EXHIBIT 10.1
AGREEMENT AND PLAN OF MERGER (this "Agreement") made as of September 16,
1999, by and among E2ENET, INC., a Delaware corporation (the "Buyer"); MEI
MERGER COMPANY, INC., a Delaware corporation ("Merger Sub"); and MEI SOFTWARE
SYSTEMS, INC., a Delaware corporation (the "Company"). Buyer, Merger Sub and
the Company are sometimes collectively referred to herein as the "Parties" and
each individually as a "Party."
WITNESSETH:
WHEREAS, the Board of each of the Company, Buyer and Merger Sub has
approved this Agreement and deems it advisable and in the best interests of
their respective stockholders that the Company be acquired by Buyer through the
merger (the "Merger") of Merger Sub with and into the Company on the terms and
conditions set forth in this Agreement; and
WHEREAS, certain terms used in this Agreement with initial capital letters
are defined in Article XI.
NOW, THEREFORE, in consideration of the representations, warranties,
agreements and covenants herein contained, the Parties, intending legally to be
bound, agree as follows.
ARTICLE I
THE MERGER
1.1 Merger. Subject to the terms and conditions hereafter set forth,
Merger Sub shall be merged with and into the Company in accordance with the
DGCL.
1.2 Name. The name of the surviving corporation (the "Surviving
Corporation"), when reference is made to it after the Effective Time, shall be
"MEI Software Systems, Inc."
1.3 Certificate of Incorporation; Bylaws. As a result, and upon the
effectiveness, of the Merger, the Certificate of Incorporation and Bylaws of
Merger Sub in effect as of the Effective Time shall, without further action, be
the Certificate of Incorporation and Bylaws of the Surviving Corporation.
1.4 Board of Directors; Officers.
(a) The members of the Board of the Surviving Corporation from and
after the Effective Time and until their successors are duly elected and
qualified shall be Xxxxx X. Xxxxx, Xxxxxx X. Xxxxxx and Xxxxxx X. Xxxxx.
(b) The officers of the Company at the Effective Time shall serve as
the officers of the Surviving Corporation from and after the Effective Time and
until they are removed or their successors are duly appointed by the Board of
the Surviving Corporation.
1.5 Effect of the Merger. At the Effective Time, the separate corporate
existence of Merger Sub shall cease and the Company, as the Surviving
Corporation, shall succeed to and possess all of the properties, rights, powers,
privileges, franchises, patents, trademarks, licenses, registrations, and other
assets of every kind and description of Merger Sub, and shall be subject to, and
be responsible for, all debts, liabilities, and obligations of Merger Sub, all
without further act or deed, and in accordance with the applicable provisions of
the DGCL.
1.6 Closing; Effective Time.
(a) Subject to the terms and conditions of this Agreement, the closing
of the Merger (the "Closing") shall take place on a date and at a time (the
"Closing Date") specified by the Buyer with at least 10 days prior written
notice to the Company but, in any event, no later than November 30, 1999 unless
such date is extended as provided herein, at the offices of Verner, Liipfert,
Bernhard, XxXxxxxxx & Hand, Chartered, 000 Xxxxxxxxx Xxxxxx X.X., Xxxxxxxxxx, XX
00000. Buyer may unilaterally extend the Closing Date (i) beyond November 30,
1999, but not later than December 31, 1999, provided that Buyer has, on or
before November 30, 1999, filed a registration statement (the "Registration
Statement") for its securities with the SEC which has not been declared
effective at least 10 days prior to November 30, 1999, and (ii) beyond December
31, 1999 until not later than 3 Business Days after expiration of any applicable
waiting period following any filing by the Buyer or the Company in accordance
with the HSR Act; provided, however, that, if all conditions precedent to the
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Buyer's obligation to effect the Merger have been satisfied, or waived by the
Buyer, the Closing shall occur not later than the first Business Day after
consummation of the Buyer=s initial public offering of common stock.
(b) As soon as practicable after satisfaction or, to the extent
permitted hereunder waiver, of all conditions to the Merger, the Company and
Merger Sub shall (i) execute a certificate of merger in compliance with the
requirements of the DGCL (the "Certificate of Merger"), and shall file the
Certificate of Merger in the Office of the Secretary of State of the State of
Delaware in accordance with the DGCL, and (ii) make all other filings or
recordings and take all such other and further actions as may be required by law
to make the Merger effective. The Merger shall become effective at such time
(the "Effective Time") as the Certificate of Merger is duly filed with the
Secretary of State of the State of Delaware or, if agreed by the Company and
Buyer, at such later time as is specified in the Certificate of Merger.
ARTICLE II
CONVERSION OF SHARES
2.1 Conversion of Shares of Capital Stock. At the Effective Time,
(a) each
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issued and outstanding share of Preferred Stock and Common Stock, other than
any Dissenting Share shall, subject to the terms and conditions of this
Agreement, be converted into the right to receive an amount in immediately
available funds equal to the Merger Consideration Per Share (without interest),
and (b) each Dissenting Share shall be converted into the right to receive
payment from the Surviving Corporation with respect thereto in accordance with
the provisions of the DGCL, provided, however, that the Merger Consideration Per
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Share shall be subject to equitable adjustment in the event of any stock split,
stock dividend, reverse stock split, or other change in the number of shares of
Preferred Stock or Common Stock outstanding between the date hereof and the
Effective Time. No share of Preferred Stock or Common Stock shall be deemed to
be outstanding or to have any rights other than those set forth above in this
Section 2.1 from and after the Effective Time.
2.2 Escrow Agreement; Procedure for Payment.
(a) On or before the Closing Date, Buyer, the Shareholders
Representative and a Qualifying Escrow Agent designated by the Buyer and the
Shareholders Representative (the "Escrow Agent") shall enter into an escrow
agreement (the "Escrow Agreement") in form and substance reasonably satisfactory
to the Buyer and the Shareholders Representative which shall, among other
things, provide as follows:
(i) Immediately after the Effective Time, the Buyer will
cause the Surviving Corporation to furnish to the Escrow Agent for
deposit in the Escrow Account immediately available funds in an amount
equal to the Merger Consideration payable to all Company Shareholders,
other than the holders of any Dissenting Shares. All such funds while
on deposit in the Escrow Account, plus all net earnings thereon, are
sometimes referred to herein as the "Escrow Amount."
(ii) The Escrow Agent shall promptly transfer 90% of the
Merger Consideration deposited in accordance with subparagraph (i)
(such 90% portion being herein sometimes referred to as the "Immediate
Payment Funds") into an account (the "Immediate Payment Account") at
the Escrow Agent which shall be used to make payment, on the Business
Day after the Effective Time, in the following order: (A) first, of
the Xxxx Fees, and (B) second, subject to satisfaction of the
requirements of Sections 2.2(a)(iv) and (v), in accordance with this
Agreement, to the holders as of the Effective Time of all outstanding
shares of Preferred Stock or Common Stock (other than Dissenting
Shares), Warrants and Vested Options.
(iii) The Shareholders Representative shall,
contemporaneously with the Surviving Corporation's deposit of the
Merger Consideration into the Escrow Account in accordance with
subparagraph (i), instruct the Escrow Agent to transfer and maintain
the remaining 10% of such Merger Consideration in and to an account
(the "Reimbursement Account") at the Escrow Agent, which amount shall
be available to make payments in satisfaction of Claims, if any, by
the Buyer in
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accordance with the Escrow Agreement and Article IX of this Agreement.
(iv) Buyer shall cause the Escrow Agent to mail a letter of
transmittal (with instructions for its use), in the form to be
attached to the Escrow Agreement, to each record holder as of the
Effective Time of outstanding shares of Preferred Stock or Common
Stock and Vested Options, for the holder to use in surrendering the
certificates or other instruments, if any, which represented his
shares of Preferred Stock, Common Stock, Warrants or Vested Options,
against payment of the Merger Consideration Per Share. No interest
will accrue or be paid to the holder of any outstanding share of
Preferred Stock, Common Stock, Warrants or Vested Option.
(v) As promptly as possible after receipt of such letter of
transmittal from the Escrow Agent, the Company shall use its best
efforts to cause each former holder of shares of Preferred Stock,
Common Stock or Warrants to surrender his or her certificates
representing such shares to the Escrow Agent; provided, however, that
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if any such holder shall be unable to surrender such certificates due
to loss or mutilation thereof, he or she may make a constructive
surrender by following the procedures customarily followed by the
Buyer in the replacement of lost or mutilated certificates, including,
if necessary, the posting of appropriate bond. Upon actual or
constructive surrender of such certificates from any such holder, the
Escrow Agent shall issue to such holder a receipt indicating such
surrender.
(b) The Escrow Amount and the income attributable thereto shall be
beneficially owned by the holders as of the Effective Time of outstanding shares
of Preferred Stock, Common Stock, Warrants and Vested Options but shall be
available to make payments to Buyer in satisfaction of Claims in accordance with
the Escrow Agreement and Article IX of this Agreement.
(c) All payments to the Buyer in respect to Claims shall be made by
the Escrow Agent as and when provided in accordance with the Escrow Agreement.
(d) Fifty percent of the funds in the Reimbursement Account as to
which a Claim by the Buyer in accordance with the Escrow Agreement and
Article IX of this Agreement has not been made shall, promptly following the
180th day after the Effective Time, be available to be withdrawn from the
Reimbursement Account for payment to the holders as of the Effective Time of the
outstanding shares of Preferred Stock, Common Stock (other than holders of
Dissenting Shares), Warrants and Vested Options in accordance with this
Agreement, and the Shareholders Representative shall instruct the Escrow Agent
to make such payment; all remaining funds in the Reimbursement Account as to
which a Claim by the Buyer in accordance with the Escrow Agreement and Article
IX of this Agreement has not been made shall, promptly following the first
anniversary of the Effective Time, be available to be withdrawn from the
reimbursement Account
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for payment to the holders as of the Effective Time of the outstanding shares of
Preferred Stock, Common Stock (other than holders of Dissenting Shares),
Warrants and Vested Options in accordance with this Agreement, and the
Shareholders Representative shall instruct the Escrow Agent to make such
payment; and thereafter all holders as of the Effective Time of shares of
Preferred Stock, Common Stock (other than holders of Dissenting Shares),
Warrants and Vested Options shall look solely to the Shareholders Representative
(subject to abandoned property, escheat, and other similar laws) as general
creditors thereof with respect to the portion of the Merger Consideration Per
Share comprising funds in the Reimbursement Account.
(e) The holders of all outstanding shares of Preferred Stock, Common
Stock, Warrants and Vested Options acknowledge and agree that, by virtue of
the approval of this Agreement by the holders of the Company's capital stock,
Edison Venture Fund II, L.P. (the "Shareholders Representative") shall be fully
authorized and empowered to act, in accordance with the Escrow Agreement and
this Agreement, for and on behalf of the holders as of the Effective Time of all
outstanding shares of Preferred Stock, Common Stock (other than holders of
Dissenting Shares), Warrants and Vested Options in connection with all matters
relating to the execution, delivery, enforcement and implementation of the
Escrow Agreement and Article IX of this Agreement.
(f) The Escrow Agent may invest the funds maintained in the Escrow
Account and its sub-accounts only in one or more of the Permitted Investments as
defined in the Escrow Agreement; provided, however, that such Investments shall
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be such as to permit the Escrow Agent to make prompt payment to the holders as
of the Effective Time of outstanding shares of Preferred Stock, Common Stock
(other than holders of Dissenting Shares), Warrants or Vested Options of the
Merger Consideration Per Share, or in satisfaction of Claims, as necessary. The
Escrow Agent shall from time to time pay over to the Shareholders
Representative, for payment to the holders as of the Effective Time of
outstanding shares of Preferred Stock, Common Stock (other than holders of
Dissenting Shares), Warrants and Vested Options, in accordance with this
Agreement, any net earnings with respect to such Investments.
(g) The Escrow Agent shall pay over to the Surviving Corporation any
portion of the Immediate Payment Funds (including any earnings thereon not
previously transferred to the Shareholders Representative) remaining 180 days
after the Effective Time, and thereafter all holders as of the Effective Time of
outstanding shares of Preferred Stock, Common Stock (other than holders of
Dissenting Shares), Warrants and Vested Options shall look solely to the
Surviving Corporation (subject to abandoned property, escheat, and other similar
laws) as general creditors thereof with respect to the portion of the Merger
Consideration Per Share comprising Immediate Payment Funds and payable upon
surrender of their certificates or other instruments, if any.
(h) The Buyer shall cause the Surviving Corporation to pay all
reasonable charges and expenses of the Escrow Agent.
2.3 Options; Treasury Shares; Warrants.
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(a) The Board of the Company (or, as applicable, any committee
thereof) shall promptly hereafter provide notice to each holder of a vested
outstanding option (a "Vested Option") issued by the Company under its 1997 Non-
Qualified Stock Option Plan (the "MEI Option Plan") that at the Effective Time,
each Vested Option shall, automatically and without further action, be
terminated and converted into the right to receive, subject to the terms and
conditions of this Agreement, an amount in immediately available funds equal to
the Merger Consideration Per Share.
(b) The Board of the Company (or, as applicable, any committee
thereof) shall, promptly after the date hereof, provide notice to all holders of
non-vested options issued under the MEI Option Plan that all such options must
be exercised, to the extent then exercisable or to be exercisable as a result of
the Merger, on or before the period ending on the Closing Date, at the end of
which period all such options shall terminate, provided, however, that options
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which vest by virtue of the Merger will be deemed Vested Options.
(c) All shares of Preferred Stock or Common Stock held by the Company
as treasury shares or by any subsidiary of the Company (other than in a
fiduciary capacity), shall be canceled and shall not be converted as provided in
Section 2.1(a).
(d) All Warrants outstanding as of the Effective Time shall be
tendered for cancellation in exchange for the right to receive, subject to the
terms and conditions of this Agreement, a payment in immediately available
funds equal to the Merger Consideration Per Share.
2.4 Conversion of Shares of Merger Sub. At the Effective Time, each
of the outstanding shares of common stock, par value $.01 per share, of Merger
Sub shall, automatically and without further action, be converted into and
become one share of the common stock, par value $.01 per share, of the Surviving
Corporation.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
3.1 Organization, Qualifications and Corporate Power.
(a) The Company is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Delaware and is duly
licensed or qualified to transact business as a foreign corporation and, with
such exceptions as do not either individually or in the aggregate, have a
Material Adverse Effect on the business of the Company, is in good standing in
each jurisdiction in which the nature of the business transacted by it or the
character of the properties owned or leased by it requires such licensing or
qualification. A list of such jurisdictions is set forth in Schedule 3.1(a).
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The Company has the corporate power and authority to own and hold its
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properties and to carry on its business as now conducted and as proposed to be
conducted, and to execute, deliver and perform this Agreement and the
transactions contemplated herein. True and complete copies of the Certificate of
Incorporation and By-laws of the Company and its subsidiaries, each as amended
and as in effect on the date hereof, are attached hereto as Schedule 3.1(a).
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The Company is not in default under or in violation of any provision of its
Certificate of Incorporation or By-laws.
