit Plan that would
subject Verilux to any tax under Code Sections 4972, 4976 or 4979 or to a fine
under ERISA Sections 502(i) or 502(l).
(iii) All contributions, premiums or other
payments (including all employer contributions and employee salary reduction
contributions) which are due have been paid to each Employee Benefit Plan and
all contributions, premiums or other payments for any period ending on or before
the Closing Date which are not yet due shall been paid to each such Employee
Benefit Plan or shall be accrued in accordance with the custom and practice of
Verilux.
(iv) Each such Employee Benefit Plan which is
an Employee Pension Benefit Plan and which is intended to qualify under Code
Sec. 401(a), has received a favorable determination letter from the Internal
Revenue Service with respect to the qualification of the plan under Code Section
401(a) and the exemption of any corresponding trust under Code Section 501,
unless the Internal Revenue Service is deemed to have approved the form of such
Plan under applicable IRS Revenue Procedures. A copy of such determination
letters have been provided to Aspec and nothing has occurred since the date of
each such determination letter that would cause such Employee Pension Benefit
Plan to lose its ability to rely on such letter. Each Employee Pension Benefit
Plan has been restated to comply with the 1986 Tax Reform Act and subsequent
applicable tax legislation to the extent required by governing tax law. A copy
of any determination letters applicable to such restatement which have been
received by Verilux has been provided to Aspec.
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23
(v) Neither Verilux nor any other Person or
entity under common control with Verilux within the meaning of Section 414(b),
(c) or (m) of the Code and the regulations thereunder has now or at any previous
time, maintained, established, sponsored, participated in, or contributed to,
any Employee Pension Benefit Plan that is subject to Part 3 of Subtitle B of
Title I of ERISA, Title IV of ERISA or Section 412 of the Code. No Employee
Welfare Benefit Plan or other Employee Benefit Plan providing welfare benefits
is funded with a trust or other funding vehicle, other than insurance policies
or contracts with a health maintenance organization or similar health care
delivery entity.
(vi) Verilux has delivered to Aspec correct
and complete copies of the plan documents and summary plan descriptions, the
most recent determination letter received from the Internal Revenue Service, if
any, the most recent Form 5500 Annual Report, and all related trust agreements,
insurance contracts, and other funding agreements which implement each
maintained Employee Benefit Plan. The terms of any such documentation or other
communication do not prohibit Aspec from amending or terminating any such
Employee Benefit Plan.
(b) With respect to each Employee Benefit Plan that
Verilux, and/or any controlled group of corporations within the meaning of Code
Sec. 1563 (a "CONTROLLED GROUP OF CORPORATIONS") which includes Verilux,
maintains or ever has maintained or to which any of them contributes, ever
contributed, or ever has been required to contribute:
(i) There have been no prohibited
transactions within the meaning of ERISA Sec 406 and Code Sec. 4975 with respect
to any such Employee Benefit Plan. No fiduciary within the meaning of ERISA Sec.
3(21) (a "FIDUCIARY"), has any liability for breach of fiduciary duty or any
other failure to act or comply in connection with the administration or
investment of the assets of any such Employee Benefit Plan. No action, suit,
proceeding, hearing, or investigation with respect to the administration or the
investment of the assets of any such Employee Benefit Plan (other than routine
claims for benefits) is pending or threatened.
(c) Except as disclosed in Schedule 5.25(c) of the
Verilux Disclosure Schedule, Verilux does not maintain or contribute to, has
never maintained or contributed to, and has never been required to contribute
to, any Employee Welfare Benefit Plan or any other Employee Benefit Plan
providing medical, health, or life insurance or other welfare-type benefits for
current or future retired or terminated employees, their spouses, or their
dependents (other than in accordance with Code Sec. 4980B or Part 6 of Subtitle
B of Title I of ERISA).
(d) There is no liability in connection with any
Employee Benefit Plan that is not fully disclosed or provided for on the Most
Recent Balance Sheet for which disclosure would be required under generally
accepted accounting principles.
(e) No Employee Benefit Plan or Verilux has any
liability to any plan participant, beneficiary or other person by reason of the
payment of benefits or the failure to pay benefits with respect to benefits
under or in connection with any such Employee Benefit Plan, other than claims in
the normal administration of such plans.
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5.26 Guaranties. Verilux is not a guarantor or otherwise
responsible for any liability or obligation (including indebtedness) of any
other Person.
5.27 Environment, Health, and Safety.
(a) For purposes of this Agreement, the following
terms have the following meanings:
"ENVIRONMENTAL, HEALTH, AND SAFETY LAWS" means any and
all federal, state, local or municipal laws, rules, orders, regulations,
statutes, ordinances, codes, plans, injunctions, judgments, decrees,
requirements or rulings now or hereafter in effect, imposed by any governmental
authority regulating, relating to, or imposing liability or standards of conduct
relating to pollution or protection of the environment (including, without
limitation, ambient air, surface water, groundwater, land surface or subsurface
strata), public health and safety, or employee health and safety, concerning any
Hazardous Materials or Extremely Hazardous Substances, as such terms as defined
herein, or otherwise regulated, under any Environmental, Health and Safety Laws.
The term "ENVIRONMENTAL, HEALTH AND SAFETY LAWS" shall include, without
limitation, the Clean Water Act (also known as the Federal Water Pollution
Control Act), 33 U.S.C. Section 1251 et seq., the Toxic Substances Control Act,
15 U.S.C. Section 2601 et seq., the Clean Air Act, 42 U.S.C. Section 7401 et
seq., the Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. Section
136 et seq., the Safe Drinking Water Act, 42 U.S.C. Section 300f et seq., the
Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.
