EXHIBIT 2.1
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
MULTIPOINT NETWORKS, INC.,
CERTAIN SHAREHOLDERS OF MULTIPOINT NETWORKS, INC.,
WIRELESS, INC.,
AND
CERTAIN SHAREHOLDERS OF WIRELESS, INC.
JUNE 4, 1998
TABLE OF CONTENTS
PAGE
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ARTICLE I THE MERGER ......................................................2
1.1 The Merger ...................................................2
1.2 Closing; Effective Time ......................................2
1.3 Effect of the Merger .........................................2
1.4 Articles of Incorporation; Bylaws ............................2
1.5 Directors and Officers .......................................2
1.6 Effect on Capital Stock ......................................3
1.7 Surrender of Certificates ....................................4
1.8 No Further Ownership Rights in Target Capital Stock ..........6
1.9 Lost, Stolen or Destroyed Certificates .......................6
1.10 Tax Consequences ............................................6
1.11 Exemption from Registration .................................6
1.12 Taking of Necessary Action; Further Action ..................7
ARTICLE II REPRESENTATIONS AND WARRANTIES OF TARGET .......................7
2.1 Organization, Standing and Power .............................7
2.2 Capital Structure ............................................7
2.3 Authority ....................................................9
2.4 Financial Statements .........................................9
2.5 Absence of Certain Changes ..................................10
2.6 Absence of Undisclosed Liabilities ..........................10
2.7 Litigation ..................................................10
2.8 Governmental Authorization ..................................10
2.9 Title to Property ...........................................11
2.10 Intellectual Property ......................................11
2.11 Environmental Matters ......................................12
2.12 Taxes ......................................................12
2.13 Employee Benefit Plans .....................................14
2.14 Employees and Consultants ..................................16
2.15 Related-Party Transactions .................................17
2.16 Insurance ..................................................17
2.17 Compliance with Laws .......................................18
2.18 Brokers' and Finders' Fees .................................18
2.19 Material Contracts .........................................18
2.20 No Breach of Material Contracts ............................19
2.21 Third-Party Consents .......................................19
2.22 Representations Complete ...................................19
ARTICLE III REPRESENTATIONS AND WARRANTIES OF ACQUIROR ...................20
3.1 Organization, Standing and Power ............................20
3.2 Capital Structure ...........................................20
3.3 Authority ...................................................21
3.4 Financial Statements ........................................22
3.5 Absence of Certain Changes ..................................22
3.6 Absence of Undisclosed Liabilities ..........................22
3.7 Litigation ..................................................23
3.8 Governmental Authorization ..................................23
3.9 Title to Property ...........................................23
3.10 Intellectual Property ......................................23
3.11 Environmental Matters ......................................24
3.12 Taxes ......................................................24
3.13 Employee Benefit Plans .....................................26
3.14 Employees and Consultants ..................................28
3.15 Related-Party Transactions .................................29
3.16 Insurance ..................................................30
3.17 Compliance with Laws .......................................30
3.18 Brokers' and Finders' Fees .................................30
3.19 Material Contracts .........................................30
3.20 No Breach of Material Contracts ............................31
3.21 Representations Complete ...................................31
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME ...........................32
4.1 Conduct of Business of Target and Acquiror ..................32
ARTICLE V ADDITIONAL AGREEMENTS ..........................................34
5.1 Preparation of Information Statement Proxy Statement ........34
5.2 Shareholders Meeting or Consent Solicitation ................35
5.3 Access to Information .......................................35
5.4 Public Disclosure ...........................................36
5.5 Consents; Cooperation .......................................36
5.6 Update Disclosure; Breaches .................................36
5.8 Indemnification .............................................36
5.9 Legal Requirements ..........................................37
5.10 Tax-Free Reorganization ....................................37
5.11 Blue Sky Laws ..............................................37
5.12 Stock Options ..............................................37
5.13 Additional Agreements; Best Efforts ........................38
5.14 Employee Benefits ..........................................38
ARTICLE VI CONDITIONS TO THE MERGER ......................................38
6.1 Conditions to Obligations of Each Party to Effect the Merger.38
6.2 Additional Conditions to Obligations of Target ..............39
6.3 Additional Conditions to the Obligations of Acquiror ........40
ARTICLE VII TERMINATION, EXPENSES, AMENDMENT AND WAIVER ..................42
7.1 Termination .................................................42
7.2 Effect of Termination .......................................43
7.3 Expenses and Termination Fees ...............................43
7.4 Amendment ...................................................43
7.5 Extension; Waiver ...........................................43
ARTICLE VIII ESCROW AND INDEMNIFICATION ..................................44
8.1 Survival of Representations, Warranties and Covenants .......44
8.2 Indemnity by Target Shareholders ............................44
8.3 Indemnity by Acquiror .......................................44
8.4 Damage Threshold ............................................45
8.5 Damage Limitations ..........................................45
8.13 Maximum Liability and Remedies .............................45
ARTICLE IX GENERAL PROVISIONS ............................................46
9.1 Notices .....................................................46
9.2 Interpretation ..............................................47
9.3 Counterparts ................................................48
9.4 Entire Agreement; No Third Party Beneficiaries ..............48
9.5 Severability ................................................48
9.6 Remedies Cumulative .........................................48
9.7 Governing Law ...............................................48
9.8 Assignment ..................................................48
9.9 Rules of Construction .......................................49
SCHEDULES
Schedule A - Shareholders of Wireless, Inc. that are Parties to this Agreement
Schedule B - Shareholders of Multipoint Networks, Inc. that are Parties to this
Agreement
Schedule C - Target Disclosure Letter
Schedule D - Acquiror Disclosure Letter
Schedule E - Option Schedule
EXHIBITS
Exhibit A - Agreement of Merger
Exhibit B - Exchange Ratios
Exhibit C - Amended and Restated Articles of Incorporation of Acquiror
Exhibit D - FIRPTA Notice
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (the "AGREEMENT") is made
and entered into as of June 4, 1998, by and among Wireless, Inc., a California
corporation ("ACQUIROR"), the shareholders of Acquiror listed on SCHEDULE A
hereto (the "ACQUIROR SHAREHOLDERS"), Multipoint Networks, Inc., a California
corporation ("TARGET"), and the shareholders of Target listed On SCHEDULE B
hereto (the "TARGET SHAREHOLDERS").
RECITALS
A. The Boards of Directors of Target and Acquiror believe it is in the
best interests of their respective companies and the shareholders of their
respective companies that Target and Acquiror combine into a single company
through the statutory merger of Target with and into Acquiror (the "MERGER")
and, in furtherance thereof, have approved the Merger.
B. Since July 1997, Xxxxxxx Xxxxxx and Xxxxxxx Xxx, the Chief
Executive Officer and Chief Financial Officer of Acquiror, respectively, have
also been serving as the Chief Executive Officer and Chief Financial Officer,
respectively, of Target. Certain other representatives of Acquiror have also
been acting on behalf of Target. In addition, Acquiror owns in excess of twenty
percent (20%) of the capital stock of Target.
C. Various of the functional units of Acquiror and Target,
including sales, marketing, finance and engineering, are currently combined.
D. Xxxxx Xxxxxxxx, a director of Acquiror, and Xxxxxxx Xxxx, a
director of Target, have been authorized to sign this Agreement on behalf of
Acquiror and Target, respectively.
E. Pursuant to the Merger, among other things, each outstanding share
of capital stock of Target ("TARGET CAPITAL STOCK"), shall be converted into
shares of capital stock of Acquiror ("ACQUIROR CAPITAL STOCK"), at the rates set
forth herein.
F. Target and Acquiror desire to make certain representations and
warranties and other agreements in connection with the Merger.
G. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "CODE"), and to cause the Merger to qualify as a
reorganization under the provisions of Section 368(a)(1)(A) of the Code.
NOW, THEREFORE, in consideration of the covenants and representations
set forth herein, and for other good and valuable consideration, the parties
agree as follows:
ARTICLE I
THE MERGER
1.1. THE MERGER. At the Effective Time (as defined in Section 1.2)
and subject to and upon the terms and conditions of this Agreement, the
Agreement of Merger attached hereto as EXHIBIT A (the "AGREEMENT OF MERGER") and
the applicable provisions of the California Corporations Code ("CALIFORNIA
LAW"), Target shall be merged with and into Acquiror, the separate corporate
existence of Target shall cease, and Acquiror shall continue as the surviving
corporation. Acquiror as the surviving corporation after the Merger is
hereinafter sometimes referred to as the "SURVIVING CORPORATION."
1.2. CLOSING; EFFECTIVE TIME. The closing of the transactions
contemplated hereby (the "CLOSING") shall take place as soon as practicable
after the satisfaction or waiver of each of the conditions set forth in Article
VI hereof or at such other time as the parties hereto agree (the date on which
the Closing shall occur, the "CLOSING DATE"). The Closing shall take place at
the offices of Xxxxxxxxx Xxxxxxx Xxxxxx Xxxxxxxxxx Xxxxxxxx & Xxxxxxxxx, LLP,
000 Xxxxxxxxxxxx Xxxxx, Xxxxx Xxxx, Xxxxxxxxxx, or at such other location as the
parties hereto agree. On the Closing Date, the parties hereto shall cause the
Merger to be consummated by filing the Agreement of Merger, together with the
required officers' certificates, with the Secretary of State of the State of
California, in accordance with the relevant provisions of California Law (the
time and date of such filing being the "EFFECTIVE TIME" and the "EFFECTIVE
DATE," respectively).
1.3. EFFECT OF THE MERGER. At the Effective Time, the effect of
the Merger shall be as provided in this Agreement, the Agreement of Merger and
the applicable provisions of California Law. Without limiting the generality of
the foregoing, and subject thereto, at the Effective Time, all the property,
rights, privileges, powers and franchises of Target shall vest in the Surviving
Corporation, and all debts, liabilities and duties of Target shall become the
debts, liabilities and duties of the Surviving Corporation.
1.4. ARTICLES OF INCORPORATION; BYLAWS.
(a) At the Effective Time, the Restated Articles of Incorporation
of Acquiror, as in effect immediately prior to the Effective Time and attached
hereto as EXHIBIT C, shall be the Articles of Incorporation of the Surviving
Corporation until thereafter amended as provided by California Law.
(b) The Bylaws of Acquiror, as in effect immediately prior to the
Effective Time, shall be the Bylaws of the Surviving Corporation until
thereafter amended.
1.5. DIRECTORS AND OFFICERS. At the Effective Time, the directors of
Acquiror shall be Xxxxxx Xxxxxx, Xxxxxxx Xxxxxx, Xxxxxxx Xxxx, Xxxxx Xxxxxxxx,
Xxxxxxx Xxx and Xxxxxx Xxxxxxxx, to hold office until such time as such
directors resign, are removed or their respective successors are duly elected or
appointed and qualified. The officers of Acquiror immediately prior to the
Effective Time shall be the officers of the Surviving Corporation, to hold
office until
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such time as such officers resign, are removed or their respective successors
are duly elected or appointed and qualified.
1.6. EFFECT ON CAPITAL STOCK. By virtue of the Merger and without any
action on the part of Acquiror, Target or the holders of any of Target's
securities:
(a) CONVERSION OF TARGET CAPITAL STOCK. The maximum number of
shares of Acquiror Common and Preferred Stock to be issued (including Acquiror
Common Stock to be reserved for issuance upon exercise of warrants to purchase
shares of Target Common Stock (the "TARGET WARRANTS") and options to purchase
shares of Target Common Stock (the "TARGET OPTIONS") assumed by Acquiror
pursuant to Section 5.11 hereof) in exchange for the acquisition by Acquiror of
all outstanding Target Capital Stock and all unexpired and unexercised Target
Options and Target Warrants shall be 2,955,195 and 2,146,867 shares,
respectively, reduced as a result of any Dissenting Shares (as defined below).
No adjustment shall be made in the number of shares of Acquiror Common or
Preferred Stock issued in the Merger as a result of (x) any increase or decrease
in the market value of Acquiror Common or Preferred Stock prior to the Effective
Time or (y) any cash proceeds received by Target from the date hereof to the
Closing Date pursuant to the exercise of currently outstanding Target Options or
Target Warrants. Subject to the terms and conditions of this Agreement and the
Agreement of Merger as of the Effective Time, by virtue of the Merger and
without any action on the part of the holder of any shares of Target Capital
Stock:
(i) At the Effective Time, each share of Target Common Stock
issued and outstanding immediately prior to the Effective Time (other than
shares to be cancelled pursuant to Section 1.6(b) and shares, if any, held by
persons who have not voted such shares for approval of the Merger and with
respect to which such persons shall become entitled to exercise dissenters'
rights in accordance with Chapter 13 of the California Law ("DISSENTING
SHARES")) shall be converted and exchanged for such number of shares of Acquiror
Common Stock as shall be determined in accordance with item (i) of EXHIBIT B
hereof (the "COMMON EXCHANGE RATIO").
(ii) At the Effective Time, each share of Target Series 1
Preferred Stock issued and outstanding immediately prior to the Effective Time
(other than shares to be cancelled pursuant to Section 1.6(b) and Dissenting
Shares) shall be converted and exchanged for such number of shares of Acquiror
Series C Preferred Stock as shall be determined in accordance with item (ii) of
EXHIBIT B hereof (the "SERIES 1 EXCHANGE RATIO").
(b) CANCELLATION OF TARGET CAPITAL STOCK OWNED BY ACQUIROR OR
TARGET. At the Effective Time, each share of Target Capital Stock owned by
Acquiror or any direct or indirect wholly owned subsidiary of Acquiror or of
Target immediately prior to The Effective Time shall be canceled and
extinguished without any conversion thereof.
(c) TARGET STOCK OPTION PLANS. At the Effective Time, the Target
1992 Stock Option Plan and the Target 1996 Stock Option Plan (the "TARGET STOCK
OPTION PLANS") and all options to purchase Target Common Stock then outstanding
under the Target Stock Option Plans shall be assumed by Acquiror in accordance
with Section 5.11.
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(d) TARGET WARRANTS. At the Effective Time, all outstanding
Target Warrants that do not terminate by their terms shall be converted into
warrants to acquire Acquiror Common Stock in accordance with their terms.
(e) ADJUSTMENTS TO EXCHANGE RATIOS. The Exchange Ratios shall be
adjusted to reflect fully the effect of any stock split, reverse split, stock
dividend (including any dividend or distribution of securities convertible into
Acquiror Capital Stock or Target Capital Stock), reorganization,
recapitalization or other like change with respect to Acquiror Capital Stock or
Target Capital Stock occurring after the date hereof and prior to the Effective
Time.
(f) FRACTIONAL SHARES. No fraction of a share of Acquiror Common
or Preferred Stock will be issued, but in lieu thereof each holder of shares of
Target Capital Stock who would otherwise be entitled to a fraction of a share of
Acquiror Common or Preferred Stock (after aggregating all fractional shares of
Acquiror Common or Preferred Stock to be received by such holder) shall receive
from Acquiror an amount of cash (rounded to the nearest whole cent) equal to the
product of (i) such fraction, multiplied by (ii) the price of one share of
Acquiror Common or Preferred Stock, as the case may be, immediately prior to the
Merger, as determined by the Board of Directors of Acquiror (the "CLOSING
PRICE.")
(g) DISSENTERS' RIGHTS. Any Dissenting Shares shall not be
converted into Acquiror Common or Preferred Stock, but shall instead be
converted into the right to receive such consideration as may be determined to
be due with respect to such Dissenting Shares pursuant to California Law. Target
agrees that, except with the prior written consent of Acquiror, or as required
under California Law, it will not voluntarily make any payment with respect to,
or settle or offer to settle, any such purchase demand. Each holder of
Dissenting Shares ("DISSENTING SHAREHOLDER") who, pursuant to the provisions of
California law, becomes entitled to payment of the fair value for shares of
Target Capital Stock shall receive payment therefor (but only alter the value
therefor shall have been agreed upon or finally determined pursuant to such
provisions). If, after the Effective Time, any Dissenting Shares shall lose
their status as Dissenting Shares, Acquiror shall issue and deliver, upon
surrender by such shareholder of certificate or certificates representing shares
of Target Capital Stock, the number of shares of Acquiror Common or Preferred
Stock to which such shareholder would otherwise be entitled under this Section
1.6 and the Agreement of Merger.
(h) Acquiror and Target each contemplate that they may incur
certain indebtedness for money borrowed prior to the Effective Time. Any such
indebtedness incurred by Target prior to the Effective Time will, by virtue of
the Merger, become indebtedness of the Surviving Corporation. Each of such
parties also contemplates that any such amounts (together with interest) will be
converted into Preferred Stock in the next equity financing consummated by the
Surviving Corporation after the Closing Date. Acquiror and Target also
contemplate that such additional indebtedness will not affect the exchange
rates in the Merger.
1.7. SURRENDER OF CERTIFICATES.
(a) EXCHANGE AGENT. Xxxxxx Xxxx & Xxxxxxxx, counsel to the
Acquiror, shall act as exchange agent (the "EXCHANGE AGENT") in the Merger.
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(b) ACQUIROR TO PROVIDE COMMON STOCK AND CASH. Promptly after the
Effective Time, Acquiror shall make available to the Exchange Agent for exchange
in accordance with this Article I, through such reasonable procedures as
Acquiror may adopt, (i) the shares of Acquiror Common and Preferred Stock
issuable pursuant to Section 1.6(a) in exchange for shares of Target Capital
Stock outstanding immediately prior to the Effective Time, and (ii) cash in an
amount sufficient to permit payment of cash in lieu of fractional shares
pursuant to Section 1.6(f).