(b) Schedule 3.1(b) attached hereto contains a list of all past or
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present subsidiaries of the Company. Except for such subsidiaries, the Company
does not (i) own of record or beneficially, directly or indirectly, (A) any
shares of capital stock or securities convertible into capital stock of any
other corporation or (B) any participating interest in any partnership, joint
venture or other non-corporate business enterprise, or (ii) control, directly or
indirectly, any other entity. Each of the subsidiaries is a corporation duly
incorporated, validly existing, with such exceptions as do not either
individually or in the aggregate have a Material Adverse Effect on the business
of such subsidiary, and is in good standing under the laws of its respective
jurisdiction of incorporation and is duly licensed or qualified to transact
business as a foreign corporation and is in good standing in each jurisdiction
in which the nature of the business transacted by it or the character of the
properties owned or leased by it requires such licensing or qualification. A
list of such jurisdictions is set forth in Schedule 3.1(b). Each of the
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subsidiaries has the corporate power and authority to own and hold its
properties and to carry on its business as now conducted and as proposed to be
conducted. All of the outstanding shares of capital stock of each of the
subsidiaries are owned beneficially and of record by the Company, one of its
other subsidiaries, or any combination of the Company and/or one or more of its
other subsidiaries, in each case free and clear of any liens, charges,
restrictions, claims or encumbrances of any nature whatsoever; and there are no
outstanding subscriptions, warrants, options, convertible securities, or other
rights (contingent or other) pursuant to which any of the subsidiaries is or may
become obligated to issue any shares of its capital stock to any person other
than the Company or one of the other subsidiaries. As used in this Article III,
unless the context other requires, the term "Company" shall mean the Company and
each of its subsidiaries.
3.2 Authorization of Transactions; Company Action. The Company has the
corporate power and authority to execute and deliver this Agreement and to
perform its obligations hereunder. The execution and delivery of this Agreement
and the performance by the Company of this Agreement and the consummation by the
Company of the transactions contemplated hereby have been duly and validly
authorized by the Board of Directors of the Company and no other corporate
action or proceeding on the part of the Company is necessary to authorize this
Agreement or the Certificate of Merger or to consummate the transactio ns
contemplated hereby and thereby other than the approval of this Agreement by the
shareholders of the Company, if required. This Agreement has been duly and
validly executed and delivered by the Company, and assuming the due
authorization, execution and delivery by Buyer and Merger Sub, constitutes a
valid and binding obligation of the Company, enforceable against the Company in
accordance with its terms, except as enforcement may be limited by bankruptcy,
insolvency, fraudulent conveyance, reorganization,
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moratorium and other similar laws affecting the enforcement of creditors'
rights generally, except that the availability of equitable remedies, including
specific performance, is subject to the discretion of the court before which any
proceeding therefor may be brought.
3.3 Non-contravention. Except for any applicable requirements of the
Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976, as amended (the "HSR Act")
and except as set forth in Schedule 3.3 hereof, neither the execution and
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delivery of this Agreement by the Company, or the consummation by the Company of
the transactions contemplated hereby, will (a) conflict with or violate any
provision of the Certificate of Incorporation or By-laws of the Company, (b)
require on the part of the Company any filing with, or any permit,
authorization, consent or approval of, any Federal, state, municipal or other
governmental department, commission, board, bureau, agency, authority,
instrumentality, court, arbitration tribunal or administrative agency, whether
domestic or foreign (a "Governmental Entity"), other than the filing of the
Certificate of Merger in accordance with the DGCL, (c) conflict with, result in
a breach of, constitute (with or without due notice or lapse of time or both) a
default under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify or cancel, or require any notice, consent or
waiver under, any contract, lease, sublease, license or sublicense (including,
without limitation, the agreements listed in Schedules 3.10, 3.11, 3.13, 3.14 or
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3.23 hereto), or any franchise, registration or permit, or any instrument of
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indebtedness or any indenture, mortgage or other agreement for borrowed money,
or any Security Interest (as defined below) or any other arrangement to which
the Company is a party or by which the Company is bound or to which any of its
assets are subject, (d) result in the imposition of any Security Interest upon
any assets of the Company or (e) violate in any material respect any order,
writ, injunction, decree, statute, rule or regulation applicable to the Company,
any of its properties or assets. For purposes of this Agreement, "Security
Interest" means any mortgage, pledge, security interest, encumbrance, charge, or
other lien (whether arising by contract or by operation of law), other than (i)
mechanic's, materialmen's, and similar liens, (ii) liens arising under worker=s
compensation, unemployment insurance, social security, retirement, and similar
legislation, and (iii) liens on goods in transit incurred pursuant to
documentary letters of credit, in each case arising in the ordinary course of
business consistent with past custom and practice of the Company (including with
respect to frequency and amount) ("Ordinary Course of Business") and not
material to the Company.
3.4 Authorized Capital Stock.
(a) The authorized capital stock of the Company consists of (i)
10,013,718 shares of Preferred Stock, of which 4,563,718 shares are Series A
Preferred Stock, 2,500,000 shares are Series B Preferred Stock, and 2,950,000
shares are Series C Preferred Stock, and (ii) 25,000,000 shares of Common
Stock.
(b) (i) As of the date hereof, 8,249,543 shares of Common Stock,
4,563,718 shares of Series A Preferred Stock, 2,500,000 shares of
Series B Preferred Stock, and 2,901,949 shares of Series C
Preferred Stock have been
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and will have been validly issued and outstanding, fully paid and
nonassessable with no personal liability attaching to the
ownership thereof, and all shares of capital stock are free of
preemptive rights.
(ii) As of the date hereof, each share of Series A Preferred
Stock is convertible into 1.10641747 shares of Common Stock, each
share of Series B Preferred Stock is convertible into one share
of Common Stock and each share of Series C Preferred Stock is
convertible into one share of Common Stock.
(iii) Subject to the exercise in accordance with their terms
of Warrants outstanding as of the date hereof, and assuming the
conversion of all of the issued and outstanding shares of
Preferred Stock into shares of Common Stock, as of the Effective
Time, 19,835,923 shares of Common Stock, will have been validly
issued and outstanding, fully paid and nonassessable with no
personal liability attaching to the ownership thereof, and all
shares of capital stock are free of preemptive rights.
(iv) In the event the Effective Time is November 30,
1999, assuming no exercise of Vested Options on or after the
date hereof, the total number of Vested Options shall be
1,216,026.
(c) As of the date hereof, the stockholders of record and holders of
subscriptions, warrants, options, convertible securities, and other rights
(contingent or other) to purchase or otherwise acquire equity securities of the
Company, and the number of shares of Common Stock, Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock and the number of such
subscriptions, warrants, options, convertible securities, and other such rights
held by each are set forth in Schedule 3.4(c) hereof. Except as set forth in
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Schedule 3.4(c), (i) no person or entity owns of record or is known to the
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Company to own beneficially any share of Common Stock, Series A Preferred Stock,
Series B Preferred Stock or Series C Preferred Stock, (ii) no subscription,
warrant, option, convertible security, or other right (contingent or other) to
purchase or otherwise acquire equity securities of the Company is authorized or
outstanding and (iii) there is no commitment by the Company to issue shares,
subscriptions, warrants, options, convertible securities, or other such rights
or to distribute to holders of any of its equity securities any evidence of
indebtedness or asset.
(d) Assuming that (i) between the date hereof and the Effective Time
the Company does not issue any of its equity securities or grant any
subscriptions, warrants, options, convertible securities, or other rights
(contingent or other) to purchase or otherwise acquire any of its equity
securities, (ii) each holder of convertible securities of the Company
(including, without limitation, the holders of the Series A Preferred Stock,
Series B Preferred Stock and Series C
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Preferred Stock) that currently has or as a result of the Merger will have a
right to convert its equity securities in the Company into Common Stock converts
said equity securities into Common Stock, and (iii) each holder of any
subscription, warrant, option, convertible security, or other right (contingent
or other) to purchase or otherwise acquire equitysecurities of the Company that
currently has or as a result of the Merger will have a right to convert its
equity securities in the Company into Common Stock converts said subscription,
warrant, option, conv ertible security, or other right into Common Stock, then
as of the Merger (A) Schedule 3.4(d) sets forth a complete list of all persons
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or entities that will own of record or otherwise shares of the Common Stock, as
well as the number of shares of Common Stock that will be held by such persons
or entities and (B) there will be no other stockholders of record or holders of
subscriptions, warrants, options, convertible securities, or other rights
(contingent or other) to purchase or otherwise acquire equity securities of the
Company, other than in favor of the Buyer and the rights of the persons
identified in Schedule 3.4(d)(1) hereto who hold unvested options for the
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number ed shares of Common Stock set forth next to each such person's name in
Schedule 3.4(d)(1) hereof (the "Unvested Option Holders").
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(e) Except as provided in the Company's Certificate of Incorporation
or as set forth in the attached Schedule 3.4(e), the Company has no obligation
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(contingent or other) to purchase, redeem or otherwise acquire any of its equity
securities or any interest therein or to pay any dividend or make any other
distribution in respect thereof. As of the Merger, there will be no voting
trusts or agreements, stockholders' agreements, pledge agreements, buy-sell
agreements, rights of first refusal, preemptive rights or proxies relating to
any securities of the Company or any of its subsidiaries (whether or not the
Company or any of its subsidiaries is a party thereto). All of the outstanding
securities of the Company were issued in compliance with all applicable federal
and state securities laws.
3.5 Financial Statements. (a) The Company has furnished to the
Buyer (a) the consolidated balance sheets of the Company and its subsidiaries as
of December 31, 1997 and 1998, and for the six months ended June 30, 1999, and
the related consolidated statements of income, stockholders' equity and cash
flows of the Company and its subsidiaries for the year ended December 31, 1997
and 1998, and for the six months ended June 30, 1999, as certified by the
certified public accounting firm of PriceWaterhouseCoopers (including each such
firm's report thereon) (collectively, the "Audited Financial Statements") and
(b) the unaudited consolidated balance sheet of the Company and its subsidiaries
as of June 30, 1999, and the related consolidated statements of income,
stockholders' equity and cash flows of the Company and its subsidiaries for the
six months ended June 30, 1999 (the "Interim Financial Statements") prepared by
the Company. A true and complete copy of each of the Audited Financial
Statements and the Interim Financial Statements is attached hereto as Schedule
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3.5. Except as set forth in Schedule 3.5, since June 30, 1999, (i) there has
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been no change in the assets, liabilities or financial condition of the Company
and its subsidiaries (on a consolidated basis) from that reflected in the
Audited Financial Statements as of and for the six months ended June 30, 1999,
except for changes in the Ordinary Course of Business which in the aggregate
have not been materially adverse and (ii) none of the business, prospects,
financial condition, operations, property or affairs of the Company and its
subsidiaries (on a consolidated
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basis) has been materially adversely affected by any occurrence or development,
individually or in the aggregate, whether or not insured against. The Company
has been advised by PriceWaterhouseCoopers that its current revenue recognition
policies of the Company are in compliance with the American Institute of
Certified Public Accountants Statement of Position 97-2. The Company does not
capitalize software development but expenses such costs in the period incurred.
(b) The Company has no liability (whether known or unknown, whether
absolute or contingent, whether liquidated or unliquidated and whether due or to
become due), except for (i) liabilities accrued or reserved against on the
Interim Financial Statements, (ii) liabilities which have arisen since the date
of the Interim Financial Statements in the Ordinary Course of Business and which
are similar in nature and amount to the liabilities which arose during the
comparable period of time in the immediately preceding fiscal period, (iii)
contractual or statutory liabilities incurred in the Ordinary Course of Business
which would not be required by United States generally accepted accounting
principles ("GAAP") to be reflected on a balance sheet, (iv) the Company's
accounting and legal fees associated with negotiating and entering into this
Agreement and consummating the transactions contemplated herein (the
"Professional Costs"), and (v) liabilities set forth on Schedule 3.5 hereto.
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3.6 Events Subsequent to the Date of the Interim Financial Statements.
Except as set forth in Schedule 3.6, since the date of the Interim Financial
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Statements, the Company has not (a) issued any of its equity securities
(including, without limitation, any Common Stock, preferred stock (including
Preferred Stock), bond or other corporate security) or granted any subscription,
warrant, option, convertible security, or other right (contingent or other) to
purchase or otherwise acquire any of its equity securities, other than as
contemplated in the Loan Agreement, (b) borrowed any amount or incurred or
become subject to any liability (absolute, accrued or contingent), other than as
contemplated in the Loan Agreement and current liabilities incurred and
liabilities under contracts entered into in the Ordinary Course of Business, (c)
discharged or satisfied any lien or encumbrance or incurred or paid any
obligation or liability (absolute, accrued or contingent) other than current
liabilities shown on the Interim Financial Statements and current liabilities
incurred since the date of the Interim Financial Statements in the Ordinary
Course of Business, (d) declared or made any payment or distribution to
stockholders or purchased or redeemed any share of its capital stock or other
security, (e) mortgaged, pledged or subjected to lien any of its assets,
tangible or intangible, other than liens securing advances by Buyer as
contemplated in the Loan Agreement and liens of current real property taxes not
yet due and payable, (f) sold, assigned or transferred any of its tangible
assets except in the Ordinary Course of Business, or canceled any debt or claim,
(g) sold, assigned, transferred or granted any exclusive license with respect to
any patent, trademark, trade name, service xxxx, copyright, trade secret or
other intangible asset, (h) suffered any material loss of property or waived any
right of material value whether or not in the Ordinary Course of Business, (i)
made any change in officer compensation except in the Ordinary Course of
Business and consistent with past practice, (j) made any material change in the
manner
11
of business or operations of the Company, (k) entered into any transaction
except in the Ordinary Course of Business or as otherwise contemplated hereby or
(l) entered into any commitment (contingent or otherwise) to do any of the
foregoing.
3.7 Litigation; Compliance with Law. Except as set forth in Schedule 3.7,
-------- ---
there is no (a) action, suit, claim, proceeding or investigation pending or, to
the best of the Company's knowledge, threatened against or materially adversely
affecting the Company, at law or in equity, or before or by any Governmental
Entity, (b) arbitration proceeding relating to the Company pending under
collective bargaining agreements or otherwise or (c) inquiry by a Governmental
Entity pending or, to the best of the Company's knowledge, threatened against or
affecting the Company (including without limitation any inquiry as to the
qualification of the Company to hold or receive any license or permit), and
there is no basis for any of the foregoing. The Company has not received any
opinion or memorandum or legal advice from legal counsel to the effect that it
is exposed, from a legal standpoint, to any liability or disadvantage which may
be material to its business, prospects, financial condition, operations,
property or affairs. The Company is not in default with respect to any order,
writ, injunction or decree known to or served upon the Company or any
Governmental Entity. There is no action or suit by the Company pending or
threatened against others. The Company has complied with all laws, rules,
regulations and orders of a material nature of any Governmental Entity
applicable to its business, operations, properties, assets, products and
services, and the Company has all necessary permits, licenses and other
authorizations required to conduct its business as conducted and as proposed to
be conducted, with such exceptions as do not, either individually or in the
aggregate, have a Material Adverse Effect on the business, prospects, financial
condition, operations, property or affairs of the Company. There is no existing
law, rule, regulation or order, and the Company is not aware of any proposed
law, rule, regulation or order, whether Federal or state, which would prohibit
or restrict the Company from, conducting its business in any jurisdiction in
which it is now conducting business or in which it proposes to conduct business
which prohibition or restriction would have a Material Adverse Effect on the
Company.