Section 9601 et seq., the Superfund Amendment and Reauthorization Act of 1986,
Public Law 99-4, 99, 100 Stat. 1613, the Emergency Planning and Community Right
to Know Act, 42 U.S.C. Section 11001 et seq., the Resource Conservation and
Recovery Act, 42 U.S.C. Section 6901 et seq., and the Occupational Safety and
Health Act, 29 U.S.C. Section 651 et seq., all as amended, together with any
amendments thereto, regulations promulgated thereunder and all substitutions
thereof.
"EXTREMELY HAZARDOUS SUBSTANCE" means a substance on the
list described in Section 302 (42 U.S.C. Section 11002(a)(2)) of the Emergency
Planning and Community Right to Know Act, 42 U.S.C. Section 11001 et seq., as
amended.
"HAZARDOUS MATERIAL" means any material or substance
that, whether by its nature or use, is now or hereafter defined as a pollutant,
dangerous substance, toxic substance, hazardous waste, hazardous material,
hazardous substance or contaminant under any Environmental, Health and Safety
Laws, or which is toxic, explosive, corrosive, flammable, infectious,
radioactive, carcinogenic, mutagenic or otherwise hazardous and which is now or
hereafter regulated under any Environmental, Health and Safety Laws, or which is
or contains petroleum, gasoline, diesel fuel or other petroleum hydrocarbon
product.
(b) To the knowledge of Verilux, each of Verilux and
its predecessors and Affiliates (A) has complied with the Environmental, Health,
and Safety Laws (and no action, suit, proceeding, hearing, investigation,
charge, complaint, claim, demand, directive or notice has been filed or
commenced against any of them alleging any such failure to comply), (B) has
obtained and been in substantial compliance with all of the terms and conditions
of all permits, licenses, certificates and other authorizations which are
required under the Environmental, Health, and Safety
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25
Laws, and (C) has complied in all material respects with all other limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules, and timetables which are contained in the Environmental, Health, and
Safety Laws.
(c) To the knowledge of Verilux, Verilux has no
liability (whether asserted or unasserted, whether absolute or contingent,
whether accrued or unaccrued, whether liquidated or unliquidated, and whether
due or to become due), and none of Verilux and its predecessors and Affiliates
has handled or disposed of any Hazardous Materials or extremely Hazardous
Substances, arranged for the disposal of any Hazardous Materials or Extremely
Hazardous Substances, exposed any employee or other individual to any Hazardous
Materials or Extremely Hazardous Substances, or owned or operated any property
or facility in any manner that could give rise to any liability, for damage to
any site, location, surface water, groundwater, land surface or subsurface
strata, for any illness of or personal injury to any employee or other
individual, or for any reason under any Environmental, Health, and Safety Law.
(d) To the knowledge of Verilux, no Extremely
Hazardous Substances are currently, or have been, located at, on, in, under or
about all properties and equipment used in the business of Verilux and its
predecessors and Affiliates.
(e) To the knowledge of Verilux, no Hazardous
Materials are currently located at, on, in, under or about all properties and
equipment used in the business of Verilux and its predecessors and Affiliates in
a manner which violates any Environmental, Health and Safety Laws or which
requires cleanup or corrective action of any kind under any Environmental,
Health and Safety Laws.
5.28 Certain Business Relationships With Verilux. None of the
Majority Shareholders nor Verilux nor any director or officer of Verilux, nor
any member of their immediate families, nor any Affiliate of any of the
foregoing, owns, directly or indirectly, or has an ownership interest in any
business (corporate or otherwise) which is a party to, or in any property which
is the subject of, any business arrangement or relationship of any kind with
Verilux.
5.29 No Adverse Developments. To the knowledge of Verilux,
there is no development (exclusive of general economic factors affecting
business in general) or threatened development affecting Verilux (or affecting
customers, suppliers, employees, and other Persons which have relationships with
Verilux) that (i) is having or is reasonably likely to have a Material Adverse
Effect on Verilux, or (ii) would prevent Aspec from conducting the business of
the Surviving Corporation following the Closing in the manner in which it was
conducted or planned to be conducted by Verilux prior to the Closing.
5.30 Full Disclosure. No representation or warranty in this
Section 5 or in any document delivered by the Majority Shareholders or Verilux
pursuant to the transactions contemplated by this Agreement, and no statement,
list, certificate or instrument furnished to Aspec pursuant hereto or in
connection with this Agreement, when taken as a whole, contains any untrue
statement of a material fact, or omits to state any fact necessary to make any
statement herein or therein not materially misleading. There is no fact,
development or threatened development
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26
(excluding general economic factors affecting business in general) known to
Verilux or the Majority Shareholders which Verilux has not disclosed to Aspec
and which is having or may have a Material Adverse Effect on Verilux. Verilux
has delivered to Aspec true, correct and complete copies of all documents,
including all amendments, supplements and modifications thereof or waivers
currently in effect thereunder, described in the Verilux Disclosure Schedule.
6. Representations and Warranties of Aspec. Aspec represents and
warrants to Verilux that the statements contained in this Section 6 are correct
and complete as of the date of this Agreement and will be correct and complete
as of the Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this Section 6), except as
set forth in the disclosure schedule delivered by Aspec to Verilux on the date
hereof (and initialed by Aspec and Verilux), a copy of which is attached hereto
as Exhibit D (referred to herein as the "ASPEC DISCLOSURE SCHEDULE"). The Aspec
Disclosure Schedule will be arranged in paragraphs corresponding to the numbered
paragraphs contained in this Section 6.