(c) EXCHANGE PROCEDURES. Promptly after the Effective Time,
Acquiror shall cause to be mailed to each holder of record of a certificate or
certificates (the "CERTIFICATES") that immediately prior to the Effective Time
represented outstanding shares of Target Capital Stock, whose shares were
converted into the right to receive shares of Acquiror Common or Preferred Stock
(and cash in lieu of fractional shares) pursuant to Section 1.6, (i) a letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon receipt of the
Certificates by the Exchange Agent, and shall be in such form and have such
other provisions as Acquiror may reasonably specify) and (ii) instructions for
use in effecting the surrender of the Certificates in exchange for certificates
representing shares of Acquiror Common or Preferred Stock (and cash in lieu of
fractional shares). Upon surrender of a Certificate for cancellation to the
Exchange Agent or to such other agent or agents as may be appointed by Acquiror,
together with such letter of transmittal, duly completed and validly executed in
accordance with the instructions thereto, the holder of such Certificate shall
be entitled to receive in exchange therefor a certificate representing the
number of whole shares of Acquiror Common or Preferred Stock and payment in lieu
of fractional shares that such holder has the right to receive pursuant to
Section 1.6, and the Certificate so surrendered shall forthwith be canceled.
Until so surrendered, each outstanding Certificate that, prior to the Effective
Time, represented shares of Target Capital Stock will be deemed from and after
the Effective Time, for all corporate purposes, other than the payment of
dividends, to evidence the ownership of the number of full shares of Acquiror
Common or Preferred Stock into which such shares of Target Capital Stock shall
have been so converted and the right to receive an amount in cash in lieu of the
issuance of any fractional shares in accordance with Section 1.6.
(d) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No
dividends or other distributions with respect to Acquiror Common or Preferred
Stock with a record date after the Effective Time shall be paid to the holder of
any unsurrendered Certificate with respect to the shares of Acquiror Common or
Preferred Stock represented thereby until the holder of record of such
Certificate surrenders such Certificate. Subject to applicable law, following
surrender of any such Certificate, there shall be paid to the record holder of
the certificates representing whole shares of Acquiror Common or Preferred Stock
issued in exchange therefor, without interest, at the time of such surrender,
the amount of any such dividends or other distributions with a record date after
the Effective Time that would have been previously payable (but for the
provisions of this Section 1.7(d)) with respect to such shares of Acquiror
Common or Preferred Stock.
(e) TRANSFERS OF OWNERSHIP. If any certificate for shares of
Acquiror Common or Preferred Stock is to be issued in a name other than that in
which the Certificate surrendered in exchange therefor is registered, it shall
be a condition of the issuance thereof that
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the Certificate so surrendered is properly endorsed and otherwise in proper form
for transfer and that the person requesting such exchange will have paid to
Acquiror or any agent designated by it any transfer or other taxes required by
reason of the issuance of a certificate for shares of Acquiror Common or
Preferred Stock in any name other than that of the registered holder of the
Certificate surrendered, or established to the satisfaction of Acquiror or any
agent designated by it that such tax has been paid or is not payable.
(f) NO LIABILITY. Notwithstanding anything to the contrary in
this Section 1.7, none of the Exchange Agent, Acquiror or any party hereto shall
be liable to any person for any amount properly paid to a public official
pursuant to any applicable abandoned property, escheat or similar law.
(g) DISSENTING SHARES. The provisions of this Section 1.7 shall
also apply to Dissenting Shares that lose their status as such, except that the
obligations of Acquiror under this Section 1.7 shall commence on the date of
loss of such status and the holder of such shares shall be entitled to receive
in exchange for such shares the number of shares of Acquiror Common or Preferred
Stock to which such holder is entitled pursuant to Section 1.6 hereof.
1.8. NO FURTHER OWNERSHIP RIGHTS IN TARGET CAPITAL STOCK. All shares
of Acquiror Common or Preferred Stock issued upon the surrender for exchange of
shares of Target Capital Stock in accordance with the terms hereof (including
any cash paid in lieu of fractional shares) shall be deemed to have been issued
in full satisfaction of all rights pertaining to such shares of Target Capital
Stock, and there shall be no further registration of transfers on the records of
the Surviving Corporation of shares of Target Capital Stock that were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Certificates are presented to the Surviving Corporation for any reason,
they shall be canceled and exchanged as provided in this Article I.
1.9. LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any
Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall
issue in exchange for such lost, stolen or destroyed Certificates, upon the
making of an affidavit of that fact by the holder thereof, such shares of
Acquiror Common or Preferred Stock (and cash in lieu of fractional shares) as
may be required pursuant to Section 1.6; provided, however, that Acquiror may,
in its discretion and as a condition precedent to the issuance thereof, require
the owner of such lost, stolen or destroyed Certificates to deliver a bond in
such sum as it may reasonably direct as indemnity against any claim that may be
made against Acquiror, the Surviving Corporation or the Exchange Agent with
respect to the Certificates alleged to have been lost, stolen or destroyed.
1.10. TAX CONSEQUENCES. It is intended by the parties hereto that the
Merger shall constitute a reorganization within the meaning of Section 368 of
the Code. No party shall take any action that would, to such party's knowledge,
cause the Merger to fail to qualify as a reorganization within the meaning of
Section 368 of the Code.
1.11. EXEMPTION FROM REGISTRATION. The shares of Acquiror Common and
Preferred Stock to be issued in connection with the Merger will be issued in a
transaction exempt from registration under the Securities Act of 1933, as
amended (the "SECURITIES ACT"), by reason of Section 3(a)(10) thereof. The
shares of Acquiror Common and Preferred Stock to be issued in
6
connection with the Merger will be qualified under California Law, pursuant to
Section 25121 thereof, after a fairness hearing has been held pursuant to the
authority granted by Section 25142 of such law. Such fairness hearing will also
address the assumption by Acquiror of the Target Options and Target Warrants, as
described in Sections 1.6(c) and 1.6(d) hereof, respectively. Each of Acquiror
and Target shall use its best efforts to file an application for issuance of a
permit to issue such securities and assume such options and warrants as soon as
practicable after the date of this Agreement. The registration of certain of the
shares with the Securities and Exchange Commission (the "SEC") and their resale
shall be subject to the terms and conditions of a registration rights agreement
in a form reasonably acceptable to Target and Acquiror (the "REGISTRATION RIGHTS
AGREEMENT").
1.12. TAKING OF NECESSARY ACTION: FURTHER ACTION. If, at any time
after the Effective Time, any further action is necessary or desirable to carry
out the purposes of this Agreement and to vest the Surviving Corporation with
full right, title and possession to all assets, property, rights, privileges,
powers and franchises of Target, the officers and directors of Acquiror are
fully authorized in the name of their respective corporations or otherwise to
take, and shall take, all such lawful and necessary action, so long as such
action is not inconsistent with this Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF TARGET
Target and the Target Shareholders represent and warrant to
Acquiror that the statements contained in this Article II are true and correct,
except as set forth in the disclosure letter delivered by Target to Acquiror
prior to the execution and delivery of this Agreement and attached hereto as
SCHEDULE C (the "TARGET DISCLOSURE LETTER"). Any reference in this Article II to
an agreement being "enforceable" shall be deemed to be qualified to the extent
such enforceability is subject to (i) laws of general application relating to
bankruptcy, insolvency, moratorium and the relief of debtors and (ii) the
availability of specific performance, injunctive relief and other equitable
remedies.
2.1. ORGANIZATION, STANDING AND POWER. Target is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization. Target has the corporate power to own its
properties and to carry on its business as now being conducted and as proposed
to be conducted and is duly qualified to do business and is in good standing in
each jurisdiction in which the failure to be so qualified and in good standing
would have a Material Adverse Effect (as defined in Section 9.2) on Target.
Target has delivered to Acquiror a true and correct copy of the Articles of
Incorporation and Bylaws or other charter documents, as applicable, of Target,
each as amended to date. Target is not in violation of any of the provisions of
its Articles of Incorporation or Bylaws or equivalent organizational documents.
Target does not directly or indirectly own any equity or similar interest in, or
any interest convertible or exchangeable or exercisable for, any equity or
similar interest in, any corporation, partnership, joint venture or other
business association or entity.
2.2. CAPITAL STRUCTURE. The authorized capital stock of Target
consists of 60,000,000 shares of Common Stock and 30,000,000 shares of Preferred
Stock (20,000,000 of
7
which have been designated as Series 1 Preferred Stock), of which there were
issued and outstanding as of the date of this Agreement 30,806,754 shares of
Common Stock and 19,534,200 shares of Series 1 Preferred Stock (the "SERIES 1
PREFERRED"). There are no other outstanding shares of capital stock or voting
securities and no outstanding commitments to issue any shares of capital stock
or voting securities after the date of this Agreement, other than pursuant to
the exercise of (i) outstanding Target Warrants and (ii) options outstanding as
of the date of this Agreement under the Target Stock Option Plans. All
outstanding shares of Target Capital Stock are duly authorized, validly issued,
fully paid and non-assessable and are free of any liens or encumbrances, other
than any liens or encumbrances created by or imposed upon the holders thereof,
and are not subject to preemptive rights, rights of first refusal, rights of
first offer or similar rights created by statute, the Articles of Incorporation
or Bylaws of Target, or any agreement to which Target is a party or by which it
is bound. As of the date of this Agreement, Target has reserved 20,000,000
shares of Common Stock for issuance upon conversion of the Series 1 Preferred.
As of the date of this Agreement, there are currently outstanding (i) options to
purchase 2,222,100 shares of Common Stock granted to employees and other service
providers pursuant to the Target Stock Option Plans, and (ii) warrants to
purchase 988,554 shares of Common Stock upon exercise of the Target Warrants.
Except for (i) the rights created pursuant to this Agreement and (ii) Target's
right to repurchase any unvested shares under the Target Stock Option Plans,
there are no other options, warrants, calls, rights, commitments or agreements
of any character to which Target is a party or by which it is bound obligating
or allowing Target to issue, deliver, sell, repurchase or redeem, or cause to be
issued, delivered, sold, repurchased or redeemed, any shares of Target Capital
Stock or obligating Target to grant, extend, accelerate the vesting of, change
the price of, or otherwise amend or enter into any such option, warrant, call,
right, commitment or agreement. There are no contracts, commitments or
agreements relating to the voting, purchase or sale of Target Capital Stock (i)
between or among Target and any of its shareholders and (ii) to the best of
Target's knowledge, among any of Target's shareholders or between any of
Target's shareholders and any third party. The terms of the Target Stock Option
Plans permit the assumption of such Target Stock Option Plans by Acquiror or the
substitution of options to purchase Acquiror Common Stock as provided in this
Agreement, without the consent or approval of the holders of the outstanding
options, the Target shareholders, or otherwise and without any acceleration of
the exercise schedule or vesting provisions in effect for such options. True and
complete copies of all agreements and instruments relating to or issued under
the Target Stock Option Plans have been made available to Acquiror, and such
agreements and instruments have not been amended, modified or supplemented, and
there are no agreements to amend, modify or supplement such agreements or
instruments from the form made available to Acquiror. All outstanding Common
Stock and Series 1 Preferred was issued in compliance with all applicable
federal and state securities laws.
Target contemplates that it may incur certain indebtedness (which may be
convertible into securities of such corporation and which may include warrant
coverage) for money borrowed prior to the Effective Time. Any such indebtedness
incurred by Target prior to the Effective Time will, by virtue of the Merger,
become indebtedness of the Surviving Corporation. Each of Acquiror and Target
contemplates that any such amounts (together with interest) will be convened
into Preferred Stock in the next equity financing consummated by the Surviving
Corporation after the Closing Date. Acquiror and Target also contemplate that
such additional indebtedness will not affect the exchange rates in the Merger.
8
2.3. AUTHORITY.
(a) Target has all requisite corporate power and authority to
enter into this Agreement and the Agreement of Merger, and to consummate the
transactions contemplated hereby the thereby. The execution and delivery of this
Agreement and the Agreement of Merger and the consummation of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
corporate action on the part of Target, subject only to the approval of the
Merger by Target's shareholders. This Agreement and Agreement of Merger have
been duly executed and delivered by Target and constitute the valid and binding
obligations of Target enforceable against Target in accordance with their terms.
(b) The execution and delivery of this Agreement and the
Agreement of Merger by Target do not, and the consummation of the transactions
contemplated hereby and thereby will not, conflict with, or result in any
violation of, or default under (with or without notice or lapse of time, or
both), or give rise to a right of termination, cancellation or acceleration of
any obligation or loss of any benefit under (i) any provision of the Articles of
Incorporation or Bylaws of Target, as amended, or (ii) any Material Agreement
(as defined in Section 2.19), permit, concession, franchise, license, judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to Target
or any of its properties or assets.
(c) No consent, approval, order or authorization of, or
registration, declaration or filing with, any court, administrative agency or
commission or other governmental authority or instrumentality ("GOVERNMENTAL
ENTITY") is required by or with respect to Target in connection with the
execution and delivery of this Agreement and the Agreement of Merger or the
consummation of the transactions contemplated hereby or thereby, except for (i)
the filing of the Agreement of Merger, together with the required officers'
certificates, as provided in Section 1.2; (ii) such consents, approvals, orders,
authorizations, registrations, declarations and filings as may be required under
applicable state securities laws and the securities laws of any foreign country;
(iii) such filings as may be required under the Xxxx-Xxxxx-Xxxxxx Antitrust
Improvements Act of 1976, as amended ("HSR"); and (iv) such other consents,
authorizations, filings, approvals and registrations that, if not obtained or
made, would not have a Material Adverse Effect on Target and would not prevent
or materially alter or delay any of the transactions contemplated by this
Agreement.
2.4. FINANCIAL STATEMENTS. Target has delivered to Acquiror its
unaudited financial statements (balance sheet, statement of operations,
statement of shareholders' equity and statement of cash flows) as at and for the
fiscal year ended December 31, 1997, and its unaudited financial statements
(balance sheet and statement of operations) as at and for the four-month period
ended April 30, 1998 (collectively, the "TARGET FINANCIAL STATEMENTS"). The
Target Financial Statements have been prepared in accordance with generally
accepted accounting principles ("GAAP") (except that the unaudited financial
statements do not have notes thereto) applied on a consistent basis throughout
the periods indicated and with each other. The Target Financial Statements
fairly present the financial condition and operating results of Target as of the
dates, and for the periods, indicated therein, subject in the case of the
unaudited financial statements to normal year-end audit adjustments, which are
not material in the aggregate. Target maintains a standard system of accounting
established and administered in accordance with generally accepted accounting
principles.
9
2.5. ABSENCE OF CERTAIN CHANGES. Since April 30, 1998 (the "TARGET
BALANCE SHEET DATE"), Target has conducted its business in the ordinary course
consistent with past practice and there has not occurred: (i) any change, event
or condition (whether or not covered by insurance) that has resulted in, or
might reasonably be expected to result in, a Material Adverse Effect on Target;
(ii) any acquisition, sale or transfer of any material asset of Target; (iii)
any change in accounting methods or practices (including any change in
depreciation or amortization policies or rates) by Target or any revaluation by
Target of any of its assets; (iv) any declaration, setting aside, or payment of
a dividend or other distribution with respect to the shares of Target, or any
direct or indirect redemption, purchase or other acquisition by Target of any of
its shares of capital stock; (v) any Material Contract entered into by Target,
other than as provided to Acquiror, or any material amendment or termination of,
or default under, any Material Contract to which Target is a party or by which
it is bound; (vi) any amendment or change to the Articles of Incorporation or
Bylaws of Target; (vii) any increase in or modification of the compensation or
benefits payable or to become payable by Target to any of its directors,
employees or consultants; or (viii) any negotiation or agreement by Target to do
any of the things described in the preceding clauses (i) through (vii) (other
than negotiations with Acquiror and its representatives regarding the
transactions contemplated by this Agreement).
2.6. ABSENCE OF UNDISCLOSED LIABILITIES. Target has no material
obligations or liabilities of any nature (matured or unmatured, fixed or
contingent) other than (i) those set forth or adequately provided for in the
Balance Sheet at April 30, 1998 (the "TARGET BALANCE SHEET"), (ii) those
incurred in the ordinary course of business prior to the Target Balance Sheet
Date and not required to be set forth in the Target Balance Sheet under GAAP,
(iii) those incurred in the ordinary course of business since the Target Balance
Sheet Date in amounts consistent with prior periods, and (iv) those incurred in
connection with the execution of this Agreement.
2.7. LITIGATION. There is no private or governmental action, suit,
proceeding, claim, arbitration or investigation pending before any agency, court
or tribunal, foreign or domestic, or, to the knowledge of Target, threatened
(including allegations that could form the basis for future action) against
Target or any of its properties or officers or directors (in their capacities as
such). There is no judgment, decree or order against Target, or, to the
knowledge of Target, any of its directors or officers (in their capacities as
such), that could prevent, enjoin, or materially alter or delay any of the
transactions contemplated by this Agreement, or that could reasonably be
expected to have a Material Adverse Effect on Target. All litigation to which
Target is a party (or, to the knowledge of Target, threatened to become a party)
is disclosed in the Target Disclosure Letter. Target does not have any plans to
initiate any litigation, arbitration or other proceeding against any third
party.
2.8. GOVERNMENTAL AUTHORIZATION. Target has obtained each federal,
state, county, local or foreign governmental consent, license, permit, grant, or
other authorization of a Governmental Entity (i) pursuant to which Target
currently operates or holds any interest in any of its properties or (ii) that
is required for the operation of Target's business or the holding of any such
interest ((i) and (ii) herein collectively called "TARGET AUTHORIZATIONS"), and
all of such Target Authorizations are in full force and effect, except where the
failure to obtain or have any such Target Authorizations could not reasonably be
expected to have a Material Adverse Effect on Target.