3.8 Proprietary Information of Third Party. Except as set forth in
Schedule 3.8, to the best of the Company's knowledge, no third party has claimed
------------
or has reason to claim that any person employed by or affiliated with the
Company has (a) violated or may be violating any of the terms or conditions of
his employment, non-competition or nondisclosure agreement with such third
party, (b) disclosed or may be disclosing or utilized or may be utilizing any
trade secret or proprietary information or documentation of such third party or
(c) interfered or may be interfering in the employment relationship between such
third party and any of its present or former employees. To the best of the
Company's knowledge, no person employed by or affiliated with the Company has
employed or proposes to employ any trade secret or any information or
documentation proprietary to any former employer, and to the best of the
Company's knowledge, no person employed by or affiliated with the Company has
violated any confidential relationship
12
which such person may have had with any third party, in connection with the
development, manufacture or sale of any product or proposed product or the
development or sale of any service or proposed service of the Company, and the
Company has no reason to believe there will be any such employment or violation.
To the best of the Company's knowledge, none of the execution or delivery of
this Agreement, or the carrying on of the business of the Company as officers,
employees or agents by any officer, director or key employee of the Company, or
the conduct or proposed conduct of the business of the Company, will conflict
with or result in a breach of the terms, conditions or provisions of or
constitute a default under any contract, covenant or instrument under which any
such person is obligated.
3.9 Title to Properties. Except as set forth in Schedule 3.9, the Company
-------- ---
and its subsidiaries have good and marketable title to their respective
properties and assets reflected on the Interim Financial Statements or acquired
by them since the date of the Interim Financial Statements (other than
properties and assets disposed of in the Ordinary Course of Business since the
date of the Interim Financial Statements), and all such properties and assets
are (a) all the properties and assets necessary for the conduct of the Company's
business as presently conducted and (b) except for (i) the security interest(s)
granted by the Company to PNC Bank pursuant to the certain Security Agreement
between PNC and Company dated March 12, 1998, as amended (the "PNC Security
Agreement"), securing the Company's obligations under the Loan Agreement between
PNC and Company dated March 12, 1998, as amended (the "PNC Loan Agreement"), and
(ii) the security interests granted by the Company to Buyer, as contemplated by
the Loan Agreement, free and clear of mortgages, pledges, security interests,
liens, charges, claims, restrictions and other encumbrances, except for liens
for current taxes not yet due and payable and minor imperfections of title, if
any, not material in nature or amount and not materially detracting from the
value or impairing the use of the property subject thereto or impairing the
operations or proposed operations of the Company and its subsidiaries. Such
properties and assets are free from material defects, have been maintained in
accordance with normal industry practice, are in good operating condition and
repair (subject to normal wear and tear) and are suitable for the purposes for
which they presently are used. The Company does not own any real property.
3.10 Leasehold Interests. Schedule 3.10 lists each lease (including any
-------- ----
sublease) or agreement to which the Company is a party under which it is a
lessee of any property, real or personal, and the Company has previously
provided a true and complete copy of each such lease or agreement (as amended to
date) to Buyer. Each such lease or agreement is legal, valid, binding,
enforceable and in full force and effect with respect to the Company, to the
Company's knowledge is legal, valid, binding, enforceable and in full force and
effect with respect to each other party
13
thereto, and will continue to be so following the Merger in accordance with the
terms thereof as in effect prior to the Merger. No event has occurred and is
continuing which, with due notice or lapse of time or both, would constitute a
default or event of default by the Company under any such lease or agreement or,
to the best of the Company's knowledge, by any other party thereto, and there
are no disputes, oral agreements or forbearance programs in effect as to any
such lease or agreement. The Company's possession of such property has not been
disturbed and, to the best of the Company's knowledge, no claim has been
asserted against the Company adverse to its rights in such leasehold interests.
The Company has not assigned, transferred, conveyed, mortgaged, deeded in trust
or encumbered any interest in any such leasehold or agreement.
3.11 Insurance. (a) Schedule 3.11 lists each insurance policy (including
-------- ----
fire, theft, casualty, general liability, workers compensation, business
interruption, environmental, product liability and automobile insurance policies
and bond and surety arrangements) to which the Company is a party, a named
insured, or otherwise the beneficiary of coverage at any time within the past
year. Schedule 3.11 lists each person or entity required to be listed as an
-------- ----
additional insured under each such policy. Each such policy is in full force and
effect and by its terms and with the payment of the requisite premiums thereon
will continue to be in full force and effect through and after the Merger.
(b) The Company is not in breach or default (including with respect to
the payment of premiums or the giving of notices) in any material respect under
such policy, 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 such policy; and the Company has not received any notice
from the insurer disclaiming coverage or reserving rights with respect to a
particular claim or such policy in general. The Company has not incurred any
loss, damage, expense or liability covered by any such insurance policy for
which it has not properly asserted a claim under such policy. The Company is
covered by insurance in scope and amount customary and reasonable for the
businesses in which it is engaged.
3.12 Taxes.
(a) The Company has filed all Tax Returns that it was required to file
and all such Tax Returns were correct and complete in all material respects. The
Company has paid or will pay all Taxes due on or before the Effective Time,
regardless of whether shown on any such Tax Returns, except such as are being
contested in good faith by appropriate proceedings (to the extent any such
proceedings are required) and with respect to which the Company is maintaining
reserves adequate for their payment, and which are described in Schedule 3.12.
-------- ----
The accrued but unpaid Taxes of the Company for tax periods through the date of
the Interim Financial Statements do not exceed the accruals and reserves for
Taxes (other than deferred Taxes) set forth on the Interim Financial Statements.
The accrued but unpaid Taxes of the Company for all periods through the
Effective Time do not exceed the reserves for payment thereof maintained by the
Company and which are described on Schedule 3.12. All Taxes attributable to the
-------- ----
period January 1, 1999 through the Effective Time are attributable to the
conduct by the Company of its operations in the Ordinary Course of Business. The
Company has no actual or potential liability
14
for any Tax obligation of any taxpayer (including without limitation any
affiliated group of corporations or other entities that included the Company
during a prior period) other than the Company. All Taxes that the Company is or
was required by law to withhold or collect have been duly withheld or collected
and, to the extent required, have been paid to the proper Governmental Entity,
except such as are being contested in good faith by appropriate proceedings (to
the extent any such proceedings are required), with respect to which the Company
is maintaining reserves adequate for their payment and which are described in
Schedule 3.12. The Federal Tax Returns of the Company have never been audited by
-------- ----
the Internal Revenue Service. No deficiency assessment with respect to, or
proposed adjustment of, the Company's Taxes is pending or, to the best of the
Company's knowledge, threatened. There is no tax lien, whether imposed by any
Federal, state, county or local taxing authority, outstanding against the
assets, properties or business of the Company. Neither the Company nor any of
its stockholders has ever filed an election pursuant to Section 1362 of the
Internal Revenue Code of 1986, as amended (the "Code"), that the Company be
taxed as an S corporation.
(i) For purposes of this Agreement, "Taxes" means all taxes,
charges, fees, levies or other similar assessments or liabilities,
including without limitation income, gross receipts, ad valorem,
premium, value-added, excise, real property, personal property, sales,
use, transfer, withholding, employment, payroll and franchise taxes
imposed by the United States of America or any state, local or foreign
government, or any agency thereof, or other political subdivision of
the United States or any such government, and any interest, fines,
penalties, assessments or additions to tax resulting from,
attributable to or incurred in connection with any Tax or any contest
or dispute thereof and any amounts of Taxes of another person that the
Company is liable to pay by law or otherwise.
(ii) For purposes of this Agreement, "Tax Returns" means all
reports, returns, declarations, statements or other information
required to be supplied to a taxing authority in connection with
Taxes.
(b) Attached as Schedule 3.12 are correct and complete copies of all
-------- ----
federal income Tax Returns, examination reports and statements of deficiencies
assessed against or agreed to by the Company. No examination or audit of any Tax
Returns of the Company by any Governmental Entity is currently in progress or,
to the knowledge of the Company, threatened or contemplated. The Company has not
waived any statute of limitations with respect to Taxes or agreed to an
extension of time with respect to a tax assessment or deficiency.
(c) The Company is not a "consenting corporation" within the meaning
of Section 341(f) of the Code and none of the assets of the Company is subject
to an election under Section 341(f) of the Code. The Company has not been a
United States real property holding
15
corporation within the meaning of Section 897(c)(2) of the Code during the
applicable period specified in Section 897(c)(l)(A)(ii) of the Code. The Company
is not a party to any Tax allocation or sharing agreements.
(d) Except with respect to Phoenix, the Company is not and has never
been a member of an "affiliated group" of corporations (within the meaning of
Section 1504 of the Code).
(e) No deductions by the Company for severance payments are subject to
limitation based on the "golden parachute provisions" of Section 280(G) of the
Code.
3.13 Other Agreements. Except as set forth in Schedule 3.13, the Company is
-------- ----
not a party to or otherwise bound by any written or oral contract or instrument
or other restriction which individually or in the aggregate could materially
adversely affect the business, prospects, financial condition, operations,
property or affairs of the Company. Except as set forth in Schedule 3.13, the
-------- ----
Company is not a party to or otherwise bound by any written or oral:
(a) distributor, dealer, manufacturer's representative or sales agency
contract or agreement which is not terminable on less than ninety (90) days'
notice without cost or other liability to the Company (except for contracts
which, in the aggregate, are not material to the business of the Company);
(b) sales contract which entitles any customer to a rebate or right of
set-off, to return any product to the Company after acceptance thereof or to
delay the acceptance thereof (except for sales contracts used consistent with
past practice), or which varies in any material respect from the Company's
standard form contracts;
(c) contract or other commitment with any supplier containing any
provision permitting any party other than the Company to renegotiate the price
or other terms, or containing any pay-back or other similar provision, upon the
occurrence of a failure by the Company to meet its obligations under the
contract when due or the occurrence of any other event;
(d) contract for the future purchase of fixed assets or for the future
purchase of materials, supplies or equipment in excess of its normal operating
requirements;
(e) contract for the employment of any officer, employee or other
person on a full-time or consulting basis which is not terminable on notice
without cost or other liability to the Company, except normal severance
arrangements and accrued vacation pay;
(f) bonus, pension, profit-sharing, retirement, hospitalization,
insurance, stock purchase, stock option or other plan, contract or understanding
pursuant to which benefits are
16
provided to any employee of the Company (other than group insurance plans
applicable to employees generally);
(g) agreement or indenture relating to the borrowing of money or to
the mortgaging or pledging of, or otherwise placing a lien or security interest
on, any asset of the Company;
(h) guaranty of any obligation for borrowed money or otherwise;
(i) voting trust or agreement, stockholders' agreement, pledge
agreement, buy-sell agreement or first refusal or preemptive rights agreement
relating to any securities of the Company, other than that certain Stockholders'
Agreement by and among certain shareholders of the Company and appended to
Schedule 3.13 (the "Stockholders' Agreement"), which Stockholders' Agreement
-------- ----
shall be amended, as necessary, to provide that it will automatically terminate
effective as of the Merger;
(j) agreement, or group of related agreements with the same party or
any group of affiliated parties, under which the Company has advanced or agreed
to advance money or has agreed to lease any property as lessee or lessor;
(k) agreement or obligation (contingent or otherwise) to issue, sell
or otherwise distribute or to repurchase or otherwise acquire or retire any
share of its capital stock or any of its other equity securities;
(l) assignment, license or other agreement with respect to any form of
intangible property;
(m) agreement under which it has granted any person any registration
rights, other than the Registration Rights Agreement dated December 20, 1991, as
amended, by and among the Company, Xxxxx X. Xxxxxxxx, and the holders of the
issued and outstanding Preferred Stock;
(n) agreement under which it has limited or restricted its right to
compete with any person in any respect;
(o) other contract or group of related contracts with the same party
involving more than $30,000 or continuing over a period of more than six months
from the date or dates thereof (including renewals or extensions optional with
another party), which contract or group of contracts is not terminable by the
Company without penalty upon notice of thirty (30) days or less, but excluding
any contract or group of contracts with a customer of the Company for
17
the sale, lease or rental of the Company's products or services if such contract
or group of contracts was entered into by the Company in the Ordinary Course of
Business; or
(p) other contract, instrument, commitment, plan or arrangement, a
copy of which would be required to be filed with the Securities and Exchange
Commission (the "Commission") as an exhibit to a registration statement on Form
S-1 if the Company were registering securities under the Securities Act of 1933,
as amended (the "Securities Act").
The Company, and to the best of the Company's knowledge, each other party
thereto have in all material respects performed all the obligations required to
be performed by them to date, have received no notice of default and are not in
default (with due notice or lapse of time or both) under any lease, agreement or
contract now in effect to which the Company is a party or by which it or its
property may be bound. The Company has no present expectation or intention of
not fully performing all its obligations under each such lease, contract or
other agreement, and the Company has no knowledge of any breach or anticipated
breach by the other party to any lease, agreement, contract or commitment to
which the Company is a party.
3.14 Intellectual Property.
(a) The Company owns, or is licensed or otherwise possesses legally
enforceable rights to use (free and clear of any liens or encumbrances), all
issued patents, trademarks, trade names, service marks, copyrights, and any
applications for such trademarks, trade names, service marks and copyrights, and
all patent rights, trade secrets, schematics, technology, know-how, computer
software programs or applications and tangible or intangible proprietary
information or material (collectively, "Intellectual Property") that are
reasonably necessary to conduct its business as currently conducted.
(i) Schedule 3.14(a)(i) lists all Intellectual Property
-------- ----------
consisting of registered and pending applications for patents, trademarks
and copyrights owned by the Company, including the jurisdictions in which
each Intellectual Property right has been issued or registered or in which
any such application for such issuance or registration has been filed.
(ii) Schedule 3.14(a)(ii) lists all written licenses, sublicenses
-------- -----------
and other agreements to which the Company is a party and pursuant to which
any person is authorized to use any Intellectual Property rights of the
Company, including such licenses, sublicenses or other agreements with end-
users that grant non-exclusive rights to use a Company product in
accordance with the Company's standard form of end-user license agreement.
18
(iii) Schedule 3.14(a)(iii) lists all written licenses,
-------- ------------
sublicenses and other agreements as to which the Company is a party and
pursuant to which the Company is authorized to use any third party patents,
patent rights, trademarks, service marks, trade secrets or copyrights,
including, without limitation, third party software, including, without
limitation, packaged commercially available licensed software programs sold
to the public ("Third Party Intellectual Property") which are used in the
business of the Company or which form a part of any existing product or
service of the Company; provided, however, that packaged commercially
-------- -------
available licensed software programs sold to the public may be excluded
from the Third Party Intellectual Property listed in Schedule 3.14(a)(iii)
-------- ------------
but shall be included in the term "Third Party Intellectual Property" for
all other purposes of this Agreement.