6.31 Organization, Qualification, and Corporate Power. Aspec
is a corporation duly organized, validly existing, and in good standing under
the laws of the State of Delaware. Aspec is duly authorized to conduct business
and is in good standing under the laws of each other jurisdiction where such
qualification is required. Aspec has full corporate power and authority, and has
all necessary and material licenses and permits, to carry on the businesses in
which it is engaged and to own and use the properties owned and used by it.
6.32 Authorization. Aspec has full power and authority to
execute and deliver this Agreement and the Merger Agreement, and to consummate
the transactions contemplated hereunder and to perform its obligations hereunder
and no other proceedings on the part of Aspec is necessary to authorize the
execution, delivery and performance of this Agreement and the Merger Agreement.
This Agreement and the Merger Agreement and the transactions contemplated
thereby have been approved by the unanimous vote of Aspec's Board of Directors.
This Agreement and the Merger Agreement constitute the valid and legally binding
obligations of Aspec enforceable against Aspec in accordance with their
respective terms and conditions. Aspec need not give any notice to, make any
filing with, or obtain any authorization, consent, or approval of any government
or governmental agency in order to consummate the transactions contemplated by
this Agreement.
6.33 Capitalization.
(a) As of May 31, 1999, the authorized capital stock
of Aspec consisted of (i) 75,000,000 shares of Common Stock, of which 28,066,000
shares were issued and outstanding, (iii) 5,000,000 shares of undesignated
preferred stock, none of which were issued and outstanding, and (iv) an
aggregate of approximately 2,773,150 shares were subject to outstanding options
or reserved for issuance pursuant to Aspec's employee and director stock plans.
All of the outstanding shares of Aspec's capital stock have been duly authorized
and validly issued and are fully paid and nonassessable. Except as set forth in
this Section 6.3, there are no options, warrants or other rights, agreements,
arrangements or commitments of any character relating to the issued or unissued
capital stock of Aspec or obligating Aspec to issue or sell any shares of
capital stock of, or other equity
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27
interests in, Aspec. The authorized capital stock of Merger Sub consists of
1,000 shares of common stock, all of which are held of record by Aspec.
(b) The shares of Aspec Common Stock to be issued
pursuant to Section 3.1 of this Agreement are duly authorized and reserved for
issuance, and upon issuance thereof will be validly issued, fully paid and
nonassessable.
6.34 Noncontravention. Neither the execution and the delivery
of this Agreement nor the consummation of the transactions contemplated hereby,
will (A) violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which Aspec is subject or any provision of its
Certificate of Incorporation or bylaws, or (B) (i) conflict with, (ii) result in
a breach of, (iii) constitute a default under, (iv) result in the acceleration
of, (v) create in any party the right to accelerate, terminate, modify, or
cancel, or (vi) require any notice under, any agreement, contract, lease,
license, instrument, or other arrangement to which Aspec is a party or by which
it is bound or to which any of its assets is subject.
6.35 Brokers' Fees. Aspec has no liability or obligation to
pay any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement.
6.36 SEC Filings. ASPEC has filed all forms, reports and
documents required to be filed with the SEC since April 1, 1998, and has made
available to Verilux such forms, reports and documents in the form filed with
the SEC. All such required forms, reports and documents (including those that
ASPEC may file subsequent to the date hereof) are referred to herein as the
"ASPEC SEC Reports". As of their respective dates, the ASPEC SEC Reports (i)
were prepared in accordance with the requirements of the Securities Act or the
Exchange Act, as the case may be, and the rules and regulations of the SEC
thereunder applicable to such ASPEC SEC Reports, and (ii) did not at the time
they were filed (or if amended or superseded by a filing prior to the date of
this Agreement, then on the date of such filing) 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. None of ASPEC's
subsidiaries is required to file any forms, reports or other documents with the
SEC.
6.37 Financial Statements. Each of the consolidated
financial statements (including, in each case, any related notes thereto)
contained in ASPEC SEC Reports ( the "ASPEC Financials"), including any ASPEC
SEC Reports filed after the date hereof until the Closing, (i) was compiled as
to form in all material respects with the published rules and regulations of the
SEC with respect thereto, (ii) was prepared in accordance with GAAP applied on a
consistent basis throughout the periods involved (except as may be indicated in
the notes thereto or, in the case of unaudited interim financial statements, as
may be permitted by the SEC on Form 10-Q under the Exchange Act) and (iii)
fairly presented the consolidated financial position of ASPEC and it's
subsidiaries as at the respective dates thereof and the consolidated results of
ASPEC's operations and cash flows for the periods indicated, except that the
unaudited interim financial statements were or are subject to normal and
recurring year-end adjustments. The balance sheet of ASPEC contained in
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ASPEC SEC Form 10Q Report as of May 31, 1999 is hereinafter referred to as the
"ASPEC Balance Sheet."
6.38 Litigation. Section 6.8 of the Aspec Disclosure Schedule
sets forth each instance in which Aspec (or any of its assets) (i) is subject to
any outstanding injunction, judgment, order, decree, ruling, or charge or (ii)
is a party or, to the knowledge of Aspec, is threatened to be made a party, to
any action, suit, proceeding, hearing, arbitration, or investigation of, in, or
before any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator.
6.9 No Adverse Developments. To the knowledge of Aspec,
there is no development (exclusive of general economic factors affecting
business in general) or threatened development affecting Aspec (or affecting
customers, suppliers, employees, and other Persons which have relationships with
Aspec) that (i) is having or is reasonably likely to have a Material Adverse
Effect on Aspec, or (ii) would prevent Aspec from conducting its business
following the Closing in the manner in which it was conducted or planned to be
conducted by Aspec prior to the Closing.