10
2.9. TITLE TO PROPERTY. Target has good and marketable title to all of
its properties, interests in properties and assets, real and personal, necessary
for the conduct of its business as presently conducted or that are reflected in
the Target Balance Sheet or acquired after the Target Balance Sheet Date (except
properties, interests in properties and assets sold or otherwise disposed of in
the ordinary course of business since the Target Balance Sheet Date), or with
respect to leased properties and assets, valid leasehold interests therein, in
each case free and clear of all mortgages, liens, pledges, charges or
encumbrances of any kind or character, except (i) the lien of current taxes not
yet due and payable, and (ii) liens securing debt that are reflected on the
Target Balance Sheet. The plants, property and equipment of Target that are used
in the operations of its business are in good operating condition and repair.
All properties used in the operations of Target are reflected in the Target
Balance Sheet to the extent generally accepted accounting principles require the
same to be reflected.
2.10. INTELLECTUAL PROPERTY.
(a) Target is the sole and exclusive owner of all Target
Intellectual Property (defined below) free of all contingent and noncontingent
liens, restrictions, interests, rights of reversion or termination, and all
other encumbrances of any nature. The conduct of Target's business as currently
conducted will not infringe, misappropriate or violate any Intellectual Property
(defined below) of others. With respect to patent rights, moral rights and Xxxx
rights (defined below), the foregoing representations and warranties of this
paragraph are made only to Target's knowledge.
(b) All Target Intellectual Property that is the subject of any
application, registration or issuance with or from any governmental entity is
identified on the Target Disclosure Schedule; all such registered or issued
Intellectual Property is free from any challenge (or threat thereof) and Target
is not aware of any specific basis therefor. All such applications,
registrations and issuances have been properly maintained. Target has adequately
protected all other Target Intellectual Property through the use of
confidentiality agreements and otherwise and Target is not aware of any use,
exercise or exploitation of any Target Intellectual Property, except as
authorized by Target.
(c) Each current and former employee and contractor of Target has
executed and delivered (and to Target's knowledge, is in compliance with) an
agreement in substantially the form of Target's standard Proprietary Information
and Inventions Agreement (in the case of an employee) or Target's standard
Consulting Agreement (in the case of a contractor) (which agreement provides
valid written assignments of all title and rights to any Target Intellectual
Property conceived or developed thereunder or otherwise in connection with his
or her consulting or employment).
(d) "INTELLECTUAL PROPERTY" means patent rights; trade name,
trademark, service xxxx and similar rights ("XXXX" rights); copyrights; mask
work rights; trade secret rights; moral rights; and all other intellectual and
industrial property rights of any sort throughout the world, and all
applications, registrations, issuances and the like with respect thereto.
"TARGET INTELLECTUAL PROPERTY" means all Intellectual Property that has been,
is, or is proposed to be owned by Target, or used, exercised, or exploited, or
otherwise necessary for, Target's business as currently conducted or as proposed
to be conducted.
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2.11. ENVIRONMENTAL MATTERS. Target is and has at all times operated
its business in material compliance with all Environmental Laws, and to the best
of Target's knowledge, no material expenditures are or will be required in order
to comply with such Environmental Laws. "ENVIRONMENTAL LAWS" means all
applicable statutes, roles, regulations, ordinances, orders, decrees, judgments,
permits, licenses, consents, approvals, authorizations, and governmental
requirements or directives or other obligations lawfully imposed by governmental
authority under federal, state or local law pertaining to the protection of the
environment, protection of public health, protection of worker health and
safety, the treatment, emission and/or discharge of gaseous, particulate and/or
effluent pollutants, and/or the handling of hazardous materials.
2.12. TAXES.
(a) All Tax returns, statements, reports, declarations and other
forms and documents (including without limitation estimated Tax returns and
reports and material information returns and reports) required to be filed with
any Tax authority with respect to any Taxable period ending on or before the
Closing, by or on behalf of Target (collectively, "TAX RETURNS" and individually
a "TAX RETURN"), have been or will be completed and filed when due (including
any extensions of such due date) and all amounts shown due on such Tax Returns
on or before the Effective Time have been or will be paid on or before such
date. The Target Financial Statements (i) fully accrue all actual and contingent
liabilities for Taxes with respect to all periods through the Target Balance
Sheet Date and Target has not and will not incur any Tax liability in excess of
the amount reflected on the Target Balance Sheet included in the Target
Financial Statements with respect to such periods, and (ii) properly accrue in
accordance with GAAP all material liabilities for Taxes payable after the Target
Balance Sheet Date with respect to all transactions and events occurring on or
prior to such date. All information set forth in the notes to the Target
Financial Statements relating to Tax matters is true, complete and accurate in
all material respects. No material Tax liability since the Target Balance Sheet
Date has been incurred by Target other than in the ordinary course of business,
and adequate provision has been made by Target for all Taxes since that date in
accordance with GAAP on at least a quarterly basis.
(b) Target has previously provided or made available to Acquiror
true and correct copies of all income, franchise, and sales Tax Returns, and, as
reasonably requested by Acquiror, prior to or following the date hereof,
presently existing information statements and reports. Target has withheld and
paid to the applicable financial institution or Tax authority all amounts
required to be withheld. To the best knowledge of Target, no Tax Returns filed
with respect to Taxable years of Target through the Taxable year ended December
31, 1997 in the case of the United States, have been examined and closed. Target
(or any member of any affiliated or combined group of which Target has been a
member) has not granted any extension or waiver of the limitation period
applicable to any Tax Returns that is still in effect. There is no material
claim, audit, action, suit, proceeding, or (to the knowledge of Target)
investigation now pending or (to the knowledge of Target) threatened against or
with respect to Target in respect of any Tax or assessment. No notice of
deficiency or similar document of any Tax authority has been received by Target,
and there are no liabilities for Taxes (including liabilities for interest,
additions to Tax and penalties thereon and related expenses) with respect to the
issues that have been raised (and are currently pending) by any Tax authority
that could, if determined adversely to Target, materially and adversely affect
the liability of Target for Taxes. There are no liens for
12
Taxes (other than for current Taxes not yet due and payable) upon the assets of
Target. Target has never been a member of an affiliated group of corporations,
within the meaning of Section 1504 of the Code. Target is in full compliance
with all the terms and conditions of any Tax exemptions or other Tax-sharing
agreement or order of a foreign government and the consummation of the Merger
will not have any adverse effect on the continued validity and effectiveness of
any such Tax exemption or other Tax-sharing agreement or order. Neither Target
nor any person on behalf of Target has entered into or will enter into any
agreement or consent pursuant to the collapsible corporation provisions of
Section 341(f) of the Code (or any corresponding provision of state, local or
foreign income tax law) or agreed to have Section 341 (f)(2) of the Code (or any
corresponding provision of state, local or foreign income tax law) apply to any
disposition of any asset owned by Target. None of the assets of Target is
property that Target is required to treat as being owned by any other person
pursuant to the so-called "safe harbor lease" provisions of former Section
168(f)(8) of the Code. None of the assets of Target directly or indirectly
secures any debt the interest on which is tax-exempt under Section 103(a) of the
Code. None of the assets of Target is "tax-exempt use property" within the
meaning of Section 168(h) of the Code. Target has not made and will not make a
deemed dividend election under Treas. Reg. Section 1.1502-32(f)(2) or a consent
dividend election under Section 565 of the Code. Target has never been a party
to any transaction intended to qualify under Section 355 of the Internal Revenue
Code or any corresponding provision of state law. Target has not participated in
(and will not participate in) an international boycott within the meaning of
Section 999 of the Code. No Target shareholder is other than a United States
person within the meaning of the Code. Target does not have and has not had a
permanent establishment in any foreign country, as defined in any applicable tax
treaty or convention between the United States of America and such foreign
country and Target has not engaged in a trade or business within any foreign
country. Target has never elected to be treated as an S-corporation under
Section 1362 of the Code or any corresponding provision of federal or state law.
All material elections with respect to Target's Taxes are reflected on the
Target Tax Returns for such periods, copies of which have been provided or made
available to Acquiror. After the date of this Agreement, no material election
with respect to Taxes will be made without the prior written consent of
Acquiror, which consent will not be unreasonably withheld or delayed. Target is
not a party to any joint venture, partnership, or other arrangement or contract
which could be treated as a partnership for federal income tax purposes. Target
is not currently and never has been subject to the reporting requirements of
Section 6038A of the Code. There is no agreement, contract or arrangement to
which Target is a party that could, individually or collectively, result in the
payment of any amount that would not be deductible by reason of Sections 280G
(as determined without regard to Section 280G(b)(4), 162 (other than 162(a)) or
404 of the Code. Target is not a party to or bound by any Tax indemnity, Tax
sharing or Tax allocation agreement (whether written or unwritten or arising
under operation of federal law as a result of being a member of a group filing
consolidated Tax returns, under operation of certain state laws as a result of
being a member of a unitary group, or under comparable laws of other states or
foreign jurisdictions) which includes a party other than Target nor does Target
owe any amount under any such Agreement. Target has previously provided or made
available to Acquiror true and correct copies of all income, franchise, and
sales Tax Returns, and, as reasonably requested by Acquiror, prior to or
following the date hereof, presently existing information statements and
reports. Target is not, and has not been, a United States real property holding
corporation (as defined in Section 897(c)(2) of the Code) during the applicable
period
13
specified in Section 897(c)(1)(A)(ii) of the Code. Other than by reason of the
Merger, Target has not been and will not be required to include any material
adjustment in Taxable income for any Tax period (or portion thereof) pursuant to
Section 481 or 263A of the Code or any comparable provision under state or
foreign Tax laws as a result of transactions, events or accounting methods
employed prior to the Merger.
(c) For purposes of this Agreement, the following terms have the
following meanings: "TAX" (and, with correlative meaning, "TAXES" and "TAXABLE")
means any and all taxes including, without limitation, (i) any net income,
alternative or add-on minimum tax, gross income, gross receipts, sales, use, ad
valorem, transfer, franchise, profits, value added, net worth, license,
withholding, payroll, employment, excise, severance, stamp, occupation, premium,
property, environmental or windfall profit tax, custom, duty or other tax
governmental fee or other like assessment or charge of any kind whatsoever,
together with any interest or any penalty, addition to tax or additional amount
imposed by any Governmental Entity (a "TAX AUTHORITY") responsible for the
imposition of any such tax (domestic or foreign), (ii) any liability for the
payment of any amounts of the type described in (i) as a result of being a
member of an affiliated, consolidated, combined or unitary group for any Taxable
period or as the result of being a transferee or successor thereof and (iii) any
liability for the payment of any amounts of the type described in (i) or (ii) as
a result of any express or implied obligation to indemnify any other person. As
used in this section 2.12, the term "TARGET" means Target and any entity
included in, or required under GAAP to be included in, any of the Target
Financial Statements.
2.13. EMPLOYEE BENEFIT PLANS.
(a) for all purposes under this Section 2.13 "ERISA AFFILIATE"
shall mean each person (as defined in Section 3(9) of Employee Retirement Income
Security Act of 1974, as amended ("ERISA") that, together with Target, is
treated as a single employer under Section 4001(b) of ERISA or Section 414 of
the Code. Except for the plans and agreements listed in the Target Disclosure
Schedule (collectively, the "PLANS"), Target and its ERISA Affiliates do not
maintain, are not a party to, do not contribute to and are not obligated to
contribute to, and are employees or former employees of Target and its ERISA
Affiliates and their dependents or survivors do not receive benefits under, any
of the following (whether or not set forth in a written document):
(i) Any employee benefit plan, as defined in section 3(3) of
ERISA;
(ii) Any bonus, deferred compensation, incentive, restricted
stock, stock purchase, stock option, stock appreciation right, phantom stock,
supplemental pension, executive compensation, cafeteria benefit, dependent care,
director or employee loan, fringe benefit, sabbatical, severance, termination
pay or similar plan, program, policy, agreement or arrangement; or
(iii) Any plan, program, agreement, policy, commitment or
other arrangement relating to the provision of any benefit described in section
3(1) of ERISA to former employees or directors or to their survivors, other than
procedures intended to comply with the Consolidated Omnibus Budget
Reconciliation Act of 1985 ("COBRA").
14
(b) Neither Target nor any ERISA Affiliate has, since January 1,
1992, terminated, suspended, discontinued contributions to or withdrawn from any
employee pension benefit plan, as defined in section 3(2) of ERISA, including
(without limitation) any multiemployer plan, as defined in section 3(37) of
ERISA.
(c) Target has provided to Acquiror complete, accurate and
current copies of each of the following:
(i) The text (including amendments) of each of the Plans, to
the extent reduced to writing;
(ii) A summary of each of the Plans, to the extent not
previously reduced to writing;
(iii) With respect to each Plan that is an employee benefit
plan (as defined in section 3(3) of ERISA), the following:
(1) The most recent summary plan description, as
described in section 102 of ERISA;
(2) Any summary of material modifications that has been
distributed to participants but has not been incorporated in an updated summary
plan description furnished under Subparagraph (1) above; and
(3) The annual report, as described in section 103 of
ERISA, and (where applicable) actuarial reports, for the three most recent plan
years for which an annual report or actuarial report has been prepared; and
(iv) With respect to each Plan that is intended to qualify
under section 401(a) of the Code the most recent determination letter concerning
the plan's qualification under section 401(a) of the Code, as issued by the
Internal Revenue Service, and any subsequent determination letter application.
(d) With respect to each Plan that is an employee benefit plan
(as defined in section 3(3) of ERISA), the requirements of ERISA applicable to
such Plan have been satisfied, except to the extent that a failure to satisfy
any of such requirements would not have a Material Adverse Effect.
(e) With respect to each Plan that is subject to COBRA, the
requirements of COBRA applicable to such Plan have been satisfied, except to the
extent that a failure to satisfy any of such requirements would not have a
Material Adverse Effect.
(f) With respect to each Plan that is subject to the Family
Medical Leave Act of 1993, as amended, the requirements of such Act applicable
to such Plan have been satisfied, except to the extent that a failure to satisfy
any of such requirements would not have a Material Adverse Effect.
15
(g) Each Plan that is intended to qualify under section 401(a) of
the Code meets the requirements for qualification under section 401(a) of the
Code and the regulations thereunder, except to the extent that such requirements
may be satisfied by adopting retroactive amendments under section 401 (b) of the
Code and the regulations thereunder. Each such Plan has been administered in
accordance with its terms (or, if applicable, such terms as will be adopted
pursuant to a retroactive amendment under section 401(b) of the Code) and the
applicable provisions of ERISA and the Code and the regulations thereunder,
except to the extent that a failure to be so administered would not have a
Material Adverse Effect.
(h) Neither Target nor any ERISA Affiliate has any accumulated
funding deficiency under section 412 of the Code or any termination or
withdrawal liability under Title IV of ERISA, except to the extent that any such
liability would not have a Material Adverse Effect.
(i) All contributions, premiums or other payments due from the
Target to (or under) any Plan have been fully paid or adequately provided for on
the books and financial statements of Target. All accruals (including, where
appropriate, proportional accruals for partial periods) have been made in
accordance with prior practices.
2.14. EMPLOYEES AND CONSULTANTS.
(a) Target has provided Acquiror with a true and complete list of
all individuals employed by the Company as of the date hereof and the position
and base compensation payable to each such individual. The Target Disclosure
Letter contains a description of any written or oral employment agreements,
consulting agreements or termination or severance agreements to which Target is
a party.
(b) Target is not a party to or subject to a labor union or a
collective bargaining agreement or arrangement and is not a party to any labor
or employment dispute.
(c) The consummation of the transactions contemplated herein will
not result in (i) any amount becoming payable to any employee, director or
independent contractor of Target, (ii) the acceleration of payment or vesting of
any benefit, option or right to which any employee, director or independent
contractor of Target may be entitled, (iii) the forgiveness of any indebtedness
of any employee, director or independent contractor of Target or (iv) any cost
becoming due or accruing to Target or Acquiror with respect to any employee,
director or independent contractor of Target.
(d) Target is not obligated and upon consummation of the Merger
will not be obligated to make any payment or transfer any property that would be
considered a "parachute payment" under section 280G(b)(2) of the Code.
(e) To the knowledge of Target, no employee of Target has been
injured in the work place or in the course of his or her employment, except for
injuries that are covered by insurance or for which a claim has been made under
workers' compensation or similar laws.
16
(f) Target has complied in all material respects with the
verification requirements and the record-keeping requirements of the Immigration
Reform and Control Act of 1986 ("IRCA"); to the best knowledge of Target, the
information and documents on which Target relied to comply with IRCA are true
and correct; and there have not been any discrimination complaints filed against
Target pursuant to IRCA, and to the knowledge of Target, there is no basis for
the filing of such a complaint.
(g) Target has not received or been notified of any complaint by
any employee, applicant, union or other party of any discrimination or other
conduct forbidden by law or contract, nor to the knowledge of Target, is there a
basis for any complaint, except such complaints as could not reasonably be
expected to have a Material Adverse Effect.
(h) Target's action in complying with the terms of this Agreement
will not violate any agreements with any of Target's employees.
(i) Target has filed all required reports and information with
respect to its employees that are due prior to the Closing Date and otherwise
has complied in its hiring, employment, promotion, termination and other labor
practices with all applicable federal and state laws and regulations, including
without limitation those within the jurisdiction of the United States Equal
Employment Opportunity Commission, United States Department of Labor and state
and local human rights or civil rights agencies, except to the extent that any
such failure to file or comply would not have a Material Adverse Effect on
Target. Target has filed and shall file any such reports and information that
are required to be filed prior to the Closing Date.
(j) Target is not aware that any of its employees or contractors
is obligated under any agreement, commitments, judgment, decree, order or
otherwise (an "EMPLOYEE OBLIGATION") that would interfere with the use of his or
her best efforts to promote the interests of Target or that would conflict with
any of Target's business as conducted or proposed to be conducted. Neither the
execution nor delivery of this Agreement nor the conduct of Target's business as
conducted or proposed, will, to Target's knowledge, conflict with or result in a
breach of the terms, conditions or provisions of, or constitute a default under,
any Employee Obligation.