(iv) Schedule 3.14(a)(iv) lists all material written agreements
-------- -----------
or other arrangements under which the Company has provided or agreed to
provide source code of any Intellectual Property or other product to any
third party.
The Company has made available to Buyer correct and complete copies of any
patents, registrations, applications, licenses, sublicenses and agreements, as
amended to date, relating to any Intellectual Property. The Company is not a
party to any oral license, sublicense or agreement which, if reduced to written
form, would be required to be listed in Schedules 3.14(a)(i)-(iv) under the
--------- ---------------
terms of this Section 3.14(a).
(b) With respect to each item of Intellectual Property that the
Company owns: (i) subject to such rights as have been granted by the Company
under license agreements entered into by the Company and listed in Schedule
--------
3.14(a)(i) (true and complete copies of which previously have been delivered to
----------
Buyer), the Company is the sole and exclusive owner, and possesses all right,
title and interest in and to such item and is not obligated to pay any
compensation to any other party in respect thereof; and (ii) such item is not
subject to any outstanding judgment, order, decree, stipulation or injunction.
With respect to each item of Third Party Intellectual Property: (i) the license,
sublicense or other agreement covering such item is legal, valid, binding,
enforceable and in full force and effect with respect to the Company and, to the
Company's knowledge, is legal, valid, binding, enforceable and in full force and
effect with respect to each other party thereto; (ii) the Company is not in
material breach or material default under, and to the Company's knowledge, no
other party is in material breach or material default under, any such license or
other agreement and no event has occurred which with notice or lapse of time
would constitute a material breach or material default or permit termination,
modification or acceleration thereunder; (iii) such item of Third Party
Intellectual Property is not subject to
19
any outstanding judgment, order, decree, stipulation, injunction or adverse
claim to which the Company is a party or has been specifically named or, to the
Company's knowledge, subject to any other outstanding judgment, order, decree,
stipulation, or injunction; and (iv) no license or other fee is payable upon
change of control of the Company or any transfer or assignment of such license,
sublicense or other agreement.
(c) Except as briefly described in Schedule 3.14(c), the Company (i)
-------- -------
has not been served in any suit, action or proceeding which involves a claim of
infringement or misappropriation of any Third Party Intellectual Property and
(ii) has not received any written notice alleging any such claim of infringement
or misappropriation. The Company has previously delivered to Buyer correct and
complete copies of all such suits, actions or proceedings or written notices.
The manufacturing, marketing, licensing or sale of the products or service
offerings of the Company do not currently infringe, and have not since the
Company's inception, infringed, any Intellectual Property right of any third
party; and to the Company's knowledge, the Intellectual Property rights of the
Company are not being infringed by activities, products or services of any third
party.
(d) The Company has taken reasonable security measures to safeguard
and maintain the secrecy, confidentiality and value of, and its property rights
in, all Intellectual Property. All officers, employees and consultants of the
Company have executed and delivered to the Company agreements regarding the
protection of proprietary information and the assignment to the Company of all
Intellectual Property arising from the services performed for the Company, which
agreements are substantially in the form attached to Schedule 3.14(d), and such
-------- -------
agreements are in full force and effect. Buyer has received a copy of the form
or forms of such agreement and a list of all subject officers, employees and
consultants. No current or prior officers, employees or consultants of the
Company or any parent claim any ownership interest in any material Intellectual
Property as a result of having been involved in the development of such property
while employed by or consulting to the Company, or otherwise. All of the
Intellectual Property has been developed by employees of or consultants to the
Company within the scope of their employment or consulting.
(e) The Company has the right, title and interest in and to all
material software development tools, whether or not entirely developed
internally, used by the Company in the development of any of the computer
software included in the Intellectual Property.
(f) As of the date hereof, there are no material defects in the
Company's software and/or the products and services provided to the Company's
customers, and there are no material errors in any documentation,
specifications, manuals, user guides, promotional material, technical
documentation, drawings, flow charts, diagrams, source language statements, demo
disks and other written materials related to, associated with or used or
produced in the development of the Company's software and/or the products and
services provided to the Company's customers, which defects or errors would
reasonably be expected to have, individually or in the aggregate,
20
a Material Adverse Effect on the Company. The Company's products operate in all
material respects as represented in the specifications, manuals, user guides,
promotional materials and demo disks for such products. The occurrence in or use
of dates on or after January 1, 2000 (the "Millennial Dates") by the Company's
software and/or products and services currently provided to the Company's
customers will not materially adversely affect the performance of the software
with respect to date dependent data, computations, output or other functions
(including without limitation, calculating, computing and sequencing), and the
software will create, sort and generate output data related to or including
Millennial Dates without material errors or material omissions, provided,
--------
however, in each case, each software or hardware product used in conjunction
-------
with the Company's computer software products are also able to create, generate,
sort, output and otherwise process Millennial Dates.
(g) No government funding or university or college facilities were
used in the development of the Company's commercially available products and
products under development.
3.15 Loans and Advances. Except as identified in Schedule 3.15, the Company
-------- ----
does not have any outstanding loans or advances to any person and is not
obligated to make any such loans or advances, except, in each case, for advances
to employees of the Company in respect of reimbursable business expenses
anticipated to be incurred by them in connection with their performance of
services for the Company.
3.16 Assumptions, Guaranties, Etc., of Indebtedness of Other Persons. The
Company has not assumed, guaranteed, endorsed or otherwise become directly or
contingently liable on any indebtedness of any other person (including, without
limitation, liability by way of agreement, contingent or otherwise, to purchase,
to provide funds for payment, to supply funds to or otherwise invest in the
debtor, or otherwise to assure the creditor against loss), except for guaranties
by endorsement of negotiable instruments for deposit or collection in the
Ordinary Course of Business.
3.17 Significant Customers and Suppliers. Except as specified in Schedule
--------
3.17, no customer or supplier which was significant to the Company during the
----
period covered by the financial statements referred to in Section 3.5 or which
has been significant to the Company thereafter, has terminated, materially
reduced or threatened to terminate or materially reduce its purchases from or
provision of products or services to the Company, as the case may be. The
Company has not engaged in any fraudulent conduct with respect to any customer
or supplier of the Company.
3.18 Disclosure. Neither this Agreement, nor any Schedule, Exhibit or
attachment to this Agreement, contains an untrue statement of a material fact
or, considered in the aggregate, omits a material fact necessary to make the
statements contained herein or therein not misleading.
21
None of the certificates or other instruments prepared and supplied by the
Company or its agents or designees with respect to the transactions contemplated
hereby contains an untrue statement of a material fact or omits a material fact
necessary to make the statements contained therein not misleading. There is no
fact which the Company has not disclosed to the Buyer and its counsel in writing
and of which the Company is aware which materially and adversely affects or
could materially and adversely affect the business, prospects, financial
condition, operations, property or affairs of the Company or any of its
subsidiaries.
3.19 Brokers. Except for the agreement by and between Xxxxxx Xxxx and the
Company, dated as of November 22, 1998 (the "Xxxx Agreement"), the Company has
no contract, arrangement or understanding with any broker, finder or similar
agent with respect to the transactions contemplated by this Agreement. Any fees,
costs or reimbursable expenses that are due from the Company under the Xxxx
Agreement shall be paid solely in accordance with Section 2.2(a)(ii).
3.20 Transactions With Affiliates. Except as identified in Schedule 3.15 or
-------- ----
Schedule 3.20, no director, officer, employee or stockholder of the Company, or
-------- ----
member of the family of any such person, or any corporation, partnership, trust
or other entity in which any such person, or any member of the family of any
such person, has a substantial interest or is an officer, director, trustee,
partner or holder of more than 5% of the outstanding capital stock thereof
(collectively, "Affiliates"), is a party to any transaction with the Company,
including any loan, debt, contract, agreement or other arrangement providing for
the employment of, furnishing of services by, rental of real or personal
property from or otherwise requiring payments to any such person or firm.
3.21 Powers of Attorney. There are no outstanding powers of attorney
executed on behalf of the Company.
3.22 Employees.
(a) Schedule 3.22 lists all employees of the Company, along with the
-------- ----
position and the current annual rate of compensation of each such person. To the
Company's knowledge, no employee or group of employees has any plans to
terminate employment with the Company. The Company is not a party to or bound by
any collective bargaining agreement, nor has it experienced any strikes,
grievances, claims of unfair labor practices or other collective bargaining
disputes. The Company has no knowledge of any organizational effort made or
threatened, either currently or within the past two years, by or on behalf of
any labor union with respect to employees of the Company. The Company is in
compliance in all material respects with all currently applicable laws and
regulations respecting wages, hours, occupational safety, health and employment
practices, and discrimination in employment terms and conditions, and is not
engaged
22
in any unfair labor practice. There are no pending claims against the Company
under any workers compensation plan or policy or for long term disability. The
Company has no obligations under COBRA with respect to any former employees or
beneficiaries thereunder that would reasonably be expected to have a Material
Adverse Effect on the Company. There are no proceedings pending or, to the
knowledge of the Company, threatened, between the Company and its employees,
which proceedings would reasonably be expected to have a Material Adverse Effect
on the Company. In addition, the Company has provided each of its employees with
all relocation benefits, stock options, bonuses and incentives, and all other
compensation that such employee has earned up through, and that were due and
payable to such employee on or before, the date of this Agreement.
(b) Company Shareholders that are executive officers of the Company
devote their full business time and efforts to the business of the Company and
to the knowledge of the Company do not engage in consulting work or any trade or
business for their own account or for or on behalf of any other person, firm or
corporation which competes, conflicts or interferes with the performance of
their duties to the Company in any way, or otherwise have any obligations in
respect of the operations of any other person, firm or corporation which could
reasonably be expected to prevent such officers from devoting their full
business time and efforts to the business of the Company.
3.23 Employee Benefits.
(a) Schedule 3.23(a) contains a complete and accurate list of all
-------- -------
Employee Benefit Plans maintained, or contributed to, by the Company, or any
ERISA Affiliate. For purposes of this Agreement, "Employee Benefit Plan" means
any "employee pension benefit plan" (as defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")), any "employee
welfare benefit plan" (as defined in Section 3(1) of ERISA), and any other
written or oral plan, agreement or arrangement involving direct or indirect
compensation, including without limitation insurance coverage, severance
benefits, disability benefits, deferred compensation, bonuses, stock options,
stock purchase, phantom stock, stock appreciation or other forms of incentive
compensation or post-retirement compensation. For purposes of this Agreement,
"ERISA Affiliate" means any entity which is a member of (i) a controlled group
of corporations (as defined in Section 414(b) of the Code), (ii) a group of
trades or businesses under common control (as defined in Section 414(c) of the
Code), or (iii) an affiliated service group (as defined under Section 414(m) of
the Code or the regulations under Section 414(o) of the Code), any of which
includes the Company. Complete and accurate copies of (i) all Employee Benefit
Plans which have been reduced to writing, (ii) written summaries of all
unwritten Employee Benefit Plans, (iii) all related trust agreements, insurance
contracts and summary plan descriptions, and (iv) all annual reports filed on
IRS Form 5500, 5500C or 5500R for the last five plan years for each Employee
Benefit Plan, have been delivered to Buyer. Each
23
Employee Benefit Plan has been administered in accordance with its terms in all
material respects and each of the Company and the ERISA Affiliates, if any, has
met its obligations with respect to such Employee Benefit Plan in all material
respects and has made all required contributions thereto. The Company and all
Employee Benefit Plans are in compliance with the currently applicable
provisions of ERISA and the Code and the regulations thereunder in all material
respects.
(b) There are no investigations to the Company's knowledge by any
Governmental Entity, termination proceedings or other claims (except claims for
benefits payable in the normal operation of the Employee Benefit Plans and
proceedings with respect to qualified domestic relations orders), suits or
proceedings against or involving any Employee Benefit Plan or asserting any
rights or claims to benefits under any Employee Benefit Plan that could give
rise to any liability.
(c) All the Employee Benefit Plans that are intended to be qualified
under Section 401(a) of the Code have received determination letters from the
Internal Revenue Service to the effect that such Employee Benefit Plans are
qualified and the plans and the trusts related thereto are exempt from federal
income taxes under Sections 401(a) and 501(a), respectively, of the Code, no
such determination letter has been revoked and revocation has not been
threatened, and no such Employee Benefit Plan has been amended since the date of
its most recent determination letter or application therefor in any respect, and
no act or omission has occurred, that would reasonably be expected to adversely
affect its qualification or increase its cost.
(d) Neither the Company nor any ERISA Affiliate has ever maintained an
Employee Benefit Plan subject to Section 412 of the Code or Title IV of ERISA.
(e) At no time has the Company or any ERISA Affiliate been obligated
to contribute to any "multi-employer plan" (as defined in Section 4001(a)(3) of
ERISA).
(f) There are no unfunded obligations under any Employee Benefit Plan
providing benefits after termination of employment to any employee of the
Company (or to any beneficiary of any such employee), including but not limited
to retiree health coverage and deferred compensation, but excluding continuation
of health coverage required to be continued under Section 4980B of the Code and
insurance conversion privileges under federal or state law.
(g) No act or omission has occurred and no condition exists with
respect to any Employee Benefit Plan maintained by the Company or any ERISA
Affiliate that would reasonably be expected to subject the Company or any ERISA
Affiliate to any material fine, penalty, tax or liability of any kind imposed
under ERISA or the Code.
24
(h) No Employee Benefit Plan is funded by, associated with, or related
to a "voluntary employee's beneficiary association" within the meaning of
Section 501(c)(9) of the Code.
(i) No Employee Benefit Plan, plan documentation or agreement, summary
plan description or other written communication distributed generally to
employees by its terms prohibits the Company from amending or terminating any
such Employee Benefit Plan.
(j) Schedule 3.23(j) discloses each: (i) agreement with any director,
-------- -------
executive officer or other employee of the Company (A) the benefits of which are
contingent, or the terms of which are altered, upon the occurrence of a
transaction involving the Company of the nature of any of the transactions
contemplated by this Agreement, (B) providing any term of employment or
compensation guarantee or (C) providing severance benefits or other benefits
after the termination or other expiration of the term of employment of such
director, executive officer or employee; (ii) agreement, plan or arrangement
under which any person may receive payments from the Company that may be subject
to the tax imposed by Section 4999 of the Code or included in the determination
of such person's "parachute payment" under Section 280G of the Code; and (iii)
agreement or plan binding the Company, including without limitation any stock
option plan, stock appreciation right plan, restricted stock plan, stock
purchase plan, severance benefit plan, or any Employee Benefit Plan, any of the
benefits of which will be increased, or the vesting of the benefits of which
will be accelerated, by the occurrence of any of the transactions contemplated
by this Agreement or the value of any of the benefits of which will be
calculated on the basis of any of the transactions contemplated by this
Agreement (any such agreements, plans or arrangements being hereinafter
collectively referred to as "Contingent Benefits"). Schedule 3.23(j) also
-------- -------
discloses the amount and terms of any contingent or non-contingent bonuses that
any director, executive officer, other employee or consultant of the Company is
or may be entitled to under current employment and/or bonus agreements or
policies, whether written or oral, which individually or collectively exceed or
may exceed Five Thousand Dollars ($5,000) over the twelve month period following
the date hereof (any such bonuses being hereinafter referred to as
"Extraordinary Bonuses"). Prior to Closing, the Company will satisfy or
otherwise discharge any and all rights to Contingent Benefits and/or
Extraordinary Benefits exceeding or which on or after Closing may exceed, in the
aggregate, $150,000, and shall incur no cost in doing so other than (i)
reasonable legal and administrative costs, if necessary, in negotiating the
satisfaction or discharge of such rights and (ii) the cost of granting vested
stock option rights or issuing Company Common Stock, which said vested stock
option rights and/or Company Common Stock, if any, shall be reflected in
Schedule 3.4(d)(i).