7. Pre-Closing Covenants. With respect to the period between the
execution of this Agreement and the earlier of the termination of this Agreement
in accordance with Section 11 hereof and the Effective Time of the Merger:
7.39 General. Each of the Parties will use their reasonable
best efforts to take all actions and to do all things necessary, proper, or
advisable in order to consummate and make effective the transactions
contemplated by this Agreement (including satisfaction, but not waiver, of the
closing conditions set forth in Section 9 below).
7.40 Notices and Consents. Except as otherwise agreed to by
Aspec, Verilux will give any notices to third parties and will use its best
efforts to obtain any third party consents that are required in connection with
the matters identified in Section 5.4 of the Verilux Disclosure Schedule. Each
of the Parties will give any notices to, make any filings with, and use its best
efforts to obtain any authorizations, consents, and approvals of governments and
governmental agencies in connection with the matters identified in Section 5.4
of the Verilux Disclosure Schedule.
7.41 Conduct of Business. Verilux will not engage in any
practice, take any action, or enter into any transaction outside the Ordinary
Course of Business. Without limiting the generality of the foregoing, Verilux
will not (a) issue or sell, or contract to issue or sell, any shares of its
capital stock or that of any of its subsidiaries or any securities convertible
into to exchangeable for shares of capital stock of it or any of its
subsidiaries, or securities, warrants, options or rights to purchase any of the
foregoing (other than shares issued upon exercise of outstanding options or upon
the conversion of outstanding convertible securities described on the Verilux
Disclosure Schedule), (b) purchase or redeem any shares of its capital stock,
(c) declare or pay any dividends or agree to make any other distribution with
respect to any shares of its capital stock, (d) amend its Articles of
Incorporation or Bylaws, or (e) enter into or propose to enter into an agreement
with any other person providing for the possible acquisition by it or any of its
subsidiaries (whether by way of merger, purchase of capital stock, purchase of
assets or otherwise) of any material portion of the capital
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29
stock or assets of another entity. In addition, Verilux will comply with all
laws, statutes, ordinances, rules, regulations and orders applicable to it or to
the conduct of its business, except for violations that could not subject
Verilux to a penalty or loss that could constitute a Material Adverse Effect on
Verilux.
7.42 Preservation of Business. Verilux will use its best
efforts to keep its business and properties substantially intact, including its
present operations, physical facilities, working conditions, and relationships
with lessors, licensors, suppliers, customers and employees. Aspec will use its
best efforts to keep its business and properties substantially intact, including
its present operations, physical facilities, working conditions, and
relationships with lessors, licensors, suppliers, customers and employees.
7.43 Access to Information. Verilux will permit Aspec and its
representatives to have access at all reasonable times, and in a manner so as
not to interfere with the normal business operations of Verilux, to the business
and operations of Verilux. Neither such access, inspection and furnishing of
information to Aspec and its representatives, nor any investigation by Aspec and
its representatives, shall in any way diminish or otherwise effect Aspec's right
to rely on any representation or warranty made by Verilux or the Majority
Shareholders hereunder. Aspec will permit Verilux and its representatives to
have access at all reasonable times, and in a manner so as not to interfere with
the normal business operations of Aspec, to the business and operations of
Aspec. Neither such access, inspection and furnishing of information to Verilux
and its representatives, nor any investigation by Verilux and its
representatives, shall in any way diminish or otherwise effect Verilux's right
to rely on any representation or warranty made by Aspec hereunder.
7.44 Notice of Developments. Each Party will give prompt
written notice to the others of any adverse development causing a material
breach of any of its own representations and warranties in Section 5 or Section
6 above. No disclosure by any Party pursuant to this Section 7.6, however, shall
be deemed to amend or supplement the Verilux Disclosure Schedule or the Aspec
Disclosure Schedule or to prevent or cure any misrepresentation, breach of
warranty, or breach of covenant.
7.7 Exclusivity. From and after the date hereof through the
date which is thirty (30) days following the termination of this Agreement
pursuant to Section 11 hereof, without the prior written consent of Aspec,
neither Verilux, the Majority Shareholders nor any of Verilux's other officers,
directors, shareholders, agents or Affiliates shall, directly or indirectly, (a)
solicit, conduct discussions with or engage in negotiations with any person,
other than Aspec, relating to the possible acquisition of Verilux or any of its
subsidiaries (whether by way of merger, purchase of capital stock, purchase of
assets or otherwise) or any material portion of its or their capital stock or
assets, (b) provide information with respect to Verilux or any of its
subsidiaries to any person, other than Aspec, relating to the possible
acquisition of Verilux or any of its subsidiaries (whether by way of merger,
purchase of capital stock, purchase of assets or otherwise) or any material
portion of its or their capital stock or assets, (c) enter into an agreement
with any person, other than Aspec, providing for the acquisition of Verilux or
any of its subsidiaries (whether by way of merger, purchase of capital stock,
purchase of assets or otherwise) or any material portion of its or their capital
stock or assets, (d) make or authorize any statement, recommendation or
solicitation in support of any
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possible acquisition of Verilux or any of it subsidiaries (whether by way of
merger, purchase of capital stock, purchase of assets or otherwise) or any
material portion of its or their capital stock or assets by any person, other
than by Aspec, (e) enter into any agreement with any person, other than Aspec,
providing for any extension of credit (other than trade credit in the ordinary
course of business) or other debt investment in Verilux, or (f) enter into any
additional agreement for the licensing or distribution of products, technology,
or intellectual property of Verilux, whether now existing or hereafter created.