2.15. RELATED-PARTY TRANSACTIONS. No employee, officer or director
of Target or member of his or her immediate family is indebted to Target, nor is
Target indebted (or committed to make loans or extend or guarantee credit) to
any of them. To the best of Target's knowledge, none of such persons has any
direct or indirect ownership interest in any firm or corporation with which
Target is affiliated or with which Target has a business relationship, or any
firm or corporation that competes with Target, except to the extent that
employees, officers, or directors of Target and members of their immediate
families own stock in publicly traded companies that may compete with the
Company. No member of the immediate family of any officer or director of Target
is directly or indirectly interested in any material contract with Target.
2.16. INSURANCE. Target has policies of insurance and bonds of the
type and in amounts customarily carried by persons conducting businesses or
owning assets similar to those of Target. There is no material claim pending
under any of such policies or bonds as to which
17
coverage has been questioned, denied or disputed by the underwriters of such
policies or bonds. All premiums due and payable under all such policies and
bonds have been paid and Target is otherwise in compliance with the terms of
such policies and bonds. Target has no knowledge of any threatened termination
of, or material premium increase with respect to, any of such policies.
2.17. COMPLIANCE WITH LAWS. Target has complied with, is not in
violation of, and has not received any notices of violation with respect to, any
federal, state, local or foreign statute, law or regulation with respect to the
conduct of its business, or the ownership or operation of its business, except
for such violations or failures to comply as could not be reasonably expected to
have a Material Adverse Effect on Target.
2.18. BROKERS' AND FINDERS' FEES. Target has not incurred, nor will
it incur, directly or indirectly, any liability for brokerage or finders' fees
or agents' commissions or investment bankers' fees or any similar charges in
connection with this Agreement or any transaction contemplated hereby.
2.19. MATERIAL CONTRACTS. Except for the material contracts
described in the Target Disclosure Schedule (collectively, the "TARGET MATERIAL
CONTRACTS"), Target is not a party to or bound by any material contract,
including without limitation:
(a) any distributor, sales, advertising, agency or manufacturer's
representative contract;
(b) any continuing contract for the purchase of materials,
supplies, equipment or services involving in the case of any such contact more
than $100,000 over the life of the contract;
(c) any contract that expires or may be renewed at the option of
any person other than the Target so as to expire more than one year after the
date of this Agreement;
(d) any trust indenture, mortgage, promissory note, loan
agreement or other contract for the borrowing of money, any currency exchange,
commodities or other hedging arrangement or any leasing transaction of the type
required to be capitalized in accordance with GAAP;
(e) any contract for capital expenditures in excess of $100,000
in the aggregate;
(f) any contract limiting the freedom of the Target to engage in
any line of business or to compete with any other person or any confidentiality,
secrecy or non-disclosure contract;
(g) any contract pursuant to which Target leases any real
property;
(h) any contract pursuant to which the Target is a lessor of any
machinery, equipment, motor vehicles, office furniture, fixtures or other
personal property;
18
(i) any contract with any person with whom the Target does not
deal at arm's length within the meaning of the Code;
(j) any agreement of guarantee, support, indemnification,
assumption or endorsement of, or any similar commitment with respect to, the
obligations, liabilities (whether accrued, absolute, contingent or otherwise) or
indebtedness of any other person;
(k) any license, sublicense or other agreement to which Target is
a party (or by which it or any Target Intellectual Property is bound or subject)
and pursuant to which any person has been or may be assigned, authorized to Use,
or given access to any Target Intellectual Property, other than (A) access to or
Use of standard object code product pursuant to a customary non-exclusive
end-user, object code, internal-use software license and support/maintenance
agreements entered into in the ordinary course of business or (B) access
provided in the ordinary course of business under a customary
nondisclosure/nonuse agreement;
(l) any license, sublicense or other agreement pursuant to which
Target has been or may be assigned or authorized to Use, or has or may incurred
any obligation in connection with, (A) any third party Intellectual Property or
(B) any Target Intellectual Property;
2.20. NO BREACH OF MATERIAL CONTRACTS. Target has performed all of
the obligations required to be performed by it and is entitled to all benefits
under, and is not alleged to be in default in respect of, any Material Contract.
Each of the Target Material Contracts is in full force and effect, and there
exists no default or event of default or event, occurrence, condition or act,
with respect to Target or to Target's knowledge with respect to the other
contracting party, or otherwise that, with or without the giving of notice, the
lapse of the time or the happening of any other event or conditions, would (A)
become a default or event of default under any Material Contract, which default
or event of default would have a Material Adverse Effect on Target or (B) result
in the loss or expiration of any material right or option by Target (or the gain
thereof by any third party) under any Material Contract. True, correct and
complete copies of all Target Material Contracts have been made available to the
Acquiror.
2.21. THIRD-PARTY CONSENTS. The Target Disclosure Schedule lists
all contracts that require a novation or consent to assignment, as the case may
be, prior to the Effective Time so that Acquiror shall be made a party in place
of Target or as assignee (the "CONTRACTS REQUITING NOVATION OR CONSENT TO
ASSIGNMENT"). Such list is complete and accurate.
2.22. REPRESENTATIONS COMPLETE. None of the representations or
warranties made by Target or the Target Shareholders herein or in any Schedule
hereto, including the Target Disclosure Schedule, or certificate furnished by
Target pursuant to this Agreement, when all such documents are read together in
their entirety, contains or will contain at the Effective Time any untrue
statement of a material fact, or omits or will omit at the Effective Time to
state any material fact necessary in order to make the statements contained
herein or therein, in the light of the circumstances under which made, not
misleading. Target has delivered or made available true and complete copies of
each document that has been requested by Acquiror or its counsel in connection
with their legal and accounting review of Target.
19
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ACQUIROR
Acquiror and the Acquiror Shareholders represent and warrant to Target
and the Former Target Shareholders (as defined in Section 8.1) that the
statements contained in this Article III are true and correct, except as set
forth in the disclosure schedule delivered by acquiror to Target to prior to the
execution and delivery of this Agreement and attached hereto as SCHEDULE D (the
"ACQUIROR DISCLOSURE SCHEDULE"). Any reference in this Article III to an
agreement being "enforceable" shall be deemed to be qualified to the extent such
enforceability is subject to (i) laws of general application relating to
bankruptcy, insolvency, moratorium and the relief of debtors and (ii) the
availability of specific performance, injunctive relief and other equitable
remedies.
3.1. ORGANIZATION, STANDING AND POWER. Acquiror is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization. Acquiror has the corporate power to own its
properties and to carry on its business as now being conducted and as proposed
to be conducted and is duly qualified to do business and is in good standing in
each jurisdiction in which the failure to be so qualified and in good standing
would have a Material Adverse Effect on Acquiror. Acquiror has delivered to
Target a true and correct copy of the Articles of Incorporation and Bylaws or
other charter documents, as applicable, of Acquiror, each as amended to date.
Acquiror is not in violation of any of the provisions of its Articles of
Incorporation or Bylaws or equivalent organizational documents. Acquiror does
not directly or indirectly own any equity or similar interest in, or any
interest convertible or exchangeable or exercisable for, any equity or similar
interest in, any corporation, partnership, joint venture or other business
association or entity.
3.2. CAPITAL STRUCTURE. The authorized capital stock of Acquiror
consists of 20,000,000 shares of Common Stock and 10,000,000 shares of Preferred
Stock (6,000,000 of which have been designated as Series A Preferred Stock and
750,000 of which have been designated as Series B Preferred Stock), of which
there were issued and outstanding as of the date of this Agreement 858,000
shares of Common Stock, 6,000,000 shares of Series A Preferred Stock (the
"SERIES A PREFERRED") and 750,000 shares of Series B Preferred (the "SERIES B
PREFERRED"). There are no other outstanding shares of capital stock or voting
securities and no outstanding commitments to issue any shares of capital stock
or voting securities alter the date of this Agreement, other than pursuant to
the exercise of options outstanding as of the date of this Agreement under the
Acquiror's 1997 Stock Option Plan (the "ACQUIROR STOCK OPTION PLAN"). All
outstanding shares of Acquiror Capital Stock are duly authorized, validly
issued, fully paid and non-assessable and are free of any liens or encumbrances,
other than any liens or encumbrances created by or imposed upon the holders
thereof, and are not subject to preemptive rights, rights of first refusal,
rights of first offer or similar rights created by statute, the Articles of
Incorporation or Bylaws of Acquiror, or any agreement to which Acquiror is a
party or by which it is bound. As of the date of this Agreement, Acquiror has
reserved 6,750,000 shares of Common Stock for issuance upon conversion of the
Series A Preferred and Series B Preferred. As of the date of this Agreement,
there are currently outstanding options to purchase 1,564,000 shares of Common
Stock granted to employees and other service providers pursuant to the Acquiror
Stock Option Plan. Except for (i) the rights created pursuant to this Agreement
and
20
(ii) Acquiror's right to repurchase any unvested shares under the Acquiror Stock
Option Plan, there are no other options, warrants, calls, rights, commitments or
agreements of any character to which Acquiror is a party or by which it is bound
obligating or allowing Acquiror to issue, deliver, sell, repurchase or redeem,
or cause to be issued, delivered, sold, repurchased or redeemed, any shares of
Acquiror Capital Stock or obligating Acquiror to grant, extend, accelerate the
vesting of, change the price of, or otherwise amend or enter into any such
option, warrant, call, right, commitment or agreement. There are no contracts,
commitments or agreements relating to the voting, purchase or sale of Acquiror
Capital Stock (i) between or among Acquiror and any of its shareholders and (ii)
to the best of Acquiror's knowledge, among any of Acquiror's shareholders or
between any of Acquiror's shareholders and any third party. True and complete
copies of all agreements and instruments relating to or issued under the
Acquiror Stock Option Plan have been made available to Target, and such
agreements and instruments have not been amended, modified or supplemented, and
there are no agreements to amend, modify or supplement such agreements or
instruments from the form made available to Target. All outstanding Common
Stock, Series A Preferred and Series B Preferred was issued in compliance with
all applicable federal and state securities laws.
Acquiror contemplates that it may incur certain indebtedness (which may be
convertible into securities of such corporation and which may include warrant
coverage) for money borrowed prior to the Effective Time. Each of Acquiror and
Target contemplates that any such amounts (together with interest) will be
converted into Preferred Stock in the next equity financing consummated by the
Surviving Corporation after the Closing Date, Acquiror and Target also
contemplate that such additional indebtedness will not affect the exchanges
rates in the Merger.
3.3. AUTHORITY.
(a) Acquiror has all requisite corporate power and authority to
enter into this Agreement, the Agreement of Merger and the Registration Rights
Agreement (collectively, the "TRANSACTION DOCUMENTS"), and to consummate the
transactions contemplated hereby the thereby. The execution and delivery of this
Agreement and the other Transaction Documents and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate action on the part of Acquiror, subject only to the approval
of the Merger by Acquiror's shareholders. This Agreement and other Transaction
Documents have been duly executed and delivered by Acquiror and constitute the
valid and binding obligations of Acquiror enforceable against Acquiror in
accordance with their terms.
(b) The execution and delivery of this Agreement and the other
Transaction Documents by Acquiror do not, and the consummation of the
transactions contemplated hereby and thereby will not, conflict with, or result
in any violation of, or default under (with or without notice or lapse of time,
or both), or give rise to a right of termination, cancellation or acceleration
of any obligation or loss of any benefit under (i) any provision of the Articles
of Incorporation or Bylaws of Acquiror, as amended, or (ii) any Material
Agreement (as defined in Section 3.19), permit, concession, franchise, license,
judgment, order, decree, statute, law, ordinance, rule or regulation applicable
to Acquiror or any of its properties or assets.
(c) No consent, approval, order or authorization of, or
registration, declaration or filing with, any court, administrative agency or
commission or other governmental
21
authority or instrumentality ("GOVERNMENTAL ENTITY") is required by or with
respect to Acquiror in connection with the execution and delivery of this
Agreement and the other Transaction Documents or the consummation of the
transactions contemplated hereby or thereby, except for (i) the filing of the
Agreement of Merger, together with the required officers' certificates, as
provided in Section 1.2; (ii) such consents, approvals, orders, authorizations,
registrations, declarations and filings as may be required under applicable
state securities laws and the securities laws of any foreign country; (iii) such
filings as may be required under the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements
Act of 1976, as amended ("HSR"); and (iv) such other consents, authorizations,
filings, approvals and registrations that, if not obtained or made, would not
have a Material Adverse Effect on Acquiror and would not prevent or materially
alter or delay any of the transactions contemplated by this Agreement.
3.4. FINANCIAL STATEMENTS. Acquiror has delivered to Acquiror its
unaudited financial statements (balance sheet, statement of operations,
statement of shareholders' equity and statement of cash flows) as at and for the
fiscal year ended March 31, 1998, and its unaudited financial statements
(balance sheet and statement of operations) as at and for the one-month period
ended April 30, 1998 (collectively, the "ACQUIROR FINANCIAL STATEMENTS"). The
Acquiror Financial Statements have been prepared in accordance with generally
accepted accounting principles ("GAAP") (except that the unaudited financial
statements do not have notes thereto) applied on a consistent basis throughout
the periods indicated and with each other. The Acquiror Financial Statements
fairly present the financial condition and operating results of Acquiror as of
the dates, and for the periods, indicated therein, subject in the case of the
unaudited financial statements to normal year-end audit adjustments, which are
not material in the aggregate. Acquiror maintains a standard system of
accounting established and administered in accordance with generally accepted
accounting principles.
3.5. ABSENCE OF CERTAIN CHANGES. Since April 30, 1998 (the "ACQUIROR
BALANCE SHEET DATE"), Acquiror has conducted its business in the ordinary course
consistent with past practice and there has not occurred: (i) any change, event
or condition (whether or not covered by insurance) that has resulted in, or
might reasonably be expected to result in, a Material Adverse Effect on
Acquiror; (ii) any acquisition, sale or transfer of any material asset of
Acquiror; (iii) any change in accounting methods or practices (including any
change in depreciation or amortization policies or rates) by Acquiror or any
revaluation by Acquiror of any of its assets; (iv) any declaration, setting
aside, or payment of a dividend or other distribution with respect to the shares
of Acquiror, or any direct or indirect redemption, purchase or other acquisition
by Acquiror of any of its shares of capital stock; (v) any Material Contract
entered into by Acquiror, other than as provided to Acquiror, or any material
amendment or termination of, or default under, any Material Contract to which
Acquiror is a party or by which it is bound; (vi) any amendment or change to the
Articles of Incorporation or Bylaws of Acquiror; (vii) any increase in or
modification of the compensation or benefits payable or to become payable by
Acquiror to any of its directors, employees or consultants; or (viii) any
negotiation or agreement by Acquiror to do any of the things described in the
preceding clauses (i) through (vii) (other than negotiations with Acquiror and
its representatives regarding the transactions contemplated by this Agreement).
3.6. ABSENCE OF UNDISCLOSED LIABILITIES. Acquiror has no material
obligations or liabilities of any nature (matured or unmatured, fixed or
contingent) other than (i) those set
22
forth or adequately provided for in the Balance Sheet at April 30, 1998 (the
"ACQUIROR BALANCE SHEET"), (ii) those incurred in the ordinary course of
business prior to the Acquiror Balance Sheet Date and not required to be set
forth in the Acquiror Balance Sheet under GAAP, (iii) those incurred in the
ordinary course of business since the Acquiror Balance Sheet Date in amounts
consistent with prior periods, and (iv) those incurred in connection with the
execution of this Agreement.
3.7. LITIGATION. There is no private or governmental action, suit,
proceeding, claim, arbitration or investigation pending before any agency, court
or tribunal, foreign or domestic, or, to the knowledge of Acquiror, threatened
(including allegations that could form the basis for future action) against
Acquiror or any of its properties or officers or directors (in their capacities
as such). There is no judgment, decree or order against Acquiror, or, to the
knowledge of Acquiror, any of its directors or officers (in their capacities as
such), that could prevent, enjoin, or materially alter or delay any of the
transactions contemplated by this Agreement, or that could reasonably be
expected to have a Material Adverse Effect on Acquiror. All litigation to which
Acquiror is a party (or, to the knowledge of Acquiror, threatened to become a
party) is disclosed in the Acquiror Disclosure Letter. Acquiror does not have
any plans to initiate any litigation, arbitration or other proceeding against
any third party.
3.8. GOVERNMENTAL AUTHORIZATION. Acquiror has obtained each
federal, state, county, local or foreign governmental consent, license, permit,
grant, or other authorization of a Governmental Entity (i) pursuant to which
Acquiror currently operates or holds any interest in any of its properties or
(ii) that is required for the operation of Acquiror's business or the holding of
any such interest ((i) and (ii) herein collectively called "ACQUIROR
AUTHORIZATIONS"), and all of such Acquiror Authorizations are in full force and
effect, except where the failure to obtain or have any such Acquiror
Authorizations could not reasonably be expected to have a Material Adverse
Effect on Acquiror.
3.9. TITLE TO PROPERTY. Acquiror has good and marketable title to all
of its properties, interests in properties and assets, real and personal,
necessary for the conduct of its business as presently conducted or that are
reflected in the Acquiror Balance Sheet or acquired after the Acquiror Balance
Sheet Date (except properties, interests in properties and assets sold or
otherwise disposed of in the ordinary course of business since the Acquiror
Balance Sheet Date), or with respect to leased properties and assets, valid
leasehold interests therein, in each case free and clear of all mortgages,
liens, pledges, charges or encumbrances of any kind or character, except (i) the
lien of current taxes not yet due and payable, and (ii) liens securing debt that
are reflected on the Acquiror Balance Sheet. The plants, property and equipment
of Acquiror that are used in the operations of its business are in good
operating condition and repair. All properties used in the operations of
Acquiror are reflected in the Acquiror Balance Sheet to the extent generally
accepted accounting principles require the same to be reflected.