---------
3.24 U.S. Real Property Holding Corporation. The Company is not now and has
never been a "United States real property holding corporation", as defined in
Section 897(c)(2) of the Internal Revenue Code of 1986, as amended, and Section
1.897-2(b) of the Regulations promulgated by the Internal Revenue Service.
25
3.25 Environmental Matters.
(a) Each of the Company and its subsidiaries is now and has at all
times been in compliance with all applicable Environmental Laws (as hereinafter
defined) except for such non-compliance that would not have a Material Adverse
Effect on the Company or any of is subsidiaries. There is no pending or, to the
Company's knowledge, threatened civil or criminal litigation, written notice of
violation, formal administrative proceeding, or investigation, inquiry or
information request by any Governmental Entity, relating to any Environmental
Law involving the Company or its subsidiaries. For purposes of this Agreement,
"Environmental Law" means any federal, state or local law, statute, rule or
regulation relating to the environment or occupational health and safety,
including without limitation any statute, regulation or order pertaining to (i)
treatment, storage, disposal, generation and transportation of industrial, toxic
or hazardous substances or toxic or hazardous waste; (ii) air, water and noise
pollution; (iii) groundwater and soil contamination; (iv) the release or
threatened release into the environment of industrial, toxic or hazardous
substances, or solid or hazardous waste, including without limitation emissions,
discharges, injections, spills, escapes or dumping of pollutants, contaminants
or chemicals; (v) the protection of wild life, marine sanctuaries and wetlands,
including without limitation all endangered and threatened species; (vi) storage
tanks, vessels and containers; and (vii) underground and other storage tanks or
vessels, abandoned, disposed or discarded barrels, containers and other closed
receptacles; (viii) health and safety of employees and other persons. As used
above, the terms "release" and "environment" shall have the meaning set forth in
the federal Comprehensive Environmental Compensation, Liability and Response Act
of 1980 ("CERCLA").
(b) There have been no releases of any Materials of Environmental
Concern (as hereinafter defined) into the environment at any space leased,
operated or controlled by the Company (or any of its subsidiaries) during the
time that such space was leased, operated or controlled by the Company (or any
of its subsidiaries) and, to the knowledge of the Company, there have been no
releases of any Materials of Environmental Concern into the environment at any
parcel of real property or any facility during the time when such real property
or facility was leased, operated or controlled by the Company (or any of its
subsidiaries). The Company is not aware of any other releases of Materials of
Environmental Concern that could reasonably be expected to have an impact on the
real property or facilities owned, leased, operated or controlled by the Company
(or any of its subsidiaries). For purposes of this Agreement, "Materials of
Environmental Concern" means any chemicals, pollutants or contaminants,
hazardous substances (as such term is defined under CERCLA), hazardous wastes
(as such terms are defined under the federal Resources Conservation and Recovery
Act), toxic materials, oil or petroleum and petroleum products, or any other
material subject to regulation under any Environmental Law, other than office
products in reasonable amounts commonly used by similarly situated companies and
which are disposed of by the Company in the Ordinary Course of Business.
(c) The Company is not aware of any environmental reports,
investigations or
26
audits relating to premises currently or previously leased or operated by the
Company (or any of its subsidiaries) (whether conducted by or on behalf of the
Company, any of its subsidiaries or a third party, and whether done at the
initiative of the Company (or any of its subsidiaries) or directed by a
Governmental Entity or other third party) being issued or conducted during the
past five years.
3.26 Permits. Schedule 3.26 sets forth a list of all permits, licenses,
-------- ----
registrations, certificates, orders or approvals from any Governmental Entity
(including without limitation those issued or required under applicable export
laws or regulations) ("Permits") issued to or held by the Company. Such listed
Permits are the only Permits that are required for the Company to conduct its
business as presently conducted, except for those the absence of which would not
have a Material Adverse Effect on the Company. Each such Permit is in full force
and effect and, to the knowledge of the Company, no suspension or cancellation
of any such Permit is threatened, and there is no reasonable basis for believing
that any such Permit will not be renewable upon expiration. Each such Permit
will continue in full force and effect following the Effective Time.
3.27 Books and Records. The minute books and other similar records of the
Company contain true and complete records of all material actions taken at any
meetings of the Company's stockholders, Board of Directors or any committee
thereof and of all written consents executed in lieu of the holding of any such
meeting. The books and records of the Company accurately reflect in all material
respects the assets, liabilities, business, financial condition and results of
operations of the Company and have been maintained in accordance with good
business and bookkeeping practices.
3.28 Restrictions on Business Activities. There is no agreement, judgment,
injunction, order or decree binding upon the Company or its properties
(including, without limitation, Intellectual Property) which has or could
reasonably be expected to have the effect of prohibiting or materially impairing
any acquisition of property by the Company or the conduct of any business by the
Company.
3.29 Certain Payments. To the Company's knowledge, neither the Company nor
any director, officer, employee or agent of the Company has directly or
indirectly (a) made any contribution, gift, bribe, rebate, payoff, influence
payment, kickback, or other payment in violation of any federal, state, local,
municipal, foreign or other constitution, ordinance, regulation, statute,
treaty, or other law to any person or entity, private or public, regardless of
form, whether in money, property, or services (i) to obtain favorable treatment
in securing business, (ii) to pay for favorable treatment for business secured,
or (iii) to obtain special concessions or for special concessions already
obtained, for or in respect of the Company or any affiliate of the Company or
(b) established or maintained any fund or asset that has not been recorded in
the books and records of the Company.
3.30 No Pending Transactions. Except for the transactions contemplated by
this Agreement, the Company is not a party to or bound by or the subject of any
agreement, undertaking, commitment, negotiation or discussion with another party
with respect to any Acquisition
27
Transaction (as hereinafter defined). For purposes of this Section, the term
"Acquisition Transaction" means any (i) acquisition of all or any material
portion of the assets of, or any equity interest in, any corporation,
partnership, joint venture, company, organization or other entity, (ii) sale of
all or any material portion of the assets of, or equity interest in, the Company
or (iii) any merger, consolidation, business combination (or other similar
transaction) involving the Company.
3.31 Stockholder Consents. Schedule 3.31 includes a true and complete copy
-------- ----
of the Shareholder Consent executed by each of (i) Xxxxx X. Xxxxx, (ii) Edison
Venture Fund II, L.P., (iii) Edison Venture Fund II-PA, L.P., and (iv) Xxxxx X.
and Xxxxxxxx Xxxxxxxx, as holders of capital stock of the Company, as to the
approval of this Agreement and the Merger.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer and Merger Sub jointly and severally represent and warrant to the
Company as follows:
4.1 Organization. Each of Buyer and Merger Sub is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. With such exceptions as do not either individually or in the aggregate
have a Material Adverse Effect on Buyer and Merger Sub, each of Buyer and Merger
Sub is duly qualified to conduct business and is in corporate good standing
under the laws of each jurisdiction in which the nature of its business or the
ownership or leasing of its properties requires such qualification.
4.2 Authorization of Transaction. Each of Buyer and Merger Sub has all
requisite corporate power and authority to execute and deliver this Agreement
and to perform its respective obligations hereunder. The execution and delivery
of this Agreement by the Buyer and Merger Sub and the performance by the Buyer
and Merger Sub of this Agreement and the consummation by the Buyer and Merger
Sub of the transactions contemplated hereby have been duly and validly
authorized by the respective Board of Buyer and Merger Sub and, in the case of
this Agreement, by Buyer as the sole shareholder of Merger Sub and no other
corporate action or proceeding on the part of Buyer or Merger Sub is necessary
to authorize this Agreement (including the Certificate of Merger) or to
consummate the transactions contemplated hereby and thereby. This Agreement has
been duly and validly executed and delivered by each of Buyer and Merger Sub
and, assuming the due authorization, execution and delivery by the Company,
constitutes a valid and binding obligation of each of Buyer and Merger Sub,
enforceable against it in accordance with its terms, except as enforcement may
be limited by bankruptcy, insolvency or other similar laws affecting the
enforcement of creditors' rights generally, and except that the availability of
equitable remedies, including specific performance, is subject to the discretion
of the court before which any proceeding
28
therefor may be brought.
4.3 Non-contravention. Except for any applicable requirements of the HSR
Act, neither the execution and delivery of this Agreement, nor the consummation
by Buyer and Merger Sub of the transactions contemplated hereby, will (a)
conflict with or violate any provision of the Certificate of Incorporation or
By-laws of Buyer or Merger Sub, (b) require on the part of Buyer or Merger Sub
any filing with, or permit, authorization, consent or approval of, any
Governmental Entity (other than the Certificate of Merger), (c) conflict with,
result in breach of, constitute (with or without due notice or lapse of time or
both) a default under, result in the acceleration of, create in any party any
right to accelerate, terminate, modify or cancel, or require any notice, consent
or waiver under, any contract, lease, sublease, license, sublicense, franchise,
permit, indenture, agreement or mortgage for borrowed money, instrument of
indebtedness, Security Interest or other arrangement to which either Buyer or
Merger Sub is a party or by which either is bound or to which any of their
assets are subject, or (d) violate any order, writ, injunction, decree, statute,
rule or regulation applicable to Buyer or Merger Sub or any of their respective
properties or assets.
4.4 Brokers' Fees. Neither Buyer nor Merger Sub 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.
ARTICLE V
COVENANTS
5.1 Forbearance by the Company. From the date hereof until the Effective
Time, the Company covenants and agrees that it will not do, or agree or commit
to do, or permit any Company subsidiary to do or agree or commit to do, without
the prior written consent of the Buyer, any of the following:
(a) except as in the ordinary course of business consistent with past
practice, enter into or assume any material contract, make any material
commitment, incur any material liabilities or material obligations, whether
directly or by way of guaranty, including any obligation for borrowed money
whether or not evidenced by a note, bond, debenture or similar instrument,
acquire or dispose of any material property or asset, or engage in any
transaction not in the ordinary course of business consistent with past practice
or subject any of the Company's assets or properties to any lien, claim, charge
or encumbrances whatsoever;
(b) grant any general increase in compensation to its employees or
officers or directors, pay any bonus, or effect any increase in retirement
benefits to any class of its employees or officers (unless any such change shall
be required by applicable law);
(c) declare, set aside or pay any dividend or other distribution on any
class of capital stock;
29
(d) redeem, purchase or otherwise acquire any shares of its capital
stock or any securities or obligations convertible into or exchangeable for any
shares of its capital stock; merge into any other corporation or permit any
other corporation to merge into it, or consolidate with any other corporation;
liquidate, sell or dispose of any assets or acquire any assets, other than in
the ordinary course of its business consistent with past practice; or agree to
do any of the foregoing;
(e) issue any share of its capital stock or permit any share of its
capital stock held in its treasury to become outstanding, except for the
issuance of shares of Common Stock pursuant to the exercise of Vested Options
outstanding as of the date hereof pursuant to the MEI Option Plan or Warrants
outstanding as of the date hereof, in each case in accordance with their
respective terms; or issue, grant or extend the term of any option, warrant, or
stock appreciation right;
(f) amend the Certificate of Incorporation or Bylaws of the Company or
any Company subsidiary;
(g) effect any capital reclassification, stock dividend, stock split,
consolidation of shares or similar change in capitalization;
(h) take, cause or permit the occurrence of any change or event which
would render any of its representations and warranties contained herein untrue
in any material respect at and as of the Effective Time;
(i) enter into any affiliated party transaction of the type
contemplated by Section 3.20 hereof, except for transactions in the ordinary
course of business, on substantially the same terms as those prevailing for
comparable transactions with unaffiliated parties;
(j) solicit, encourage, or authorize any person, including but not
limited to its directors, officers, shareholders, or employees, to solicit from,
or communicate with, any third party, inquiries or proposals relating to the
disposition of the Company's or any Company subsidiary's business or assets, or
the acquisition of the Company's or any Company subsidiary's voting securities,
or the merger of the Company or any Company subsidiary with any person other
than the Buyer or any subsidiary of the Buyer, or provide any such person with
information or assistance or negotiate or conduct any discussions with any such
person in furtherance of such inquiries or to obtain a proposal, or continue any
such activities in progress on the date hereof, and the Company shall promptly
notify the Buyer of all of the relevant details, including the identity of such
third party and the nature of any such third party proposal, relating to all
inquiries and proposals which it may receive relating to any of such matters; or
(k) knowingly take any action which would (i) adversely affect the
ability to obtain the necessary approvals of Governmental Entities required for
the transactions
30
contemplated hereby; or (ii) adversely affect its ability to perform the
covenants and agreements under the Agreement.
5.2 Conduct of Business. From the date hereof until the Effective Time, the
Company covenants and agrees that, except as otherwise consented to by the Buyer
in writing, it shall, and shall cause each Company subsidiary to:
(a) carry on its business, and maintain its books of account and other
corporate records, in the ordinary course consistent with past practice and
legal and regulatory requirements;
(b) to the extent consistent with prudent business judgment, use all
reasonable efforts to preserve its present business organization, to retain the
services of its officers and employees, and maintain customer and other business
relationships;
(c) maintain all of the structures, equipment, and other real and
personal property of the Company and any Company subsidiaries in good repair,
order and condition, ordinary wear and tear and unavoidable casualty excepted;
(d) use all reasonable efforts to preserve or collect all material
claims or causes of action of the Company or the Company subsidiaries;
(e) keep in full force and effect all insurance coverages maintained by
the Company or the Company subsidiaries;
(f) perform in all material respects all obligations under all material
agreements, contracts, commitments and other instruments to which the Company or
any Company subsidiary is a party or by which they may be bound or which relate
to or affect any of their respective assets or properties; and
(g) comply in all material respects with all statutes, laws,
regulations, rules, ordinances, orders, decrees, consents agreements and other
federal, state and local governmental or regulatory directives applicable to the
Company or any Company subsidiary and the conduct of their respective
businesses.
5.3 Consent by Shareholders of the Company. The Company shall, as soon as
reasonably possible, obtain the written consent by holders of the requisite
number of shares of its capital stock under its Certificate of Incorporation,
its financing or other agreements, and the DGCL as to the approval of the Merger
and the adoption of this Agreement, and shall promptly cause to be distributed
to each holder of record of its capital stock and of Vested Options and
Warrants, such disclosure materials as the Company considers reasonably
necessary to seek their consent or other approval to the extent required in
respect to this Agreement and the Merger. Such materials shall,
31
without limitation, disclose that the Board of the Company recommended to the
Company's shareholders that they approve the Merger and adopt this Agreement.