In addition to the foregoing, if Verilux or any of its subsidiaries receives any
unsolicited offer or proposal to enter negotiations relating to any of the
above, Verilux shall immediately notify Aspec thereof, including information as
to the identity of the offeror or the party making any such offer or proposal
and the specific terms of such offer or proposal, as the case may be. From and
after the date hereof until the first to occur of the Closing of the Merger or
the termination of this Agreement pursuant to Section 11 hereof, none of the
Majority Shareholders will transfer or offer to transfer any of their Verilux
Common Stock except to Aspec pursuant to the Merger.
8. Post-Closing Covenants. With respect to the period following the
Effective Time of the Merger:
8.1 General. In case at any time after the Effective Time of
the Merger any further action is necessary to carry out the purposes of this
Agreement, each of the Parties will take such further action (including the
execution and delivery of such further instruments and documents) as any other
Party reasonably may request, all at the sole cost and expense of the requesting
Party (unless the requesting Party is entitled to indemnification therefor under
Section 10 below).
8.2 Litigation Support. In the event and for so long as any
Party actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand in connection with
(i) any transaction contemplated under this Agreement or (ii) any fact,
situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act, or transaction (A) on or
prior to the Effective Time of the Merger involving Verilux or the Majority
Shareholders or (B) arising out of Aspec's operation of the business of the
Surviving Corporation following the Effective Time of the Merger in the manner
in which it is presently conducted and planned to be conducted, each of the
other Parties will cooperate with the party, its counsel in the contest or
defense, make available their personnel, and provide such testimony and access
to their books and records as shall be reasonably necessary in connection with
the contest or defense, all at the sole cost and expense of the contesting or
defending Party (unless the contesting or defending Party is entitled to
indemnification therefor under Section 10 below).
8.3 Transition. None of the Majority Shareholders will take
any action that is designed or intended to have the effect of discouraging any
lessor, licensor, customer, supplier, or other business associate of Verilux
from maintaining the same business relationships with the Surviving Corporation
after the Effective Time of the Merger as it maintained with Verilux prior to
the Effective Time of the Merger.
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8.4 Confidentiality. Each of the parties hereto hereby
agrees to keep such information or knowledge obtained in any due diligence or
other investigation pursuant to the negotiation and execution of this Agreement
or the effectuation of the transactions contemplated hereby, confidential in
accordance with the terms of that certain Nondisclosure and Nonsolicitation
Agreement between Aspec and Verilux dated June 7, 1999 (the "NONDISCLOSURE
AGREEMENT").
8.5 Verilux Employees; Employee Stock Options. Upon the
Effective Date of the Merger, all employees of Verilux shall be offered
employment with the Surviving Corporation. In addition, upon the Effective Date
of the Merger, Verilux employees and certain future employees shall be granted
options to purchase an aggregate of 500,000 shares of Aspec Common Stock (in
such amounts to be mutually determined by the Chief Executive Officer of Verilux
and Aspec). In each case, such options shall be granted at the fair market value
of the Aspec Common Stock at the date of grant and shall vest monthly over a
four-year period. The options shall also be subject to the other terms and
conditions of Aspec's 1996 Stock Option Plan (the "STOCK PLAN"). All employees
of Verilux that are employees of the Surviving Corporation following the Closing
shall execute Aspec's standard form of employee confidentiality and inventions
assignment agreement.
9. Conditions to Obligations to Close.
9.1 Conditions to Aspec's Obligation to Close. The
obligations of Aspec to consummate the transactions to be performed by it in
connection with the Closing is subject to satisfaction of the following
conditions:
(a) the representations and warranties of Verilux
and the Majority Shareholders set forth in Section 5 above shall be true and
correct in all material respects at and as of the Closing Date;
(b) Verilux and the Majority Shareholders shall have
performed and complied with all of their respective covenants hereunder in all
material respects through the Closing;
(c) Verilux shall have obtained such of the third
party consents listed on Section 5.4 of the Verilux Disclosure Schedule as may
be mutually agreed to by Aspec and Verilux;
(d) no action, suit, or proceeding shall be pending
before any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator (other than such
an action initiated by Aspec or Merger Sub) wherein an unfavorable injunction,
judgment, order, decree, ruling, or charge would (A) prevent consummation of any
of the transactions contemplated by this Agreement, (B) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation, or (C) affect materially and adversely the right of Aspec or
Merger Sub to control Verilux following the Effective Time of the Merger, and no
law, statute, ordinance, rule, regulation or order shall have been enacted,
enforced or entered which has caused or will likely cause any of the effects
under clause (A), (B) or (C) of this Section 9.1(d) to occur.
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(e) the President and the Chief Financial Officer of
Verilux and the Majority Shareholders shall have delivered to Aspec a
certificate to the effect that each of the conditions specified above in Section
9.1(a) to 9.1(d) (inclusive) is satisfied in all material respects;
(f) No Material Adverse Effect shall have occurred
with respect to Verilux;
(g) Aspec shall have received from counsel to
Verilux and the Majority Shareholders an opinion in form and substance as set
forth in Exhibit E attached hereto, addressed to Aspec, and dated as of the
Closing Date;
(h) this Agreement and the Merger shall have been
approved by the vote of the holders of 100% of the outstanding shares of Common
Stock of Verilux;
(i) all outstanding options, convertible securities
and other Stock Rights to purchase securities of Verilux shall have been
exercised or canceled; and
(j) Soo-Young Oh, Kuo-Xxx Xxx, Won-Xxxxx Xxxx,
Yung-Jun Kwon, and Hyun-Xxx Xxx shall have accepted employment with the
Surviving Corporation; and
(k) Aspec's Board of Directors shall have approved
this Agreement.
Aspec may waive any condition (in whole or in part) specified in
this Section 9.1 if it executes a writing so stating at or prior to the Closing.