3.10. INTELLECTUAL PROPERTY.
(a) Acquiror is the sole and exclusive owner of all Acquiror
Intellectual Property (defined below) free of all contingent and noncontingent
liens, restrictions, interests, rights of reversion or termination, and all
other encumbrances of any nature. The conduct of Acquiror's business as
currently conducted will not infringe, misappropriate or
23
violate any Intellectual Property (defined below) of others. With respect to
patent rights, moral rights and Xxxx rights (defined below), the foregoing
representations and warranties of this paragraph are made only to Acquiror's
knowledge.
(b) All Acquiror Intellectual Property that is the subject of any
application, registration or issuance with or from any governmental entity is
identified on the Acquiror Disclosure Schedule; all such registered or issued
Intellectual Property is free from any challenge (or threat thereof) and
Acquiror is not aware of any specific basis therefor. All such applications,
registrations and issuances have been properly maintained. Acquiror has
adequately protected all other Acquiror Intellectual Property through the use of
confidentiality agreements and otherwise and Acquiror is not aware of any use,
exercise or exploitation of any Acquiror Intellectual Property, except as
authorized by Acquiror.
(c) Each current and former employee and contractor of Acquiror
has executed and delivered (and to Acquiror's knowledge, is in compliance with)
an agreement in substantially the form of Acquiror's standard Proprietary
Information and Inventions Agreement (in the case of an employee) or Acquiror's
standard Consulting Agreement (in the case of a contractor) (which agreement
provides valid written assignments of all title and rights to any Acquiror
Intellectual Property conceived or developed thereunder or otherwise in
connection with his or her consulting or employment).
(d) "INTELLECTUAL PROPERTY" means patent rights; trade name,
trademark, service xxxx and similar rights ("XXXX" rights); copyrights; mask
work rights; trade secret rights; moral rights; and all other intellectual and
industrial property rights of any sort throughout the world, and all
applications, registrations, issuances and the like with respect thereto.
"ACQUIROR INTELLECTUAL PROPERTY" means all Intellectual Property that has been,
is, or is proposed to be owned by Acquiror, or used, exercised, or exploited, or
otherwise necessary for, Acquiror's business as currently conducted or as
proposed to be conducted.
3.11. ENVIRONMENTAL MATTERS. Acquiror is and has at all times
operated its business in material compliance with all Environmental Laws, and to
the best of Acquiror's knowledge, no material expenditures are or will be
required in order to comply with such Environmental Laws. "ENVIRONMENTAL LAWS"
means all applicable statutes, rules, regulations, ordinances, orders, decrees,
judgments, permits, licenses, consents, approvals, authorizations, and
governmental requirements or directives or other obligations lawfully imposed by
governmental authority under federal, state or local law pertaining to the
protection of the environment, protection of public health, protection of worker
health and safety, the treatment, emission and/or discharge of gaseous,
particulate and/or effluent pollutants, and/or the handling of hazardous
materials.
3.12. TAXES.
(a) All Tax returns, statements, reports, declarations and other
forms and documents (including without limitation estimated Tax returns and
reports and material information returns and reports) required to be filed with
any Tax Authority with respect to any Taxable period ending on or before the
Closing, by or on behalf of Acquiror (collectively, "TAX RETURNS" and
individually a "TAX RETURN"), have been or will be completed and filed when due
24
(including any extensions of such due date) and all amounts shown due on such
Tax Returns on or before the Effective Time have been or will be paid on or
before such date. The Acquiror Financial Statements (i) fully accrue all actual
and contingent liabilities for Taxes with respect to all periods through the
Acquiror Balance Sheet Date and Acquiror has not and will not incur any Tax
liability in excess of the amount reflected on the Acquiror Balance Sheet
included in the Acquiror Financial Statements with respect to such periods, and
(ii) properly accrue in accordance with GAAP all material liabilities for Taxes
payable after the Acquiror Balance Sheet Date with respect to all transactions
and events occurring on or prior to such date. All information set forth in the
notes to the Acquiror Financial Statements relating to Tax matters is true,
complete and accurate in all material respects. No material Tax liability since
the Acquiror Balance Sheet Date has been incurred by Acquiror or will be
incurred prior to the Effective Time by Acquiror other than in the ordinary
course of business, and adequate provision has been made by Acquiror for all
Taxes since that date in accordance with GAAP on at least a quarterly basis.
(b) Acquiror has previously provided or made available to Target
true and correct copies of all income, franchise, and sales Tax Returns, and, as
reasonably requested by Target, prior to or following the date hereof, presently
existing information statements and reports. Acquiror has withheld and paid to
the applicable financial institution or Tax authority all amounts required to be
withheld. To the best knowledge of Acquiror, no Tax Returns filed with respect
to Taxable years of Acquiror through the Taxable year ended December 31, 1997 in
the case of the United States, have been examined and closed. Acquiror (or any
member of any affiliated or combined group of which Acquiror has been a member)
has not granted any extension or waiver of the limitation period applicable to
any Tax Returns that is still in effect. There is no material claim, audit,
action, suit, proceeding, or (to the knowledge of Acquiror) investigation now
pending or (to the knowledge of Acquiror) threatened against or with respect to
Acquiror in respect of any Tax or assessment. No notice of deficiency or similar
document of any Tax authority has been received by Acquiror, and there are no
liabilities for Taxes (including liabilities for interest, additions to Tax and
penalties thereon and related expenses) with respect to the issues that have
been raised (and are currently pending) by any Tax authority that could, if
determined adversely to Acquiror, materially and adversely affect the liability
of Acquiror for Taxes. There are no liens for Taxes (other than for current
Taxes not yet due and payable) upon the assets of Acquiror. Acquiror has never
been a member of an affiliated group of corporations, within the meaning of
Section 1504 of the Code. Acquiror is in full compliance with all the terms and
conditions of any Tax exemptions or other Tax-sharing agreement or order of a
foreign government and the consummation of the Merger will not have any adverse
effect on the continued validity and effectiveness of any such Tax exemption or
other Tax-sharing agreement or order. Neither Acquiror nor any person on behalf
of Acquiror has entered into or will prior to the Effective Time enter into any
agreement or consent pursuant to the collapsible corporation provisions of
Section 341(f) of the Code (or any corresponding provision of state, local or
foreign income tax law) or agreed to have Section 341(f)(2) of the Code (or any
corresponding provision of state, local or foreign income tax law) apply to any
disposition of any asset owned by Acquiror. None of the assets of Acquiror is
property that Acquiror is required to treat as being owned by any other person
pursuant to the so-called "safe harbor lease" provisions of former Section
168(f)(8) of the Code. None of the assets of Acquiror directly or indirectly
secures any debt the interest on which is tax-exempt under Section 103(a) of the
Code. None of the assets of Acquiror is "tax-exempt use property" within the
meaning of Section 168(h) of the Code. Acquiror has not made and will not make a
deemed dividend election under Treas. Reg.
25
Section 1.1502-32(f)(2) or a consent dividend election under Section 565 of the
Code. Acquiror has never been a party to any transaction intended to qualify
under Section 355 of the Internal Revenue Code or any corresponding provision of
state law. Acquiror has not participated in (and will not participate in) an
international boycott within the meaning of Section 999 of the Code. No Acquiror
shareholder is other than a United States person within the meaning of the Code.
Acquiror does not have and has not had a permanent establishment in any foreign
country, as defined in any applicable tax treaty or convention between the
United States of America and such foreign country and Acquiror has not engaged
in a trade or business within any foreign country. Acquiror has never elected to
be treated as an S-corporation under Section 1362 of the Code or any
corresponding provision of federal or state law. All material elections with
respect to Acquiror's Taxes are reflected on the Acquiror Tax Returns for such
periods, copies of which have been provided or made available to Acquiror.
Acquiror is not party to any joint venture, partnership, or other arrangement or
contract which could be treated as a partnership for federal income tax
purposes. Acquiror is not currently and never has been subject to the reporting
requirements of Section 6038A of the Code. There is no agreement, contract or
arrangement to which Acquiror is a party that could, individually or
collectively, result in the payment of any amount that would not be deductible
by reason of Sections 280G (as determined without regard to Section 280G(b)(4),
162 (other than 162(a)) or 404 of the Code. Acquiror is not a party to or bound
by any Tax indemnity, Tax sharing or Tax allocation agreement (whether written
or unwritten or arising under operation of federal law as a result of being a
member of a group filing consolidated Tax returns, under operation of certain
state laws as a result of being a member of a unitary group, or under comparable
laws of other states or foreign jurisdictions) which includes a party other than
Acquiror nor does Acquiror owe any amount under any such Agreement. Acquiror has
previously provided or made available to Acquiror true and correct copies of all
income, franchise, and sales Tax Returns, and, as reasonably requested by
Acquiror, prior to or following the date hereof, presently existing information
statements and reports. Acquiror is not, and has not been, a United States real
property holding corporation (as defined in Section 897(c)(2) of the Code)
during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code.
Other than by reason of the Merger, Acquiror has not been and will not be
required to include any material adjustment in Taxable income for any Tax period
(or portion thereof) pursuant to Section 481 or 263A of the Code or any
comparable provision under state or foreign Tax laws as a result of
transactions, events or accounting methods employed prior to the Merger.
(c) As used in this Section 3.12, the term "ACQUIROR" means
Acquiror and any entity included in, or required under GAAP to be included in,
any of the Acquiror Financial Statements.
3.13. EMPLOYEE BENEFIT PLANS.
(a) For all purposes under this Section 3.13 "ERISA AFFILIATE"
shall mean each person (as defined in Section 3(9) of ERISA) that, together with
Acquiror, is treated as a single employer under Section 4001(b) of ERISA or
Section 414 of the Code. Except for the plans and agreements listed in the
Acquiror Disclosure Schedule (collectively, the "PLANS"), Acquiror and its ERISA
Affiliates do not maintain, are not a party to, do not contribute to and are not
obligated to contribute to, and are employees or former employees of Acquiror
and its ERISA Affiliates and their dependents or survivors do not receive
benefits under, any of the following (whether or not set forth in a written
document):
26
(i) Any employee benefit plan, as defined in section 3(3) of
ERISA;
(ii) Any bonus, deferred compensation, incentive, restricted
stock, stock purchase, stock option, stock appreciation right, phantom stock,
supplemental pension, executive compensation, cafeteria benefit, dependent care,
director or employee loan, fringe benefit, sabbatical, severance, termination
pay or similar plan, program, policy, agreement or arrangement; or
(iii) Any plan, program, agreement, policy, commitment or
other arrangement relating to the provision of any benefit described in section
3(1) of ERISA to former employees or directors or to their survivors, other than
procedures intended to comply with the COBRA.
(b) Neither Acquiror nor any ERISA Affiliate has, since January
1, 1992, terminated, suspended, discontinued contributions to or withdrawn from
any employee pension benefit plan, as defined in section 3(2) of ERISA,
including (without limitation) any multiemployer plan, as defined in section
3(37) of ERISA.
(c) Acquiror has provided to Acquiror complete, accurate and
current copies of each of the following:
(i) The text (including amendments) of each of the Plans, to
the extent reduced to writing;
(ii) A summary of each of the Plans, to the extent not
previously reduced to writing;
(iii) With respect to each Plan that is an employee benefit
plan (as defined in section 3(3) of ERISA), the following:
(1) The most recent summary plan description, as
described in section 102 of ERISA;
(2) Any summary of material modifications that has been
distributed to participants but has not been incorporated in an updated summary
plan description furnished under Subparagraph (1) above; and
(3) The annual report, as described in section 103 of
ERISA, and (where applicable) actuarial reports, for the three most recent plan
years for which an annual report or actuarial report has been prepared; and
(iv) With respect to each Plan that is intended to qualify
under section 401(a) of the Code the most recent determination letter concerning
the plan's qualification under section 401(a) of the Code, as issued by the
Internal Revenue Service, and any subsequent determination letter application.
27
(d) With respect to each Plan that is an employee benefit plan
(as defined in section 3(3) of ERISA), the requirements of ERISA applicable to
such Plan have been satisfied, except to the extent that a failure to satisfy
any of such requirements would not have a Material Adverse Effect.
(e) With respect to each Plan that is subject to COBRA, the
requirements of COBRA applicable to such Plan have been satisfied, except to the
extent that a failure to satisfy any of such requirements would not have a
Material Adverse Effect.
(f) With respect to each Plan that is subject to the Family
Medical Leave Act of 1993, as amended, the requirements of such Act applicable
to such Plan have been satisfied, except to the extent that a failure to satisfy
any of such requirements would not have a Material Adverse Effect.
(g) Each Plan that is intended to qualify under section 401(a) of
the Code meets the requirements for qualification under section 401(a) of the
Code and the regulations thereunder, except to the extent that such requirements
may be satisfied by adopting retroactive amendments under section 401(b) of the
Code and the regulations thereunder. Each such Plan has been administered in
accordance with its terms (or, if applicable, such terms as will be adopted
pursuant to a retroactive amendment under section 401(b) of the Code) and the
applicable provisions of ERISA and the Code and the regulations thereunder,
except to the extent that a failure to be so administered would not have a
Material Adverse Effect.
(h) Neither Acquiror nor any ERISA Affiliate has any accumulated
funding deficiency under section 412 of the Code or any termination or
withdrawal liability under Title IV of ERISA, except to the extent that any such
liability would not have a Material Adverse Effect.
(i) All contributions, premiums or other payments due from the
Acquiror to (or under) any Plan have been fully paid or adequately provided for
on the books and financial statements of Acquiror. All accruals (including,
where appropriate, proportional accruals for partial periods) have been made in
accordance with prior practices.
3.14. EMPLOYEES AND CONSULTANTS.
(a) Acquiror has provided Target with a true and complete list of
all individuals employed by the Company as of the date hereof and the position
and base compensation payable to each such individual. The Acquiror Disclosure
Letter contains a description of any written or oral employment agreements,
consulting agreements or termination or severance agreements to which Acquiror
is a party.
(b) Acquiror is not a party to or subject to a labor union or a
collective bargaining agreement or arrangement and is not a party to any labor
or employment dispute.
(c) The consummation of the transactions contemplated herein will
not result in (i) any amount becoming payable to any employee, director or
independent contractor of Acquiror, (ii) the acceleration of payment or vesting
of any benefit, option or right to which any employee, director or independent
contractor of Acquiror may be entitled, (iii) the forgiveness of
28
any indebtedness of any employee, director or independent contractor of Acquiror
or (iv) any cost becoming due or accruing to Acquiror or Target with respect to
any employee, director or independent contractor of Acquiror.
(d) Acquiror is not obligated and upon consummation of the Merger
will not be obligated to make any payment or transfer any property that would be
considered a "parachute payment" under section 280G(b)(2) of the Code.
(e) To the knowledge of Acquiror, no employee of Acquiror has
been injured in the work place or in the course of his or her employment, except
for injuries that are covered by insurance or for which a claim has been made
under workers' compensation or similar laws.
(f) Acquiror has complied in all material respects with the
verification requirements and the record-keeping requirements of the Immigration
Reform and Control Act of 1986 ("IRCA"); to the best knowledge of Acquiror, the
information and documents on which Acquiror relied to comply with IRCA are true
and correct; and there have not been any discrimination complaints filed against
Acquiror pursuant to IRCA, and to the knowledge of Acquiror, there is no basis
for the filing of such a complaint.
(g) Acquiror has not received or been notified of any complaint
by any employee, applicant, union or other party of any discrimination or other
conduct forbidden by law or contract, nor to the knowledge of Acquiror, is there
a basis for any complaint, except such complaints as could not reasonably be
expected to have a Material Adverse Effect.
(h) Acquiror's action in complying with the terms of this
Agreement will not violate any agreements with any of Acquiror's employees.
(i) Acquiror has filed all required reports and information with
respect to its employees that are due prior to the Closing Date and otherwise
has complied in its hiring, employment, promotion, termination and other labor
practices with all applicable federal and state law and regulations, including
without limitation those within the jurisdiction of the United States Equal
Employment Opportunity Commission, United States Department of Labor and state
and local human rights or civil rights agencies, except to the extent that any
such failure to file or comply would not have a Material Adverse Effect on
Acquiror. Acquiror has filed and shall file any such reports and information
that are required to be filed prior to the Closing Date.
(j) Acquiror is not aware that any of its employees or
contractors is obligated under any agreement, commitments, judgment, decree,
order or otherwise (an "EMPLOYEE OBLIGATION") that would interfere with the use
of his or her best efforts to promote the interests of Acquiror or that would
conflict with any of Acquiror's business as conduct or proposed to be conducted.
Neither the execution nor delivery of this Agreement nor the conduct of
Acquiror's business as conducted or proposed, will, to Acquiror's knowledge,
conflict with or result in a breach of the terms, conditions or provisions of,
or constitute a default under, any Employee Obligation.
3.15. RELATED-PARTY TRANSACTIONS. No employee, officer or director
of Acquiror or member of his or her immediate family is indebted to Acquiror,
nor is Acquiror indebted (or
29
committed to make loans or extend or guarantee credit) to any of them. To the
best of Acquiror's knowledge, none of such persons has any direct or indirect
ownership interest in any firm or corporation with which Acquiror is affiliated
or with which Acquiror has a business relationship, or any firm or corporation
that competes with Acquiror, except to the extent that employees, officers, or
directors of Acquiror and members of their immediate families own stock in
publicly traded companies that may compete with the Company. No member of the
immediate family of any officer or director of Acquiror is directly or
indirectly interested in any material contract with Acquiror.
3.16. INSURANCE. Acquiror has policies of insurance and bonds of
the type and in amounts customarily carried by persons conducting businesses or
owning assets similar to those of Acquiror. There is no material claim pending
under any of such policies or bonds as to which coverage has been questioned,
denied or disputed by the underwriters of such policies or bonds. All premiums
due and payable under all such policies and bonds have been paid and Acquiror is
otherwise in compliance with the terms of such policies and bonds. Acquiror has
no knowledge of any threatened termination of, or material premium increase with
respect to, any of such policies.