5.4 Notices and Consents. Each of Buyer, Merger Sub and the Company shall
use commercially reasonable efforts to obtain, at its expense, all such waivers,
permits, consents, approvals or other authorizations from third parties and
Governmental Entities, and to effect all such registrations, filings (including,
without limitation, the making of all necessary filings under the HSR Act) and
notices with or to third parties and Governmental Entities, as may be required
by or with respect to Buyer, Merger Sub or the Company,respectively, in
connection with the transactions contemplated by this Agreement (including
without limitation, with respect to the Company, those listed in Schedule 3.3).
------------
5.5 Full Access. The Company shall permit Buyer and its representatives to
have full access (at all reasonable times, and in a manner so as not to
interfere materially with the normal business operations of the Company) to all
premises, properties, financial and accounting records, contracts, other records
and documents and personnel, of or pertaining to the Company or any Company
subsidiary, subject to compliance with applicable confidentiality obligations of
the Company.
5.6 Notice of Breaches. The Company shall promptly deliver to Buyer written
notice of any event or development that would (a) render any statement,
representation or warranty of the Company in this Agreement (including the
Schedules hereto) inaccurate or incomplete in any material respect, or (b)
---------
constitute or result in a breach by the Company of, or a failure by the Company
to comply with, any agreement or covenant in this Agreement applicable to such
party. Buyer shall promptly deliver to the Company written notice of any event
or development that would (i) render any statement, representation or warranty
of Buyer or Merger Sub in this Agreement inaccurate or incomplete in any
material respect, or (ii) constitute or result in a breach by Buyer or Merger
Sub of, or a failure by Buyer or Merger Sub to comply with, any agreement or
covenant in this Agreement applicable to such party.
5.7 Press Release and Announcements. Except for such disclosures that Buyer
reasonably determines are required to be made in connection with the
Registration Statement and the offering of its securities contemplated thereby,
no Party shall issue any press release or make any public disclosure relating to
the subject matter of this Agreement without the prior written approval of each
other Party.
5.8 Current Information. During the period from the date of this Agreement
to the Effective Time, the Company will cause one or more of its representatives
to confer on a regular and frequent basis with representatives of the Buyer and
to report on the general status of its ongoing operations. The Company will
promptly notify the Buyer of any material change in the normal course of its
business or in the operation of its properties and, to the extent permitted by
applicable law, of any governmental complaints, investigations or hearings (or
communications indicating that the same may be contemplated), or the institution
or the threat of material litigation involving the
32
Company, and will keep the Buyer fully informed with respect to such events.
5.9 Expenses. Each Party hereto shall pay its own expenses incident to
preparing for, entering into and carrying out this Agreement and to the
consummation of the Merger and the transactions contemplated hereby. The Company
agrees that the aggregate expenses of the Company, including all fees and
expenses of legal counsel, accountants, and financial or other advisors, shall
not exceed reasonable amounts in light of the circumstances and the amount and
nature of work or services to be performed.
5.10 Miscellaneous Agreements and Consents.
(a) On or before the Closing Date, the Board of the Company (or, as
applicable, any committee thereof) shall take all actions necessary to:
(i) provide that, immediately prior to the Effective Time, each
outstanding Warrant, whether or not then exercisable, shall be canceled by
the Company, and the holders thereof shall be entitled to receive, subject
to the terms and conditions of this Agreement, a payment in immediately
available funds equal to the Merger Consideration Per Share, and
(ii) use its best efforts to cause the holders of all shares of
the Company's issued and outstanding Preferred Stock to convert such shares
into Common Stock on or before the Closing Date.
(b) Subject to the terms and conditions herein provided, each of the
Parties hereto agrees to use all reasonable efforts to take, or cause to be
taken, all action, and to do, or cause to be done, all things necessary, proper
or advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by this Agreement, including, without
limitation, using reasonable efforts to lift or rescind any injunction or
restraining order or other order adversely affecting the ability of the Parties
to consummate the transactions contemplated hereby. The Buyer and the Company
will, and the Company will cause any Company subsidiary to, use its best efforts
to obtain consents of all third parties and governmental bodies necessary or
desirable for the consummation of the transactions contemplated by this
Agreement.
5.11 Certificate of Incorporation of Merger Sub. Buyer and Merger Sub shall
not, on or prior to the Effective Time, amend or modify the provisions of Merger
Sub's Certificate of Incorporation (a true and complete copy of which is
attached hereto) governing the number of authorized shares of Merger Sub's
common stock.
ARTICLE VI
CONDITIONS TO CONSUMMATION OF MERGER
33
6.1 Conditions to Each Party's Obligations To Effect the Merger.
The respective obligations of each Party to effect the Merger shall be
subject to the continued fulfillment, or waiver by all such Parties, at the
Effective Time, of the following conditions:
(a) this Agreement and the Merger shall have been adopted and approved
by the affirmative vote or written consent of the holders of the requisite
number of shares of capital stock of the Company in accordance with the
Company's Certificate of Incorporation and the DGCL;
(b) each of the Company, Buyer, Merger Sub and any other person (as
defined in the HSR Act and the rules and regulations thereunder) required in
connection with the Merger to file a Notification and Report Form for Certain
Mergers and Acquisitions with the Department of Justice and the Federal Trade
Commission pursuant to Title II of the HSR Act shall have made such filing and
the applicable waiting period with respect to each such filing (including any
extension thereof by reason of a request for additional information) shall have
expired or been terminated;
(c) no temporary restraining order, preliminary or permanent injunction
or other order issued by any court of competent jurisdiction or other legal or
regulatory restraint or prohibition preventing the consummation of the
transactions contemplated herein or limiting or restricting Buyer's or the
Company's conduct or operation of its business after the transactions
contemplated herein shall have been issued, nor shall any proceeding brought by
any Governmental Entity seeking any of the foregoing be pending; nor shall there
be any action taken, or any statute, rule, regulation or order enacted, entered,
enforced or deemed applicable to the transactions contemplated herein which
makes the consummation of the transactions contemplated herein illegal;
(d) Buyer, the Shareholders Representative and a Qualifying Escrow
Agent shall have entered into the Escrow Agreement; and
(e) the Surviving Corporation and Xxxxx X. Xxxxx shall have entered
into an employment agreement, satisfactory in form and substance to the Buyer
and Xxxxx X. Xxxxx, providing for limitations on his ability to compete with the
Surviving Corporation and such other provisions as are set forth in a term sheet
of even date herewith executed by Xx. Xxxxx and Buyer.
6.2 Conditions to Obligation of the Buyer and Merger Sub to Effect the
Merger. The obligation of the Buyer and Merger Sub to effect the Merger shall be
subject to the continued fulfillment or waiver by Buyer, at the Effective Time,
of the following additional conditions:
(a) Representations and Warranties; Corporate Proceedings. The
representations and warranties of the Company set forth in Article III shall be
true and correct in all material respects as of the date of this Agreement and
as of the Effective Time, and the Buyer shall
34
have received a certificate of the President of the Company to that effect. All
corporate action required to have been taken by, or on the part of, the Company
to authorize the execution, delivery and performance of this Agreement and the
Merger, respectively, shall have been duly and validly taken and shall be in
full force and effect, and the Buyer shall have received certified copies of the
resolutions evidencing such authorizations.
(b) Performance of Obligations. The Company shall have in all material
respects performed all obligations required to be performed by it under this
Agreement at or prior to the Effective Time, and the Buyer shall have received a
certificate of the President of the Company to that effect.
(c) Permits, Authorizations, Etc. The Company and the Company
subsidiaries shall have obtained any and all material permits, authorizations,
consents, waivers, clearances or approvals required for the lawful consummation
of the Merger.
(d) No Material Adverse Change. There shall not have been any material
adverse change in the business, operation, assets, financial condition,
prospects or results of operations of the Company or any Company subsidiary. For
purposes hereof, adverse developments with respect to any matter disclosed to
the Buyer prior to the date hereof and included herein shall not constitute a
material adverse change to the extent that the nature and scope of the adverse
development is of the nature and within the scope of the matter disclosed.
(e) Regulatory Approvals. The Buyer shall have received unconditional
approval of the Merger contemplated by this Agreement from any federal or state
regulatory agencies whose approval is required for consummation of such
transaction (except for such conditions as are ordinarily imposed in connection
with transactions of the type contemplated hereby and which are not, in the
opinion of the Buyer, unduly burdensome), and all notice and waiting periods
after the granting of any such approval shall have expired.
(f) Litigation. Except as set forth in Schedule 3.7, at the Effective
------------
Time, there shall not be pending or threatened against the Company or any
Company subsidiary or the officers or directors thereof in their capacity as
such, any suit, action or proceeding (including antitrust actions) which, if
successful, would, in the reasonable judgment of the Buyer, have a material
adverse effect on the business, operation, assets, financial condition,
prospects or results of operations of the Company or any Company subsidiary.
(g) Opinion of Counsel. The Company shall have delivered to the Buyer
an opinion, dated the Effective Time, of counsel to the Company, in form and
substance reasonably satisfactory to Buyer and its counsel, to the effect that:
(i) the Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware, and has
full corporate
35
power and authority to own and operate its business and properties and
to carry on its business as currently conducted;
(ii) Phoenix is a corporation duly organized, validly existing and
in good standing under the laws of the State of California, and has
full corporate power and authority to own and operate its business and
properties and to carry on its business as currently conducted;
(iii) (A) the authorized capital stock of the Company consists of
(1) 10,013,718 shares of Preferred Stock, of which 4,563,718 shares
are Series A Preferred Stock, 2,500,000 shares are Series B
Preferred Stock, and 2,950,000 shares are Series C Preferred Stock,
and (2) 25,000,000 shares of Common Stock;
(B) as of the date of this Agreement, 4,179,346 shares of
Common Stock, 4,563,718 shares of Series A Preferred Stock,
2,500,000 shares of Series B Preferred Stock, and 2,901,949
shares of Series C Preferred Stock have been validly issued and
outstanding, fully paid and nonassessable with no personal
liability attaching to the ownership thereof;
(C) as of the date of this Agreement, each share of Series A
Preferred Stock is convertible into 1.10641747 shares of Common
Stock, each share of Series B Preferred Stock is convertible into
one share of Common Stock and each share of Series C Preferred
Stock is convertible into one share of Common Stock;
(D) subject to the exercise in accordance with their terms of
Warrants outstanding as of the date of this Agreement, and
assuming the conversion of all of the issued and outstanding
shares of Preferred Stock into shares of Common Stock, as of the
Effective Time, 19,835,923 shares of Common Stock will have been
validly issued and will be outstanding, fully paid and
nonassessable with no personal liability attaching to the
ownership thereof;
(E) no shares of capital stock in the Company have been
issued in violation of the preemptive rights of any person and
all such shares are free of preemptive rights.
(iv) to the knowledge of such counsel, there are no outstanding
36
obligations of the Company or any Company subsidiary to purchase, reacquire or
redeem any shares of capital stock of the Company;
(v) execution, delivery and performance of this Agreement by the
Company and consummation of the transactions contemplated by this Agreement do
not and will not conflict with, or result in the breach of, or constitute a
default under, any of the provisions of the Certificate of Incorporation or
Bylaws of the Company or any Company subsidiary or, to the knowledge of such
counsel, any material agreement to which the Company or any such subsidiary is a
party or by which their properties or assets may be bound;
(vi) the Company has full corporate power and corporate authority to
execute, deliver and perform this Agreement, and this Agreement has been duly
authorized, approved and adopted by all requisite corporate action of the
Company, and by the shareholders of the Company, and constitutes the valid and
legally binding obligation of the Company in accordance with its terms, subject
to applicable bankruptcy, insolvency, reorganization, moratorium and similar
laws relating to or affecting creditors' rights generally and subject to general
equity principles which may limit the enforcement of certain remedies; and
(vii) to the knowledge of such counsel, execution, delivery and
performance of the Escrow Agreement by the Shareholders Representative and
consummation of the transactions contemplated thereby do not and will not
conflict with, or result in the breach of, or constitute a default under, any
material agreement to which the Shareholders Representative is a party or by
which his properties or assets may be bound;
(viii) the Shareholders Representative has full power and authority to
execute, deliver and perform the Escrow Agreement, and the Escrow Agreement has
been duly authorized, approved and adopted by all requisite corporate action of
the Company's shareholders, and constitutes the valid and legally binding
obligation of the Shareholders Representative in accordance with its terms,
subject to applicable bankruptcy, insolvency, reorganization, moratorium and
similar laws relating to or affecting creditors' rights generally and subject to
general equity principles which may limit the enforcement of certain remedies;
(ix) except as set forth in Schedule 3.7, as updated as of the
-------- ---
Closing, such counsel does not know of any claim, litigation, arbitration
proceeding, labor dispute or investigation of any kind pending or threatened
against the Company or any Company subsidiary in any court or before any
federal, state or municipal or other governmental agency or instrumentality
relating in any way to the transactions contemplated in this Agreement, or which
if determined adversely to the Company
37
or any such subsidiary would have a Material Adverse Effect on the
financial condition, results of operations, business, properties, or assets
of the Company and such subsidiaries, taken as a whole.
(h) Third Party Consents. The Company shall have obtained all material
third party consents under any agreement, contract, lease, note, license, permit
or other document by which Company or any Company subsidiary is bound or to
which any of their respective properties is subject required for the
consummation of the transactions contemplated hereby.
(i) Initial Public Offering. Buyer shall have completed an initial
public offering of its common stock, unless Buyer has waived this condition by
giving the Company written notice of such waiver prior to Closing.
6.3 Conditions to Obligation of the Company to Effect the Merger. The
obligation of the Company to effect the Merger shall be subject to the continued
fulfillment, or waiver by the Company at or prior to the Effective Time, of the
following additional conditions:
(a) Representations and Warranties; Corporate Proceedings. The
representations and warranties of Buyer and Merger Sub set forth in Article IV
shall be true and correct in all material respects as of the date of this
Agreement and as of the Effective Time, and the Company shall have received a
certificate of the President of the Buyer to that effect. All corporate action
required to have been taken by, or on the part of, the Buyer or Merger Sub to
authorize the execution, delivery and performance of this Agreement and the
Merger, respectively, shall have been duly and validly taken, and shall be in
full force and effect, and the Company shall have received certified copies of
the resolutions evidencing such authorizations.
(b) Performance of Obligations. Buyer and Merger Sub each shall have
in all material respects performed all obligations required to be performed by
it under this Agreement at or prior to the Effective Time, and the Company shall
have received a certificate of the President of the Buyer to that effect.