9.2 Conditions to Verilux's Obligation. The obligation of
Verilux and the Majority Shareholders to consummate the transactions to be
performed by each of them in connection with the Closing is subject to
satisfaction of the following conditions:
(a) the representations and warranties of Aspec set
forth in Section 6 above shall be true and correct in all material respects at
and as of the Closing Date;
(b) Aspec shall have performed and complied with all
of its covenants hereunder in all material respects through the Closing;
(c) no action, suit, or proceeding shall be pending
before any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator (other than such
an action initiated by Verilux or any of the Majority Shareholders) wherein an
unfavorable injunction, judgment, order, decree, ruling, or charge would (A)
prevent consummation of any of the transactions contemplated by this Agreement
or (B) cause any of the transactions contemplated by this Agreement to be
rescinded following consummation (and no such injunction, judgment, order,
decree, ruling, or charge shall be in effect);
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(d) the Chief Executive Officer or other duly
authorized officer of Aspec shall have delivered to Verilux a certificate to the
effect that each of the conditions specified above in Section 9.2(a) to 9.2(c)
(inclusive) is satisfied in all material respects;
(e) Verilux shall have received from counsel to
Aspec an opinion in form and substance as set forth in Exhibit F attached
hereto, addressed to Verilux, and dated as of the Closing Date;
(f) No Material Adverse Change shall have occurred
with respect to Aspec.
Verilux and the Majority Shareholders may waive any condition
(in whole or in part) specified in this Section 9.2 if Verilux executes a
writing so stating at or prior to the Closing.
10. Survival of Representations, Indemnification.
10.1 Limited Survival of Representations and Warranties. All
covenants of Aspec, Merger Sub, Verilux and the Majority Shareholders to be
performed prior to the Effective Time of the Merger, and all representations and
warranties of Aspec, Verilux and the Majority Shareholders in this Agreement or
in any instrument delivered pursuant to this Agreement shall survive the Merger
for a period of twelve (12) months from the Effective Time of the Merger (the
"EXPIRATION DATE"), and, notwithstanding anything to the contrary in this
Agreement, no claim for breach of any representation, warranty or covenant by
any Party and no claim for indemnification by Aspec or the Majority Shareholders
hereunder shall be brought at any time after the Expiration Date.
10.2 Indemnification by Aspec.
(a) From and after the Effective Time of the Merger,
Aspec shall indemnify and hold harmless each of the Majority Shareholders, and
each of the heirs, executors, successors and assigns of any of the foregoing,
from and against any and all Losses arising out of, or in connection with, any
breach of any representation or warranty or of any covenant, agreement, or
undertaking made by Aspec in this Agreement.
(b) Notwithstanding any provision to the contrary in
this Agreement, the maximum obligation and liability of Aspec and Merger Sub to
any Verilux shareholder (including the Majority Shareholders) shall be
determined by multiplying the number of shares of Aspec Common Stock received by
each such Verilux shareholder in the Merger by $1.00.
10.3 Indemnification by Majority Shareholders.
(a) From and after the Effective Time of the Merger,
each of Verilux and the Majority Shareholders shall indemnify and hold harmless
Aspec, Merger Sub and each of their respective Affiliates, and each of their
respective directors, officers, employees and agents, and each of the heirs,
executors, successors and assigns of any of the foregoing, from and against any
and all Losses arising out of, or in connection with, any breach of any
representation or warranty or of any
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covenant, agreement, or undertaking made by Verilux or the Majority Shareholders
in this Agreement. The liability of the Majority Shareholders hereunder shall be
several in proportion to number of shares of Aspec Common Stock received by each
such Majority Shareholder and his Affiliates as a result of the Merger, and not
joint.
(b) The Majority Shareholders may agree, as among
themselves and without limiting the rights of Aspec or Merger Sub hereunder, as
to the respective amounts of any liability for which they each shall be
responsible.
(c) Any payment made pursuant to this Section 10.3
or Section 10.2 hereof shall be treated by the Parties as an adjustment to the
purchase price provided for herein, and the Parties agree not to take any
position inconsistent therewith for any purpose.
10.4 Notice of Claims. No action or proceeding may be brought
by a party seeking indemnification hereunder (the "INDEMNIFIED PARTY") with
respect to any breach of the representations, warranties, covenants or
agreements made hereunder unless written notice thereof, setting forth in
reasonable detail (to the extent then known) the amount of the claim and the
claimed misrepresentation or breach of warranty or breach of covenant or
agreement, or the reasons for which such Indemnified Party believes there has
been or may have been a breach of representation, warranty, covenant or
agreement, shall have been delivered to the party alleged to have breached such
representation, warranty, covenant or agreement (the "INDEMNIFYING PARTY") on or
prior to the Expiration Date. If the Indemnifying Party contests the assertion
of the claim, then the parties shall act in good faith to reach agreement
regarding such claim.