3.17. COMPLIANCE WITH LAWS. Acquiror has complied with, is not in
violation of, and has not received any notices of violation with respect to, any
federal, state, local or foreign statute, law or regulation with respect to the
conduct of its business, or the ownership or operation of its business, except
for such violations or failures to comply as could not be reasonably expected to
have a Material Adverse Effect on Acquiror.
3.18. BROKERS' AND FINDERS' FEES. Acquiror has not incurred, nor
will it incur, directly or indirectly, any liability for brokerage or finders'
fees or agents' commissions or investment bankers' fees or any similar charges
in connection with this Agreement or any transaction contemplated hereby.
3.19. MATERIAL CONTRACTS. Except for the material contracts
described in the Acquiror Disclosure Schedule (collectively, the "ACQUIROR
MATERIAL CONTRACTS"), Acquiror is not a party to or bound by any material
contract, including without limitation:
(a) any distributor, sales, advertising, agency or manufacturer's
representative contract;
(b) any continuing contract for the purchase of materials,
supplies, equipment or services involving in the case of any such contact more
than $100,000 over the life of the contract;
(c) any contract that expires or may be renewed at the option of
any person other than the Acquiror so as to expire more than one year after the
date of this Agreement;
(d) any trust indenture, mortgage, promissory note, loan
agreement or other contract for the borrowing of money, any currency exchange,
commodities or other hedging arrangement or any leasing transaction of the type
required to be capitalized in accordance with GAAP;
30
(e) any contract for capital expenditures in excess of $100,000
in the aggregate;
(f) any contract limiting the freedom of the Acquiror to engage
in any line of business or to compete with any other person or any
confidentiality, secrecy or non-disclosure contract;
(g) any contract pursuant to which Acquiror leases any real
property;
(h) any contract pursuant to which the Acquiror is a lessor of
any machinery, equipment, motor vehicles, office furniture, fixtures or other
personal property;
(i) any contract with any person with whom the Acquiror does not
deal at arm's length within the meaning of the Code;
(j) any agreement of guarantee, support, indemnification,
assumption or endorsement of, or any similar commitment with respect to, the
obligations, liabilities (whether accrued, absolute, contingent or otherwise) or
indebtedness of any other person;
(k) any license, sublicense or other agreement to which Acquiror
is a party (or by which it or any Acquiror Intellectual Property is bound or
subject) and pursuant to which any person has been or may be assigned,
authorized to Use, or given access to any Acquiror Intellectual Property other
than (A) access to or Use of standard object code product pursuant to a
customary non-exclusive end-user, object code, internal-use software license and
support/maintenance agreements entered into in the ordinary course of business
or (B) access provided in the ordinary course of business under a customary
nondisclosure/nonuse agreement;
(l) any license, sublicense or other agreement pursuant to which
Acquiror has been or may be assigned or authorized to Use, or has or may
incurred any obligation in connection with, (A) any third party Intellectual
Property or (B) any Acquiror Intellectual Property;
3.20. NO BREACH OF MATERIAL CONTRACTS. Acquiror has performed all
of the obligations required to be performed by it and is entitled to all
benefits under, and is not alleged to be in default in respect of, any Material
Contract. Each of the Acquiror Material Contracts is in full force and effect,
and there exists no default or event of default or event, occurrence, condition
or act, with respect to Acquiror or to Acquiror's knowledge with respect to the
other contracting party, or otherwise that, with or without the giving of
notice, the lapse of the time or the happening of any other event or conditions,
would (A) become a default or event of default under any Material Contract,
which default or event of default would have a Material Adverse Effect on
Acquiror or (B) result in the loss or expiration of any material right or option
by Acquiror (or the gain thereof by any third party) under any Material
Contract. True, correct and complete copies of all Acquiror Material Contracts
have been made available to the Acquiror.
3.21. REPRESENTATIONS COMPLETE. None of the representations or
warranties made by Acquiror or the Acquiror Shareholders herein or in any
Schedule hereto, including the Acquiror Disclosure Schedule, or certificate
furnished by Acquiror pursuant to this Agreement, when all such documents are
read together in their entirety, contains or will contain at the
31
Effective Time any untrue statement of a material fact, or omits or will omit at
the Effective Time to state any material fact necessary in order to make the
statements contained herein or therein, in the light of the circumstances under
which made, not misleading. Acquiror has delivered or made available true and
complete copies of each document which has been requested by Target or its
counsel in connection with their legal and accounting review of Acquiror.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1. CONDUCT OF BUSINESS OF TARGET AND ACQUIROR. During the period
from the date of this Agreement and continuing until the earlier of the
termination of this Agreement or the Effective Time, Target and Acquiror each
agree (except to the extent expressly contemplated by this Agreement or as
consented to in writing by the other), to carry on its business in the usual,
regular and ordinary course in substantially the same manner as heretofore
conducted. Without limiting the foregoing, except as expressly contemplated by
this Agreement, neither Target nor Acquiror shall do, cause or permit any of the
following, without the prior written consent of the other:
(a) CHARTER DOCUMENTS. Cause or permit any amendments to its
Articles of Incorporation or Bylaws;
(b) DIVIDENDS; CHANGES IN CAPITAL STOCK. Declare or pay any
dividends on or make any other distributions (whether in cash, stock or
property) in respect of any of its capital stock, or split, combine or
reclassify any of its capital stock or issue or authorize the issuance of any
other securities in respect of, in lieu of, or in substitution for shares of its
capital stock, or repurchase or otherwise acquire, directly or indirectly, any
shares of its capital stock except from former employees, directors and
consultants in accordance with agreements providing for the repurchase of shares
in connection with any termination of service to it;
(c) MATERIAL CONTRACTS. Enter into any material contract,
agreement, license or commitment, or violate, amend or otherwise modify or waive
any of the terms of any of its material contracts, agreements or licenses other
than in the ordinary course of business consistent with past practice;
(d) STOCK OPTION PLANS, ETC. Accelerate, amend or change the
period of exercisability or vesting of options or other rights granted under its
stock plans or authorize cash payments in exchange for any options or other
rights granted under any of such plans; or
(e) ISSUANCE OF SECURITIES. Issue, deliver or sell or authorize
or propose the issuance, delivery or sale of, or purchase or propose the
purchase of, any shares of its capital stock or securities convertible into, or
subscriptions, rights, warrants or options to acquire, or other agreements or
commitments of any character obligating it to issue any such shares or other
convertible securities, other than the issuance of shares of its Common Stock
pursuant to the exercise of stock options, warrants or other rights therefor
outstanding as of the date of this Agreement. Acquiror and Target each
contemplate that they may incur certain indebtedness
32
(which may be convertible into securities of such corporation and which may
include warrant coverage) for money borrowed prior to the Effective Time. Any
such indebtedness incurred by Target prior to the Effective Time will, by virtue
of the Merger, become indebtedness of the Surviving Corporation. Each of such
parties also contemplates that any such amounts (together with interest) will be
converted into Preferred Stock in the next equity financing consummated by the
Surviving Corporation after the Closing Date. Acquiror and Target also
contemplate that such additional indebtedness will not affect the exchanges
rates in the Merger.
(f) INTELLECTUAL PROPERTY. Transfer to or license any person or
entity or otherwise extend, amend or modify any rights to
its Intellectual Property other than the grant of non-exclusive licenses in the
ordinary course of business consistent with past practice;
(g) EXCLUSIVE RIGHTS. Enter into or amend any agreements pursuant
to which any other party is granted exclusive marketing, manufacturing or other
exclusive rights of any type or scope with respect to any of its products or
technology;
(h) DISPOSITIONS. Sell, lease, license or otherwise dispose of or
encumber any of its properties or assets that are material, individually or in
the aggregate, to its business;
(i) INDEBTEDNESS. Incur or commit to incur any indebtedness in
excess of $25,000 for borrowed money or guarantee any such indebtedness or issue
or sell any debt securities or guarantee any debt securities of others; provided
that Acquiror may incur such indebtedness if approved the Board of Directors of
Acquiror and Target may incur such indebtedness if approved the Board of
Directors of Target. Acquiror and Target each contemplate that they may incur
certain indebtedness for money borrowed prior to the Effective Time. Any such
indebtedness incurred by Target prior to the Effective Time will, by virtue of
the Merger, become indebtedness of the Surviving Corporation. Each of such
parties also contemplates that any such amounts (together with interest) will be
converted into Preferred Stock in the next equity financing consummated by the
Surviving Corporation after the Closing Date. Acquiror and Target also
contemplate that such additional indebtedness will not affect the exchanges
rates in the Merger.
(j) LEASES. Enter into any operating lease requiting payments in
excess of $100,000;
(k) PAYMENT OF OBLIGATIONS. Pay, discharge or satisfy in an
amount in excess of $100,000 in any one case or $250,000 in the aggregate, any
claim, liability or obligation (absolute, accrued, asserted or unasserted,
contingent or otherwise) arising other than in the ordinary course of business,
other than the payment, discharge or satisfaction of liabilities reflected or
reserved against in the Target Financial Statements or in the Acquiror Financial
Statements;
(l) CAPITAL EXPENDITURES. Incur or commit to incur any capital
expenditures in excess of $200,000 in the aggregate;
(m) INSURANCE. Materially reduce the amount of any material
insurance coverage provided by existing insurance policies;
33
(n) TERMINATION OR WAIVER. Terminate or waive any right of
substantial value, other than in the ordinary course of business;
(o) EMPLOYEE BENEFITS; SEVERANCE. Take any of the following
actions: (i) increase or agree to increase the compensation payable or to become
payable to its officers or employees, except for increases in salary or wages of
non-officer employees in the ordinary course of business and in accordance with
past practices, (ii) grant any additional severance or termination pay to, or
enter into any employment or severance agreements with, any officer or employee,
(iii) enter into any collective bargaining agreement, or (iv) establish, adopt,
enter into or amend in any material respect any bonus, profit sharing, thrift,
compensation, stock option, restricted stock, pension, retirement, deferred
compensation, employment, termination, severance or other plan, trust, fund,
policy or arrangement for the benefit of any directors, officers or employees;
(p) LAWSUITS. Commence a lawsuit or arbitration proceeding other
than (i) for the routine collection of bills or (ii) for a breach of this
Agreement;
(q) ACQUISITIONS. Acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial portion of the assets of, or
by any other manner, any business or any corporation, partnership, association
or other business organization or division thereof, or otherwise acquire or
agree to acquire any assets which are material, individually or in the
aggregate, to its business;
(r) TAXES. Make any material Tax election other than in the
ordinary course of business and consistent with past practice, change any
material Tax election, adopt any Tax accounting method other than in the
ordinary course of business and consistent with past practice, change any Tax
accounting method, file any Tax return (other than any estimated tax returns,
immaterial information returns, payroll tax returns or sales tax returns) or any
amendment to a Tax return, enter into any closing agreement, settle any Tax
claim or assessment or consent to any Tax claim or assessment provided that
Acquiror shall not unreasonably withhold or delay approval of any of the
foregoing actions;
(s) REVALUATION. Revalue any of its assets, including without
limitation writing down the value of inventory or writing off notes or accounts
receivable other than in the ordinary course of business; or
(t) OTHER. Take, or agree in writing or otherwise to take, any of
the actions described in Sections 4.1(a) through (s) above, or any action that
would make any of its representations or warranties contained in this Agreement
untrue or incorrect or prevent it from performing or cause it not to perform its
covenants hereunder.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1. PREPARATION OF INFORMATION STATEMENT. As soon as practicable
after the execution of this Agreement, Acquiror and Target shall prepare a joint
Information Statement for
34
their respective shareholders to approve this Agreement, the Agreement of Merger
and the transactions contemplated hereby and thereby. The Information Statement
shall constitute the disclosure document for the offer and issuance of the
shares of Acquiror Common and Preferred Stock to be received by the holders of
Target Capital Stock in the Merger. Each of Acquiror and Target shall use its
best efforts to cause the Information Statement to comply with applicable
federal and state securities laws requirements. Each of Acquiror and Target
agrees to provide promptly to the other such information concerning its business
and financial statements and affairs as, in the reasonable judgment of the
providing party or its counsel, may be required or appropriate for inclusion in
the Information Statement, or in any amendments or supplements thereto, and to
cause its counsel and auditors to cooperate with the other's counsel and
auditors in the preparation of the Information Statement. Target will promptly
advise Acquiror, and Acquiror will promptly advise Target, in writing if at any
time prior to the Effective Time either Target or Acquiror shall obtain
knowledge of any facts that might make it necessary or appropriate to amend or
supplement the Information Statement in order to make the statements contained
or incorporated by reference therein not misleading or to comply with applicable
law. Subject to the provisions of Section 5.1, the Information Statement shall
contain the recommendation of Acquiror's and Target's Boards of Directors that
their respective shareholders approve the Merger and this Agreement and the
conclusion of the Boards of Directors that the terms and conditions of the
Merger are fair and reasonable to each company's shareholders.
5.2. SHAREHOLDERS MEETING OR CONSENT SOLICITATION. Each of Acquiror
and Target shall promptly after obtaining a permit allowing the issuance of
shares of Acquiror Common and Preferred Stock in exchange for shares of Target
Capital Stock and the assumption of all Target Options and Target Warrant by
Acquiror as contemplated by Section 1.1 hereof take all actions necessary to
either (i) call a meeting of its shareholders to be held for the purpose of
voting upon this Agreement and the Merger or (ii) commence a consent
solicitation to obtain such approvals on or prior to July 31, 1998, or as soon
thereafter as is practicable. Each of Acquiror and Target will, through its
Board of Directors, recommend to its shareholders approval of such matters.
5.3. ACCESS TO INFORMATION.
(a) Each of Acquiror and Target shall afford the other party and
the other party's accountants, counsel and other representatives, reasonable
access during normal business hours during the period prior to the Effective
Time to (i) all of Acquiror's or Target's (as the case may be) properties,
books, contracts, commitments and records, and (ii) all other information
concerning the business, properties and personnel of Acquiror or Target (as the
case may be) as Acquiror or Target (as the case may be) may reasonably request.
Each of Acquiror and Target agrees to provide to the other party and its
accountants, counsel and other representatives copies of internal financial
statements promptly upon request.
(b) Subject to compliance with applicable law, from the date
hereof until the Effective Time, each of Acquiror and Target shall confer on a
regular and frequent basis with one or more representatives of the other party
to report operational matters of materiality and the general status of ongoing
operations.
35
(c) No information or knowledge obtained in any investigation
pursuant to this Section 5.3 shall affect or be deemed to modify any
representation or warranty contained herein or the conditions to the obligations
of the parties to consummate the Merger.
5.4. PUBLIC DISCLOSURE. Unless otherwise permitted by this Agreement,
Acquiror and Target shall consult with each other before issuing any press
release or otherwise making any public statement or making any other public (or
non-confidential) disclosure (whether or not in response to an inquiry)
regarding the terms of this Agreement and the transactions contemplated hereby,
and neither shall issue any such press release or make any such statement or
disclosure without the prior approval of the other (which approval shall not be
unreasonably withheld).
5.5. CONSENTS; COOPERATION. Each of Acquiror and Target shall promptly
apply for or otherwise seek, and use its best efforts to obtain, all consents
and approvals required to be obtained by it for the consummation of the Merger,
including those required under HSR, and shall use its best efforts to obtain all
necessary consents, waivers and approvals under any of its material contracts in
connection with the Merger for the assignment thereof or otherwise. The parties
hereto will consult and cooperate with one another, and consider in good faith
the views of one another, in connection with any analyses, appearances,
presentations, memoranda, briefs, arguments, opinions and proposals made or
submitted by or on behalf of any party hereto in connection with proceedings
under or relating to HSR or any other federal or state antitrust or fair trade
law.
5.6. UPDATE DISCLOSURE; BREACHES. From and after the date of this
Agreement until the Effective Time, each party hereto shall promptly notify the
other party, by update to its Disclosure Schedule, of (i) the occurrence or
non-occurrence of any event that would be likely to cause any condition to the
obligations of any party to effect the Merger and the other transactions
contemplated by this Agreement not to be satisfied, or (ii) the failure of
Target or Acquiror, as the case may be, to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it pursuant to this
Agreement that would be likely to result in any condition to the obligations of
any party to effect the Merger and the other transactions contemplated by this
Agreement not to be satisfied. The delivery of any notice pursuant to this
Section 5.6 shall not cure any breach of any representation or warranty
requiring disclosure of such matter prior to the date of this Agreement or
otherwise limit or affect the remedies available hereunder to the party
receiving such notice.
5.7. INDEMNIFICATION.
(a) From and after the Effective Time, Acquiror and the Surviving
Corporation jointly and severally shall indemnify, defend and hold harmless each
person who is now, or has been at any time prior to the date of this Agreement
or who becomes prior to the Effective Time, an officer, director or employee of
Target (the "INDEMNIFIED PARTIES") in respect of acts or omissions occurring on
or prior to the Effective Time to the extent provided under Target's Articles of
Incorporation, Bylaws and indemnification agreements in effect on the date
hereof; provided that such indemnification shall be subject to any limitation
imposed from time to time under applicable law.
36
(b) If Acquiror or the Surviving Corporation or any of their
respective successors or assigns (i) consolidates with or merges into any other
person or entity and shall not be the continuing or surviving person of such
consolidation or merger or (ii) transfers all or substantially all of its
properties and assets to any person or entity, then and in each such case,
proper provision shall be made so that such successors or assigns of Acquiror or
the Surviving Corporation, as the case may be, shall assume the obligations set
forth in this Section 5.7.