(c) Opinion of Counsel. The Buyer shall have delivered to the Company
an opinion, dated the Effective Time, of counsel to the Buyer, in form and
substance reasonably satisfactory to the Company and its counsel, to the effect
that:
(i) Buyer and Merger Sub each is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Delaware; and each has full corporate power and authority to own and
operate its business and properties and to carry on its business as
currently conducted;
(ii) execution, delivery and performance of this Agreement by each
of Buyer and Merger Sub and consummation of the transactions contemplated
38
in this Agreement do not and will not conflict with, or result in the breach of,
or constitute a default under, any of the provisions of the Certificate of
Incorporation or Bylaws of the Buyer or Merger Sub or, to the knowledge of such
counsel, any material agreement to which the Buyer or Merger Sub is a party or
by which their properties or assets may be bound;
(iii) Buyer and Merger Sub each has full corporate power and
corporate authority to execute, deliver and perform this Agreement, and this
Agreement has been duly authorized, approved and adopted by all requisite
corporate action of each of Buyer and Merger Sub, and by the shareholders of
Merger Sub, and constitutes the valid and legally binding obligation of Buyer
and Merger Sub in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws relating to or affecting
creditors' rights generally and subject to general equity principles which may
limit the enforcement of certain remedies; and
(iv) such counsel does not know of any claim, litigation,
arbitration proceeding, labor dispute or investigation of any kind pending or
threatened against the Buyer or Merger Sub in any court or before any federal,
state or municipal or other governmental agency or instrumentality relating in
any way to the transactions contemplated in this Agreement.
ARTICLE VII
TERMINATION
7.1 Termination of Agreement. This Agreement may be terminated prior to the
Closing Date as provided below:
(a) the Company and Buyer may terminate this Agreement by mutual
written consent;
(b) Buyer may terminate this Agreement by giving written notice to the
Company in the event that the Company is in material breach of any
representation, warranty, or covenant of the Company contained in this
Agreement, and such breach is not remedied by the Company within 10 days of
delivery of written notice thereof;
(c) the Company may terminate this Agreement by giving written notice
to Buyer in the event that (i) Buyer and/or Merger Sub is in material breach of
any representation, warranty, or covenant of Buyer and/or Merger Sub contained
in this Agreement, and such breach is not remedied by Buyer and/or Merger Sub,
as applicable, within 10 days of delivery of written notice
39
thereof, or (ii) Buyer fails to make any disbursement of the loan required under
the Loan Agreement and such failure is not remedied by Buyer within 5 Business
Days of delivery of written notice thereof;
(d) either the Company or Buyer may terminate this Agreement by giving
written notice to the other Parties if the Closing shall not have occurred on or
before (i) November 30, 1999, unless Buyer elects to extend the Closing in
accordance with Section 1.6(a)(i) hereof, or (ii) if said extension of the
Closing occurs, the date as to which Closing has been extended in accordance
with this Agreement (provided, however, that the right to terminate this
-------- -------
Agreement under this Section 7.1(d) shall not be available to any Party whose
failure to fulfill any obligation under this Agreement has been the cause of or
resulted in the failure of the transactions contemplated herein to be completed
on or before such date); or
(e) either the Company or Buyer may terminate this Agreement by giving
written notice to the other Parties if a court of competent jurisdiction or
other Governmental Entity shall have issued a final order, decree or ruling, or
taken any other action, having the effect of permanently restraining, enjoining
or otherwise prohibiting the transactions contemplated herein, and all appeals
with respect to such order, decree, ruling or action have been exhausted or the
time for appeal of such order, decree, ruling or action shall have expired.
7.2 Effect of Termination. In the event of the termination and abandonment
of this Agreement pursuant to Section 7.1, written notice thereof shall promptly
be given to the other Parties, whereupon this Agreement shall terminate, all
further obligations of the Parties hereunder to satisfy the conditions precedent
to the Closing shall terminate, and the transactions contemplated hereby shall
be abandoned without further action by any of the Parties. Any termination
pursuant to Section 7.1 shall be without liability to the Buyer, Merger Sub or
the Company, except to the extent that there shall have occurred any breach of
this Agreement, as to each of which all legal remedies of the Party(ies)
adversely affected shall survive and be enforceable.
ARTICLE VIII
POST-CLOSING COVENANTS AND OTHER AGREEMENTS
8.1 Further Assurances. Each Party, at the reasonable request of another
Party, shall execute and deliver such other instruments and do and perform such
other acts and things as may be reasonably necessary or desirable for effecting
completely the consummation of this Agreement and the transactions contemplated
hereby.
8.2 Survival of Representations and Warranties.
(a) For purposes of the Indemnification obligations set forth in
Article IX, and subject to the limitations set forth therein, the
representations, warranties, covenants and agreements set forth in this
Agreement shall survive the Closing and remain in full force and effect until
the first anniversary of the Effective Time.
40
(b) Notwithstanding anything to the contrary set forth herein, (i) any
representations and warranties contained in any separate agreement contemplated
herein shall survive the Closing as provided in such separate agreement and (ii)
any claims, actions or suits based upon fraud, willful misconduct or intentional
misrepresentation shall continue in full force and effect without limitation
until expiration of the statute of limitations applicable thereto.
(c) If prior to the close of business on the scheduled date for
expiration of a particular representation, warranty, covenant or agreement that
is the basis for a Claim, Buyer shall have provided notice of such Claim in
accordance with the Escrow Agreement and Article IX of this Agreement, then the
representation, warranty, covenant or agreement that is the basis for such Claim
shall continue to survive to the extent of such specific Claim only, until such
Claim is finally resolved or disposed of.
8.3 Surviving Corporation Stock Option Plan. As soon as reasonably
practicable after the Effective Time, Buyer, as the sole shareholder of the
Surviving Corporation, will cause the Surviving Corporation to adopt an option
plan for the benefit of the Surviving Corporation's employees so as to provide
for the award of options to such employees, at the discretion of the Surviving
Corporation's Board, to purchase shares of the Surviving Corporation's common
stock issuable under the plan. The option plan shall provide that the number of
such shares issuable thereunder shall be an aggregate amount equal to 20% of the
Surviving Corporation's issued and outstanding common stock at Closing (or such
lesser percentage as Buyer's accountants or counsel shall determine is necessary
to allow Buyer to consolidate with the Surviving Corporation for federal income
tax purposes).
8.4 Put Options.
(a) If, on or before the third anniversary of the Closing, the
Surviving Corporation has not effected a public offering of its equity
securities or a merger or other business combination of the Surviving
Corporation, the Surviving Corporation shall, upon receiving a written election
by any ACurrent Employee" listed on Schedule 8.4 (a "Current Employee"),
------------
delivered to the Surviving Corporation within the 30-day period following the
third anniversary of Closing (the "Put Election"), and provided that such
electing Current Employee remains at such time an employee of the Surviving
Corporation, purchase all (but not less than all) (i) stock options issued or
deemed issued by the Surviving Corporation which are vested and outstanding and
held by such Current Employee at such time and (ii) shares of the Surviving
Corporation's common stock previously issued upon exercise of stock options (the
"Option Shares") issued or deemed issued by the Surviving Corporation, which
Option Shares are held by such electing Current Employee at such time, for
consideration equal to the independently determined fair market value of, as
applicable, such stock options and/or Option Shares as of the date of the Put
Election, payable at the Surviving Corporation's election in cash or securities
of Buyer. The Surviving Corporation's President may, prior to expiration of the
six month period following the Closing, designate the two "Proposed Employees"
referenced in Schedule 8.4 to be included as Current Employees subject to the
------------
approval
41
of the Surviving Corporation's Board.
(b) If, on or before the fourth anniversary of the Closing, the
Surviving Corporation has not effected a public offering of its equity
securities or a merger or other business combination of the Surviving
Corporation, the Surviving Corporation shall, upon written election by any
Current Employee, delivered to the Surviving Corporation within the 30-day
period following the fourth anniversary of Closing, and provided that such
electing Current Employee remains at such time an employee of the Surviving
Corporation, purchase all (but not less than all) (i) stock options issued or
deemed issued by the Surviving Corporation which are vested and outstanding and
held by such Current Employee at such time and (ii) Option Shares held by such
Current Employee at such time, for consideration equal to the independently
determined fair market value of, as applicable, such stock options and/or Option
Shares as of the date of the Put Election, payable at Surviving Corporation's
election in cash or securities of Buyer.
8.5 Credit Support. The Buyer shall make available to the Surviving
Corporation, or otherwise guarantee or provide its credit support so as to
enable the Surviving Corporation to obtain, working capital loans in an amount
not to exceed $7,000,000 in the first year following Closing and an additional
$5,000,000 in the second year following Closing, on customary terms and
conditions.
ARTICLE IX
INDEMNIFICATION
9.1 Indemnification by Company Shareholders; Limitations on
Indemnification.
(a) The Company Shareholders, by virtue of approving this Agreement and
the Merger, agree that, subject to the terms and conditions of this Agreement
(including Section 9.1(b)), all funds in the Reimbursement Account shall be
applied to indemnify, defend, reimburse and hold harmless (collectively the
"Indemnification") Buyer, Merger Sub and/or the Surviving Corporation
(hereinafter referred individually as a "Buyer Indemnified Person" and
collectively as "Buyer Indemnified Persons") from and against any and all
losses, costs, damages, liabilities, Taxes and expenses arising from claims,
demands, actions, causes of action, including, without limitation reasonable
legal fees, net of any recoveries under existing insurance policies, Tax benefit
received by Buyer or Merger Sub or any of their affiliates as a result of such
damages, indemnities from third parties or in the case of third party claims, by
any amount actually recovered by Buyer or Merger Sub or any of their affiliates
pursuant to counterclaims made by any of them directly relating to the facts
giving rise to such third party claims (collectively, "Damages"), arising out of
any misrepresentation or breach of or default in connection with any of the
representations, warranties, covenants and agreements given or made by the
Company in this Agreement.
(i) No Buyer Indemnified Person shall be entitled to
Indemnification under this Article IX from and against any and all Damages until
the aggregate amount of such Damages incurred by all Buyer Indemnified Persons
42
exceeds $100,000, in which event all Buyer Indemnified Persons shall be entitled
to Indemnification for the amount of all such Damages including all such Damages
comprising the first $100,000 thereof.
(ii) Notwithstanding anything to the contrary set forth herein,
the aggregate obligations hereunder to Indemnify the Buyer Indemnified Persons
shall not exceed 10% of the Merger Consideration, and shall be satisfied solely
from the funds in the Reimbursement Account without further liability hereunder.
9.2 Claims Generally.
(a) If at any time a Buyer Indemnified Person is entitled to
Indemnification under Article IX or shall become aware of any state of facts
that has resulted or may result in a Claim for Damages, the Buyer Indemnified
Person shall (i) give written notice to the Shareholders Representative pursuant
to and otherwise follow the procedures set forth in the Escrow Agreement and
(ii) follow the procedures set forth in paragraphs (b) through (e) below.
(b) Upon becoming aware of any state of facts that has resulted or may
result in a Claim, the Buyer Indemnified Person shall promptly give written
notice (a "Notice of Claim") to the Shareholders Representative of the discovery
of such potential or actual Claim. The Notice of Claim shall set forth (i) a
description of the nature of the potential or actual Claim, specifying in
reasonable detail the nature of the misrepresentation, breach of warranty or
other claim to which such item is related, and (ii) the total amount of Damages
anticipated (if known) specifying in reasonable detail the individual items of
such Damages included in the amount so stated (including any costs or expenses
which have been or may be reasonably incurred in connection therewith), the date
each such item was paid, or properly accrued or arose. Except for a failure to
deliver a Notice of Claim within the survival period as provided under Section
9.2, a Buyer Indemnified Person's failure to give prompt notice shall constitute
a defense (in whole or in part) to any Claim by the Buyer Indemnified Person for
Indemnification only to the extent that such failure shall have caused or
materially increased such liability or materially and adversely affected the
ability of the Shareholders Representative to defend against or reduce the
amount of Damages.
(c) The Shareholders Representative shall accept or reject any Claim as to
which a Notice of Claim is sent by the Buyer Indemnified Person by giving
written notice of such acceptance or rejection (the "Indemnitor Notice") to the
Buyer Indemnified Person within 30 days after the date of receipt of the Notice
of Claim. Failure of the Shareholders Representative to reject a Claim within 30
days of receipt of the Notice of Claim shall be conclusive evidence of the
Shareholders Representative's acceptance of the Claim and the amount of its
Damages in respect of the Claim.
(d) If the Shareholders Representative elects to reject the Claim, the
Indemnitor Notice shall set forth a brief description of the nature of the basis
for the rejection of such Claim, without limiting the right of the Shareholders
Representative to identify further bases for rejecting
43
such Claim in the future.
(e) If the Shareholders Representative elects to accept the Claim or if
the Shareholders Representative and the Buyer Indemnified Person should
otherwise agree on the resolution of the Claim, a memorandum setting forth such
agreement shall be prepared and signed by both parties.
(f) The Parties agree that any controversy or claim arising out of or
relating to this Article IX and the Escrow Agreement shall be settled by
arbitration in accordance with the National Rules of the American Arbitration
Association (the "AAA") in Washington, DC. The Shareholders Representative and
the Buyer each shall appoint an arbitrator who has expertise in the
interpretation of commercial contracts and these two arbitrators shall select a
third neutral arbitrator from the AAA's commercial panel who also shall have
expertise in the interpretation of commercial contracts. In reaching their
decision, the arbitrators shall have no authority to change or modify any
provision of this Agreement. Such arbitrators shall act as the administrators
and exclusive arbitrators with respect to all claims. The Shareholders
Representative and the Buyer each shall be responsible for costs and the costs
of its selected arbitrator, and the costs of the AAA and the third arbitrator
shall be split evenly between the Shareholders Representative, on the one hand,
and Buyer, on the other hand, unless the arbitration determines otherwise. The
funds in the Reimbursement Account shall not be used to pay any costs of the
arbitrators, the AAA or the arbitration. The decision of the arbitrators as to
the validity of the Claim and amount of Damages in respect to such Claim shall
be binding and conclusive upon the Parties and may be entered in any court
having jurisdiction thereover, and if applicable, shall be provided to the
Escrow Agent for purposes of the Escrow Agreement.
(g) Notwithstanding anything to the contrary set forth herein, nothing in
this Agreement shall limit the liability of any Party in connection with any
claims, actions or suits based upon fraud, willful misconduct or intentional
misrepresentation.
9.3 Third-Party Claims. In addition to any other procedural requirements
set forth in Section 9.2, if the Buyer becomes aware of a third-party Claim,
Buyer shall promptly notify the Company and the Shareholders Representative of
such claim, and the Shareholders Representative shall be entitled, at its
expense, to participate in any defense of such Claim. Buyer shall have the right
to settle any such claim only with the prior written consent of the Shareholders
Representative, which consent shall not be unreasonably withheld. For purposes
of the preceding sentence, it shall be reasonable to withhold such consent if
the terms of any such settlement do not include the full release of the
Indemnification obligation with respect to such Claim. Following notice of any
Claim, Buyer shall notify the Shareholders Representative of any discussions,
negotiations or other material developments affecting such Claim and, to the
extent commercially reasonable, permit the Shareholders Representative to
participate in any such discussions or negotiations.
44
ARTICLE X
MISCELLANEOUS
10.1 Certain Definitions. For purposes of this Agreement, any reference to
any event, change, condition or effect being "material" with respect to any
entity or group of entities means any material event, change, condition or
effect related to the financial condition, properties, assets (including
intangible assets), liabilities, business, operations, results of operations or
business prospects of such entity or group of entities. In this Agreement, any
reference to a Party's knowledge means such Party's actual knowledge after
reasonable inquiry of officers, directors and other employees of such Party
reasonably likely to have knowledge of such matters.