10.5 Third Party Claims. If a claim by a third party is made
against an Indemnified Party, and if such Indemnified Party intends to seek
indemnity with respect thereto under this Section 10, such Indemnified Party
shall promptly notify the Indemnifying Party in writing of such claims setting
forth such claims in reasonable detail; provided, however, that failure of such
Indemnified Party to give such notice shall not result in a waiver of its
indemnity rights except to the extent that such failure prejudices the
Indemnifying Party's ability to respond to or defend the claim. The Indemnifying
Party shall have thirty (30) days after receipt of such notice to undertake,
through counsel of its own choosing and at its own expense, the settlement or
defense thereof, and the Indemnified Party shall cooperate with it in connection
therewith; provided, however, that the Indemnified Party may participate in such
settlement or defense through counsel chosen by such Indemnified Party, provided
that the fees and expenses of such counsel shall be borne by such Indemnified
Party. The Indemnified Party shall not pay or settle any claim without the
written consent of the Indemnifying Party, which consent shall not be
unreasonably withheld. The Indemnifying Party will not pay or settle any claim
unless it contains an unconditional release of the Indemnified Party. If the
Indemnifying Party does not within thirty (30) days after the receipt of the
Indemnified Party's notice of a claim of indemnity hereunder undertake the
defense thereof or if the Indemnified Party must obtain separate legal counsel
due to an actual or potential conflict arising from such claim (as determined in
good faith by the Indemnified Party's legal counsel), the Indemnified Party
shall have the right to contest, settle or compromise the claim but shall not
thereby waive any right to indemnity therefor (and for all associated reasonable
costs and attorney's
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35
fees which, in the case of such costs and fees, shall be reimbursed by the
Indemnifying Party as incurred) pursuant to this Agreement.
10.6 Limitation of Claims. The Majority Shareholders shall
not be liable for any claims by Aspec made hereunder unless and until the
aggregate amount of all such claims against one or more of the Majority
Shareholders exceeds $10,000, provided that in the event such claims exceed
$10,000, Aspec shall be entitled to recover for the full amount of such claims
(including the $10,000 limitation). Aspec and Merger Sub shall not be liable for
any claims by the Majority Shareholders made hereunder unless and until the
aggregate amount of all such claims against Aspec and Merger Sub exceeds
$10,000, provided that in the event such claims exceed $10,000, the Majority
Shareholders shall be entitled to recover for the full amount of such claims
(including the $10,000 limitation).
11. Termination.
11.1 Termination of the Agreement. This Agreement may be
terminated at any time prior to the Closing as follows:
(a) Aspec and Verilux may terminate this Agreement
as to all Parties by mutual written consent at any time prior to the Closing.
(b) Aspec may terminate this Agreement by giving
written notice to Verilux and the Majority Shareholders at any time prior to the
Closing (A) in the event either of Verilux or the Majority Shareholders has
materially breached any representation, warranty, or covenant contained in this
Agreement and Aspec has notified Verilux and the Majority Shareholders of the
breach or (B) if the Closing shall not have occurred on or before August 6,
1999, by reason of the failure of any condition precedent under Section 9.1
hereof (unless the failure results primarily from Aspec itself materially
breaching any representation, warranty, or covenants contained in this
Agreement).
(c) Aspec may terminate this Agreement by giving
written notice to Verilux and the Majority Shareholders at any time prior to
5:00 p.m. (California time) on August 2, 1999 in the event that Aspec is not
satisfied in its sole discretion with the results of its due diligence
investigation regarding the business and financial and corporate records of
Verilux.
(d) Verilux may terminate this Agreement by giving
written notice to Aspec at any time prior to the Closing (A) in the event Aspec
has materially breached any representation, warranty, or covenant contained in
this Agreement and Verilux has notified Aspec of the breach, or (B) if the
Closing shall not have occurred on or before August 6, 1999, by reason of the
failure of any condition precedent under Section 9.2 hereof (unless the failure
results primarily from Verilux or the Majority Shareholders materially breaching
any representation, warranty, or covenants contained in this Agreement).
11.2 Effect of Termination.
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(a) If any Party terminates this Agreement pursuant to Section 11
above, all rights and obligations of the Parties hereunder shall terminate
without any liability of any Party to any other Party (except for any liability
of any Party then in breach); provided, however, that the Confidentiality
Agreement shall survive in accordance with its terms.
12. Miscellaneous.
12.1 Publicity. No Party shall issue any press release or
make any public announcement relating to the subject matter of this Agreement
prior to the Closing without the prior written approval of Aspec and Verilux.
Notwithstanding the foregoing, Aspec may disclose the Merger in its filings with
the Securities and Exchange Commission to the extent required by applicable
securities laws.
12.2 No Third-Party Beneficiaries. This Agreement shall not
confer any rights or remedies upon any Person other than the Parties, the
shareholders of Verilux and their respective successors and permitted assigns.
12.3 Entire Agreement. This Agreement (including the exhibits
and schedules hereto) constitutes the entire agreement among the Parties and
supersedes any prior understandings, agreements, or representations by or among
the Parties, written or oral, to the extent they related in any way to the
subject matter hereof (including that certain letter agreement between Aspec and
Verilux dated June 10, 1999). Notwithstanding the foregoing, Verilux and Aspec
agree that the terms of the Confidentiality Agreement shall remain in effect.
12.4 Succession and Assignment. This Agreement shall be
binding upon and inure to the benefit of the Parties named herein and their
respective successors and permitted assigns. No Party may assign either this
Agreement or any of its rights, interests, or obligations hereunder without the
prior written approval of the other Parties.
12.5 Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
12.6 Headings. The Section headings contained in this
Agreement are inserted for convenience only and shall not affect in any way the
meaning or interpretation of this Agreement.
12.7 Notices. All notices and other communications required
or permitted hereunder shall be in writing, shall be effective when given, and
shall in any event be deemed to be given upon receipt or, if earlier, (a) five
(5) days after deposit with the U.S. Postal Service or other applicable postal
service, if delivered by first class mail, postage prepaid, (b) upon delivery,
if delivered by hand, (c) one (1) business day after the business day of deposit
with Federal Express or similar overnight courier, freight prepaid or (d) one
(1) business day after the business day of facsimile transmission, if delivered
by facsimile transmission with copy by first class mail, postage prepaid, and
shall be addressed to the intended recipient as set forth below:
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37
If to Aspec or Merger Sub:
Aspec Technology, Inc.