5.8. LEGAL REQUIREMENTS. Each of Acquiror and Target will take all
reasonable actions necessary to comply promptly with all legal requirements that
may be imposed on them with respect to the consummation of the transactions
contemplated by this Agreement and will promptly cooperate with and furnish
information to any party hereto necessary in connection with any such
requirements imposed upon such other party in connection with the consummation
of the transactions contemplated by this Agreement and will take all reasonable
actions necessary to obtain (and will cooperate with the other parties hereto in
obtaining) any consent, approval, order or authorization of, or any
registration, declaration or filing with, any Governmental Entity or other
person, required to be obtained or made in connection with the taking of any
action contemplated by this Agreement.
5.9. TAX-FREE REORGANIZATION. Neither Target nor Acquiror will, either
before or after consummation of the Merger, take any action which, to the
knowledge of such party, would cause the Merger to fail to constitute a
"reorganization" within the meaning of Code Section 368.
5.10. BLUE SKY LAWS. Acquiror shall take such steps as may be
necessary to comply with the securities and blue sky laws of all jurisdictions
that are applicable to the issuance of the Acquiror Common and Preferred Stock
in connection with the Merger. Target shall use its best efforts to assist
Acquiror as may be necessary to comply with the securities and blue sky laws of
all jurisdictions that are applicable in connection with the issuance of
Acquiror Common and Preferred Stock in connection with the Merger.
5.11. STOCK OPTIONS.
(a) At the Effective Time, the Target Stock Option Plans and each
outstanding option to purchase shares of Target Common Stock under the Target
Stock Option Plans, whether vested or unvested, shall be assumed by Acquiror.
Target has delivered to Acquiror a schedule in the form attached hereto as
Schedule E (the "OPTION SCHEDULE") that sets forth a true and complete list as
of the date hereof of all holders of outstanding options under the Target Stock
Option Plans, including the number of shares of Target Capital Stock subject to
each such option, the exercise or vesting schedule, the exercise price per share
and the term of each such option. On the Closing Date, Target shall deliver to
Acquiror an updated Option Schedule current as of such date. Each such option so
assumed by Acquiror under this Agreement shall continue to have, and be subject
to, the same terms and conditions set forth in the Target Stock Option Plans
immediately prior to the Effective Time, except that (i) such option shall be
exercisable for that number of whole shares of Acquiror Common Stock equal to
the product of the number of shares of Target Common Stock that were issuable
upon exercise of such option immediately prior to the Effective Time multiplied
by the Common Exchange Ratio and rounded down to the nearest whole number of
shares of Acquiror Common Stock, and
37
(ii) the per share exercise price for the shares of Acquiror Common Stock
issuable upon exercise of such assumed option shall be equal to the quotient
determined by dividing the exercise price per share of Target Common Stock at
which such option was exercisable immediately prior to the Effective Time by the
Common Exchange Ratio, rounded up to the nearest whole cent. It is the intention
of the parties that the options so assumed by Acquiror qualify following the
Effective Time as incentive stock options as defined in Section 422 of the Code
to the extent such options qualified as incentive stock options prior to the
Effective Time. Within 60 business days after the Effective Time, Acquiror will
issue to each person who, immediately prior to the Effective Time was a holder
of an outstanding option under the Target Stock Option Plans, a document in form
and substance satisfactory to Target evidencing the foregoing assumption of such
option by Acquiror.
(b) Acquiror shall comply with the terms of the Target Stock
Option Plans and ensure, to the extent required by, and subject to the
provisions of, such Target Stock Option Plan, that Target Stock Options that
qualified as incentive stock options prior the Effective Time continue to
quality as incentive stock options after the Effective Time.
(c) Acquiror shall take all corporate action necessary to reserve
and make available for issuance a sufficient number of shares of Acquiror Common
Stock for delivery under Target Stock Options assumed in accordance with this
Section 5.11.
5.12. ADDITIONAL AGREEMENTS; BEST EFFORTS. Each of the parties
agrees to use their best 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, subject to the appropriate vote of
shareholders of Target and Acquiror, including cooperating fully with the other
party, including by provision of information. In case at any time after the
Effective Time any further action is necessary or desirable to carry out the
purposes of this Agreement or to vest the Surviving Corporation with full title
to all properties, assets, rights, approvals, immunities and franchises of
either of the constituent corporations, the proper officers and directors of
each party to this Agreement shall take all such necessary action.
5.13. EMPLOYEE BENEFITS. Acquiror shall take such reasonable
actions, to the extent permitted by Acquiror's benefits program, as are
necessary to allow eligible employees of Target to participate in the benefit
programs of Acquiror, or alternative benefits programs in the aggregate
substantially comparable to those applicable to employees of Acquiror on similar
terms, as soon as practicable after the Effective Time of the Merger. For
purposes of satisfying the terms and conditions of such programs, to the extent
permitted by Acquiror's benefit programs, Acquiror shall use reasonable efforts
to give full credit for eligibility, or vesting for each participant's period of
service with Target.
ARTICLE VI
CONDITIONS TO THE MERGER
6.1. CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER. The
respective obligations of each party to this Agreement to consummate and effect
this Agreement
38
and the transactions contemplated hereby shall be subject to the satisfaction at
or prior to the Effective Time of each of the following conditions, any of which
may be waived, in writing, by agreement of all the parties hereto:
(a) SHAREHOLDER APPROVAL. This Agreement and the Merger shall
have been approved and adopted by the shareholders of Acquiror and of Target;
(b) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Merger shall be in effect, nor
shall any proceeding brought by an administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, 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
Merger, which makes the consummation of the Merger illegal. In the event an
injunction or other order shall have been issued, each party agrees to use its
reasonable diligent efforts to have such injunction or other order lifted;
(c) GOVERNMENTAL APPROVAL. Acquiror and Target shall have timely
obtained from each Governmental Entity all approvals, waivers and consents, if
any, necessary for consummation of or in connection with the Merger and the
several transactions contemplated hereby, including such approvals, waivers and
consents as may be required under the Securities Act, under state Blue Sky laws,
and under HSR;
(d) TAX OPINION. Each of Target and Acquiror shall have received
a written opinion from their respective counsel to the effect that the Merger
will constitute a reorganization within the meaning of Section 368 of the Code.
In preparing the Target and the Acquiror tax opinions, counsel may rely on
reasonable assumptions and may also rely on (and to the extent reasonably
required, the parties and Target's shareholders shall make) reasonable
representations related thereto;
(e) REGISTRATION RIGHTS AGREEMENT. Acquiror and the holders of
the Target Series 1 Preferred Stock shall have entered into a Registration
Rights Agreement in a form reasonably acceptable to Acquiror and Target.
6.2. ADDITIONAL CONDITIONS TO OBLIGATIONS OF TARGET. The
obligations of Target to consummate and effect this Agreement and the
transactions contemplated hereby shall be subject to the satisfaction at or
prior to the Effective Time of each of the following conditions, any of which
may be waived, in writing, by Target:
(a) REPRESENTATIONS, WARRANTIES AND COVENANTS. Except as
disclosed in the Acquiror Disclosure Schedule, (i) the representations and
warranties of Acquiror in this Agreement shall be true and correct in all
material respects (except for such representations and warranties that are
qualified by their terms by a reference to materiality, which representations
and warranties as so qualified shall be true in all respects) on and as of the
Effective Time as though such representations and warranties were made on and as
of such time and (ii) Acquiror shall have performed and complied in all material
respects with all covenants, obligations and
39
conditions of this Agreement required to be performed and complied with by it as
of the Effective Time.
(B) CERTIFICATE OF ACQUIROR. Target shall have been provided with
a certificate executed on behalf of Acquiror by its President and its Chief
Financial Officer to the effect that, as of the Effective Time:
(i) all representations and warranties made by Acquiror under
this Agreement are true and complete in all material respects; and
(ii) all covenants, obligations and conditions of this
Agreement to be performed by Acquiror on or before such date have been so
performed in all material respects.
(c) NO MATERIAL ADVERSE CHANGES. There shall not have occurred
any material adverse change in the condition (financial or otherwise),
properties, assets (including intangible assets), liabilities, business,
operations, results of operations or prospects of Acquiror.
(d) AMENDED AND RESTATED ARTICLES OF INCORPORATION OF ACQUIROR.
Acquiror shall have adopted and filed with the Secretary of State of California
the Amended and Restated Articles of Incorporation in the form attached hereto
as EXHIBIT C.
(e) COMPLETION OF WI-LAN, INC. TRANSACTION. Acquiror shall have
completed the restructuring transaction with Wi-LAN, Inc. ("Wi-LAN"), which
transaction is described on the Acquiror Disclosure Schedule. As part of the
restructuring, Wi-Lan's equity ownership in Wireless shall have been reduced
from 3,000,000 shares of Series A Preferred Stock to 1,300,000 shares of Series
A Preferred Stock (as described in the Acquiror Disclosure Schedule). The other
terms of conditions of the restructuring transaction shall be reasonably
acceptable to Target.
6.3. ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF ACQUIROR. The
obligations of Acquiror to consummate and effect this Agreement and the
transactions contemplated hereby shall be subject to the satisfaction at or
prior to the Effective Time of each of the following conditions, any of which
may be waived, in writing, by Acquiror:
(a) REPRESENTATIONS, WARRANTIES AND COVENANTS. Except as
disclosed in the Target Disclosure Schedule(i) the representations and
warranties of Target in this Agreement shall be true and correct in all material
respects (except for such representations and warranties that are qualified by
their terms by a reference to materiality, which representations and warranties
as so qualified shall be true in all respects) on and as of the Effective Time
as though such representations and warranties were made on and as of such time
and (ii) Target shall have performed and complied in all material respects with
all covenants, obligations and conditions of this Agreement required to be
performed and complied with by it as of the Effective Time;
(b) CERTIFICATE OF TARGET. Acquiror shall have been provided with
a certificate executed on behalf of Target by its President and Chief Financial
Officer to the effect that, as of the Effective Time:
40
(i) all representations and warranties made by Target under
this Agreement are true and complete in all material respects; and
(ii) all covenants, obligations and conditions of this
Agreement to be performed by Target on or before such date have been so
performed in all material respects.
(c) THIRD PARTY CONSENTS. Acquiror shall have been furnished with
evidence satisfactory to it of the consent or approval of those persons whose
consent or approval shall be required in connection with the Merger under the
contracts of Target set forth on the Target Disclosure Schedule, if failure to
obtain such consents or approvals would or would reasonably be expected to have
a Material Adverse Effect on Target.
(d) INJUNCTIONS OR RESTRAINTS ON MERGER AND CONDUCT OF BUSINESS.
No proceeding brought by any administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, seeking to
prevent the consummation of the Merger shall be pending. In addition, no
temporary restraining order, preliminary or permanent injunction or other order
issued by any court of competent jurisdiction or other legal or regulatory
restraint provision limiting or restricting Acquiror's conduct or operation of
the business of Target following the Merger shall be in effect, nor shall any
proceeding brought by an administrative agency or commission or other
Governmental Entity, domestic or foreign, seeking the foregoing be pending.
(e) NO MATERIAL ADVERSE CHANGES. There shall not have occurred
any material adverse change in the condition (financial or otherwise),
properties, assets (including intangible assets), liabilities, business,
operations, results of operations or prospects of Target.
(f) FIRPTA CERTIFICATE. Target shall, prior to the Closing Date,
provide Acquiror with a properly executed FIRPTA Notification Letter,
substantially in the form of EXHIBIT D attached hereto, which states that shares
of capital stock of Target do not constitute "United States real property
interests" under Section 897(c) of the Code, for purposes of satisfying
Acquiror's obligations under Treasury Regulation Section 1.1445-2(c)(3). In
addition, simultaneously with delivery of such Notification Letter, Target shall
have provided to Acquiror, as agent for Target, a form of notice to the Internal
Revenue Service in accordance with the requirements of Treasury Regulation
Section 1.897-2(h)(2) and substantially in the form of EXHIBIT D attached hereto
along with written authorization for Acquiror to deliver such notice form to the
Internal Revenue Service on behalf of Target upon the Closing of the Merger.
(g) RESIGNATION OF DIRECTORS. The directors of Target in office
immediately prior to the Effective Time shall have resigned as directors of
Target effective as of the Effective Time.
(h) TERMINATION OF WARRANTS. The holders of a majority of the
Warrants to purchase an aggregate of 419,268 shares of Target Common Stock
issued in connection with Target's June 1996 bridge financing shall have voted
to terminate each of the warrants issued in such financing.
41
ARTICLE VII
TERMINATION, EXPENSES, AMENDMENT AND WAIVER
7.1. TERMINATION. At any time prior to the Effective Time, whether
before or after approval of the matters presented in connection with the Merger
by the shareholders of Target and Acquiror, this Agreement may be terminated:
(a) by mutual consent duly authorized by the Board of Directors
of Acquiror and Target;
(b) by either Acquiror or Target, if, without fault of the
terminating party, the Closing shall not have occurred on or before July 31,
1998 (provided, a later date may be agreed upon in writing by the parties
hereto, and provided further that the right to terminate this Agreement under
this Section 7.1(b) shall not be available to any party whose action or failure
to act has been the cause or resulted in the failure of the Merger to occur on
or before such date and such action or failure to act constitutes a breach of
this Agreement);
(c) by Acquiror, if (i) Target shall breach any representation,
warranty, obligation or agreement hereunder and such breach shall not have been
cured within five (5) business days of receipt by Target of written notice of
such breach, provided that the right to terminate this Agreement by Acquiror
under this Section 7.1(c)(i) shall not be available to Acquiror where Acquiror
is at that time in willful breach of this Agreement, (ii) the Board of Directors
of Target shall have withdrawn or modified its recommendation of this Agreement
or the Merger in a manner adverse to Acquiror or shall have resolved to do any
of the foregoing, provided that the right to terminate this Agreement by
Acquiror under this Section 7.1(c)(ii) shall not be available to Acquiror where
Acquiror is at that time in willful breach of this Agreement, or (iii) for any
reason Target fails to call and hold the Target Shareholders Meeting or commence
solicitation of shareholder consents by July 31, 1998, provided that the right
to terminate this Agreement by Acquiror under this Section 7.1(c)(iii) shall not
be available to Acquiror where Acquiror is at that time in material breach of
this Agreement;
(d) by Target, if (i) Acquiror shall breach any representation,
warranty, obligation or agreement hereunder and such breach shall not have been
cured within five (5) days following receipt by Acquiror of written notice of
such breach, provided that the right to terminate this Agreement by Target under
this Section 7.1(d) shall not be available to Target where Target is at that
time in material breach of this Agreement, (ii) the Board of Directors of
Acquiror shall have withdrawn or modified its recommendation of this Agreement
or the Merger in a manner adverse to Target or shall have resolved to do any of
the foregoing, provided that the right to terminate this Agreement by Target
under this Section 7.1 (d)(ii) shall not be available to Target where Target is
at that time in willful breach of this Agreement, or (iii) for any reason
Acquiror fails to call and hold the Acquiror Shareholders Meeting or commence
solicitation of shareholder consents by July 31, 1998, provided that the right
to terminate this Agreement by Target under this Section 7.1(d)(iii) shall not
be available to Target where Target is at that time in material breach of this
Agreement;
42
(e) by Acquiror if (i) any permanent injunction or other order of
a court or other competent authority preventing the consummation of the Merger
shall have become final and nonappealable or (ii) if any required approval of
the shareholders of Target or Acquiror shall not have been obtained by reason of
the failure to obtain the required shareholder consents within 20 days of the
commencement of a shareholder consent solicitation or vote upon a vote held at a
duly held meeting of shareholders or at any adjournment thereof; or
(f) by Target if (i) any permanent injunction or other order of a
court or other competent authority preventing the consummation of the Merger
shall have become final and nonappealable or (ii) if any required approval of
the shareholders of Target or Acquiror shall not have been obtained by reason of
the failure to obtain the required shareholder consents within 20 days of the
commencement of a shareholder consent solicitation or vote upon a vote held at a
duly held meeting of shareholders or at any adjournment thereof.
7.2. EFFECT OF TERMINATION. In the event of termination of this
Agreement as provided in Section 7.1, this Agreement shall forthwith become void
and there shall be no liability or obligation on the part of Acquiror or Target
or their respective officers, directors, shareholders or affiliates, except to
the extent that such termination results from the breach by a party hereto of
any of its representations, warranties or covenants set forth in this Agreement;
provided that, the provisions of Section 7.3 (Expenses and Termination Fees) and
this Section 7.2 shall remain in full force and effect and survive any
termination of this Agreement.
7.3. EXPENSES AND TERMINATION FEES. Whether or not the Merger is
consummated, all costs and expenses incurred in connection with this Agreement
and the transactions contemplated hereby (including, without limitation, the
fees and expenses of its advisers, accountants and legal counsel) shall be paid
by the party incurring such expense.
7.4. AMENDMENT. The Boards of Directors of the parties hereto may
cause this Agreement to be amended at any time by execution of an instrument in
writing signed on behalf of each of the parties hereto, provided that an
amendment made subsequent to adoption of the Agreement by the shareholders of
Acquiror or Target shall not (i) alter or change the amount or kind of
consideration to be received on conversion of the Target Capital Stock,
(ii)alter or change any term of the Articles of Incorporation of the Surviving
Corporation to be effected by the Merger, or (iii) alter or change any of the
terms and conditions of the Agreement if such alteration or change would
adversely affect the holders of Target Capital Stock.
7.5. EXTENSION; WAIVER. At any time prior to the Effective Time any
party hereto may, to the extent legally allowed, (i)extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii)waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto and
(iii)waive compliance with any of the agreements or conditions for the benefit
of such party contained herein. Any agreement on the part of a party hereto to
any such extension or waiver shall be valid only if set forth in an instrument
in writing signed on behalf of such party.
43
ARTICLE VIII
INDEMNIFICATION
8.1. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS.