10.2 No Third Party Beneficiaries. Except as expressly contemplated herein
in respect to the Shareholders Representative, this Agreement shall not confer
any rights or remedies upon any person other than the Parties, and their
respective successors and permitted assigns.
10.3 Entire Agreement; Incorporation of Schedules and Other Agreements.
This Agreement and the Schedules appended hereto, the Escrow Agreement and the
Loan Agreement, constitute the entire agreement among the Parties and supersede
any prior understandings, agreements (including the Letter Agreement) or
representations by or among the Parties, written or oral, with respect to the
subject matter hereof and thereof. The Schedules (and all documents, or
instruments attached thereto) are incorporated herein by reference and made a
part hereof.
10.4 Succession. This Agreement shall be binding upon and inure to the
benefit of the Parties named herein and their respective successors and assigns.
The Company may not assign its rights or obligations hereunder. Each of the
Buyer and Merger Sub may assign its rights and obligations hereunder to any
entity under common control with Buyer and Merger Sub.
10.5 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
10.6 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.
10.7 Notices.
All notices, requests, demands, claims, and other communications hereunder
shall be in writing. Any notice, request, demand, claim, or other communication
hereunder shall be deemed duly delivered two business days after it is sent by
registered or certified mail, return receipt requested, postage prepaid, or one
Business Day after it is sent via a reputable nationwide overnight courier
service or sent via facsimile (with acknowledgment of complete transmission)
with a confirmation copy by registered or certified mail, in each case to the
intended recipient as set forth
45
below:
If to the Company, prior to Closing:
MEI Software Systems, Inc.
00000 Xxxxxxx Xxxxxx Xxxxx
Xxxxxx, XX 00000
Attn: Xxxx X. Xxxxx, President
Fax No.: 000-000-0000
Copy to:
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
00000 Xxxxxx Xxxxx Xxxx
Xxxxx 000
Attn: Xxxx X. Xxxxxxx, Esquire
Fax No.: 000-000-0000
and to
Edison Venture Fund II-PA, L.P.
Shareholders Representative
c/o Mid-Atlantic Venture Fund
Xxxxx 000
Xxxxxx, XX 00000
Attn: Xxxxxx X. Xxxxx
Fax No.: 000-000-0000
If to Buyer or Merger Sub (or the Company after
Closing):
E2Enet, Inc.
000 Xxxxxxxxxxx Xxxxxx, X.X.
Xxxxx 0000
Xxxxxxxxxx, X.X. 00000
Attn: Xxxxxx X. Xxxxx, Chief Executive Officer
Fax No.: 000-000-0000
Copy to:
Verner, Liipfert, Bernhard, XxXxxxxxx & Hand,
Chartered
000 00xx Xxxxxx, X.X.
Xxxxx 000
00
Xxxxxxxxxx, X.X. 00000-0000
Attn: Xxxxxx Xxxxxxxx, Esquire
Xxxx Xxxxxxxxxxxxx, Esquire
Fax No.: 000-000-0000
Any Party and/or the Shareholder's Representative may give any notice,
request, demand, claim, or other communication hereunder using any other means
(including personal delivery, expedited courier, messenger service, telecopy,
ordinary mail or electronic mail), but no such notice, request, demand, claim,
or other communication shall be deemed to have been duly given unless and until
it actually is received by the Party and/or the Shareholder's Representative for
whom it is intended. Any Party and/or the Shareholder's Representative may
change the address to which notices, requests, demands, claims and other
communications hereunder are to be delivered by giving the other Parties and/or
the Shareholder's Representative, notice in the manner herein set forth.
10.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Delaware, without giving
effect to any choice of law or conflict of law rules or provisions (whether of
the State of Delaware or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of Delaware.
10.9 Amendments and Waivers. The Parties may mutually amend any provision
of this Agreement at any time prior to the Closing Date. No amendment of any
provision of this Agreement shall be valid unless the same shall be in writing
and signed by all of the Parties. 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 default,
misrepresentation, breach of such warranty or covenant.
10.10 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. If the final judgment of a court of
competent jurisdiction declares that any term or provision hereof is invalid or
unenforceable, the Parties agree that the court making the determination of
invalidity or unenforceability shall have the power to reduce the scope,
duration, or area of the term or provision, to delete specific words or phrases,
or to replace any invalid or unenforceable term or provision with a term or
provision that is valid and enforceable and that comes closest to expressing the
intention of the invalid or unenforceable term or provision, and this Agreement
shall be enforceable as so modified after the expiration of the time within
which the judgment may be appealed, provided that this Agreement shall not then
substantially deprive any Party of the bargained-for performance of any other
Party.
10.11 Other Remedies. Except as otherwise provided herein, any and all
remedies herein
47
expressly conferred upon a Party will be deemed cumulative with, and not
exclusive of, any other remedy conferred hereby or by law or equity upon such
party, and the exercise by a Party of any one remedy will not preclude the
exercise of any other remedy.
10.12 Specific Performance. The Parties acknowledge and agree that damages
would be an inadequate remedy for any breach of the provisions of this Agreement
and agree that the obligations of the Parties hereunder shall be specifically
enforced in accordance with the terms of this Agreement. The prevailing Party in
any such action shall be entitled to recover from the other Party its attorneys'
fees, costs and expenses incurred in connection with regard to such action.
10.13 Construction. The Parties agree that they have been represented by
counsel during the negotiation, preparation and execution of this Agreement and,
therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document. 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.
ARTICLE XI
DEFINITIONS
For purposes of this Agreement, including the recitals hereto, the
following terms used in this Agreement with initial capital letters have the
meanings specified or referred to in this Article XI:
"AAA" has the meaning ascribed to such term in Section 9.2.
"Affiliates" has the meaning ascribed to such term in Section 3.20.
"Agreement" means this Agreement, as such term is defined in the preamble.
"Audited Financial Statements" has the meaning ascribed to such term in
Section 3.5(a).
"Board" means the Board of Directors of the subject corporation.
"Business Day" means any day, other than a Saturday, Sunday or legal
holiday in the Commonwealth of Virginia.
"Buyer" has the meaning ascribed to such term in the preamble.
"Buyer Indemnified Person" has the meaning ascribed to such term in Section
9.1(a).
48
"Bylaws" means the Bylaws as in effect of the subject corporation.
"CERCLA" means the Comprehensive Environmental Compensation, Liability and
Response Act of 1980.
"Certificate of Incorporation" means the Certificate of Incorporation as in
effect of the subject corporation.
"Certificate of Merger" has the meaning ascribed to such term in Section
1.6(b).
"Claims" means all claims for Damages by or on behalf of a Buyer
Indemnified Person in accordance with Article IX.
"Closing" has the meaning ascribed to such term in Section 1.6(a).
"Closing Date" has the meaning ascribed to such term in Section 1.6(a).
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Stock" means shares of the Company's authorized common stock, par
value $.01 per share.
"Company" has the meaning ascribed to such term in the preamble.
"Company Shareholders" means, as the context requires, the holders of all
issued and outstanding shares of capital stock of the Company and of all Vested
Options.
"Contingent Benefits" has the meaning ascribed to such term in Section
3.23(j).
"Current Employee" has the meaning ascribed to such term in Section 8.4(a).
"Damages" has the meaning ascribed to such term in Section 9.1(a).
"DGCL" means the Delaware General Corporation Law, as amended and in effect
from time to time.
"Dissenting Shares" means issued and outstanding shares of capital stock in
the Company held by any person who has elected in accordance with the DGCL to
exercise dissenters rights of appraisal in respect to the Merger.
"Effective Time" has the meaning ascribed to such term in Section 1.6(b).
49
"Employee Benefit Plan" has the meaning ascribed to such term in Section
3.23(a).
"Environmental Law" has the meaning ascribed to such term in Section
3.25(a).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" has the meaning ascribed to such term in Section 3.23(a).
"Xxxx Agreement" has the meaning ascribed to such term in Section 3.19.
"Xxxx Fees" means all fees and reimburseable expenses payable in accordance
with the Xxxx Agreement.
"Escrow Agent" has the meaning ascribed to such term in Section 2.2(a).
"Escrow Agreement" has the meaning ascribed to such term in Section 2.2.
"Escrow Amount"has the meaning ascribed to such term in Section 2.2(a).
"Excess Professional Costs" means the amount by which all Professional
Costs incurred by the Company for the period commencing September 1, 1999 and
payable by the Company in relation to the Merger exceeds $50,000.
"Extraordinary Bonuses" has the meaning ascribed to such term in Section
3.23(j).
"GAAP" means United States generally accepted accounting principles.
"Governmental Entity" has the meaning ascribed to such term in Section 3.3.
"HSR Act" means the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976,
as amended.
"Immediate Payment Account" has the meaning ascribed to such term in
Section 2.2(a)(ii).
"Immediate Payment Funds" has the meaning ascribed to such term in Section
2.2(a)(ii).
"Indemnitor Notice" has the meaning ascribed to such term in Section
9.2(c).
"Intellectual Property" has the meaning ascribed to such term in Section
3.14(a).
"Interim Financial Statements" has the meaning ascribed to such term in
Section 3.5(a).
50
"Letter Agreement" means the Letter Agreement, dated August 20, 1999, by
and between the Company and the Buyer.
"Loan Agreement" means the Loan Agreement dated as of the date hereof by
and between Buyer and the Company.
"Material Adverse Effect" with respect to any entity or group of entities
means any event, change or effect that, either individually or in the aggregate,
is materially adverse to the financial condition, properties, assets,
liabilities, business, operations, results of operations or business prospects
of such entity.
"Materials of Environmental Concern" has the meaning ascribed to such term
in Section 3.25(b).
"MEI Option Plan" has the meaning ascribed to such term in Section 2.3(a).
"Merger" has the meaning ascribed to such term in the recitals to this
Agreement.
"Merger Consideration" means an amount in immediately available funds equal
to the sum of (i) $24,000,000, less (ii) the sum of (a) the amount by which the
liabilities of the Company (other than liabilities resulting from income or any
other revenue liability account) determined from the June 30, 1999 Audited
Financial Statements by an independent certified public accounting firm selected
by Buyer exceeds the liabilities reflected on the balance sheet as of June 30,
1999, included with the Interim Financial Statements, plus (b) the Excess
Professional Costs, plus (c) the aggregate exercise price of Warrants
outstanding as of the date hereof that have not, as of the Effective Time, been
exercised to acquire shares of Common Stock.
"Merger Consideration Per Share" means, as the context requires, when used
in respect to (i) an issued and outstanding share of Common Stock, Vested Option
or Warrant, an amount in immediately available funds equal to the quotient
obtained by dividing (a) the sum of (1) the Merger Consideration, minus (2) the
fees owing by the Company pursuant to the Xxxx Agreement and the aggregate
liquidation preference payable upon all shares of Preferred Stock issued and
outstanding at Closing, by (b) 21,051,949 (less the number of shares of Common
Stock, if any, issuable upon conversion of shares of Preferred Stock) with
appropriate adjustments made among the holders of shares of Common Stock, Vested
Options and Warrants to account for the respective excercise prices for Vested
Options and Warrants, it being understood that such excercise prices will be
deducted from the amount payable to the holders of such Vested Options and
Warrants, or (ii) an issued and outstanding share of Preferred stock, an amount
in immediately available funds equal to the respective liquidation preference
payable thereof in accordance with the Company's Certificate of Incorporation.
"Merger Sub" means MEI Merger Company, Inc., a Delaware corporation.
51
"Millennial Dates" has the meaning ascribed to such term in Section
3.14(f).
"Notice of Claim" has the meaning ascribed to such term in Section 9.2(b).
"Option Shares" has the meaning ascribed to such term in Section 8.4(a).
"Ordinary Course of Business" has the meaning ascribed to such term in
Section 3.3.
"Party" and "Parties" have the meaning ascribed to such terms in the
preamble.
"Permits" has the meaning ascribed to such term in Section 3.26.
"Phoenix" means Phoenix Solutions, Inc., a California corporation.
"PNC Bank" means PNC Bank, N.A. which is the issuer of the Company's
currently outstanding line of credit.
"PNC Loan Agreement" means the Loan Agreement between PNC Bank and the
Company dated March 12, 1998, as amended, and described in Section 3.9.
"PNC Security Agreement" means that certain Security Agreement between PNC
Bank and the Company dated March 12, 1998, as amended, as described in Section
3.9.
"Preferred Stock" means the Series A, B and/or C Preferred Stock.
"Professional Costs" has the meaning ascribed to such term in Section
3.5(b).
"Put Election" has the meaning ascribed to such term in Section 8.4.
"Qualifying Escrow Agent" means (i) a bank or trust company subject to
supervision or examination by federal, state or District of Columbia banking
authorities, with a total capital and surplus of not less than $250,000,000, or
(ii) such other company agreed by the Buyer and the Company.
"Registration Statement" has the meaning ascribed to such term in Section
1.6(a).
"Reimbursement Account" has the meaning ascribed to such term in Section
2.2(a)(iii).
"SEC" means the United States Securities and Exchange Commission.
52
"Security Interest" has the meaning ascribed to such term in Section 3.3.
"Series A Preferred Stock" means shares of the Company's Series A
Convertible Preferred Stock, par value $.10 per share.
"Series B Preferred Stock" means shares of the Company's Series B
Convertible Preferred Stock, par value $.10 per share.
"Series C Preferred Stock" means shares of the Company's Series C
Convertible Preferred Stock, par value $.10 per share.
"Shareholders Representative" has the meaning ascribed to such term in
Section 2.2(e).
"Stock" means, collectively, all of the Common Stock and Preferred Stock.
"Stockholders' Agreement" has the meaning ascribed to such term in Section
3.13(i).
"Surviving Corporation" has the meaning ascribed to such term in Section
1.2.
"Tax Returns" means all reports, returns, declarations, statements or other
information required to be supplied to a taxing authority in connection with
Taxes.
"Taxes" has the meaning ascribed to such term in Section 3.12(a)(i).
"Third Party Intellectual Property" has the meaning ascribed to such term
in Section 3.14(a)(iii).
"Unvested Option Holders" has the meaning ascribed to such term in Section
3.4(d).
"Vested Options" has the meaning ascribed to such term in Section 2.3(a).
"Warrants" means warrants to purchase up to 1,135,054 shares of Common
Stock, which warrants have been issued by the Company and are outstanding as the
date hereof.
[Signatures begin on following page]
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IN WITNESS WHEREOF, the Parties hereto have executed this Merger Agreement
as of the date first above written.
E2ENET, INC.
By: /s/ Xxxxxx X. Xxxxxx
----------------------------
Name: X. X. Xxxxxx
----------------------
Title: Senior Vice President
----------------------
MEI SOFTWARE SYSTEMS, INC.
By: /s/ Xxxxx X. Xxxxx
-----------------------------
Name: Xxxxx X. Xxxxx
-----------------------
Title: President
-----------------------
MEI MERGER COMPANY, INC.
By: /s/ Xxxxxx X. Xxxxxx
-----------------------------
Name: Xxxxxx X. Xxxxxx
-----------------------
Title: Vice President
-----------------------