000 Xxxx Xxxxxx Xxxxxx
Xxxxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxxx X. Xxxxx, President and Chief Executive
Officer
Copy to:
Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx
Professional Corporation
000 Xxxx Xxxx Xxxx
Xxxx Xxxx, Xxxxxxxxxx 00000-0000
Attention: J. Xxxxxx Xxxxxxxxxx, Esq.
If to Verilux or the Majority Shareholders:
Verilux Design Technology
0000 Xxx Xxxxxxxxx Xxxxx, Xxxxx 000
Xxxxx Xxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxx X. Xxx, President and Chief Executive
Officer
Any Party may change the address to which notices, requests, demands, claims,
and other communications hereunder are to be delivered by giving the other
Parties written notice of such change in accordance with the above provisions.
12.8 Governing Law; Dispute Resolution.
(a) This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of California
without giving effect to any choice or conflict of law provision or rule
(whether of the State of California or any other jurisdiction) that would cause
the application of the laws of any jurisdiction other than the State of
California.
(b) It is the express intention of the Parties to
this Agreement to make a good faith effort to resolve, without resort to
arbitration, any dispute arising under or related to this Agreement. In the
event of a dispute relating to any provision of this Agreement which cannot be
resolved promptly by negotiations between the Parties involved directly in the
dispute, any Party to the dispute may give the other Party written notice of its
intent to arbitrate, as provided in this Section 12.8. No arbitration may
commence earlier than thirty (30) days after the delivery of the notice of
intent to arbitrate, unless the failure to commence arbitration is reasonably
likely to result in some demonstrable harm.
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38
(c) The Parties hereto agree that the appropriate
and exclusive forum for any disputes among any of the Parties hereto arising out
of this Agreement or the transactions contemplated hereby, shall be settled by
arbitration in Santa Xxxxx County, California, in accordance with the rules of
the American Arbitration Association, and judgment upon any award rendered by
the arbitrator or arbitrators may be entered in any court having jurisdiction
thereof. The arbitration panel will consist of three (3) people to be mutually
selected by the Parties to the dispute. In the event that the Parties to the
dispute cannot agree upon the arbitrators within ten (10) days after the
commencement of the arbitration procedures, one (1) arbitrator shall be selected
by Aspec, one (1) arbitrator shall be selected by the Majority Shareholders
involved in the dispute and one (1) arbitrator shall be selected by the two (2)
other arbitrators so designated. The parties further agree, to the extent
permitted by law, that final and non-appealable judgment against any of them in
any action or proceeding contemplated above shall be conclusive and may be
enforced in any other jurisdiction within or outside the United States by suit
on the judgment, a certified or exemplified copy of which shall be conclusive
evidence of the fact and amount of such judgment. The Parties hereby consent to
the jurisdiction of the Superior Court of the State of California and the United
States District Courts of California and waive any objections or rights as to
forum nonconvenience, lack of personal jurisdiction or similar grounds with
respect to the enforcement of any such judgment.
(d) In the event of any arbitration proceeding
hereunder, the arbitrator(s) shall have the discretion to award the prevailing
party reimbursement of all costs and expenses incurred in connection with said
action, including reasonable attorney's fees.
(e) To the extent that Aspec or the Majority
Shareholders have or hereafter may acquire any immunity from jurisdiction of any
court or from any legal process (whether through service or notice, attachment
prior to judgment, attachment in aid of execution, execution or otherwise) with
respect to itself or its property, Aspec and the Majority Shareholders (as the
case may be) hereby irrevocably waive such immunity in respect of its
obligations with respect to this Agreement.
12.9 Amendments and Waivers. No amendment of any provision of
this Agreement shall be valid unless the same shall be in writing and signed by
Aspec, Merger Sub, Verilux and the Majority Shareholders. No waiver by any Party
of any default, misrepresentation, or breach of warranty or covenant hereunder,
whether intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent
occurrence.
12.10 Severability. Any term or provision of this Agreement
that is invalid or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or provision in
any other situation or in any other jurisdiction.
12.11 Expenses. Each of Aspec, Verilux and the Majority
Shareholders will bear its or their own costs and expenses (including legal and
accounting fees and expenses) incurred in connection with this Agreement and the
transactions contemplated hereby; provided, however, that
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39
the Majority Shareholders will be responsible for (i) any brokers', finders' or
advisory fees payable on behalf of Verilux in connection with the Agreement and
the transactions contemplated hereby, and (ii) any legal or accounting fees
undertaken on behalf of Verilux or the Majority Shareholders in connection with
the Agreement and the transactions contemplated hereby in excess of $50,000
which may be paid by Verilux.
12.12 Construction. The Parties have participated jointly in
the negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation.
12.13 Incorporation of Exhibits and Schedules. The Exhibits
identified in this Agreement are incorporated herein by reference and made a
part hereof.
THIS SPACE LEFT INTENTIONALLY BLANK
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IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on
as of the date first above written.
Aspec: ASPEC TECHNOLOGY, INC.
By:
-----------------------------------
Xxxxxx X. Dell'Oca
Chairman of the Board
of Directors
Merger Sub: ASPEC ACQUISITION CORPORATION
By:
-----------------------------------
Xxxxxxx X. Xxxxx
President
Verilux: VERILUX DESIGN TECHNOLOGY
By:
-----------------------------------
Xxxxxx X. Xxx
President and Chief Executive
Officer
Majority Shareholders:
------------------------------------
Xxxxxx X. Xxx
------------------------------------
Soo-Young Oh
[AGREEMENT AND PLAN OF REORGANIZATION SIGNATURE PAGE]
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