Notwithstanding any investigation conducted before or after the Closing Date,
Acquiror, Target and the holders of Target Capital Stock (collectively, the
"FORMER TARGET SHAREHOLDERS") will be entitled to rely upon the other party's
(including those made by certain shareholders of the other party),
representations, warranties and covenants set forth in this Agreement. The
obligations of Acquiror, the Acquiror Shareholders, Target and the Target
Shareholders with respect to its representations, warranties, agreements and
covenants will survive the Closing and continue in full force and effect until
the date twelve (12) months following the Closing Date (the "TERMINATION DATE"),
provided that any claim for indemnification made prior to the end of such twelve
(12) month period following the Closing Date shall survive until paid or
otherwise resolved in accordance with the terms of this Agreement.
8.2. INDEMNITY BY TARGET SHAREHOLDERS. From and after the Effective
Time of the Merger, and subject to the other provisions of this Section 8,
Acquiror (on or after the Closing Date) shall be indemnified and held harmless
by the Target Shareholders against, and reimbursed for, any actual liability,
damage, loss, obligation, demand, judgment, fine, penalty, cost or expense
(excluding any indirect or consequential damages to Acquiror, other than any
such damages resulting from injunctive relief granted as to an intellectual
property claim), including reasonable attorneys' fees and expenses, and the
costs of investigation incurred in defending against or settling such liability,
damage, loss, cost or expense or claim therefor and any amounts paid in
settlement thereof) imposed on or reasonably incurred by Acquiror as a result of
any breach of any representation, warranty, agreement or covenant on the part of
Target or the Target Shareholders under this agreement (collectively the
"ACQUIROR DAMAGES"). Notwithstanding any of the foregoing, the Target
Shareholders shall NOT have any indemnification obligation to Acquiror as a
result of any breach of any representation, warranty, agreement or covenant on
the part of Target or the Target Shareholders under this Agreement if, at the
time that this Agreement was executed or at the Effective Time, Xxxxxxx Xxxxxx
or Xxxxxxx Xxx knew, or reasonably should have known, that such representation,
warranty, agreement or covenant was inaccurate or not complied with. Acquiror
Damages in each case shall be net of the amount of any insurance proceeds,
indemnity and contribution actually recovered by Acquiror. "Acquiror Damages" as
used herein is not limited to matters asserted by third parties, but includes
Damages incurred or sustained by Acquiror in the absence of claims by a third
party.
8.3. INDEMNITY BY ACQUIROR AND ACQUIROR SHAREHOLDERS. From and after
the Effective Time of the Merger, and subject to the other provisions of this
Section 8, the Former Target Shareholders (on or after the Closing Date) shall
be indemnified and held harmless by the Acquiror and the Acquiror Shareholders
against, and reimbursed for, any actual liability, damage, loss, obligation,
demand, judgment, fine, penalty, cost or expense (excluding any indirect or
consequential damages to the Former Target Shareholders, other than any such
damages resulting from injunctive relief granted as to an intellectual property
claim), including reasonable attorneys' fees and expenses, and the costs of
investigation incurred in defending against or settling such liability, damage,
loss, cost or expense or claim therefor and any amounts
44
paid in settlement thereof) imposed on or reasonably incurred by the Former
Target Shareholders as a result of any breach of any representation, warranty,
agreement or covenant on the part of Acquiror or the Acquiror Shareholders under
this Agreement (Collectively the "FORMER TARGET SHAREHOLDERS DAMAGES"). Former
Target Shareholders Damages in each case shall be net of the amount of any
insurance proceeds, indemnity and contribution actually recovered by the Former
Target Shareholders. "Former Target Shareholders Damages" as used herein is not
limited to matters asserted by third parties, but includes Damages incurred or
sustained by the Former Target Shareholders in the absence of claims by a third
party. For purposes of this Section 8, the term "Damages" shall mean Acquiror
Damages or Former Target Shareholders Damages, as the case may be.
8.4. DAMAGE THRESHOLD. Notwithstanding the foregoing, neither Acquiror
nor the Former Target Shareholders may receive indemnification for any Damages
pursuant to this Section 8 unless and until the amount of the Damages sustained
by Acquiror or all Former Target Shareholders, as the case may be, shall exceed
$1,000,000 (the "Damage Threshold Amount"). Once the aggregate claims reach the
Damage Threshold Amount, the indemnitees shall be liable for all such claims,
excluding amounts required to reach the Damage Threshold Amount, subject to the
damage limitations contained in Section 8.5.
8.5. DAMAGE LIMITATIONS; LIMITATION ON REMEDIES. The ability of the
Acquiror and of the Former Target Shareholders to make claims for
indemnification against the Acquiror Shareholders or the Target Shareholders
pursuant to this Section shall be limited (i) in the case of the Acquiror
Shareholders, to the shares of capital stock of Acquiror held by such Acquiror
Shareholders at the Effective Time, and (ii) in the case of the Target
Shareholders, to the shares of capital stock of Acquiror held by such Target
Shareholders immediately after the Effective Time. The indemnification
obligations of the Target Shareholders and of the Acquiror Shareholders
described in the preceding sentence shall be the sole and exclusive obligations
of the Target Shareholders and of the Acquiror Shareholders with respect to any
representation, warranty, covenant or agreement made by Target, the Target
Shareholders, Acquiror or the Acquiror Shareholders under this Agreement and no
former shareholder, optionholder, warrantholder, director, officer, employee or
agent of Target or Acquiror shall have any other personal liability to Acquiror
or the Former Target Shareholders after the Closing in connection with the
Merger. In no event shall the indemnification obligations of (a) Acquiror and
the Acquiror Shareholders exceed a maximum of $2,000,000 in the aggregate (the
"Acquiror's Aggregate Indemnification Obligation") or (b) the Target
Shareholders exceed a maximum of $2,000,000 in the aggregate (the "Target
Shareholders' Aggregate Indemnification Obligation"). Moreover, the
indemnification obligations of the Target Shareholders and the Acquiror
Shareholders shall be limited to their Acquiror Common Stock and Acquiror
Preferred Stock, which Acquiror Common Stock and Acquiror Preferred Stock shall
be deemed to have a value of $2.50 per share for purposes of the $2,000,000
ceiling on liability described in the preceding sentence. The parties to this
Agreement agree that the per share price described in the preceding sentence was
determined without implication on the actual fair market value of the Acquiror's
Common Stock or Preferred Stock at or after the Closing Date, such amount being
selected by the parties hereto for purposes of administrative convenience in
applying the indemnification provisions of this Section 8. Each particular
Target Shareholder's indemnity obligation shall not exceed such Target
Shareholder's pro rata share (as described below) of the difference between the
Acquiror Damages and the Damage Threshold Amount (the "Net Acquiror Damages"),
45
which Net Acquiror Damages in the aggregate shall not exceed the Target
Shareholders' Aggregate Indemnification Obligation. Such Target Shareholder's
pro rata share of the Net Acquiror Damages shall be determined by multiplying
the Net Acquiror Damages by a fraction, the numerator of which shall be the
number of shares of Target Common Stock and Preferred Stock held by such Target
Shareholder at the Effective Time (on an as-converted basis) and the denominator
of which shall be the total number of shares of Target Common and Preferred
Stock held by all Target Shareholders at the Effective Time (on an as-converted
basis). Each particular Acquiror Shareholder's indemnity obligation shall not
exceed such Acquiror Shareholder's pro rata share (as described below) of the
difference between the Former Target Shareholders Damages and the Damage
Threshold (the "Net Former Target Shareholders Damages"), which Net Former
Target Shareholders Damages in the aggregate shall not exceed the Acquiror
Aggregate Indemnification Obligation. Such Acquiror Shareholder's pro rata share
of the Net Former Target Shareholders Damages shall be determined by multiplying
the Net Former Target Shareholders Damages by a fraction, the numerator of which
shall be the number of shares of Acquiror Common Stock and Preferred Stock held
by such Acquiror Shareholder at the Effective Time (on an as-converted basis)
and the denominator of which shall be the total number of shares of Acquiror
Common and Preferred Stock held by all Acquiror Shareholders at the Effective
Time (on an as-converted basis). The Former Target Shareholders shall be
entitled to seek indemnification from either Acquiror or the Acquiror
Shareholders, or a combination of both, at the discretion of the Former Target
Shareholders.
8.6. RESTRICTIONS ON TRANSFER ACQUIROR SHAREHOLDERS AND TARGET
SHAREHOLDERS. Each Acquiror Shareholder and Target Shareholder agrees that,
during the period specified in Section 8.1 during which such shareholder may
potentially have an indemnification obligation under this Section 8, it shall
not directly or indirectly sell, offer to sell, contract to sell, grant any
option to purchase or otherwise transfer or dispose of (other than to a
transferee who agrees to be bound by the indemnification obligations of this
Section 8) any Acquiror Common Stock or Acquiror Preferred Stock owned by such
shareholder at the Effective Time. In order to enforce the foregoing covenant,
the Acquiror may impose stop-transfer instructions with respect to the Acquiror
Stock of each Acquiror Shareholder and Target Shareholder until the end of such
period.
ARTICLE IX
GENERAL PROVISIONS
9.1. NOTICES. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via facsimile (with confirmation of receipt) to the parties
at the following address (or at such other address for a party as shall be
specified by like notice):
(a) if to Acquiror, to:
Wireless, Inc.
00 Xxxxx Xxxxx
Xxxxxxx, XX
46
Attention: President
Facsimile No.: (000) 000-0000
Telephone No.: (000) 000-0000
with a copy to:
Xxxxxx, Xxxx & Xxxxxxxx LLP
One Xxxxxxxxxx Street
Telesis Tower, 00XX Xxxxx
Xxx Xxxxxxxxx, XX 00000-0000
Attention: Xxxxxxx Xxxxxx
Facsimile No.: (000) 000-0000
Telephone No.: (000) 000-0000
(b) if to Target, to:
0000 Xxxxxx Xxxxxx
Xxx Xxxxxxxxx, XX 00000
Attention: Xxxxxxx Xxxx
Facsimile No.: (000) 000-0000
Telephone No.: (000) 000-0000
with a copy to:
Xxxxxxxxx Xxxxxxx
000 Xxxxxxxxxxxx Xxxxx
Xxxxx Xxxx, XX 00000
Attention: Xxxxxx X'Xxxxxx
Facsimile No.: (000) 000-0000
Telephone No.: (000) 000-0000
9.2. INTERPRETATION. When a reference is made in this Agreement to
Exhibits, such reference shall be to an Exhibit to this Agreement unless
otherwise indicated. The words "include," "includes" and "including" when used
herein shall be deemed in each case to be followed by the words "without
limitation." In 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 condition
(financial or otherwise), properties, assets (including intangible assets),
liabilities, business, operations or results of operations of such entity or
group of entities. In this Agreement, any reference to a "Material Adverse
Effect" with respect to any entity or group of entities means any event, change
or effect that is materially adverse to the condition (financial or otherwise),
properties, assets (including intangible assets), liabilities, business,
operations or results of operations of such entity and its subsidiaries, taken
as a whole. In this Agreement, any reference to a party's "knowledge" means such
party's actual knowledge after due and diligent inquiry of officers, directors
and other employees of such party and its subsidiaries reasonably believed to
have knowledge of such matters. The phrase "made available" in this Agreement
shall mean that the information referred to has been made available if requested
by the party to whom such information is to be made
47
available. The phrases "the date of this Agreement," "the date hereof," and
terms of similar import, unless the context otherwise requires, shall be deemed
to refer to June 4, 1998. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
9.3. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
9.4. ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES. This Agreement,
the other Transaction Documents and the documents and instruments and other
agreements specifically referred to herein or delivered pursuant hereto,
including the Exhibits, the Schedules, including the Target Disclosure Schedule
and the Acquiror Disclosure Schedule constitute the entire agreement among the
parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof.
9.5. SEVERABILITY. In the event that any provision of this Agreement,
or the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
9.6. REMEDIES CUMULATIVE. Except as otherwise provided herein, any and
all remedies herein 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.
9.7. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of California without regard to
applicable principles of conflicts of law. Each of the parties hereto
irrevocably consents to the exclusive jurisdiction of any court located within
the State of California, in connection with any matter based upon or arising out
of this Agreement or the matters contemplated herein, agrees that process may be
served upon them in any manner authorized by the laws of the State of California
for such persons and waives and covenants not to assert or plead any objection
which they might otherwise have to such jurisdiction and such process.
9.8. ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties. Subject to the preceding sentence, this Agreement
will be binding upon, inure to the benefit of and be enforceable by the parties
and their respective successors and permitted assigns.
48
9.9. RULES OF CONSTRUCTION. The parties hereto agree that they
have been represented by counsel during the negotiation, preparation and
execution of this Agreement and, therefore, waive the application of any law,
regulation, holding or role of construction providing that ambiguities in an
agreement or other document will be construed against the party drafting such
agreement or document.
49
IN WITNESS WHEREOF, Target, the Target Shareholders, Acquiror and
the Acquiror Shareholders have caused this Agreement to be executed and
delivered by their respective officers thereunto duly authorized, all as of the
date first written above.
TARGET
By: /S/ XXXXXXX XXXXXX
--------------------------------------
Xxxxxxx Xxxxxx
President
By: /S/ XXXXXXX XXXX
--------------------------------------
Xxxxxxx Xxxx
Member of the Board of Directors
ACQUIROR
By: /S/ XXXXXXX XXXXXX
--------------------------------------
Xxxxxxx Xxxxxx
President
By: /S/ XXXXX XXXXXXXX
--------------------------------------
Xxxxx Xxxxxxxx
Member of the Board of Directors
SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION
ACQUIROR SHAREHOLDERS:
Crossroads Venture II, L.P.
By: /S/ XXXXXXX XXXXXX
--------------------------------------
Xxxxxxx Xxxxxx
Title:
-----------------------------------
Address:
---------------------------------
---------------------------------
---------------------------------
Telephone:
-------------------------------
Facsimile:
-------------------------------
SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION
Crossroads Venture III, L.P.
By: /S/ XXXXXXX XXXXXX
--------------------------------------
Xxxxxxx Xxxxxx
Title:
-----------------------------------
Address:
---------------------------------
---------------------------------
---------------------------------
Telephone:
-------------------------------
Facsimile:
-------------------------------
SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION
TARGET SHAREHOLDERS:
Adtel Limited Partnership
Advent Crown Fund C.V.
Global Private Equity H Limited Partnership
Golden Gate Development and Investment
Limited Partnership
By: Advent International Limited
Partnership, General Partner
By: Advent International Corporation,
General Partner
By: Xxxxxx X. Xxxxxx,
Vice President*
Advent International Investors II Limited
Partnership
By: Advent International Corporation,
General Partner
By: Xxxxxx X. Xxxxxx,
Vice President*
*For all of the above.
/S/ XXXXXX X. XXXXXX
------------------------------------------------
Xxxxxx X. Xxxxxx
SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION
HMS (Overseas) Partners
By: /S/ XXXXXXX XXXX
---------------------------------------------
PRINT NAME: XXXXXXX XXXX
-------------------------------------
TITLE: PARTNER
------------------------------------------
HMS Capital Partners (Annex)
By: /S/ XXXXXXX XXXX
---------------------------------------------
PRINT NAME: XXXXXXX XXXX
-------------------------------------
TITLE: PARTNER
------------------------------------------
HMS Capital Partners
By: /S/ XXXXXXX XXXX
---------------------------------------------
PRINT NAME: XXXXXXX XXXX
-------------------------------------
TITLE: PARTNER
------------------------------------------
HMS Group
By: /S/ XXXXXXX XXXX
---------------------------------------------
PRINT NAME: XXXXXXX XXXX
-------------------------------------
TITLE: PARTNER
------------------------------------------
SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION
Alta V Limited Partnership
By: Alta V Management Partners
---------------------------------------------
By: /S/ [illegible]
---------------------------------------------
Title: General Partner
Customs House Partners
By: /S/ XXXXXX XXXXXX
---------------------------------------------
PRINT NAME: XXXXXX XXXXXX
-------------------------------------
TITLE: UNDER POWER OF ATTORNEY
------------------------------------------
SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION
MVP Investors L.P.
BY: /S/ XXXXXXX X. XXXXXXX
---------------------------------------------
PRINT NAME: XXXXXXX X. XXXXXXX
-------------------------------------
TITLE: GENERAL PARTNER
------------------------------------------
ADDRESS: C/O MVP VENTURES
----------------------------------------
45 MILK ST 9FL
----------------------------------------
XXXXXX, XX 00000
----------------------------------------
TELEPHONE: (000) 000-0000
--------------------------------------
FACSIMILE: (000) 000-0000
--------------------------------------
SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION
Chestnut III, L.P.
By: Chestnut III Management Limited Partnership,
Investment General Partner
By: /S/ XXXXXXX X. XXXXXXX
---------------------------------------------
Xxxxxxx X. Xxxxxxx
General Partner
Chestnut Capital International III, L.P.
By: MVP Capital Limited Partnership,
Investment General Partner
By: /S/ XXXXXXX X. XXXXXXX
---------------------------------------------
Xxxxxxx X. Xxxxxxx
General Partner
Late Xxxxx Xxxx 0000, X.X.
By: MVP Capital Limited Partnership,
Investment General Partner
By: /S/ XXXXXXX X. XXXXXXX
---------------------------------------------
Xxxxxxx X. Xxxxxxx
General Partner
Late Xxxxx Xxxx 0000, X.X.
By: MVP Capital Limited Partnership,
Investment General Partner
By: /S/ XXXXXXX X. XXXXXXX
---------------------------------------------
Xxxxxxx X. Xxxxxxx
General Partner
SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION
Xxxxxxx Xxxx, TTEE Xxxxxx Inc. Prft Shrg Pl.
BY: /S/ [illegible]
ADDRESS: Xxxxxxxx Xxxx
----------------------------------------
0000 Xxxxxx Xxxxxx
----------------------------------------
Xxx Xxxxxxxxx, XX 00000
----------------------------------------
TELEPHONE: (000) 000 0000
---------------------------------------
FACSIMILE: (000) 000-0000
----------------------------------------
SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION
